Edited version of private advice

Authorisation Number: 1051972603794

Date of advice: 13 April 2022

Ruling

Subject: Income tax exempt

Question

Is the income of X exempt from tax under Division 1AB of Part III of the Income Tax Assessment Act 1936?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

The scheme commences on:

20YY

Relevant facts and circumstances

You received private rulings in relation to income tax exemption under Division 1AB of Part III of the Income Tax Assessment Act 1936 in previous years, the most recent being Private ruling authorisation number XXXXXXXXXXXXX on 30 June 20XX (previous private ruling).

Since your previous private ruling you have had new members, and you have provided details about these entities.

Additionally, one of your shareholders has new members and you have provided details about these entities.

There have not been any changes to the relevant legislation and ATO view.

Relevant legislative provisions

Income Tax Assessment Act 1936 Division 1AB of Part III

Income Tax Assessment Act 1936 section 24AO

Income Tax Assessment Act 1936 section 24AR

Income Tax Assessment Act 1936 section 24AS

Income Tax Assessment Act 1936 section 24AT

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

This is to explain how we reached our decision. This is not part of the private ruling.

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

Summary

As in your previous ruling, your income is still exempt from tax under Division 1AB of Part III as all your members are government entities.

Detailed reasoning

In your previous private ruling, the Commissioner concluded that you were exempt from income tax pursuant to Division 1AB in Part III as you are a STB in accordance with section 24AO and are not an excluded STB as defined in section 24AT.

Section 24AO, the first way in which a body can be an STB 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.

An excluded STB is defined in section 24AT to mean:

(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(1)(a) to (c) of the Income Tax Assessment Act 1997 applies; or

(d)          is a public hospital to which any of paragraphs 50-55(1)(a) to (c) of the Income Tax Assessment Act 1997 applies; or

(e)          is a superannuation fund.

Since the previous private ruling was issued, you have had some changes in your membership.

For section 24AO to continue to apply, all those members must be government entities.

Section 24AT defines a government entity to mean:

(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 municipal corporation is not defined in the legislation. 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 or Territory law.

The following points are noted in ATO Interpretative Decision 2004/757:

•                    a municipal corporation must be constituted to exercise governmental functions and is part of the Government, and

•                    to be local governing body, an entity must be established under a State or Territory law for the purpose of being a local governing body.

The new members are not local government organisations or municipal bodies as they have not been established to exercise governmental functions.

Section 24AR provides the fourth way in which a body can be an STB:

A body is an STB if:

(a)          it is established by State or Territory legislation; and

(b)          it is not a company limited solely by shares; and

(c)          the legislation gives the power to direct its governing person or body as to the conduct of its affairs only to one or more government entities.

They are STBs under section 24AR, and not excluded STBs as they do not meet any of the criteria in the definition in section 24AT.

Therefore, the new members are government entities.

In your previous private ruling, one of your shareholders was examined and determined to fit the definition of a government entity as an STB in accordance with section 24AS.

It has new members that are not local government organisations or municipal bodies as they have not been established to exercise governmental functions.

Section 24AS provides the fifth way in which a body can be an STB:

A body is an STB if:

(a)          it is not a company limited solely by shares; and

(b)          it is not established by State or Territory legislation; and

(c)           all the legal and beneficial interests (including, but not limited to, interests as to income, profits, dividends, capital and distributions of capital) in it are held by one or more government entities; and

(d)          all the rights or powers (if any) to vote, appoint or dismiss its governing person or body and direct its governing person or body as to the conduct of its affairs are held only by one or more government entities.

The new members are STBs under section 24AS, and not excluded STBs as they do not meet any of the criteria in the definition in section 24AT, therefore they are government entities.

As all the new members of that shareholder are government entities, it is a STB and therefore a government entity as defined in section 24AT.

Consequently, as all your shares are still beneficially owned by government entities, your income will continue to be exempt pursuant to Division 1AB in Part III.