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Edited version of your written advice
Authorisation Number: 1013037938765
Date of advice: 23 June 2016
Ruling
Subject: Income tax exemption - State/Territory body
Question 1
Is the entity a State/Territory body exempt from income tax pursuant to section 24AM of the Income Tax Assessment Act 1936?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
Year ending 30 June 2020
The scheme commences on:
The scheme has commenced.
Relevant facts and circumstances
The entity is an Australian proprietary company limited by shares. Its shareholders are State Government Councils.
Relevant legislative provisions
Income Tax Assessment Act 1936 - section 24AM
Income Tax Assessment Act 1936 - section 24AN
Income Tax Assessment Act 1936 - section 24AO
Income Tax Assessment Act 1936 - section 24AT
Income Tax Assessment Act 1997 - section 50-25
Income Tax Assessment Act 1997 - section 995-1(1)
Reasons for decision
Section 24AM of the ITAA 1936 provides that the income of a State/Territory body ('an STB') will be exempt unless section 24AN applies to the STB.
There are five ways in which a body can be an STB. Relevantly, the first way is set out in section 24AO of the ITAA 1936 which provides that a body is an STB if:
(a) it is a company limited solely by shares; and
(b) all of the shares in it are beneficially owned by one or more government entities.
Section 24AN of the ITAA 1936 provides that an STB will not be exempt from income tax if it is an excluded STB which is defined in section 24AT of the ITAA 1936.
Accordingly, in order to qualify for the exemption, the entity must satisfy two conditions.
1. It must be an STB pursuant to section 24AO of the ITAA 1936, and
2. It must not be an "excluded STB" as defined in section 24AT of the ITAA 1936.
1) Is the entity an STB pursuant to section 24AO of the ITAA 1936?
The entity will be an STB if it is limited by shares and owned by one or more government entities in accordance with section 24AO.
The term "government entity" is defined in section 24AT 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"
The term "local governing body" is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 to mean a local governing body established by or under a State Law or Territory Law. Broadly this refers to a city, town, municipal, or shire council.
In this case, the entity is an Australian proprietary company limited by shares. All the shares in the entity are owned by municipal councils, these councils fall within the definition of a local governing body.
Therefore, this condition is satisfied. The entity is an STB pursuant to section 24AO of the ITAA 1936.
2. Is the entity an excluded STB as defined in section 24AT of the ITAA 1936?
The term "Excluded STB" is defined under section 24AT of the ITAA 1936 which states:
"Excluded STB means an STB that:
(a) at a particular time, is prescribed as an excluded STB in relation to that time; or
(b) is a municipal corporation or other local governing body
(c) is a public educational institution to which any of paragraphs 50-55(a) to (c) of the Income Tax Assessment Act 1997 applies; or
(d) is a public hospital to which any of paragraphs 50-55(a) to (c) of the Income Tax Assessment Act 1997 applies; or
(e) is a superannuation fund."
There is no current regulation enforced prescribing excluded STBs.
It is clearly evident that the entity is not a public hospital, a public educational institution, or a superannuation fund. The entity is not a municipal corporation or local governing body. Its shareholders are Councils which are local governing bodies. However, the explanation at section 24AT of the ITAA 1936 provides that bodies owned or controlled by a local governing body may be an STB even though the local governing body itself is an excluded STB.
Consequently, as the entity does not fall within any of the criteria for section 24AT to apply, it is not an excluded STB.
Therefore, this condition is satisfied.
In summary, the entity meets all the requirements of an STB under section 24AO of the ITAA 1936 and is not an excluded STB in terms of section 24AT of the ITAA 1936. Therefore, the entity is exempt from income tax pursuant to section 24AM of the ITAA 1936.