Edited version of private advice

Authorisation Number: 1052058555505

Date of advice: 14 November 2022

Ruling

Subject: Exemption from income tax

Question 1

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

Answer

Yes.

This ruling applies for the following periods:

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

In accordance with the X Act, the Entity has been established, being a company limited by shares under the Corporations Act 2001 (Cth) (Corporations Act).

One of the functions of the Entity is to establish and maintain a X fund (the Fund) with an authorised deposit-taking institution pursuant to and for the purposes of the X Act.

The X Act has as its objective the purposes of improving the affordability, reliability, security and sustainability of X, among other similar objectives

The X Act contemplates that the Trustee is to arrange for the shares in the Entity to be held on trust 'for the purposes of the Act'.

The Entity's Constitution

The Entity's Constitution prohibits the Entity undertaking any functions that do not relate to its role or are not conferred by statute.

The Entity's Constitution prohibits the following:

•         the undertaking of any functions that are not conferred by statute

•         the distribution of profits or assets (either day-to-day or upon winding up)

•         the allowing of the Entity's income and/or property from being used for anything other than the furtherance of its objects and/or the objects of the X Act.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 50-A

Income Tax Assessment Act 1997 Section 50-1

Income Tax Assessment Act 1997 Section 50-25

Income Tax Assessment Act 1997 Item 5.2 of the table in section 50-25

Reasons for decision

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

Section 50-25 covers exempt Government entities. Item 5.2 of the table in section 50-25 provides that 'a public authority constituted under an Australian law' is an exempt entity. There are no special conditions that must be met for this item.

The term 'public authority constituted under an Australian Law' is not defined in the ITAA 1997.

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'. 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:

Income Tax Assessment Act 1997 the significance of any features of the body clearly alien to, or inconsistent with, the concept of what is a public authority; and the relevant statutory context, namely, the overall statutory scheme and policy.

Paragraphs 15 to 19 of IT 2632 discuss the meaning of 'constituted by or under' a relevant law and essentially provides that a year by year consideration is necessary to determine whether a body is set up, founded or established as a public authority by or under the relevant law, or has acquired the attributes and qualities 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 at 4027, the following propositions regarding 'public authorities' were listed as derived from different case law:

•         Whether a particular entity is an authority will be a question of fact and degree dependent upon all the circumstances of the case.

•         A private body, corporate or unincorporated, established for profit will not be an authority,

•         Incorporation by legislation is not necessary before a body may be classified as an authority.

•         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 body in question must perform a traditional or inalienable function of government and have governmental authority for so doing.

•         It is not necessary for an authority to have coercive powers, whether of an administrative or legislative character: 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

•         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.

Application of the law to the Entity

Constituted under an Australian law

The functions of the Entity are provided for under the X Act as enacted by the X parliament.

Accordingly, the Entity is constituted under Australian law.

Not a private body, corporate or unincorporated, established for profit

The Entity's Constitution prohibits the following:

•         the undertaking of any functions that are not conferred by statute

•         the distribution of profits or assets (either day-to-day or upon winding up)

•         the allowing of the Entity's income and/or property from being used for anything other than the furtherance of its objects and/or the objects of the X Act.

Accordingly, it is not a private body established for the profit of its members.

Incorporation by legislation is not necessary

The X Act sets out that that the Entity is to be established as a company limited by shares under the Corporations Act.

Accordingly, the Entity is incorporated by legislation.

An agency or instrument of government set up to exercise control or execute a function in the public interest

The Entity is to establish and maintain a X fund for the purposes of the X Act.

It is considered these purposes or objectives are for the public benefit and in the public interest of the constituents of the area.

Perform a traditional or inalienable function of government and have governmental authority for so doing

The Entity is a body exercising a function under the X Act. As mentioned above, the objectives of the X Act are in the public interest and accordingly the Entity executes its functions in the public interest.

The Entity performs a traditional function of government.

The X Act enacted by the X Parliament provided that the Entity was to be established to perform these functions and accordingly the Entity is authorised by Government to undertake these traditional roles of government.

Coercive or statutory duties or powers

An entity possessing coercive powers is not a necessary element for it to be considered a 'public authority'.

Control, power or command for the public advantage or execute a function in the public interest

As mentioned above, the X Government has enacted the X Act which establishes the Fund.

The Entity's Constitution prohibits the Entity undertaking any functions that do not relate to its role or are not conferred by statute.

The Entity executes theses duties and powers in the public interest.

Conclusion

For the above reasons, it is considered that the Entity is a public authority constituted under an Australian law as described in item 5.2 of section 50-25, and its ordinary and statutory income is exempt from income tax under section 50-1.