Edited version of private advice

Authorisation Number: 1051722417011

Date of advice: 20 July 2020

Ruling

Subject: Income tax exempt

Question

Is the income of the entity (both statutory and ordinary) exempt from income tax pursuant to section 50-1 of the Income Tax Assessment Act 1997 (ITAA97) on the basis that it is:

a) a public authority; and

b) is constituted under an Australia law

under item 5.2 of the table in s 50-25 of the ITAA97?

Answer

Yes

This ruling applies for the following period:

1 July 2019 to 30 June 2029

The scheme commences on:

1 July 2019

Relevant facts and circumstances

1)     The entity is currently registered with the Australian Charities and Not-for-profits Commission (ACNC) as a charity.

2)     The entity is currently endorsed as a DGR under section 30-102 of the ITAA 1997 under item 12A1.1 as an Australian government agency that has statutory responsibility for the coordination of volunteer fire brigades or State Emergency Services.

3)     The entity has been advised by the ACNC that its charitable status will be revoked because it is a government entity.

4)     The entity was established by a State Act which defines the functions and powers of the entity.

5)     The entity has a key function consistent with the requirements of item 12A1.1.

Relevant legislative provisions

Section 50-25 of the Income Tax Assessment Act 1997

Section 50-1 of the Income Tax Assessment Act 1997

Reasons for decision

Question 1

To be an 'exempt entity' as described under item 5.2 of section 50-25 of the ITAA 1997 the following requirements must be satisfied:

1.     the entity must be a public authority

2.     constituted under an Australian law

Public authority

The term 'public authority constituted under an Australian law' is not defined in the ITAA 1997. The High Court has considered the meaning of 'public authority' and 'constituted under' in the context of paragraph 23(d) of the Income Tax Assessment Act 1936; the precursor to item 2.5 of the table in section 50-25.Taxation Ruling No. IT 2632 Income tax: meaning of 'public authority' in definition of 'exempt public body' in Division 16D (IT 2632) provides the Commissioner's view on whether a particular body is 'public authority'.

Case law as to the meaning of 'public authority'

A number of cases have determined whether particular bodies were or were not authorities or public authorities; there is no universal test.

In Renmark Hotel Incorporated v Federal Commissioner of Taxation (1949) 79 CLR 10 Rich J said:

The characteristics of a public authority seem to be that it should carry on some undertaking of a public nature for the benefit of the community or of some section or some geographical division of the community and that it should have some governmental authority to do so.

Further, McTiernan J stated:

It is necessary that an entity which claims to be a public authority for the purpose of this provision of the Income Tax Assessment Act should ... be given by statute powers or duties to be exercised for public objects.

In Western Australia Turf Club v Federal Commissioner of Taxation (1978) 139 CLR 288 (WA Turf), Stephen J provided the following observations on the meaning of 'public authority' (Barwick CJ and Jacobs J agreeing):

The Club has ever since been involved in this exercise of powers and functions not possessed by the ordinary citizen and which have been conferred by statute and are essentially of a public nature. Were these powers and functions vested in some State authority created for that purpose and having no other function it would, I think, clearly enough be a public authority for the purposes of section 23(d) of the Act. (at 294-295)

IT 2632 Income tax: meaning of 'public authority' in definition of 'exempt public body' in Division 16D

IT 2632, although dealing with whether a body answers the description of a 'public authority' within the definition in Division 16D of ITAA 1936, provides guidance on the definition of 'public authority' in section 50-25 of the ITAA 1997. At paragraph 14 of IT 2632, the Commissioner has identified the following steps in deciding whether a body answers the description of a 'public authority':

(a)   Weigh all relevant circumstances, especially the nature of the functions of the body concerned,...

(b)   Consider whether the body has one primary function or a variety of functions not all of which involve the exercise of powers and functions not possessed by the ordinary citizen and which have been conferred by statute and are essentially of a public nature.

(c)   Examine all the characteristics of the body to determine whether it can be seen in general to conform to the common understanding of a public authority. To so conform a body would be expected to have public duties, functions or powers to perform and these would ordinarily be carried out under statutory authority for the benefit of the public. While not essential, a distinguishing characteristic is the possession of exceptional powers conferred by statute beyond those possessed by private individuals. ....

The entity has been authorised by statute to act on behalf of a State government. It performs a specific function on behalf of a state Government.

The activities of the entity are for the benefit of the community and are carried out under Government authority.

The entity exercises powers and functions not possessed by the ordinary citizen. It may perform its functions, in so far as it is appropriate for those functions to be performed by the entity on behalf of a state Government. The functions of the entity are of a public nature.

It is accepted that the entity is a 'public authority' for the purposes of item 5.2 of section 50-25 of the ITAA 1997.

Constituted under an Australian law

'Constituted' is not defined. The Australian Oxford Dictionary defines 'constitute' as "...give legal or constitutional form to; establish by law...".

An Australian law is defined in sub-section 995-1(1) of the ITAA 1997 as "...a *Commonwealth law, a *State law or a *Territory law". A *State law means a law of a State (see subsection 995-1(1) of the ITAA 1997.

The entity was established under an Act which is a law of a State and it sets out the functions and powers of the entity.

It is accepted that the entity has been constituted under an Australian law for the purposes of item 5.2 of section 50-25 of the ITAA 1997.

Conclusion

Section 50-1 of the ITAA 1997 exempts from income tax entities which are covered in the tables in Division 50. This includes an entity which is considered a public authority constituted under an Australian law under item 5.2 in section 50-25 of the ITAA 1997 as an exempt entity.

We have concluded that the entity is a public authority constituted under an Australian law for the purposes of item 5.2 in section 50-25 of the ITAA 1997. The entity is an exempt entity and therefore satisfies the requirements of section 50-1 of the ITAA 1997; its income is exempt from tax under section 50-1 of the ITAA 1997.