Edited version of private advice

Authorisation Number: 1052164067289

Date of advice: 4 September 2023

Ruling

Subject: Income tax exemption

Question 1

Is the Company exempt from income tax under Division 1AB of Part III of the Income Tax Assessment Act 1936 (ITAA 1936) as a State/Territory body?

Answer

Yes.

This ruling applies for the following periods:

Income year ending 30 June 2023

Income year ending 30 June 2024

Income year ending 30 June 2025

Income year ending 30 June 2026

Income year ending 30 June 2027

The scheme commenced on:

7 September 2022

Relevant facts and circumstances

1.      The Company is incorporated as a proprietary company Limited by shares.

2.      The Treasurer of a State is the sole shareholder of the Company.

Relevant legislative provisions

Division 1AB of Part III of the Income Tax Assessment Act 1936

Section 24AM of the Income Tax Assessment Act 1936

Section 24AN of the Income Tax Assessment Act 1936

Section 24AO of the Income Tax Assessment Act 1936

Section 24AT of the Income Tax Assessment Act 1936

Reasons for decision

Division 1AB of Part III of the Income Tax Assessment Act 1936 (ITAA 1936) provides for certain State/Territory Body (STB) to be exempt from income tax.

The income of an STB will be exempt from income tax if it is not an excluded STB (sections 24AM and 24AN of the ITAA 1936).

There are five ways in which body can be an STB as described in sections 24AO to 24AS of the ITAA 1936. The first way is set out in section 24AO in the following terms:

A body is an STB if:

(a) it is a company limited solely by shares; and

(b) all of the shares in it are beneficially owned by one or more government entities.

The meaning of "government entities" is provided in section 24AT of the ITAA 1936, which states:

Government entity means:

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.

'State' is not defined in the ITAA 1936. The meaning of 'State' is considered in Goods and Services Tax Ruling 2006/5: Goods and Services tax: meaning of 'Commonwealth, a State or a Territory', which provides:

6. The Commissioner considers that Commonwealth, a State or a Territory includes a department, agency or organisation of the type referred to in the definition of 'government entity' in section 195-1.

7. Section 195-1 adopts the meaning of 'government entity' given by section 41 of the A New tax System (Australian Business Number) Act 1999. This means that the Commonwealth, a State or a Territory, as the case may be, includes any of the following:

(a)    Department of State of the Commonwealth;

(b)    Department of the Parliament;

(c)    an Executive Agency, or Statutory Agency, within the meaning of the Public Service Act 1999;

(d)    Department of State of a State or Territory; and

(e)    an organisation that:

(i)     is not an entity, and

(ii)    is either established by the Commonwealth, a State or a Territory (whether under a law or not) to carry on an enterprise or established for public purpose by an Australian law; and

(iii)   can be separately identified by reference to the nature of the activities carried on through the organisation or the location of the organisation; whether or not the organisation is part of a Department or branch described above.

The Company is a proprietary company limited by shares, and the shares are wholly owned by a State through the Treasurer of the State who heads the Department of Treasury. The Company is an STB under section 24AO of the ITAA 1936. However, to be exempt from income tax the company must not be an excluded STB.

Section 24AT of the ITAA 1936 provides that an excluded STB means 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(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.

There is no current regulation enforced prescribing excluded STBs (the Income Tax (Excluded STBs) Regulations was repealed by the Treasury Laws Amendment (2015 Measures No. 1) Regulation 2015), and the Company is not a municipal corporation or other local governing body, a public educational institution, a public hospital, or a superannuation fund. As such, the Company is not an excluded STB.

As the Company is an STB under section 24AO of the ITAA 1936 and is not an excluded STB under section 24AT of the ITAA 1936, the income of the Company is exempt from income tax under section 24AM of the ITAA 1936.