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Edited version of your written advice
Authorisation Number: 1012701222171
Ruling
Subject: State/Territory body
Question 1
Is the Company a State/Territory body (STB) and exempt from income tax under section 24AM of the Income Tax Assessment Act 1936?
Answer
No
This ruling applies for the following period:
The income year ending 30 June 2016
The scheme commences on:
1 July 2015.
Relevant facts and circumstances
The Company is a company limited by shares.
The States and Territories and the Commonwealth of Australia hold shares in the Company
The Commissioner of Taxation (the Commissioner) has previously advised the Company that its income is exempt from income tax under Division 1AB of the Income Tax Assessment Act 1936 (ITAA 1936) on the grounds that it is a State/Territory body.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 24AM,
Income Tax Assessment Act 1997 section 24AO and
Income Tax Assessment Act 1997 section 24AT.
Reasons for decision
Section 24AM of the ITAA 1936 states:
The income of a State/Territory body is exempt from income tax unless section 24AN applies to the STB.
There are 5 ways an entity can be a State/Territory body as described in sections 24AO to 24AS of the ITAA 1936. Based on the facts and circumstances, the relevant provision to determine whether the Company is an STB is section 24AO.
Section 24AO of ITAA 1936 provides:
A body is an STB if:
a) it is a company limited solely by shares; and
b) all the shares in it are beneficially owned by one or more government entities.
The meaning of "government entities" is provided in section 24AT of the ITAA 1936, which provides:
Government entity means:
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
Note: The effect of this paragraph is that some bodies owned or controlled by a municipal corporation or other local governing body may be an STB even though the municipal corporation or other local governing body is an excluded STB.
c) another STB that is not an excluded STB.
"Territory" is defined in section 24AT to mean:
… the Northern Territory or the Australian Capital Territory.
"State" is not defined in the ITAA 1936, however, section 2B of the Acts Interpretation Act 1901 provides that in any Act:
"State" means a State of the Commonwealth.
The Company is a company limited by shares. The shares are held by Governments of the States and Territories and the Commonwealth of Australia.
The government of the Commonwealth of Australia is not a "government entity" as defined in section 24AT. Not all shares in the Company are beneficially owned by "government entities", as required by section 24AO. As such, the Company is not an STB under section 24AO.
The Company is also not an STB under sections 24AP to 24AS; sections 24AP to 24AR require the body to be established by State or Territory legislation (the Company is incorporated under the Corporations Act 2001), and section 24AS requires that the body is not a company limited by shares.
As the Company is not an STB, its income is not exempt from income tax under section 24AM of the ITAA 1936.