Edited version of private advice

Authorisation Number: 1052225830884

Date of advice: 23 February 2024

Ruling

Subject: Exempt income - State or Territory body

Question

Is the company exempt from income tax under section 24AM of the Income Tax Assessment Act 1936 (ITAA 1936) on the basis that it is a State/Territory Body (STB)?

Answer

Yes

This ruling applies for the following periods:

1 July 20xx to 30 June 20yy

The scheme commenced on:

1 January 20xx

Relevant facts and circumstances

1.               The company is limited solely by shares.

2.               The company was registered on XXXX

3.               All shares are beneficially owned by a regional council, a municipal corporation.

Relevant legislative provisions

Income Tax Assessment Act 1936 Division 1AB of Part III

Income Tax Assessment Act 1936 section 24AK

Income Tax Assessment Act 1936 section 24AM

Income Tax Assessment Act 1936 section 24AN

Income Tax Assessment Act 1936 section 24AO

Reasons for decision

4.               Division 1AB of Part III provides for certain STBs to be exempt from income tax.

5.               Section 24AK states that:

A body that is a State/Territory body (an STB) is exempt from income tax under this Division unless it is an excluded STB. There are 5 different ways in which a body can be an STB.

6.               The 5 ways in which a body can be an STB are described in sections 24AO to 24AS.

7.               Relevant to the current circumstances, the first way in which a body can be an STB is set out in section 24AO as follows:

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.

8.               The definition of 'government entities' is provided in section 24AT, 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.

9.               Pursuant to section 24AM, the income of an STB will be exempt from income tax unless section 24AN applies to the STB.

10.             Section 24AN specifies that income derived by an STB will not be exempt from income tax if the STB is an excluded STB.

11.             The definition of an excluded STB is provided at section 24AT, it is defined as 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 public educational institution to which 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.

Application to your circumstances

12.             The company is a proprietary company limited by shares. All shares in the company are wholly owned by a council, a municipal corporation.

13.             As the definition of the term 'government entity' under section 24AT includes a municipal corporation, the council is a government entity. In accordance with the note in section 24AT, the fact that the company is owned by a municipal corporation does not preclude the company from being an STB even though the council itself may be an excluded STB. Consequently, as the company is wholly owned by a government entity, it is an STB pursuant to section 24AO.

14.             To be exempt from income tax, the company must not be an excluded STB as specified in section 24AT.

15.             There are currently no regulations enforced prescribing excluded STBs (the previous regulations enforced were the Income Tax (Excluded STBs) Regulations 1997, which was repealed by Schedule 1, Item 9 of the Treasury Laws Amendment (2015 Measures No.1) Regulations 2015).

16.             Furthermore, 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.

17.             Therefore, as the company is an STB under section 24AO and is not an excluded STB under section 24AT, the income of the company is exempt from income tax pursuant to section 24AM.