Edited version of private advice

Authorisation Number: 1052127409681

Date of advice: 16 June 2023

Ruling

Subject: Public authority - income tax exemption

Question

Does the entity qualify as a Public Authority under Item 5.2 of the Table in Section 50-25 of the Income Tax Assessment Act 1997 (ITAA 1997), and is therefore exempt from income tax?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 2023

Year ending 30 June 2024

The scheme commenced on:

22 February 2023

Relevant facts and circumstances

The entity is currently paying tax.

It is an unlisted public company limited by shares, operating under a state Act and its objects.

Constitution

The constitution does not itself have an objects clause however, the entity is governed by a state Act and is authorised to exercise its functions under that Act.

Activities

The entity is carrying on an undertaking of a public nature for the benefit of a section or geographical division of the community.

Sources of income

Sources of income include annual charges, usage charges and various fees. It also derives revenue from activities it carries on which are not characteristic of a public authority but this is minor.

Relevant legislative provisions

Section 50-25 of the Income Tax Assessment Act 1997

Section 50-47 of the Income Tax Assessment Act 1997

Reasons for decision

Public Authorities

Section 50-1 of the ITAA 1997 provides that the ordinary and statutory income of entities covered by the tables listed in Subdivision 50-A are exempt from income tax.

Section 50-25 of the ITAA 1997 covers exempt Government entities. Item 5.2 of the table in section 50-25 provides that 'a public authority constituted under an Australian law' is an exempt entity. There are no special conditions that must be met for this item.

The term'public authority constituted under an Australian law' is not defined in the ITAA 1997. Taxation Ruling IT 2632 entitled 'Income tax: meaning of 'public authority' in definition of 'exempt public body' in division 16D' provides the Commissioner's view on whether a particular body is a public authority.

It is considered in the context of Division 16D of the Income Tax Assessment Act 1936 ('ITAA 1936') which relates to a denial of tax deduction associated with property which is the subject of a finance lease or similar arrangements where that property is used by or controlled by an "exempt public body".

Paragraph 2 of TR IT 2632 notes that an exempt public body is defined in Subsection 159GE(1) ITAA 1936 as:

a. the Commonwealth, a State or a Territory;

b. a municipal authority or other local governing body, the income of which is wholly exempt from tax; or

c. a public authority (emphasis added)

i. that is constituted by or under a law of the Commonwealth, a State or a Territory; and

ii. the income of which is wholly exempt from tax.

Paragraph 2 of IT 2632 notes that the Commissioner confirms that "public authority" is not a defined term in the ITAA 1936 (or ITAA 1997) but that its meaning has been considered by the High Court of Australia.

Paragraphs 4 to 11 of IT 2632 consider a number of court decisions which have been made in relation to 'public authority' in paragraph 23(d) of the ITAA 1936 (which is equivalent to section 50-25 of the ITAA 1997).

In Renmark Hotel Incorporated v FC of T (1949) 79 CLR 10 at page 19, Rich J stated:

The characteristics of a public authority seem to be that it should carry on some undertaking of a public nature for the benefit of the community or of some section or geographical division of the community and that it should have some governmental authority to do so.

Paragraph 14 of TR IT 2632 sets out the necessary considerations for determining whether a body answers the description of a 'public authority' within the Division 16D of Part III of the Income Tax Assessment Act 1936 ('ITAA 1936') definition as follows:

(a) Weigh all relevant circumstances, especially the nature of the functions of the body concerned, treating the question of the status of the body as essentially a question of fact and degree to be determined in the light of the particular facts of each case.

(b) Consider whether the body has one primary function or a variety of functions not all of which involve the exercise of powers and functions not possessed by the ordinary citizen and which have been conferred by statute and are essentially of a public nature.

(c) Examine all the characteristics of the body to determine whether it can be seen in general to conform to the common understanding of a public authority. To so conform a body would be expected to have public duties, functions or powers to perform and these would ordinarily be carried out under statutory authority for the benefit of the public. While not essential, a distinguishing characteristic is the possession of exceptional powers conferred by statute beyond those possessed by private individuals. However, the derivation of profits for distribution to shareholders or members would not ordinarily be a characteristic of a "public authority". The examination will involve a consideration of:

i the significance of any features of the body clearly alien to, or inconsistent with, the concept of what is a public authority; and

ii the relevant statutory context, namely, the overall statutory scheme and policy underlying Division 16D.

Paragraphs 15 to 19 of IT 2632 discuss the meaning of 'constituted by or under' a relevant law and essentially provides that a year by year consideration is necessary to determine whether a body is set up, founded or established as a public authority by or under the relevant law, or has acquired the attributes and qualities of a public authority.

APPLICATION TO YOUR CIRCUMSTANCES

It is a non-profit entity and its Constitution prevents the distribution of profits to its members during its operation and upon winding up.

The entity is carrying on an undertaking of a public nature and must comply with the requirements of the relevant Act for the benefit of a section or geographical division of the community.

ACNC type entity condition

Section 50-47 of the ITAA 1997 provides that an entity that is covered by any item and is an ACNC type of entity is not exempt from income tax unless the entity is registered under the Australian Charities and Not-for-profits Commission Act 2012 ('ACNC Act'). Section 50-47 of the ITAA 1997 provides:

An entity that:

(a) is covered by any item; and

(b) is an ACNC type of entity;

is not exempt from income tax unless the entity is registered under the Australian Charities and Not-for profits Commission Act 2012.

The expression 'ACNC type of entity' is defined in subsection 995-1(1) of the ITAA 1997 to mean an entity which meets the description of a type of entity in column 1 of the table in subsection 25-5(5) of the ACNC Act.

Broadly, an entity capable of being a registered charity is an ACNC type of entity.

The entity performs such functions and exercises such powers as conferred by statute or legislative instrument to the extent such functions or powers relate to its activities. It is a public authority and has a non-charitable purpose which is not ancillary or incidental. As the entity has a non-charitable purpose, it is not capable of being a registered charity. The entity is therefore not an ACNC type of entity and section 50-47 is not applicable.

CONCLUSION

For the above reasons, the entity has the power or authority conferred upon it by legislation to do acts in relation to the public which would otherwise be beyond its power or authority. It is a public authority constituted under an Australian law as described in Item 5.2 of section 50-25 of the ITAA 1997. The entity is therefore exempt from income tax pursuant to section 50-1 of the ITAA 1997.

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