Edited version of private advice

Authorisation Number: 1052295971496

Date of advice: 23 August 2024

Ruling

Subject: Income tax exemption

Question

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

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 commenced/s on:

1 July 20xx

Relevant facts and circumstances

XX is an Australian public company, limited by guarantee which was incorporated on xx.

The xx commenced operations in xx.

The sole member of xx is xx.

XX

XX was incorporated in Australia on xx, as a company limited by guarantee. XX was established in accordance with the xx.

Purpose of XX

XX was established to instil confidence in the xx system's xx framework, to safeguard consumer trust and confidence, and to ensure the system continues to meet the needs of its users.

If a consumer has not been paid in accordance with a relevant xx determination, they may apply to the operator of the xx for payment. If the eligibility criteria are met, the operator of the xx must compensate the consumer, up to $xx.

Operation of XX

XX only considers claims for unpaid xx determinations where the xx complaint was made after xx.

The proposal to establish the xx was announced on xx as part of the former Government's response to the xx.

Under the xx, the xx Report to the xx observed that existing arrangements were not adequate to ensure that users of the xx system were compensated for losses where an xx scheme, tribunal or court makes a finding of misconduct and a subsequent award in favour of the consumer.

The xx recommended that a xx be established in Australia.

XX

XX made an application to be authorised to operate the xx, in accordance with the xx. On xx, the responsible Minister authorised xx to be the xx.

The Explanatory Memorandum sets out mandatory requirements that apply to the xx and are grouped into the following four categories:

•         Operator requirements

The person authorised to be the xx operator must be a company limited by guarantee and operate on a not-for-profit basis (which must be stated in the operator's constitution). The Minister has authorised xx to be the xx.

•         Organisational requirement

The xx must not charge a fee to a consumer seeking compensation, nor require the consumer to pay a fee or charge to any other entity in relation to their application. This reflects the intent that the xx is free for consumers.

•         Operational requirements

The xx operator must:

a)            Operate in accordance with its constitution;

b)            Administer the xx in accordance with the law;

c)            Manage money in a manner that is efficient, effective and economical; and

d)            Have appropriate expertise to deal with applications for compensation and to undertake actuarial analysis and modelling to estimate the value of claims to be made under the xx.

•         Compliance requirements

If the authorisation of the xx is subject to any conditions imposed by the Minister, the xx must comply with these conditions, as well as any other requirements relating to compliance with the mandatory requirements issued by the Australian Investments and Securities Commission (ASIC).

Powers of XX

The xx has been conferred with various powers under the xx.

The xx scheme's main source of funding is through levies imposed on parts of the xx industry. The xx is responsible for determining the amount of levy payable by parts of the xx industry.

There will be a one-off levy to fund the backlog of accumulated unpaid claims for complaints made to xx between xx and xx.

XX Constitution

The xx Constitution was formally adopted by the Board on xx.

•         Not-for Profit Basis

In satisfaction of the operator requirements described above at paragraph xx, xx of the Constitution sets out that the Applicant operates on a not-for-profit basis.

•         Objects of XX

The Constitution of xx states that the objectives for which the entity is established.

•         Restrictions on application of income and property

XX of the Constitution sets out the restriction on the way in which income and property of the Applicant can be applied.

Clause xx of the Constitution outlines the types of payments which may be made from the xx fund (Fund), and Clause xx empowers the company to make payments from the Fund to discharge liabilities incurred by xx.

•         Winding Up

Winding up of the entity is dealt with in Clause xx of the Constitution.

Other information

Prior to xx becoming operational, xx was providing services to xx since 20xx. These services consisted of administrative, legal, financial and project management support.

XX received an allocation grant funding to provide reimbursement for costs expended on xx.

Since commencement of operations, xx has predominantly operated independently from xx (with the exception of the board member and the provision of certain limited services by xx, pursuant to an arms-length contractual agreement entered into between xx and xx).

Although the xx operator is being managed as a separate entity to xx with its own board and staff, the Explanatory Memorandum to the xx Acts notes at paragraph x, an ongoing interaction of xx and the xx.

The requirement for a director or Chair of the xx to be a member of the xx board recognises the importance of a close and effective working relationship between the xx and xx.

The Act provides that the Chair of the xx Board must be an independent person appointed by the Minister.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 50-1

Income Tax Assessment Act 1997 section 50-25

Other references

Renmark Hotel Incorporated v FC of T (1949

Federal Commissioner of Taxation v Silverton Tramway Co Ltd (1953)