Edited version of private advice

Authorisation Number: 1052144238533

Date of advice: 19 July 2023

Ruling

Subject: Income of a state/territory body - entity exempt from tax

Question

Is the income of the taxpayer exempt from income tax as a State/Territory body under section 24AM of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

This ruling applies for the following periods:

year ended 30 June 2022

year ended 30 June 2023

year ending 30 June 2024

year ending 30 June 2025

year ending 30 June 2026

The scheme commenced on:

1 July 2021

Relevant facts and circumstances

The States and the Northern Territory entered into an Intergovernmental Agreement (IGA) that provides governance arrangements for this activity. The entity was created for this activity. It sets out the data required and its required form to be lodged.

The entity has been established under the Corporations Act 2001 and is a company limited by guarantee. It was registered by ASIC. Its purpose is to own the intellectual property rights in the entity, set up best practice, employ employees and retain contractors.

The current members of the body are states of Australia. A body was set up to represent one of the States as a member.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 24AM

Income Tax Assessment Act 1936 section 24AN

Income Tax Assessment Act 1936 section 24AQ

Income Tax Assessment Act 1936 section 24AS

Income Tax Assessment Act 1936 section 24AT

Income Tax Assessment Act 1936 section 24AU

Reasons for decision

'The income of a State/Territory body (an STB) is exempt from income tax unless section 24AN applies to the STB' (section 24AM of the ITAA 1936).

Section 24AN of the ITAA 1936 excludes the income of a STB from income tax exemption under Division 1AB of the ITAA 1936 if, at the time the income 'is derived, the STB is an excluded STB'.

Section 24AT of the ITAA 1936 defines an excluded STB to mean an STB that:

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

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

(e) is a superannuation fund.

Sections 24AO to 24AS of the ITAA 1936 provide five different ways that a body can be regarded as an STB.

A body is an STB pursuant to section 24AS of the ITAA 1936 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 only 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.

A 'government entity' is defined in section 24AT 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

(c) another STB that is not an excluded STB.

The factors in section 24AS of the ITAA 1936 are considered as follows:

It is not a company limited solely by shares

The entity is a company limited by guarantee which does not issue shares. It is not a company limited solely by shares.

It is not established by State or Territory legislation

An entity will not be 'established by a law of the Commonwealth, a State or a Territory' where the law only gives the institution artificial legal status as an incorporated body.

The entity is limited by guarantee under the Corporations Act 2001 which gives it artificial legal status as an incorporated body. The objects and purpose of the entity are contained in its constitution. It is not established under State or Territory legislation.

All legal and beneficial interests are held only by government entities

Section 24AQ of the ITAA 1936 states:

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 appoint or dismiss its governing person or body only to one or more government entities.

If the power to appoint, dismiss or direct the governing body is given to a Minister of the Crown of a State or a Minister of a Territory, it is taken to be given to or held by a government entity (section 24AU of the ITAA 1936).

Another body was established by State legislation and the Minister has the power to appoint members of its Board. It satisfies all of the requirements of section 24AQ of the ITAA 1936 and is an STB under this section and is not an excluded STB.

All the legal and beneficial interests (including, but not limited to, interests as to income, profits, dividends, capital and distributions of capital) of the entity are held by a government entity or an STB.

All rights or powers to vote, appoint or dismiss, or direct, the governing person or body and are held only by one or more government entities

The power to appoint, dismiss or direct the affairs of the entity are held by each member, who is a state government, pursuant to section 24AT of the ITAA 1936. The only exception is the other body representing one state, which is a STB and the power to appoint, dismiss or direct will be given to the Minister of that State.

Conclusion

The entity is not an excluded STB and meets all the requirements of an STB in accordance with section 24AS of the ITAA 1936. It is exempt from income tax pursuant to section 24AM of the ITAA 1936.