Edited version of private ruling

Authorisation Number: 1011707262696

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Ruling

Subject: State / Territory Body

Question 1

Is the entity a State / Territory Body (an STB) under section 24AS of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes

Question 2

If the entity is an STB, is it exempt from income tax under section 24AM of the ITAA 1936?

Answer

Yes

This ruling applies for the following period

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commenced in

2010 Financial year

Facts as outlined by the applicant include the following:

The entity is an organisation funded by a state Government to help deal with a social issue facing the Community.

The entity is a company limited by guarantee.

The entity was not incorporated under State or Territory legislation but was incorporated under the Corporations Act 2001 (Cth) ("Corporations Act').

The entity is a "public entity" as defined in section 5 of the Public Administration Act 2004 (Vic) ("PAA). Part 5 of the PAA contains provisions with respect to the operation of public entities and in particular governance principles with respect to duties of Directors and the Board (refer to Division 2 of Part 5 of the PAA), removal, suspension and standing down of Directors (Division 3 of Part 5 of the PAA) and requirements to provide financial and non-financial information and documents required to be kept by the entity (Division 4 of Part 5 of the PAA).

A clause of the entity's Constitution provides that the provisions of the PAA and the Guidelines apply to the entity except to the extent that they are inconsistent with the Corporations Act or the Constitution.

A clause of the entity's Constitution sets out the objectives of the entity. Those objectives deal with addressing issues relating to a social problem facing the community.

A clause of the Constitution provides that the income and property of the entity can only be applied towards promoting objects. No income or property can be paid or transferred or distributed directly or indirectly by way of dividend bonus, fee or otherwise to the Member.

A Minister of the State who has the responsibility of administering an Act relevant to his portfolio is the sole member of the entity.

The Minister has the power to pass resolutions

The Minister has appointed a number of Directors to the board of the entity.

The Minister has the power to appoint and remove the Directors under the constitution.

A clause of the Constitution provides that the liability of the Minister is limited.

A clause of the Constitution provides that if any surplus assets remain following the winding up of the entity, the surplus assets must be transferred to:

(a) the Member (provided the Member remains a Government Entity as defined in a clause of the Constitution having the meaning given to it in section 24AT of the ITAA 1936);

(b) any other Government Entity;

(c) any other body corporate whereby all the legal and beneficial interests in it are held by one or more Government Entities; or

(d) such Government Entity or body corporate determined by the Minister at or before the winding up of the Company.

Reasons for decision

Issue 1

Question 1

Subdivision A of Division 1AB of the ITAA 1936 provides an income tax exemption for certain STB's in respect of income derived on or after 1 July 1994.

Under section 24AM, the income of an STB is exempt from income tax unless section 24AN applies, that is, it is an excluded STB. Section 24 sets out the meaning of an excluded STB:

(a) at a particular time, if it is prescribed as an excluded STB in relation to that time; or

(b) is a municipal corporation or other local governing body (within the meaning of section 50-25 of the ITAA 1997); or

(c) is a public educational institution to which any of the paragraphs 50-55(a) to (c) of the ITAA 1997 applies; or

(d) is a public hospital to which any of the paragraphs 50-55(a) to (c)of the ITAA 1997 applies; or

(e) is a superannuation fund

The entity as established is not an excluded STB as it does not fall under any of the categories in section 24AT.

There are five different ways in which a body can be an STB under Division 1AB. Section 24AS which is the fifth way in which a body can be an STB provides as follows:

24AS A body is an STB if:

(a) it is not a company limited solely by shares; and

(b) it is not established by State or Territory legislation; and

(c) all the legal and beneficial interests (including but not limited to, interests as to income, profits, dividends, capital and distributions of capital) in it are held only by one or more government entities; and

(d) all the rights or powers (if any) to vote, appoint or dismiss its governing person or body and direct its governing person or body as to the conduct of its affairs are held only by one or more government entities.

Government entity is defined in section 24AT of the ITAA 1936 as meaning:

(a) a state; or

(b) a territory; or

(ba) a municipal corporation or other local governing body (within the meaning of section 50-25 of the Income Tax Assessment Act 1997); or

(c) another STB which is not an excluded STB.

Section 24AU provides that for the purposes of section 24AQ, 24AR, and 24AS, if the power to appoint, dismiss or direct the governing body is given to or held by:

(a) a Governor of a state; or

(b) a minister of the Crown of a state; or

(c) a minister of a Territory; or

(d) the head of a Department of a State or a Territory; or

(e) any combination of paragraphs (a) to (d);

The power is taken to be given to, or held by, a government entity.

Summary

(a) It is not a company limited solely by shares

The entity is not a company limited solely by shares. The entity is a company limited by guarantee under the Corporations Act 2001.

(b) (b) it is not established by State or Territory legislation; and

The entity was not established by State or Territory Legislation. The entity was established under the Corporations Act 2001 which is an Act of the Commonwealth of Australia.

(c) (c) all the legal and beneficial interests (including but not limited to, interests as to income, profits, dividends, capital and distributions of capital) in it are held only by one or more government entities; and

The entity has only one member which is the relevant Minister.

As the Minister is the sole member of the entity, and represents the State Government, the Minister falls within the meaning of 'Government Entity'. The Minister in this case, as sole member and a Government entity is considered to have the legal and beneficial interests in the entity's income, profits, dividends, capital and distributions of capital.

(d) (d) all the rights or powers (if any) to vote, appoint or dismiss its governing person or body and direct its governing person or body as the conduct of its affairs are held only by one or more government entities.

For the purposes of sections 24AQ, 24AR, and 24AS, if the power to appoint, dismiss or direct the governing body is given to, or held by a minister of the Crown of a State, the power is taken to be given to, or held by, a government entity.

All rights or powers to vote, appoint or dismiss the governing body of the entity as to conduct of its affairs are held by the Minister.

In view of the above and the fact that the Minister is the only member, the requirement that the power to vote, appoint and dismiss the governing body be held by a government entity has been met.

The entity meets all the requirements of an STB under section 24AS.

As the requirements of section 24As of the ITAA 1936 are satisfied, the entity is an STB and is therefore exempt from income tax under section 24AM of the ITAA 1936.