Edited version of private advice

Authorisation Number: 1052024677123

Date of advice: 7 September 2022

Ruling

Subject: Income tax exemption

Question

Is the entity exempt from income tax under section 50-1 of the (Income Tax Assessment Act 1997) ITAA 1997 as a public authority pursuant to item 5.2 in section 50-25 of the ITAA 1997?

Answer

Yes

This ruling applies for the following period

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The entity was incorporated as a company limited by guarantee.

The constitution provides as follows:

The objects of the Company are:

(a) to perform such functions and exercise such powers as are conferred on the Company by:

(1)  a statute or legislative instrument; or

(2)  an agreement or rules contemplated by a statute or legislative instrument, to the extent that any such functions or powers relate to [particular services];

(b) to perform such other functions and exercise such other powers related to or in connection with [particular services] or policy of a government of one or more of the following:

(1)  the Commonwealth of Australia;

(2)  a State of Australia; and

(3)  a Territory of Australia;

(c) to perform such activities as are necessary to prepare for a proposed conferral of functions or powers under [the articles]; and

(d) to do all other things as may be incidental or ancillary to the attainment of the objects in [the articles].

The entity is a subsidiary and its parent is a non-profit company limited by guarantee which is currently tax exempt under section 50-1 of ITAA 1997.

The parent is constituted of government members and industry members.

The entity is required to perform its functions on a non-profit basis.

Relevant legislative provisions

Section 50-1 of the Income Tax Assessment Act 1997

Section 50-25 of the Income Tax Assessment Act 1997

Section 50-47 of the Income Tax Assessment Act 1997

Reasons for decision

The entity is exempt from income tax pursuant to section 50-1 of the ITAA 1997 on the basis that it qualifies as a public authority constituted under an Australian law under item 5.2 of the table in section 50-25 of the ITAA 1997.

Detailed reasoning

Section 50-1 of the ITAA 1997 provides that the ordinary and statutory income of the entities covered by the tables listed in Subdivision 50A of the ITAA 1997 is exempt from income tax.

Section 50-25 of the ITAA 1997 is contained in Subdivision 50A of the ITAA 1997 and covers exempt government entities. Item 5.2 of the table in section 50-25 of the ITAA 1997 provides that 'a public authority constituted under an Australian law' is an exempt entity. There are no special conditions to be met under this provision. Section 50-47 of the ITAA 1997 however applies to all items.

The term'public authority constituted under an Australian Law' is not defined in the ITAA 1997. However, the High Court of Australia has considered the meaning of the term and this has been discussed in Taxation Ruling IT 2632 Income tax: meaning of 'public authority' in definition of 'exempt public body' in Division 16D.

IT 2632 at paragraph 14 states that in determining whether a particular body is a 'public authority' it is necessary to:

a)    Weigh all relevant circumstances, especially the nature of the functions of the body concerned, treating the question of the status of the body as essentially a question of fact and degree to be determined in the light of the particular facts of each case.

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. However, the derivation of profits for distribution to shareholders or members would not ordinarily be a characteristic of a "public authority". The examination will involve a consideration of:

(i)    the significance of any features of the body clearly alien to, or inconsistent with, the concept of what is a public authority; and

(ii)   the relevant statutory context, namely, the overall statutory scheme and policy.

IT 2632 at paragraph 16 also discusses the meaning of 'constitute' and states:

16. The ordinary meaning of the word "constitute", according to the Macquarie Dictionary is "to set up or found (an institution etc)." The expression "is constituted" (emphasis added) in subparagraph (c)(i) of the definition of "exempt public body" indicates that the particular organisation or body concerned and its activities must be looked at year by year, and not merely at the time it was first set up or founded. In addition, the context of the word "constituted", indicates that the particular organisation or body concerned must be constituted as 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, a number of propositions were derived from previous cases about public authorities, that is:

(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: Western Australian Turf Club per Stephen J with whom Barwick CJ agreed at ATC 4134; CLR 290. No one factor will be determinative, rather there will be a "range of considerations'': the Fruit Marketing case at 580.

(2)  A private body, corporate or unincorporated, established for profit will not be an authority: Renmark Hotel at ATD 429; CLR 17 per Rich J, Silverton Tramway per Dixon CJ at ATD 297; CLR 566.

(3)  Incorporation by legislation is not necessary before a body may be classified as an authority: Renmark Hotel per Rich J at ATD 430; CLR 19, Western Australian Turf Club at ATC 4135; CLR 293.

(4)  For a body to be an authority of a State or of the Commonwealth, 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: the Fruit Marketing case at 580.

(5)  The body in question must perform a traditional or inalienable function of government and have governmental authority for so doing: Renmark Hotel at ATD 428; CLR 16 per Rich J, General Steel per Barwick CJ at 134, Anti-Cancer Council case at 450-451 per Mason CJ, Brennan and Gaudron JJ.

(6)  It is not necessary for a person or body to be an authority that he, she or it have coercive powers, whether of an administrative or legislative character: Renmark Hotel per Rich J at ATD 430; CLR 18. Conversely the fact that a person or body has statutory duties or powers will not of itself suffice to characterise that person or body as an authority: Western Australian Turf Club per Stephen J at ATC 4137; CLR 297.

(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: Silverton Tramway per Dixon CJ at ATD 297 and 298; CLR 565 and 567. The central concept is the ability to exercise power or command: the Fruit Marketing case per Gibbs J at 580.

(1) Conferred by statute and of a public nature

The powers and functions conferred by statute to the entity enable it to carry out the key activities.

The entity is the only body to perform this public function in the relevant state and has been vested with a wide range of statutory functions and powers under an Act to achieve its objects.

The entity was established to achieve specific government policy objectives and could not have been incorporated to perform its objects and functions in the absence of government policy and legislation to enable its creation.

(2) Exercise powers and functions not possessed by the ordinary citizen

The entity has the necessary functions and powers to achieve the governments' policy objective.

The public nature of the entity is supported by the nature of its membership.

In carrying out its statutory functions, the entity must have regard to the objectives which restricts it to solely performing functions and exercising powers conferred by statute or legislative instrument.

Based on the information provided it is accepted that the entity operates under governmental authority and that its powers and functions are of a public nature and not those possessed by the ordinary citizen.

ACNC type entity condition

Section 50-47 of the ITAA 1997 provides that an entity that is covered by any item and is an ACNC type of entity is not exempt from income tax unless the entity is registered under the Australian Charities and Not-for-profits Commission Act 2012 ('ACNC Act'). Section 50-47 of the ITAA 1997 provides:

An entity that:

(a) is covered by any item; and

(b) is an ACNC type of entity;

is not exempt from income tax unless the entity is registered under the Australian Charities and Not-for profits Commission Act 2012.

The expression 'ACNC type of entity' is defined in subsection 995-1(1) of the ITAA 1997 to mean an entity which meets the description of a type of entity in column 1 of the table in subsection 25-5(5) of the ACNC Act.

Broadly, an entity capable of being a registered charity is an ACNC type of entity.

The Constitution sets out the objects of the entity and provides that the entity performs such functions and exercises such powers as conferred by statute or legislative instrument to the extent such functions or powers as they relate to a particular function. The entity is a public authority and this non-charitable purpose is not ancillary or incidental. As the entity has a non-charitable purpose, it is not capable of being a registered charity. The entity is therefore not an ACNC type of entity and section 50-47 is not applicable.

Conclusion

For the above reasons, we consider that the entity is a public authority constituted under an Australian law as described in Item 5.2 of section 50-25 of the ITAA 1997. The entity is therefore exempt from income tax pursuant to section 50-1 of the ITAA 1997.