Edited version of your written advice

Authorisation Number: 1051306123709

Date of advice: 9 November 2017

Ruling

Subject: State or territory body

Question 1

Is Entity M a state or territory body (STB) in accordance with section 24AO of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

Question 2

Is the income of Entity M, a STB under section 24AO of the ITAA 1936, exempt from Commonwealth income tax under section 24AM of the ITAA 1936?

Answer

Yes.

Question 3

Is Entity M, a STB under section 24AO of the ITAA 1936 required to lodge an income tax under section 161 of the ITAA 1936?

Answer

No.

This ruling applies for the following periods

Income year ended 30 June 2018

The scheme commences on

1 July 2017

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Entity A and its wholly owned subsidiary, Entity M were established and formed a tax consolidated group at the time of the incorporation.

Entity A is a holding company and Entity M a subsidiary.

Entity A was wholly funded by way of share capital (equity).

Entity A had two shareholders at inception: Entity X and Entity Y.

Entity X acquired the all shares in Entity A from Entity Y, as a result, Entity A became a wholly owned subsidiary of Entity X.

Entity A is not under consideration for a new ownership.

Entity A and Entity M ceased to be a tax consolidated group.

Entity X is owned by Australian Government.

It is a tax exempt entity.

Entity X has not formed a tax consolidated group.

Relevant legislative provisions

Income Tax Assessment Act 1936 Division 1AB

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

Reasons for decision

These reasons for decision accompany the Notice of private ruling for Entity M.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Unless otherwise stated, all legislative references are to the Income Tax Assessment Act 1936.

Question 1

Summary

Entity M is a state or territory body (STB) in accordance with section 24AO of the ITAA 1936.

Detailed reasoning

Section 24AM of the ITAA 1936 states that income of a State or Territory Body (STB) is exempt from income tax unless section 24AN of the ITAA 1936 applies to the STB.

Section 24AN of the ITAA 1936 states income derived by an STB is not exempt from income tax under Division 1AB of the ITAA 1936 if, at the time that income is derived; the STB is an excluded STB.

Further, sections 24AO to 24AS of the ITAA 1936 provide five ways in which a body can be regarded an STB. In particular, section 24AO of the ITAA 1936 provides that 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.

Section 24AT of the ITAA 1936 defines the meaning of 'excluded STB', 'government entity’ and ‘territory’, and provides that in this Division:

excluded STB is an entity 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 (within the meaning of section 50-25 of the Income Tax Assessment Act 1997); or

(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.

government entity means:

(a) a State; or

(b) a Territory; or

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

In your circumstances, Entity M is a company limited solely by shares and all of those shares are beneficially owned by Entity X, which is a government entity within the meaning set out under section 24AT of the ITAA 1936.

Further, Entity M does not fall within the categories of excluded STBs set out under section 24AT of the ITAA 1936.

Therefore, it is considered that Entity M is a state or territory body (STB) in accordance with section 24AO of the ITAA 1936.

Question 2

Summary

Entity M, a STB under section 24AO of the ITAA 1936 is exempt from Commonwealth income tax under section 24AM of the ITAA 1936.

Detailed reasoning

As discussed above section 24AN of the ITAA 1936 does not apply as Entity M is not an excluded STB. Further, both the requirements for Entity M to be an STB under section 24AO of the ITAA 1936 have been met.

As Entity M is an STB under section 24AO of the ITAA 1936 that is not an excluded STB under section 24AT of the ITAA 1936, its income is exempt from income tax pursuant to section 24AM of the ITAA 1936.

Question 3

Summary

Entity M, a STB under section 24AO of the ITAA 1936 is not required to lodge an income tax under section 161 of the ITAA 1936.

Detailed reasoning

Subsection 161(1A) of the ITAA 1936 states:

The Commissioner may, in the notice, exempt from liability to furnish returns such classes of persons not liable to pay income tax as the Commissioner thinks fit, and a person so exempted need not furnish a return unless the person is required by the Commissioner to do so.

Exceptions to the requirement to lodge an income tax return under Legislative Instrument 2017 covers a person described in Table O.

Table O includes:

Any State/Territory body, the income of which is exempt from income tax under the provisions of Division 1AB of Part III of the Income Tax Assessment Act 1936.

As Entity M is an STB under section 24AO of the ITAA 1936 that is not an excluded STB under section 24AT of the ITAA 1936, its income is exempt from income tax pursuant to section 24AM of the ITAA 1936, is not required to lodge an income tax return as per Table O of the Legislative Instrument.

(Requirement to lodge a return for the year of income ended 30 June 2017 under the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997, the Income Tax (Transitional Provisions) Act 1997, the Taxation Administration Act 1953, the Superannuation Industry (Supervision) Act 1993, the Higher Education Support Act 2003 and the Trade Support Loans Act 2014)