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Edited version of your written advice
Authorisation Number: 1012844943295
Date of advice: 22 July 2015
Ruling
Subject: Exempt income - State or Territory Body
Question 1
If a beneficiary that is a State or Territory body receives exempt income earned in a trust that is a State or Territory Body, would they be subject to any tax liability on the exempt income if it is paid or applied to them as the beneficiary?
Answer
No
Question 2
If a trust that is a State or Territory Body makes a distribution of accumulated exempt income to a beneficiary after it loses its exempt income status, would the distribution remain exempt?
Answer
Yes
This ruling applies for the following periods:
4 July 2013 to 30 June 2014
1 July 2014 to 30 June 2015
1 July 2015 to 30 June 2016
1 July 2016 to 30 June 2017
1 July 2017 to 30 June 2018
The scheme commences on:
4 July 2013
Relevant facts and circumstances
• The Company is government owned
• It is a State or Territory Body.
• The Company is the sole beneficiary of the Trust, which is a State or Territory body (STB).
Relevant legislative provisions
Income Tax Assessment Act 1997 - section 50.25
Income Tax Assessment Act 1997 - section 50.1:
Income Tax Assessment Act 1936 section 161
Income Tax Assessment Act 1936 Division 1AB of Part III.
Reasons for decision
Question 1
If the company receives exempt income earned in a trust that is a State or Territory Body would they be subject to any tax liability on the exempt income if it is paid or applied to them as the beneficiary?
Detailed reasoning
As stated in Income Tax Assessment Act 1997 (ITAA 1997) - section 50.1:
Entities whose ordinary income and statutory income is exempt
The total * ordinary income and * statutory income of the entities covered by the following tables is exempt from income tax. In some cases, the exemption is subject to special conditions.
Ordinary and statutory income that is exempt from income tax is called exempt income: see section 6-20. The note to subsection 6-15(2) describes some of the other consequences of it being exempt income.
Even if you are an exempt entity, the Commissioner can still require you to lodge an income tax return or information under section 161 of the Income Tax Assessment Act 1936 .
In all cases the exemption is subject to the special condition in section 50-47 (about an entity that is an ACNC type of entity).
INCOME TAX ASSESSMENT ACT 1997 - SECT 50.25
Government
Government | ||
Item |
Exempt entity |
Special conditions |
5.1 |
(a) a municipal corporation; or (b) a *local governing body |
none |
5.2 |
a public authority constituted under an *Australian law |
none |
5.3 |
a *constitutionally protected fund |
none |
Note: The ordinary and statutory income of a State or Territory body is exempt: see Division 1AB of Part III of the Income Tax Assessment Act 1936 .
Section 50-1 of the ITAA 1997 exempts from income tax the income of the entities described in the tables listed in Subdivision 50A of the ITAA 1997.
Section 50-25 of the ITAA 1997 is contained in Subdivision 50A of the ITAA 1997. It states that the ordinary and statutory income of a State or Territory Body is exempt.
In light of the facts, it is considered that the Company is a State or Territory Body as described in the table in section 50-25 of the ITAA 1997. The income of the Company is therefore exempt from income tax pursuant to section 50-1 of the ITAA 1997.
The Company will not be subject to income tax on exempt income that is paid or applied to them as the beneficiary of a trust.
Question 2
If a trust, that is a State or Territory Body to which the Company is a beneficiary, makes a distribution of accumulated exempt income to the Company after it loses its exempt income status, would the distribution remain exempt?
Detailed reasoning
The definition of an exempt entity includes an entity whose whole ordinary and statutory income is exempt from income tax. The Company is exempt from income tax pursuant to section 50-1 of the ITAA 1997 and therefore amounts paid or applied to them as the beneficiary of a trust are exempt.