Private ruling: Income tax exemption
Date of advice: 30 June 2017
Published: November 2017
Ruling period: 1 July 2017 to 30 June 2018 | 1 July 2018 to 30 June 2019 | 1 July 2019 to 30 June 2020 | 1 July 2020 to 30 June 2021 | 1 July 2021 to 30 June 2022
Date scheme commenced: The scheme has commenced.

Ruling: Q1: Is the income of the Company exempt from tax under Division 1AB of Part III of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes.

Relevant facts and circumstances: Constitution of the Company A copy of the constitution of the Company has been provided. The Company is a company solely limited by shares. Two classes of shares are on issue. The names of the members of the Company and the number of shares held by each member have been provided. The Company was formed by the X Association (X) and by the Y Association (Y). X and Y merged to become the Z Association (Z). A Member of the Company is defined in the constitution to include any entity that is noted in the register as a member of the Company so long as they hold shares. Class A Shares in the Company Class A Shares in the Company are held by a number of bodies, P Pty Ltd, the Q Group and R Limited as well as by N Association (N) and S Association (S). E Pty Ltd E Pty Ltd is a company limited by shares. E Pty Ltd has issued ordinary shares which are held by a number of bodies. Q Group A number of bodies are members of Q Group. R Limited R Limited is a company limited by guarantee with a single member. N N is an incorporated association S S is an incorporated association Class Z Shares in the Company Class Z Shares in the Company are held by Z. Rules of Z A copy of the Rules of Z has been provided. Membership of Z is restricted to the types of members allowed by its Rules. Membership of Z A copy of the Z Register of Members has been provided. The register shows that there are Ordinary members and Associate members. Ordinary Members of Z The Ordinary members are various bodies plus the W Body. W Body W Body was formally constituted as a statutory corporation. Associate Members of Z The Associate Members of Z are various bodies plus the H Board and the K Body. H Board The H Board was formally constituted as a statutory corporation. K Body The K Body was established by legislation.

Relevant legislative provisions: Income Tax Assessment Act 1936 Division 1AB | Section 24AK | Section 24AL | Section 24AM | Section 24AN | Section 24AO | Section 24AP | Section 24AS | Section 24AT | Income Tax Assessment Act 1997 Subsection 995-1(1)

Reasons for decision: Summary: Division 1AB in Part III provides exemption from income tax for certain State or Territory bodies. The Company is seeking exemption as a State or Territory body (STB) that is not an “excluded STB”. In order to be an STB that is exempt from income tax the Company must meet the two conditions in section 24AO and also not be an “excluded STB” as defined in section 24AT. In paragraph 24AO (a) the first condition is that the body is a company limited by shares, this condition is met. In paragraph 24AO(b) the second condition is that each share issued by the Company, namely a Class A Share and a Class Z Share, is held by one or more government entities as defined in section 24AT. The examination of all shareholders in the Company and the acceptance of each as a “government entity”, leads to the conclusion that the Company is an STB in terms of section 24AO. It is also determined that the Company is not an “excluded STB”. The holders of the Class A Shares are examined first. The Class A Shares are held by various bodies plus by E Pty Ltd; the Q Group and R Limited; as well as by N and S. These latter five bodies are examined separately in order to determine whether each is a government entity. Ultimately it is concluded that each of the five bodies is a government entity. Turning to Z as the sole holder of the Class Z Shares it is examined next. Z is required to be a government entity in order for the Company to meet the second condition as an STB under paragraph 24AO(b). The status of Z as a government entity turns on whether it is an STB in terms of section 24AS. That provision requires four conditions to be met. Paragraph 24AS(a) requires that Z is not a company limited by shares. This is met because Z is not a company, it is an association. Paragraph 24AS(b) requires that Z is not established by State or Territory legislation which is also met. However, note that Z is established under State legislation. Paragraph 24AS(c) requires that all the legal and beneficial interests in Z are held only by government entities. Paragraph 24AS(d) requires that all the rights or powers to vote, appoint or dismiss the Board of Directors of Z are held only by government entities. Determining whether the conditions in paragraphs 24AS(c) and (d) are satisfied calls for a close examination of all the Z members. The members of Z mainly comprise bodies that are government entities. However, there are three members namely W Body, the H Board, and K Body that are subject to an analysis of their formation and operation in order to ascertain whether each is a government entity. That analysis is set out below in the detailed reasoning and it shows that W Body is an STB in terms of section 24AP and also it is not an excluded STB so it is a government entity; while the H Board is a local governing body as defined in the ITAA 1997 and is in turn a government entity; and K Body is a “municipal corporation” in accordance with the interpretation of that term by the court and is in turn a government entity. Accordingly, each of the three bodies, the W Body, H Board and K Body is a government entity. Consequently all members with a beneficial interest in Z are government entities and this satisfies paragraph 24AS(c). With respect to paragraph 24AS(d) the Rules of Z are examined in order to determine whether the right to vote, appoint or dismiss the Committee of Management/Board of Directors of Z is held by government entities. It is found that all members are government entities and that they possess those rights so this condition is met. Z is an STB in terms of section 24AS. Further Z is not an excluded STB as defined in section 24AT. Thus Z is a government entity in terms of paragraph 24AT(c). Ultimately the conclusion reached with respect to the Company is that it is an STB in terms of section 24AO and that it is not an excluded STB as defined in section 24AT. Thus pursuant to Division 1AB in Part III the Company is exempt from income tax. | Detailed Reasoning - Detailed reasoning: Division 1AB in Part III provides exemption for certain State or Territory bodies. In order to answer the question posed in this case it is necessary to determine whether the Company comes within section 24AK, which sets out the key principle for exemption under Division 1AB of Part III. In order to be subject to that key principle the Company must be a State or Territory body (STB) in any of the five ways provided for in the legislation at section 24AO to section 24AS, and not be an excluded STB in terms of section 24AT. Specifically section 24AO applies to the Company. | Detailed Reasoning - Is the Company an STB under section 24AO?: Whether the Company is an STB falls for consideration under section 24AO. Paragraph 24AO(a) requires that the Company is a company limited solely by shares. This requirement is met as noted in the relevant facts and circumstances above. Paragraph 24AO(b) requires that all the shares are beneficially owned by government entities. This condition is discussed below where it is found to be met. The term “government entity” is defined in Section 24AT. In the present case paragraph 24AT(a) which relates to a State and paragraph 24AT(b) which relates to a Territory are not relevant. However, paragraph 24AT(ba) which applies to a municipal corporation or other local governing body and paragraph 24AT(c) concerning another STB that is not an excluded STB, are relevant. Note that “local governing body” is defined in subsection 995-1(1) of the ITAA 1997. It is necessary to consider all the shareholders in the Company to determine whether each comes within the definition of a government entity in either paragraph 24AT(ba) or paragraph 24AT(c). | Detailed Reasoning - Are all Company shares held only by government entities?: There are two categories of shares issued by the Company; they are Class A Shares and Class Z Shares. Each category will be considered separately beginning with the Class A Shares. | Detailed Reasoning - Class A Shares – Is each shareholder a government entity?: The list of the Company’s members shows that the Class A Shares are held by various bodies and by E Pty Ltd; Q Group and R Limited; as well as by N and S. The examination of these bodies as to whether each is a government entity is set out below. | Detailed Reasoning - Local Bodies: It is necessary to determine whether a local body is a government entity as defined in section 24AT. Paragraph 24AT(ba) of that definition which relates to a municipal corporation or other local governing body is relevant. A municipal corporation is not defined in the ITAA 1936 or the ITAA 1997 and will not be considered further here in this instance. However, a local governing body is defined in subsection 995-1(1) of the ITAA 1997 to mean a local governing body established by or under a State law. It is accepted that a local body a governmental and administrative function in respect of the area for which it is constituted. Further, a local body is established by or under the G Act, a State law. Thus a local body is a local governing body in terms of subsection 995-1(1) of the ITAA 1997, In turn a local body is a government entity in terms of paragraph 24AT(ba). Each local body which holds a Class A Share in the Company is a government entity | Detailed Reasoning - Regional Bodies: It is necessary to determine whether a regional body is a government entity as defined in section 24AT. Paragraph 24AT(ba) of that definition which relates to a municipal corporation or other local governing body is relevant. A municipal corporation is not defined in the ITAA 1936 or the ITAA 1997 and will not be considered further here in this instance. However, a local governing body is defined in subsection 995-1(1) of the ITAA 1997 to mean a local governing body established by or under a State law. It is accepted that a local body a governmental and administrative function in respect of the area for which it is constituted. Further, a regional body is established by or under the G Act, a State law. Thus a local body is a local governing body in terms of subsection 995-1(1) of the ITAA 1997, In turn a local body is a government entity in terms of paragraph 24AT(ba). Each regional body which holds a Class A Share in the Company is a government entity | Detailed Reasoning - Other bodies that hold Class A Shares: There are five other bodies that are members of the Company that hold Class A Shares. They are E Pty Ltd; the Q Group; R Limited; N and S. It is necessary to determine whether each of these members is a government entity. Accordingly each is examined below. | Detailed Reasoning - E Pty Ltd – Section 24AO: You have submitted that E Pty Ltd is an STB in terms of section 24AO and is not an excluded STB. Paragraph 24AO(a) requires that the body is a company limited solely by shares. This requirement is met as noted in the relevant facts and circumstances above. Paragraph 24AO(b) requires that all the shares in the company are beneficially owned by government entities. This condition is considered below where it is found to be met. As discussed above the term “government entity” is defined in Section 24AT. It is noted in the statement of relevant facts and circumstances the shareholders in E Pty Ltd are local bodies. Each local body is a government entity. This is on the same basis as for the local bodies that directly hold Class A Shares in the Company (see above) namely that each local body fits the definition in subsection 995-1(1) of the ITAA 1997 as a local governing body that is established by or under a State law. In turn each local body is a government entity in terms of paragraph 24AT(ba). All the shareholders in E Pty Ltd are thus government entities. Therefore, paragraphs 24AO(a) and 24AO(b) are met so that E Pty Ltd is an STB in terms of section 24AO. It is also necessary to consider whether E Pty Ltd is an excluded STB as defined in section 24AT. An STB will be an excluded STB in any of the five ways provided for in the definition of an excluded STB in section 24AT. Those four exclusions are set out in the definition at paragraphs 24AT(a), (b), (c), (d) and (e). The exclusions are respectively where an STB is prescribed as an excluded STB; or is a municipal corporation or other local governing body; or is a public education institution; or is a public hospital; or is a superannuation fund. It is necessary to examine each paragraph separately and this is done below. E Pty Ltd is not prescribed as an excluded STB so paragraph 24AT(a) is met. Paragraph 24AT(b) as to whether E Pty Ltd is a municipal corporation or other local governing body requires close scrutiny. As the term “municipal corporation” is not defined in the ITAA 1936 or the ITAA 1997 a definition is required from another source. In this instance that other source is a court. In Federated Engine-Drivers and Firemen’s Association of Australasia v Broken Hill Pty Co Ltd 12 CLR 398, a High Court case, Barton J said: “ … a municipal corporation is a part of the governmental power of the State … “ In the same case Isaacs J considered the nature of the City X and said: “The City X Council … is primarily constituted for the purposes of municipal government, and in respect of its functions of legislation and administration may be said to be a subordinate local agent for the purposes of government.” … “... a corporation is constituted a regulating agent for certain purposes, and for those purposes is entrusted with governmental powers … “ Later His Honour said: Local government is true government, it is as much a subordinate branch of the Sovereign legislative power to make a by-law or declare a rate as the order of a local justice of the peace is a subordinate branch of the Sovereign judicial power. For the purposes of non-interference with their governmental functions, a municipal corporation might fairly claim to stand as … 'extending … the shield of the Crown to what might more fitly be described as the public government of the country.’ … E Pty Ltd does not have the power to make a by-law or declare a rate as described by Isaacs J above. E Pty Ltd does not possess any powers to perform a governmental or administrative function. Accordingly, E Pty Ltd is a not a municipal corporation. Turning to the term, “local governing body” which is defined in subsection 995-1(1) of the ITAA 1997. That definition requires that the body is established by or under a State or Territory law. However E Pty Ltd does not possess any powers to enable it to operate as a local governing body and consequently it is not a local governing body. In addition, E Pty Ltd is not established under a State or Territory law, it is a company established under the Corporations Act 2001 (Cth). Thus E Pty Ltd is not a municipal corporation or other local governing body and paragraph 24AT(b) is met. Further E Pty Ltd is not a public education institution so paragraph 24AT(c) is met; E Pty Ltd is not a public hospital so paragraph 24AT(d) is met; and E Pty Ltd is not a superannuation fund so paragraph 24AT(e) is met. Thus none of the five exclusions, which would render E Pty Ltd an excluded STB, applies. Therefore E Pty Ltd is a government entity in terms of paragraph 24AT(c) as it is “another STB that is not an excluded STB”. | Detailed Reasoning - Q Group: There are a number of bodies that are members of the Q Group as stated above in the relevant facts and circumstances. You have submitted that Q Group does not have its own legal personality, separate from the bodies that are members of the group. Consequently Q Group cannot enter into contracts in its own name; or own property such as shares in a company like the Company; or employ staff; or sue or be sued. With respect to the status of Q Group as the holder of a Class A Share you submit that Q Group is not a “body” for the purposes of Division 1AB of Part III. This is as explained above because Q Group does not have its own legal personality separate from the bodies that make up the group. Amongst other things this means Q Group cannot be an STB. You consider that the reference to Q group as the holder of one (1) Class A Share is nothing more than convenient shorthand for the bodies that are members of the group. The true owners of that one share are those bodies. That view is accepted. Each of the bodies is a government entity. This is on the same basis as for the bodies that directly hold Class A Shares in the Company (see above) namely that each body fits the definition in subsection 995-1(1) of the ITAA 1997 as a local governing body that is established by or under a State law. Therefore, it is accepted that the beneficial ownership of the one (1) Class A Share in the Company held in the name of Q Group rests with the bodies that are members of the group. This means the requirement in paragraph 24AO(b) that the share in the Company be held by one or more government entities is satisfied. | Detailed Reasoning - R Limited – Section 24AS: You have submitted that R Limited is an STB in terms of section 24AS and is not an “excluded STB” in terms of section 24AT. There are four conditions to be met in order for R Limited to come within section 24AS and they are set out in paragraphs 24AS(a) to 24AS(d). Paragraph 24AS(a) requires that the body is not a company limited by shares. R Limited is a company limited by guarantee so that condition is met. Paragraph 24AS(b) requires that R Limited is not established by State or Territory legislation. R Limited is incorporated under the Corporations Act 2001 (Cth); it is not established by State or Territory legislation. Thus that condition is met. Paragraph 24AS(c) requires that all the legal and beneficial interests in R Limited are held only by one or more government entities. In this instance the sole member of R Limited is the R Body. Consequently it is necessary to determine whether the R Body is a government entity as defined in section 24AT where paragraph 24AT(ba) which relates to a municipal corporation or other local governing body is relevant. Subsection 995-1(1) of the ITAA 1997 defines a local governing body to mean a local governing body established by or under a State law or Territory law. The R Body is a local governing body that is constituted under the G Act. It has been accepted above in the discussion of Class A Shares held directly by a body in the Company that a body is established under a State law. Therefore R Body is established under a State law. Accordingly, R Body satisfies the definition of a local governing body in subsection 995-1(1) of the ITAA 1997 and is in turn a government entity in terms of that definition in paragraph 24AT(ba). Therefore paragraph 24AS(c) is met with respect to R Limited because the sole member, R Body, is a government entity that holds all the legal and beneficial interests in R Limited. Paragraph 24AS(d) requires that the voting power to appoint or dismiss the Board of Directors of R Limited be held only by one or more government entities. The Constitution of R Limited deals with the appointment of directors to the Board and as the R Body is the sole member it has the voting power to appoint or dismiss the Board of Directors. The R Body is a government entity and thus paragraph 24AS(d) is met. Therefore, paragraphs 24AS(a), 24AS(b), 24AS(c) and 24AS(d) are met so that R Limited is an STB in terms of section 24AS. It is also necessary to consider whether R Limited is an excluded STB as defined in section 24AT. An STB will be an excluded STB in any of the four ways provided for in the definition of an excluded STB in section 24AT. Those five exclusions are in paragraphs 24AT(a), (b), (c) (d) and (e). The exclusions are respectively where an STB is prescribed as an excluded STB; or is a municipal corporation or other local governing body; or is a public education institution; or is a public hospital; or is a superannuation fund. It is necessary to examine each paragraph separately and this is done below. R Limited is not prescribed as an excluded STB so paragraph 24AT(a) is met. Paragraph 24AT(b) as to whether R Limited is a municipal corporation or other local governing body requires close scrutiny. As the term “municipal corporation” is not defined in the ITAA 1936 or the ITAA 1997 a definition is required from another source. In this instance that other source is a court. In Federated Engine-Drivers and Firemen’s Association of Australasia v Broken Hill Pty Co Ltd 12 CLR 398, a High Court case, Barton J said: “ … a municipal corporation is a part of the governmental power of the State … “ In the same case Isaacs J considered the nature of the City X Council and said: “The City X Council … is primarily constituted for the purposes of municipal government, and in respect of its functions of legislation and administration may be said to be a subordinate local agent for the purposes of government.” … “... a corporation is constituted a regulating agent for certain purposes, and for those purposes is entrusted with governmental powers … “ Later His Honour said: Local government is true government, it is as much a subordinate branch of the Sovereign legislative power to make a by-law or declare a rate as the order of a local justice of the peace is a subordinate branch of the Sovereign judicial power. For the purposes of non-interference with their governmental functions, a municipal corporation might fairly claim to stand as … 'extending … the shield of the Crown to what might more fitly be described as the public government of the country.’ … R Limited does not have the power to make a by-law or declare a rate as described by Isaacs J above. R Limited does not possess any powers to perform a governmental or administrative function. Accordingly, R Limited is a not a municipal corporation. Turning to the term, “local governing body” which is defined in subsection 995-1(1) of the ITAA 1997. That definition requires that the body is established by or under a State or Territory law. However R Limited does not possess any powers to enable it to operate as a local governing body and consequently it is not a local governing body. In addition, R Limited is not established under a State or Territory law, it is a company established under the Corporations Act 2001 (Cth). Thus R Limited is not a municipal corporation or other local governing body and paragraph 24AT(b) is met. Further R Limited is not a public education institution so paragraph 24AT(c) is met; d R Limited is not a public hospital so paragraph 24AT(d) is met; and R Limited is not a superannuation fund so 24AT(e) is met.. None of the five exclusions, which would render R Limited an excluded STB, applies. Therefore, R Limited is an STB in terms of section 24AS and it is not an excluded STB. Thus R Limited is a government entity in terms of that definition in paragraph 24AT(c). | Detailed Reasoning - N: You submit that N is a government entity in terms of section 24AT on the basis that it is an STB in terms of section 24AS and is not an excluded STB in terms of section 24AT. There are four conditions to be met in order for N to come within section 24AS and they are set out in paragraphs 24AS(a) to 24AS(d). Paragraph 24AS(a) requires that the body is not a company limited by shares. N is an incorporated association so that condition is met. Paragraph 24AS(b) requires that N is not established by State or Territory legislation. The term “established by” is not defined in the ITAA 1936 or the ITAA 1997. Although it is noted that in subsection 995-1(1) of the ITAA 1997 in the definition of a “local governing body” that definition provides that the body “is established by or under a *State law or *Territory law”. Accordingly, it is understood that there is a difference between “established by” and “established under” such that they do not have the same meaning. In this instance N is an association that is incorporated under the A Act. Consequently, applying the distinction explained above it is considered that N was not established by a State law and that the requirement of paragraph 24AS(b) is met. Paragraph 24AS(c) requires that all the legal and beneficial interests in N are held only by one or more government entities. In this instance the members of N are a number of bodies. Each of those bodies is a local governing body that is constituted under the G Act. It has been accepted above in the discussion of Class A Shares held directly in the Company by a body that the body is established under a State law. Therefore each of these bodies is established under a State law. Accordingly, each member body meets the definition of a local governing body in subsection 995-1(1) of the ITAA 1997 and is in turn a government entity in terms of that definition in paragraph 24AT(ba). Therefore paragraph 24AS(c) is met because one or more government entities holds all the legal and beneficial interests in N. Paragraph 24AS(d) requires that the voting power to appoint or dismiss the governing person or body of N be held only by one or more government entities. The Constitution of N provides that the Board comprises representatives from each member body. The Constitution also provides that the business of N is managed by the Board. Consequently paragraph 24AS(d) is met. Thus paragraphs 24AS(a), 24AS(b), 24AS(c) and 24AS(d) are met so that N is an STB in terms of section 24AS. It is also necessary to consider whether N is an excluded STB as defined in section 24AT. An STB will be an excluded STB in any of the four ways provided for in the definition of an excluded STB in section 24AT. Those five exclusions are set out in the definition at paragraphs 24AT(a), (b), (c), (d) and (e). The exclusions are respectively where an STB is prescribed as an excluded STB; or is a municipal corporation or other local governing body; or is a public education institution; or is a public hospital; or is a superannuation fund. It is necessary to examine each paragraph separately and this is done below. N is not prescribed as an excluded STB so paragraph 24AT(a) is met. Paragraph 24AT(b) as to whether N is a municipal corporation or other local governing body requires close scrutiny. As the term “municipal corporation” is not defined in the ITAA 1936 or the ITAA 1997 a definition is required from another source. In this instance that other source is a court. In Federated Engine-Drivers and Firemen’s Association of Australasia v Broken Hill Pty Co Ltd 12 CLR 398, a High Court case, Barton J said: “ … a municipal corporation is a part of the governmental power of the State … “ In the same case Isaacs J considered the nature of the City X Council and said: “The City X Council … is primarily constituted for the purposes of municipal government, and in respect of its functions of legislation and administration may be said to be a subordinate local agent for the purposes of government.” … “... a corporation is constituted a regulating agent for certain purposes, and for those purposes is entrusted with governmental powers … “ Later His Honour said: Local government is true government, it is as much a subordinate branch of the Sovereign legislative power to make a by-law or declare a rate as the order of a local justice of the peace is a subordinate branch of the Sovereign judicial power. For the purposes of non-interference with their governmental functions, a municipal corporation might fairly claim to stand as … 'extending … the shield of the Crown to what might more fitly be described as the public government of the country.’ … N does not have the power to make a by-law or declare a rate as described by Isaacs J above. N does not possess any powers to perform a governmental or administrative function. Accordingly, N is not a municipal corporation. Turning to the term, “local governing body” which is defined in subsection 995-1(1) of the ITAA 1997. That definition requires that the local governing body is established by or under a State or Territory law. However N does not possess any powers to enable it to operate as a local governing body and consequently it is not a local governing body. Although N is established under a State law, this alone is not sufficient for N to be excluded by the terms of paragraph 24AT(b). Accordingly N is not a municipal corporation or other local governing body and paragraph 24AT(b) is met. Further N is not a public education institution so paragraph 24AT(c) is met; N is not a public hospital so paragraph 24AT(d) is met; and N is not a superannuation fund so paragraph 24AT(e) is met. None of the five exclusions, which would render N an excluded STB, applies. Thus N is an STB in terms of section 24AS and it is not an excluded STB. Therefore N is a government entity in terms of that definition in paragraph 24AT(c). | Detailed Reasoning - S: You submit that S is a government entity in terms of section 24AT on the basis that it is an STB in terms of section 24AS and is not an excluded STB in terms of section 24AT. There are four conditions to be met in order for S to come within section 24AS and they are set out in paragraphs 24AS(a) to 24AS(d). Paragraph 24AS(a) requires that the body is not a company limited by shares. S is an incorporated association so that condition is met. Paragraph 24AS(b) requires that S is not established by State or Territory legislation. The term “established by” is not defined in the ITAA 1936 or the ITAA 1997. Although it is noted that in subsection 995-1(1) of the ITAA 1997 in the definition of a “local governing body” that definition provides that the body “is established by or under a *State law or *Territory law”. Accordingly, it is understood that there is a difference between “established by” and “established under” such that they do not have the same meaning. In this instance S is an association that is incorporated under the A Act, a State law. Consequently, applying the distinction explained above it is considered that S was not established by a State law and that the requirement of paragraph 24AS(b) is met. Paragraph 24AS(c) requires that all the legal and beneficial interests in S are held only by one or more government entities. In this instance the members of S are a number of bodies. Each of those bodies is a local governing body that is constituted under the G Act. It has been accepted above in the discussion of Class A Shares held directly in the Company by a body that a body is established under a State law. Therefore each of these bodies is established under a State law. Accordingly, each member body meets the definition of a local governing body in subsection 995-1(1) of the ITAA 1997 and is in turn a government entity in terms of that definition in paragraph 24AT(ba). Therefore paragraph 24AS(c) is met because one or more government entities holds all the legal and beneficial interests in S. Paragraph 24AS(d) requires that the voting power to appoint or dismiss the governing person or body of S be held only by one or more government entities. As shown in the relevant facts and circumstances the Constitution of S provides that the Board comprises representatives from each member body. It also provides that the business of S is managed by the Board. Consequently paragraph 24AS(d) is met. Thus paragraphs 24AS(a), 24AS(b), 24AS(c) and 24AS(d) are met so that S is an STB in terms of section 24AS. It is also necessary to consider whether S is an excluded STB as defined in section 24AT. An STB will be an excluded STB in any of the five ways provided for in the definition of an excluded STB in section 24AT. Those four exclusions are set out in the definition at paragraphs 24AT(a), (b), (c), (d) and (e). The exclusions are respectively where an STB is prescribed as an excluded STB; or is a municipal corporation or other local governing body; or is a public education institution; or is a public hospital; or is a superannuation fund. It is necessary to examine each paragraph separately and this is done below. S is not prescribed as an excluded STB so paragraph 24AT(a) is met. Paragraph 24AT(b) as to whether S is a municipal corporation or other local governing body requires close scrutiny. As the term “municipal corporation” is not defined in the ITAA 1936 or the ITAA 1997 a definition is required from another source. In this instance that other source is a court. In Federated Engine-Drivers and Firemen’s Association of Australasia v Broken Hill Pty Co Ltd 12 CLR 398, a High Court case, Barton J said: “ … a municipal corporation is a part of the governmental power of the State … “ In the same case Isaacs J considered the nature of the City X Council and said: “The City X Council … is primarily constituted for the purposes of municipal government, and in respect of its functions of legislation and administration may be said to be a subordinate local agent for the purposes of government.” … “... a corporation is constituted a regulating agent for certain purposes, and for those purposes is entrusted with governmental powers … “ Later His Honour said: Local government is true government, it is as much a subordinate branch of the Sovereign legislative power to make a by-law or declare a rate as the order of a local justice of the peace is a subordinate branch of the Sovereign judicial power. For the purposes of non-interference with their governmental functions, a municipal corporation might fairly claim to stand as … 'extending … the shield of the Crown to what might more fitly be described as the public government of the country.’ … S does not have the power to make a by-law or declare a rate as described by Isaacs J above. S is a group of bodies that have joined together to promote mutual interests in the region and it does not possess any powers to perform a governmental or administrative function. Accordingly, S is not a municipal corporation. Turning to the term, “local governing body” which is defined in subsection 995-1(1) of the ITAA 1997. That definition requires that the local governing body is established by or under a State or Territory law. However S does not possess any powers to enable it to operate as a local governing body and consequently it is not a local governing body. Although S is established under a State law, this alone is not sufficient for S to be excluded by the terms of paragraph 24AT(b). Accordingly S is not a municipal corporation or other local governing body and paragraph 24AT(b) is met. Further S is not a public education institution so paragraph 24AT(c) is met; S is not a public hospital so paragraph 24AT(d) is met; and S is not a superannuation fund so paragraph 24AT(e) is met. None of the five exclusions, which would render S an excluded STB, applies. Thus S is an STB in terms of section 24AS and it is not an excluded STB. Therefore S is a government entity in terms of that definition in paragraph 24AT(c). | Detailed Reasoning - Conclusion – Class A Shares: Each holder of a Class A Share in the Company is a government entity. | Detailed Reasoning - Class Z Shares – Is Z a government entity?: Z is a shareholder in the Company. Z holds all the Class Z Shares. You have submitted that Z is a government entity on the basis that it is an STB in terms of section 24AS and is not an excluded STB in terms of section 24AT. There are four conditions to be met in order to come within section 24AS and they are set out in paragraphs 24AS(a) to 24AS(d). Paragraph 24AS(a) requires that the entity is not a company limited by shares. Z is an association, but not a company, so that condition is met. Paragraph 24AS(b) requires that it is not established by State or Territory legislation. Z is not established by State or Territory legislation. Z is an association that is registered under the J Act. Thus paragraph 24AS(b) is met. Paragraph 24AS(c) requires that all the legal and beneficial interests in Z are held only by one or more government entities. The detailed examination of the membership of Z as set out below shows that each member of Z is a government entity and thus this requirement is met. Paragraph 24AS(d) requires that the voting power to appoint or dismiss the Board of Directors of Z be held only by one or more government entities. The detailed examination of the membership of Z as set out below shows that each member of Z is a government entity and thus this requirement is met. Accordingly, each of the four conditions in paragraphs 24AS(a), (b), (c) and (d) is met and thus Z is an STB in terms of section 24AS. It is also found that Z is not an excluded STB. Therefore Z is a government entity because it is “another STB that is not an excluded STB” in terms of paragraph 24AT(c). | Detailed Reasoning - Membership of Z: Paragraphs 24AS(a) and (b) are addressed immediately above where it is found that they are met and thus no further discussion is required. Accordingly, the examination of the membership of Z is confined here to paragraphs 24AS(c) and (d). Paragraph 24AS(c) requires that all the legal and beneficial interests in Z are held only by one or more government entities. Paragraph 24AS(d) requires that all the rights and 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. Therefore in order for Z to be an STB each member of Z must be a government entity. This is examined below. A copy of the Rules of Z has been provided and pertinent rules regarding membership appear in the relevant facts and circumstances above. There are two categories of membership, Ordinary members and Associate members. A copy of the Register of Members of Z has been provided. The register shows that the members are as described in the Rules of Z. The Ordinary members are bodies located in metropolitan and rural areas plus W Body, The Associate members are regional bodies plus the H Board and the K Body. You have provided additional information and reasoning in support of your view that each body is a government entity. We have examined that information and it is accepted that each body is a government entity. Details of our examination and the reasons for our findings are set out below with respect to Ordinary members and Associate members and to each body separately. | Detailed Reasoning - Local Bodies: You submit that each local body which is an Ordinary member of Z is a “government entity” as defined in Section 24AT. In this instance paragraph 24AT(ba) which applies to a municipal corporation or other local governing body (as defined in subsection 995-1(1) of the ITAA 1997) is relevant. Each body is a government entity. This is on the same basis as for the bodies that hold Class A Shares in the Company. Please see the reasoning above. However, W Body is also an Ordinary member and it is necessary to ascertain whether it is a government entity. | Detailed Reasoning - W Body: You have submitted, amongst other things, that W Body is a local governing body. The term “local governing body” is defined in subsection 995-1(1) of the ITAA 1997 which reads: local governing body means a local governing body established by or under a *State law or *Territory law In order to consider whether W Body comes within that definition the functions of the W Body will be examined. The functions of W Body appear in the R Act. The functions which the W Body performs are governmental and administrative functions. Consequently W Body is a governing body. Further because W Body is established by the R Act it meets the definition of a local governing body in subsection 995-1(1) of the ITAA 1997. In turn W Body is a government entity in terms of that definition in paragraph 24AT(ba). | Detailed Reasoning - Associate Members of Z: The Associate Members of Z are regional bodies plus H Board and K Body. Each is examined separately below. | Detailed Reasoning - Regional Bodies: The G Act contains provisions dealing with the establishment of regional bodies. It is necessary to determine whether a regional body is a government entity and in this instance the same reasoning as was applied to the bodies above with respect to the Class A Shares will be applied here. The definition of a government entity in section 24AT is relevant as is the definition of a local governing body in subsection 995-1(1) of the ITAA 1997. A regional body is a local governing body that is established under the G Act, a State law. A regional body is therefore a government entity in terms of paragraph 24AT(ba). | Detailed Reasoning - H Board: You have submitted that H Board is a government entity in terms of section 24AT. In the present instance paragraph 24AT(ba) which applies to a municipal corporation or other local governing body is relevant. For the purposes of paragraph 24AT(ba) it is necessary to consider whether H Board is a “local governing body” within that definition in subsection 995-1(1) of the ITAA 1997 must be considered. The definition requires that H Board be established by or under a State or Territory law. This condition is met because H Board is established under the H Act, a State law. Therefore, H Board is a local governing body established under a State law and it is in turn a government entity. | Detailed Reasoning - K Body: You have submitted that K Body is a government entity in terms of section 24AT. In the present case paragraph 24AT(ba) which applies to a municipal corporation or other local governing body is relevant. For the purposes of paragraph 24AT(ba) it is necessary to consider whether K Body is a “municipal corporation”. However, as that term is not defined in the ITAA 1936 or the ITAA 1997 a definition of the term is required from another source. In this instance that other source is a court. In Federated Engine-Drivers and Firemen’s Association of Australasia v Broken Hill Pty Co Ltd 12 CLR 398, a High Court case, Barton J said: “ … a municipal corporation is a part of the governmental power of the State … “ In the same case Isaacs J considered the nature of the City X Council and said: “The City X Council … is primarily constituted for the purposes of municipal government, and in respect of its functions of legislation and administration may be said to be a subordinate local agent for the purposes of government.” … “... a corporation is constituted a regulating agent for certain purposes, and for those purposes is entrusted with governmental powers … “ Later His Honour said: Local government is true government, it is as much a subordinate branch of the Sovereign legislative power to make a by-law or declare a rate as the order of a local justice of the peace is a subordinate branch of the Sovereign judicial power. For the purposes of non-interference with their governmental functions, a municipal corporation might fairly claim to stand as … 'extending … the shield of the Crown to what might more fitly be described as the public government of the country.’ … K Body is performing a governmental and administrative function and is therefore considered to be a “municipal corporation”. K Body is in turn a “government entity” as defined in paragraph 24AT( ba). | Detailed Reasoning - Conclusion – Z Shares: Z which holds all the Class Z Shares in the Company is a government entity. | Summary: The Company is an STB under Section 24AO. The Company is not an excluded STB under Section 24AT. The income of the Company is exempt from tax under Division 1AB of Part III of the ITAA 1936.

Reasons for decision: All legislative references are to provisions of the Income Tax Assessment Act 1936 (ITAA 1936) unless otherwise specified.