Private ruling: Sovereign immunity
Date of advice: 11 December 2025
Published: 27 January 2026
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the ordinary and statutory income derived by the non-resident entity from its interests in the Test Entities not assessable income and not exempt income under subsection 880-105(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: The non-resident entity 1. The non-resident entity is a sovereign wealth fund and was established as an independent legal entity under the law of the foreign country. 2. The non-resident entity carries out its investment program independently. 3. The objective of the non-resident entity is to invest the foreign country's funds and assets. 4. The non-resident entity does not produce or trade non-financial goods and does not provide non-financial services. 5. The non-resident entity has a department in place to manage its corporate governance. 6. The non-resident entity is not a partnership. 7. The non-resident entity is not a resident of Australia for Australian income tax purposes. 8. The non-resident entity does not actively trade in financial assets and liabilities, operate commercially in financial markets or provide any of the services listed in paragraph 880-130(2)(c) of the ITAA 1997. Contributions into the non-resident entity 9. The funding for the non-resident entity is mainly comprised of funds allocated from the foreign country's budget, any surpluses at the end of the year and the return on its investments. 10. The withdrawals from the non-resident entity are outlined in the foreign country's budget which is announced annually. The non-resident entity's Australian Investments 1. The non-resident entity may invest in Australian entities (the Test Entities). The Test Entities that the non-resident entity will invest in which are covered by this Ruling will have all of the following characteristics: • The non-resident entity's investments in the Test Entities are membership interests, debt interests or non-share equity interests. • The Test Entities are Australian resident companies or managed investment trusts (MITs). • To the best of the non-resident entity's knowledge, the non-resident entity and all members of its sovereign entity group hold collectively less than 10% of the total participation interests in each of the Test Entities in the circumstances detailed in paragraph 880-105(4)(b) of the ITAA 1997. • Neither the non-resident entity, nor any members of its sovereign entity group, has involvement in the day to day management of the business of any of the Test Entities. • Neither the non-resident entity, nor any members of its sovereign entity group, has the right to appoint a director to the Board of Directors of any of the Test Entities. • Neither the non-resident entity, nor any members of its sovereign entity group, holds the right to representation on any investor representative or advisory committee (or similar) of the Test Entities. • Neither the non-resident entity, nor any members of its sovereign entity group, has the ability to direct or influence the operation of the Test Entities outside of the ordinary rights conferred by the investments held. • The non-resident entity's interests in the Test Entities, including the non-resident entity's interests when combined with the other interests held within its sovereign entity group, do not provide it with an entitlement to either directly or indirectly determine the identity of any person who makes decisions that comprise the control and direction of the Test Entity's operations. • No person involved in control and direction of the Test Entity's operations is accustomed or obliged to act in accordance with the directions, instructions or wishes of the non-resident entity or members of the non-resident entity's sovereign entity group.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 880-105

Reasons for decision: Summary: The income derived by the non-resident entity from its interests held is not assessable and not exempt income due to the operation of subsection 880-105(1) of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 880-105 of the ITAA 1997 provides that amounts of ordinary and statutory income derived by a sovereign entity are not assessable and not exempt income if certain conditions are met. Those conditions are listed in subsection 880-105(1): (a) the sovereign entity is covered by section 880-125; and (b) the amount is a return on any of the following kinds of interest that the sovereign entity holds in another entity (the test entity ): (i) a membership interest; (ii) a debt interest; (iii) a non-share equity interest; and (c) the test entity is: (i) a company that is an Australian resident at the time (the income time) when the amount becomes ordinary or statutory income of the sovereign entity; or (ii) a managed investment trust in relation to the income year in which the income time occurs; and (d) the sovereign entity group of which the sovereign entity is a member satisfies the portfolio interest test in subsection (4) in relation to the test entity: (i) at the income time; and (ii) throughout any 12 month period that began no earlier than 24 months before that time and ended no later than that time; and (e) the sovereign entity group of which the sovereign entity is a member does not have influence of a kind described in subsection (6) in relation to the test entity at the income time. These conditions are considered below. | Detailed Reasoning - The non-resident entity is a sovereign entity: Section 880-125 of the ITAA 1997 states: A sovereign entity is covered by this section if it satisfies all of the following requirements: (a) the entity is funded solely by public monies; (b) all returns on the entity's investments are public monies; (c) the entity is not a partnership; (d) the entity is not any of the following: (i) a public non-financial entity; (ii) a public financial entity (other than a public financial entity that only carries on central banking activities). These requirements are considered below. The non-resident entity is a 'sovereign entity' For an entity to be covered by section 880-125 of the ITAA 1997, it must be a sovereign entity. Section 880-15 of the ITAA 1997 defines 'sovereign entity' as: (a) a body politic of a foreign country, or a part of a foreign country; (b) a foreign government agency; (c) an entity: (i) in which an entity covered by paragraph (a) or (b) holds a total participation interest of 100%; and (ii) that is not an Australian resident; and (iii) that is not a resident trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936 . A 'foreign government agency' is defined in subsection 995-1(1) of the ITAA 1997 as meaning: (a) the government of a foreign country or of part of a foreign country; or (b) an authority of the government of a foreign country; or (c) an authority of the government of part of a foreign country. The foreign country is an independent sovereign state. The non-resident entity is a sovereign wealth fund. The non-resident entity was established as an independent legal entity under the law of the foreign country for the purpose of investing the foreign country's funds and assets. The non-resident entity contributes towards the foreign country's general budget. The non-resident entity meets the requirements of a 'sovereign entity' in accordance with paragraph 880-15(b) of the ITAA 1997 as it is a foreign government agency as defined in subsection 995-1(1) of the ITAA 1997. Therefore, this requirement is satisfied. The non-resident entity is funded solely by public monies The phrase 'public monies' is not defined within the legislation and as such takes its ordinary meaning. Law Companion Ruling LCR 2020/3 - The superannuation fund for foreign residents withholding tax exemption and sovereign immunity (LCR 2020/3) provides guidance on the term 'public monies'.In the context of Division 880 of the ITAA 1997, LCR 2020/3 provides at paragraph 54, that this phrase essentially means monies of a foreign government (or part of a foreign government) held for a public purpose which form part of the foreign government's (or part of the foreign government's) equivalent to Australia's Consolidated Revenue Fund ( Roy Morgan Research Pty Ltd v FC of T & Anor [2011] HCA 35). This would ordinarily include general tax revenue, proceeds from the issue of government bonds, the proceeds of privatisations etc. The non-resident entity was established to benefit the foreign country and its people and provides liquidity to the government whenever required. The non-resident entity and its assets are wholly owned by the foreign country and all as such, the government of the foreign country is the beneficial owner of all the capital invested and all income that the non-resident entity derives from that capital is for the benefit of the government of the foreign country. Therefore, this requirement is satisfied. All returns on the non-resident entity's investments are public monies The non-resident entity and its assets are wholly owned by the foreign country and all as such, the government of the foreign country is the beneficial owner of all the capital invested and all income that the non-resident entity derives from that capital is for the benefit of the government of the foreign country. Surplus income derived by the non-resident entity is available for use by the government of the foreign country. Therefore, the monies will remain government monies. Therefore, all returns on the non-resident entity's investments are public monies and will remain assets of the foreign country. Therefore, this requirement is satisfied. The non-resident entity is not a partnership The non-resident entity is an independent legal entity created by the law of the foreign country and is wholly owned by the foreign country. As such, the non-resident entity is not a partnership. Therefore, this requirement is satisfied. The non-resident entity is not a public non-financial entity or public financial entity Subsection 880-130(1) of the ITAA 1997 defines the term 'public non-financial entity' as: An entity is a public non-financial entity if its principal activity is either or both of the following: (a) the entity is funded solely by public monies; (b) providing services that are not financial services. The term 'principal' is not defined and LCR 2020/3 states at paragraph 74 that the term takes its ordinary meaning having regard to the purpose and context in which it appears. The Macquarie Dictionary defines 'principal' as 'first or highest in rank, importance, value, etc.; chief, foremost...'. The terms 'non-financial goods' and 'services that are not financial services' are also not defined, so should be given their ordinary meaning according to context and purpose. The Explanatory Memorandum to the Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 (EM) provides the following guidance with regard to public non-financial entities: 4.27 Public non-financial entities include entities such as airline corporations, postal authorities, state water corporations and port authorities. They also include public non-profit institutions engaging in market production (such as hospitals, schools, or colleges) if they are separate institutional units and charge economically significant prices. In addition to the example entities listed in the EM, LCR 2020/3 states at paragraph 76 that state electricity corporations and state mining corporations are also examples of public non-financial entities. The principal activity of the non-resident entity for the purposes of subsection 880-130(1) of the ITAA 1997 is to invest and manage the funds of the foreign country. The non-resident entity does not produce or trade non-financial goods and does not provide non-financial services. The non-resident entity is not in the business of producing or trading non-financial goods and/or providing non-financial services. Therefore, the non-resident entity is not a public non-financial entity under subsection 880-130(1) of the ITAA 1997. Subsection 880-130(2) of the ITAA 1997 defines the term 'public financial entity' as: An entity is a public financial entity if any of the following requirements are satisfied: (a) it trades in financial assets and liabilities; (b) it operates commercially in the financial markets; (c) its principal activities include providing any of the following financial services: (i) financial intermediary services, including deposit-taking and insurance services; (ii) financial auxiliary services, including brokerage, foreign exchange and investment management services; (iii) capital financial institution services, including financial services in relation to assets or liabilities that are not available on open financial markets. The EM provides the following guidance with regards to public financial entities: 4.28 Public financial entities include deposit-taking corporations, financial intermediaries (such as banks), financial auxiliaries and captive financial institutions. The non-resident entity was established to be a sovereign wealth fund so the government of the foreign country can provide for the foreign country's current and future welfare. All monies and income gained by the non-resident entity are ultimately returned to the government of the foreign country for this purpose. The non-resident entity does not actively trade in financial assets and liabilities, operate commercially in financial markets or provide any of the services listed in paragraph 880-130(2)(c) of the ITAA 1997. Therefore, the non-resident entity is not a public financial entity under subsection 880-130(2) of the ITAA 1997. As the non-resident entity satisfies each of the requirements in paragraphs 880-125(a) to (d) of the ITAA 1997, inclusive, the non-resident entity is a sovereign entity that is covered by section 880-125 of the ITAA 1997 for the purposes of paragraph 880-105(1)(a) of the ITAA 1997. | Detailed Reasoning - The non-resident entity's return will be received on a relevant interest in the Test Entities: For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(b) of the ITAA 1997, it must be a 'return on' a membership interest, debt interest or non-share equity interest held by the sovereign entity in the test entities. As detailed in paragraph 4.37 of the EM, a 'return on' for the purposes of paragraph 880-105(1)(b) of the ITAA 1997 includes, but is not limited to: • dividends - including non-share dividends and dividends that pass through a Managed Investment Trust (MIT) • interest - including interest that passes through a MIT • fund payments made by a MIT (other than fund payments to the extent that they are attributable to non-concessional MIT income, or would be non-concessional MIT income if certain provisions were disregarded, in accordance with subsection 880-105(3) of the ITAA 1997), and • revenue gains made on the disposal of an interest in the test entity, including revenue gains that pass through a MIT. The non-resident entity will receive income, including dividends, interest and fund payments from membership interests, debt interests or non-share equity interests in the Test Entities. Therefore, the income received by the non-resident entity will satisfy the requirements of paragraph 880-105(1)(b) of the ITAA 1997. | Detailed Reasoning - The non-resident entity's sovereign entity group will satisfy the portfolio interest test: For an amount of ordinary or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(d) of the ITAA 1997, the sovereign entity, and the sovereign entity group to which it belongs, must satisfy the portfolio interest test in relation to the test entities at the income time and throughout any 12-month period that began no earlier than 24 months before that time and ended no later than that time. Subsection 880-105(4) of the ITAA 1997 contains the portfolio interest test and states: Portfolio interest test (4) A sovereign entity group satisfies the portfolio interest test in this subsection in relation to the test entity at a time if, at that time, the sum of the total participation interests that each member of the group holds in that test entity: (a) is less than 10%; and (b) would be less than 10% if, in working out the direct participation interest that any entity holds in a company: (i) an equity holder were treated as a shareholder; and (ii) the total amount contributed to the company in respect of non-share equity interests were included in the total paid-up share capital of the company. 'Sovereign entity group' is defined in section 880-20 of the ITAA 1997, which provides that each of the following is part of a sovereign entity group (member): • a body politic of a foreign country or part of a foreign country • a foreign government agency in relation to that foreign country or that part of that foreign country, and • an entity in which an entity covered by either of the above holds a total participation interest of 100%, is not an Australian resident and is not a resident trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936 (ITAA 1936). Broadly, sovereign entities of the same foreign government are members of the same sovereign entity group and sovereign entities of the same part of a foreign government will be members of the same sovereign entity group. The non-resident entity is part of the sovereign entity group of the foreign country. At the relevant times (as required by paragraph 880-105(1)(d)), the non-resident entity and its sovereign entity group collectively, will hold less than 10% of the total participation interests in each of the Test Entities in the circumstances detailed in paragraph 880-105(4)(b) of the ITAA 1997. The non-resident entity's interest, and the interest of the sovereign entity group to which it belongs, therefore will satisfy the requirements of paragraph 880-105(1)(d) of the ITAA 1997. | Detailed Reasoning - The non-resident entity's sovereign entity group will satisfy the influence test: For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(e) of the ITAA 1997, the sovereign entity group to which the sovereign entity belongs must not have influence over the test entity of a kind described in subsection 880-105(6) of the ITAA 1997 at the income time. Subsection 880-105(6) of the ITAA 1997 states: Influence test (6) A sovereign entity group has influence of a kind described in this subsection in relation to the test entity at a time if any of the following requirements are satisfied at that time: (a) a member of the group: (i) is directly or indirectly able to determine; or (ii) in acting in concert with others, is directly or indirectly able to determine; the identity of at least one of the persons who, individually or together with others, make (or might reasonably be expected to make) the decisions that comprise the control and direction of the test entity's operations; (b) at least one of the persons is accustomed or obliged to act, or might reasonably be expected to act, in accordance with the directions, instructions or wishes of a member of the group (whether those directions, instructions or wishes are expressed directly or indirectly, or through the member acting in concert with others). The non-resident entity's interests in the Test Entities, when combined with the other interests held within the sovereign entity group, will not provide it with an entitlement to either directly or indirectly determine the identity of any person who makes decisions that comprise the control and direction of the Test Entities' operations. No person involved in the control and direction of the Test Entities' operations will be accustomed or obliged to act in accordance with the directions, instructions or wishes of the non-resident entity or members of the non-resident entity's sovereign entity group. Based on the above, neither the non-resident entity, nor any member of its sovereign group, will have influence over the Test Entities of the kind described in subsection 880-105(6) of the ITAA 1997. Therefore, the non-resident entity and its sovereign entity group will satisfy the requirements of paragraph 880-105(1)(e) of the ITAA 1997. | Detailed Reasoning - Conclusion: The non-resident entity satisfies all the requirements to be considered a covered sovereign entity under section 880-125 of the ITAA 1997. Therefore, as the non-resident entity is a covered sovereign entity, subsection 880-105(1) of the ITAA 1997 will apply to amounts of ordinary and statutory income derived by the non-resident entity from its investments in the Test Entities.

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar .