Edited version of private advice

Authorisation Number: 1051800890256

Date of advice: 29 January 2021

Ruling

Subject: Income tax and fringe benefits tax exemption

Question 1

Is the income derived by the rulee exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that the rulee is a public authority for the purposes of section 50-25 of the ITAA 1997?

Answer

Yes

Question 2

Is the rulee exempt from fringe benefits tax under paragraph 55(b) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

FBT Year ended 31 March 20XX

FBT Year ended 31 March 20XX

FBT Year ended 31 March 20XX

FBT Year ended 31 March 20XX

FBT Year ended 31 March 20XX

The scheme commences on:

Commencement of Arrangement: Continuation 1 July 20XX

Relevant facts and circumstances

The rulee has lodged an application for a private ruling regarding whether it is exempt from income tax and fringe benefits tax.

The rulee administers charitable educational activities. It also provides an information service to Australian institutions and individuals interested in study or institutional linkages overseas.

The rulee's principal office is in Australia, although meetings of the Board and its committees can be held wherever the Board decides.

The rulee's activities also can be conducted in places approved by the Board.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 50-1

Income Tax Assessment Act 1997 Section 50-25

Income Tax Assessment Act 1997 Section 995-1

Fringe Benefits Tax Assessment Act 1986 Paragraph 55(b)

Reasons for decision

Question 1

Summary

The income derived by the rulee is exempt from income tax under 50-1 of the ITAA 1997 on the basis that the rulee is a public authority for the purposes of section 50-25 of the ITAA 1997.

Detailed reasoning

Section 50-1 of the ITAA 1997 exempts from income tax the income of entities referred to in the tables in Division 50 of the ITAA 1997.

Division 50 of the ITAA 1997 contains a table which relates to government entities. The rulee maintains that it is an entity referred to in this table by reason of it being a public authority for the purposes of item 5.2 of section 50-25 of ITAA 1997.

Item 5.2 of section 50-25 of the ITAA 1997 refers to a public authority constituted under an Australian law. The term Australian law is defined in section 995-1 of the ITAA 1997 to mean a law of the Commonwealth, a law of a State, or a law of a Territory.

In this instance, the rulee is constituted as a body corporate under an Australian law. Accordingly, the rulee is constituted pursuant to an Australian law.

The term public authority is not defined in ITAA 1997. However, following numerous High Court decisions about this matter, including Renmark Hotel Inc v. FC of T (1949) 79 CLR 10, the Commissioner issued Taxation Ruling IT 2632 on 26 April 1991. This Ruling states at paragraph 14 that in determining whether a particular body is a public authority it is necessary to:

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. However, the derivation of profits for distribution to shareholders or members would not ordinarily be characteristic of a public authority.

Since the publication of IT 2632, there have been Federal Court cases involving the nature of a public authority.

In FC of T v. Bank of Western Australia Limited; FC of T v. State Bank of New South Wales Limited 96 ATC 4009 (the Bank case), Hill J made a decision after extracting the following propositions from the previous cases about public authorities:

1. A question whether a particular entity is an authority will be a question of fact and degree dependent upon all the circumstances of the case. No one factor will be determinative; rather there will be a range of considerations.
2. A private body, corporate or unincorporated, established for profit will not be an authority
3. Incorporation by legislation is not necessary.
4. The body in question must be an agency or instrument of government set up to exercise control or execute a function in the public interest. It must be an instrument of government existing to achieve a government purpose.
5. The body must perform a traditional or inalienable function of government and have governmental authority for doing so.
6. It is not necessary that the body have coercive powers, whether of an

administrative or legislative character. Conversely, the fact that a body has statutory duties or powers will not of itself suffice to characterise that body as an authority.

7. At least where the question is whether a body is a public authority the body must exercise control power or command for the public advantage or execute a function in the public interest.

In Coal Mining Industry (LSLF) Corp v. FCT 99 ATC 4326; 41 ATR 388, the Court acknowledged the usefulness of these propositions in understanding the previous cases involving public authorities. However, it mentioned that the propositions should not be regarded as being conclusive of whether an entity did or did not qualify as a public authority. The reason given for this view was that the resolution of this issue is essentially one of fact and degree dependent upon all the circumstances of the case.

Therefore, using the propositions in the Bank case as a starting point for a discussion of the rulee's circumstances, it is noted that:

•         the rulee has not been established for the purpose of deriving profits for its members.

•         the rulee has been established for the purpose of promoting further mutual understanding between the people of the two countries via the participation in educational and cultural interchange programs. Although such programs can be conducted by non-government or private entities, the purpose of furthering the understanding between countries is an inalienable function of government.

•         the rulee is an agency or instrument of government given that: it has been established pursuant to a bi-national agreement; it is primarily funded by the Australian and foreign Governments; its Board of Directors is appointed by governments; its honorary chairmen are government representatives; it is required to report annually to the Australian and foreign Governments; and the two governments exercise control over its budget.

•         both the Preamble and Article 1 of the bi-national agreement indicate that the rulee has been established to achieve a government purpose which is of benefit to the public.

•         the rulee does not possess any coercive powers of an administrative or legislative character.

•         the rulee does not appear to have any exceptional powers beyond those possessed by private individuals.

The first five factors are consistent with the rulee being recognised as a public authority. However, the lack of exceptional powers may mean that the rulee is not a public authority.

The meaning ascribed to the term 'exceptional powers' is evident from the following extract from The Committee of Direction of Fruit Marketing v. Australian Postal Commission (1980) 144 CLR 577 where Gibbs J said at 580 that:

The words 'authority of a State' naturally mean a body which is given by the State the power to direct or control the affairs of others on behalf of the State i.e., for the purposes of and in the interests of the community or some section of it.

The rulee contends that it has exceptional powers due to the following factors:

(a) when allocating the rulee with an Indirect Tax Concession Scheme Reference Number, this office advised the rulee that it was not part of the Australian taxation system because of its status as an Embassy, High Commission, Consular Post or International Organisation; and

(b) the bi-national agreement effectively exempts all funds and property used for the rulee's purposes from income tax.

It is considered that whilst these factors may be indicative of exceptional privileges, neither gives the rulee the power to direct or control the affairs of others on behalf of a government. Accordingly, it is considered that the rulee does not have any exceptional powers beyond those possessed by private individuals.

In this particular case, there are no additional factors which will assist in determining whether the rulee is a public authority. Consequently, a determination of the rulee's status depends upon the significance of the absence of exceptional powers.

As previously mentioned, IT 2632 was based on several High Court decisions involving public authorities. IT 2632 states that while the possession of exceptional powers is a distinguishing characteristic of a public authority, it is not essential that a public authority possesses such powers. The view expressed in IT 2632 still applies.

Accordingly, given that it has been demonstrated that the rulee satisfies the remaining requirements specified in IT 2632, it is considered that the rulee is a public authority for the purposes of item 5.2 of section 50-25 of the ITAA 1997. This conclusion in turn means that the income derived by the rulee is exempt from income tax under section 50-1 of the ITAA 1997.

Question 2

Summary

The rulee is exempt from fringe benefits tax under paragraph 55(b) of the FBTAA.

Detailed reasoning

Paragraph 55(b) of the FBTAA exempts any benefit that is provided by any organisation established under an agreement to which Australia is a party and which obliges Australia to grant the organisation immunity from liability to pay tax in respect of the benefit.

The rulee is an organisation established by a bi-national agreement between the Australian and another government. The bi-national agreement provides that, in effect, the rulee is exempt from taxation of every kind in Australia. Accordingly, the rulee is exempt from fringe benefits tax under paragraph 55(b) of the FBTAA.

As the circumstances of the rulee have not changed, the ruling will be extended for another five years.