Private ruling: State/Territory Body - Income tax exempt status
Published: November 2012
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the entity a State/Territory Body (STB) exempt from income tax pursuant to section 24AM of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes

Relevant facts and circumstances: The entity is an Australian Proprietary Company limited by shares. Its shareholders are Government Councils from regional and metropolitan areas.

Relevant legislative provisions: Income Tax Assessment Act 1936 - section 24AM | Income Tax Assessment Act 1936 - section 24AN | Income Tax Assessment Act 1936 - section 24AO | Income Tax Assessment Act 1936 - section 24AT | Income Tax Assessment Act 1997 - section 50-25 | Income Tax Assessment Act 1997 - section 995-1(1)

Reasons for decision: Summary: Subdivision A of Division 1AB of the ITAA 1936 provides income tax exemption for certain State Territory Bodies (STB's) in respect of income derived on or after 1 July 1994. There are five different ways in which a body can be an STB under Division 1AB. Section 24AO of the ITAA 1936 provides the first way in which a body can be an STB. 24AO 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. | Detailed Reasoning - 1. Is the entity an STB pursuant to section 24AO of the ITAA 1936?: (a) Company The entity an Australian proprietary company limited by shares. The first requirement has been met. (b) Shares beneficially owned by one or more government entities All the legal and beneficial interests in an STB which are exempt from income tax under section 24AO of the ITAA 1936 must be held only by one or more government entities. The definition of government entity is set out in section 24AT which provides: … government entity means: (a) a State (b) a Territory (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 The term "local governing body" is defined in subsection 995-1(1) of the ITAA 1997 as meaning a local governing body established by or under a State Law or Territory Law. Broadly this refers to a city, town, municipal, or shire council. All the shares in the entity are owned by municipal councils, these councils fall within the definition of a local governing body. Therefore the entity meets the requirement of item (b). | Summary: Both requirements for the entity to be an STB pursuant to section 24AO of the ITAA 1936 have been met. | Detailed Reasoning - 2. Is the entity an excluded STB as defined in section 24AT of the ITAA 1936?: Under section 24AM, the income of an STB is exempt from income tax unless section 24AN applies, that is, it is an excluded STB. Section 24AT sets out the meaning of an excluded STB: 24AT in this Division: 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(a) to (c) of the Income Tax Assessment Act 1997 applies; or (d) is a public hospital to which any of paragraphs 50-55 (a) to (c) of the Income Tax Assessment Act 1997 applies; or (e) is a superannuation fund The entity is not included in the list of STB's for State and Territory under the schedules listed at Regulation 3 of the Income Tax (Excluded STB's) Regulations 1997 . The entity is therefore not prescribed as an excluded STB. It is clearly evident that the entity is not a public hospital, a public educational institution, or a superannuation fund. The entity is not a municipal corporation or local governing body. Its shareholders are Councils which are local governing bodies. However, the explanation at section 24AT of the ITAA 1936 provides that bodies owned or controlled by a local governing body may be an STB even though the local governing body itself is an excluded STB. Consequently, as the entity does not fall within any of the criteria for section 24AT to apply, it is not an excluded STB. | Detailed Reasoning - 3. Is the income of entity exempt from income tax pursuant to section 24AM of the ITAA 1936?: Section 24AM states: 24AM. The income of a State/Territory body (an STB) is exempt from income tax unless section 24AN applies to the STB. It has already been established that 24AN of the ITAA 1936 does not apply because the entity is not an excluded STB. It has also been established that the entity is an STB that meets the requirements of section 24AO because: · It is a company limited solely by shares · Its legal and beneficial interests are held by one or more government entities As the entity is an STB that is not an excluded STB, its income is exempt from income tax pursuant to section 24AM of the ITAA 1936.

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