Private ruling: Whether an entity is 'the Commonwealth, a State or a Territory'.
Date of advice: 1 November 2017
Published: March 2018

Ruling: Q1: Is A ‘the Commonwealth, a State or a Territory’ for the purposes of section 38-445, section 38-450 and section 75-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes, A is ‘a State’ for the purposes of section 38-445, section 38-450 and section 75-10 of the GST Act.

Relevant facts and circumstances: A’s website states that the first meeting of A was held in 199X. This suggests that A was originally constituted under State local government legislation which was repealed and replaced by the current State Local Government Act (LGA). The current LGA provides that a local government under the repealed legislation continues in existence as a local government under the current LGA. The current LGA provides that a local government is an elected body that is responsible for the good rule and local government of a part of the State and has the power to do anything that is necessary or convenient for the good rule and local government of its local government area, but can only do something that the State can validly do. The current LGA also provides that a local government is a body corporate with perpetual succession, has a common seal and may sue and be sued in its name.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 38-445 | A New Tax System (Goods and Services Tax) Act 1999 section 38-450 | A New Tax System (Goods and Services Tax) Act 1999 section 75-10

Reasons for decision: Summary: Each of section 38-445, section 38-450 and section 75-10 of the GST Act refers to a supply made by ‘the Commonwealth, a State or a Territory’. Goods and Services Tax Ruling GSTR 2006/ 5 – Goods and Services Tax: meaning of ‘Commonwealth, a State or a Territory’ discusses the meaning of ‘the Commonwealth, a State or a Territory’ for the purposes of nine provisions of the GST Act, including section 38-445, section 38-450 and section 75-10. Paragraphs 8 to 12 of GSTR 2006/5: Paragraph 13 of GSTR 2006/5 states that a local government may be ‘a State or Territory’: 13. Local governments may be a State or Territory. As is the case for corporations, the Commissioner considers that the principles developed by the High Court of Australia in cases concerning the meaning of 'a State' in section 114 of the Constitution, as described at paragraphs 8 to 12 of this Ruling, also apply in determining whether a particular local government is a 'State' or 'Territory' for the purposes of the GST Act. Paragraph 8 of GSTR 2005/6 provides that a corporation which is not a ‘government entity’ as defined in section 195-1 of the GST Act may be ‘the Commonwealth, a State or a Territory’. Paragraph 9 of GSTR 2006/5 provides that this issue is to be determined in accordance with principles developed by the High Court of Australia in determining the meaning of ‘a State’ in section 114 of the Commonwealth of Australia Constitution Act , most recently in SGH Ltd v Commissioner of Taxation [2002] HCA 18. Paragraph 11 of GSTR 2006/5 provides that the fundamental principle developed by the High Court of Australia is that if a corporation is discharging governmental functions for the State, i.e. the State is carrying on the relevant business or other function through the corporation, the corporation is the State. In the present case the ruling request referred to the State Constitution which provides that there must be a system of local Government in the State consisting of a number of local governments and that another Act may provide for the way in which a local government is constituted and the nature and extent of its functions and powers. The current LGA provides that its purpose is to provide for the way in which a local government is constituted and the nature and extent of its responsibilities and powers and that a local government is an elected body that is responsible for the good rule and local government of a part of the State. These provisions suggest that A is discharging governmental functions for the State and is therefore the State under the test set out in paragraph 11 of GSTR 2006/5. Paragraph 12 of GSTR 2006/5 sets out the factors to be considered in determining whether the State is carrying on a business or other function through a corporation. Paragraph 12(b) of GSTR 2006/5 provides that if a corporation must act solely in the interests of the State the conclusion that it is the State will readily follow. Paragraph 12(d) provides that, where a corporation must pursue the interests of the State or the public, that is an indicator that the corporation is the State. In the present case although the current LGA provides that a local government has the power to do anything that is necessary or convenient for the good rule and local government of its local government area, the current LGA also provides that a local government can only do something that the State can validly do and that if there is any inconsistency between a local law and a law made by the State, the law made by the State prevails to the extent of the inconsistency. The current LGA also provides that where a local government proposes to make a local law other than a local law that incorporates a model local law or a subordinate local law the local government first must consult with relevant government entities about the overall State interest in the proposed local law and provides for the Minister to suspend or revoke a local law if the Minister reasonably believes the local law is contrary to any other law, inconsistent with the local government principles or does not deal satisfactorily with the overall State interest. These provisions of the current LGA indicate that A must act solely in the interests of the State. Paragraph 12(c) of GSTR 2006/5 provides that if the State does not control the conduct of the affairs of a corporation the State cannot be said to be carrying on activities of government through the corporation. The current LGA allows the Minister to monitor and evaluate whether a local government is performing their responsibilities properly or is complying with the Local Government Acts and to take remedial action. The current LGA allows the Minister to dissolve a local government and appoint an interim administrator. In our view these provisions give the State control of the conduct of the A’s affairs. Paragraph 12(l) of GSTR 2006/5 provides that a regulatory role, e.g. the power to make by-laws, is an indicator that a corporation is an instrument of the State. The current LGA allows a local government to make and enforce any local law that is necessary or convenient for the good rule and local government of its local government area. Municipal Council of Sydney: Paragraph 15 of GSTR 2006/5 refers to Municipal Council of Sydney v The Commonwealth (1904) 1 CLR 208 HCA ( Municipal Council of Sydney ) which held that the Municipal Council of Sydney was the ‘State’ for the purposes of section 114 of the Commonwealth of Australia Constitution Act : 15. In The Municipal Council of Sydney v. The Commonwealth (' Municipal Council of Sydney' ), in three separate judgements, all judges of the High Court agreed that the Municipal Council of Sydney was the 'State' for the purposes of section 114 of the Constitution. The power delegated to the Council, by State legislation, which allowed the Council to levy rates, was the determinative factor in that case. In the present case the current LGA provides that each local government must levy general rates on all rateable land within the local government area and may levy special rates and charges, utility charges and separate rates and charges. Paragraph 15D of GSTR 2006/5 refers to court decisions which have applied Municipal Council of Sydney and states: 15D. These decisions demonstrate that the legislation constituting a particular local government must be considered to determine whether it is a State for the purposes of section 114 of the Constitution. These decisions do not stand for a general proposition that local governments are a State for the purposes of section 114 of the Constitution In our view, apart from the power to levy rates, the provisions of the current LGA referred to above in relation to the application of the factors in paragraph 12 of GSTR 2006/5 support the view that A is ‘a State’ for the purposes of section 38-445, section 38-450 and section 75-10 of the GST Act.