Private ruling: Exemption from Income tax and fringe benefits tax as a public authority
Published: February 2012
Ruling period: Year ended 30 June 2012 Year ended 30 June 2013 Year ended 30 June 2014 Year ended 30 June 2015 Year ended 30 June 2016 | FBT Year ended 31 March 2012 FBT Year ended 31 March 2013 FBT Year ended 31 March 2014 FBT Year ended 31 March 2015 FBT Year ended 31 March 2016
Date scheme commenced: Commencement of Arrangement: Continuation 01 July 2011

Ruling: Q1: Is the income derived by the rulee exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that the rulee is a public authority for the purposes of section 50-25 of ITAA 1997? | A1: Yes | Q2: Is the rulee exempt from fringe benefits tax under paragraph 55(b) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A2: Yes


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 50-1. Income Tax Assessment Act 1997 Section 50-25. Income Tax Assessment Act 1997 Section 995-1. Fringe Benefits Tax Assessment Act 1986 Paragraph 55(b).

Reasons for decision: Detailed Reasoning - 1. Is the rulee a public authority?: Section 50-1 of ITAA 1997 exempts from income tax the income of entities referred to in the tables in Division 50 of ITAA 1997. Division 50 of ITAA 1997 contains a table which relates to government entities. The rulee maintains that it is an entity referred to in this table by reason of it being a public authority for the purposes of item 5.2 of section 50-25 of ITAA 1997. Item 5.2 of section 50-25 of ITAA 1997 refers to a public authority constituted under an Australian law. The term Australian law is defined in section 995-1 of ITAA 1997 to mean a law of the Commonwealth, a law of a State, or a law of a Territory. In this instance, the rulee is constituted as a body corporate under an Australian law. Accordingly, the rulee is constituted pursuant to an Australian law. The term public authority is not defined in ITAA 1997. However, following numerous High Court decisions about this matter, including Renmark Hotel Inc v. FC of T (1949) 79 CLR 10, the Commissioner issued Taxation Ruling IT 2632 on 26 April 1991. This Ruling states in paragraph 14 that in determining whether a particular body is a public authority it is necessary to: Examine all the characteristics of the body to determine whether it can be seen in general to conform to the common understanding of a public authority. To so conform a body would be expected to have public duties, functions or powers to perform and these would ordinarily be carried out under statutory authority for the benefit of the public. While not essential, a distinguishing characteristic is the possession of exceptional powers conferred by statute beyond those possessed by private individuals. However, the derivation of profits for distribution to shareholders or members would not ordinarily be characteristic of a public authority. Since the publication of IT 2632, there have been Federal Court cases involving the nature of a public authority. In FC of T v. Bank of Western Australia Limited; FC of T v. State Bank of New South Wales Limited 96 ATC 4009 (the Bank case), Hill J made a decision after extracting the following propositions from the previous cases about public authorities: i. A question whether a particular entity is an authority will be a question of fact and degree dependent upon all the circumstances of the case. No one factor will be determinative; rather there will be a range of considerations. ii. A private body, corporate or unincorporated, established for profit will not be an authority. Iii. Incorporation by legislation is not necessary. iv. The body in question must be an agency or instrument of government set up to exercise control or execute a function in the public interest. It must be an instrument of government existing to achieve a government purpose. v. The body must perform a traditional or inalienable function of government and have governmental authority for doing so. vi. It is not necessary that the body have coercive powers, whether of an administrative or legislative character. Conversely, the fact that a body has statutory duties or powers will not of itself suffice to characterise that body as an authority. vii. At least where the question is whether a body is a public authority the body must exercise control power or command for the public advantage or execute a function in the public interest. In Coal Mining Industry (LSLF) Corp v. FCT 99 ATC 4326; 41 ATR 388, the Court acknowledged the usefulness of these propositions in understanding the previous cases involving public authorities. However, it mentioned that the propositions should not be regarded as being conclusive of whether an entity did or did not qualify as a public authority. The reason given for this view was that the resolution of this issue is essentially one of fact and degree dependent upon all the circumstances of the case. The above discussion demonstrates that there has been no material change in nature of a public authority, or to the Courts approach to resolving this issue since the publication of IT 2632. Therefore, using the propositions in the Bank case as a starting point for a discussion of the rulee's circumstances, it is noted that: · the rulee has not been established for the purpose of deriving profits for its members. · the rulee has been established for the purpose of promoting further mutual understanding between the people of two countries via the participation in educational and cultural interchange programs. Although such programs can be conducted by non-government or private entities, the purpose of furthering the understanding between countries is an inalienable function of government. · the rulee is an agency or instrument of government given that: it has been established by an Act of Parliament pursuant to a bi-national agreement; it is primarily funded by the Australian and …..… Governments; its Board of Directors is appointed by governments; its honorary chairmen are government representatives, it is required to report annually to the Australian and ………. Governments; and the two governments exercise control over its budget. · both the Preamble and Article 1 of the bi-national agreement indicate that the rulee has been established to achieve a government purpose which is of benefit to the public. · the rulee does not possess any coercive powers of an administrative or legislative character. · the rulee does not appear to have any exceptional powers beyond those possessed by private individuals. The first five factors are consistent with the rulee being recognised as a public authority. However, the lack of exceptional powers may mean that the rulee is not a public authority. The meaning ascribed to the term exceptional powers is evident from the following extract from The Committee of Direction of Fruit Marketing v. Australian Postal Commission (1980) 144 CLR 577 where Gibbs J said at 580 that: The words authority of a State naturally mean a body which is given by the State the power to direct or control the affairs of others on behalf of the State i.e., for the purposes of and in the interests of the community or some section of it. The rulee contends that it has exceptional powers due to the following factors: (a) when allocating the rulee with an Indirect Tax Concession Scheme Reference Number, this office advised the rulee that it was not part of the Australian taxation system because of its status as an Embassy, High Commission, Consular Post or International Organisation; and (b) Article 11 of the bi-national agreement effectively exempts all funds and property used for the rulee's purposes from income tax. It is considered that whilst these factors may be indicative of exceptional privileges, neither gives the rulee the power to direct or control the affairs of others on behalf of a government. Accordingly, it is considered that the rulee does not have any exceptional powers beyond those possessed by private individuals. In this particular case, there are no additional factors which will assist in determining whether the rulee is a public authority. Consequently, a determination of the rulee's status depends upon the significance of the absence of exceptional powers. As previously mentioned, IT 2632 was based on several High Court decisions involving public authorities. IT 2632 states that while the possession of exceptional powers is a distinguishing characteristic of a public authority, it is not essential that a public authority possesses such powers. The only court cases involving public authorities since the publication of IT 2632 appear to be from the Federal Court. As the High Court is superior in ranking to the Federal Court, it is considered that the view expressed in IT 2632 still applies. Accordingly, given that it has been demonstrated that the rulee satisfies the remaining requirements specified in IT 2632, it is considered that the rulee is a public authority for the purposes of item 5.2 of section 50-25 of ITAA 1997. This conclusion in turn means that the income derived by the rulee is exempt from income tax under section 50-1 of ITAA 1997. | Detailed Reasoning - 2. Is the rulee exempt from fringe benefit tax?: Paragraph 55(b) of the FBTAA exempts any benefit that is provided by any organisation established under an agreement to which Australia is a party and which obliges Australia to grant the organisation immunity from liability to pay tax in respect of the benefit. The rulee is an organisation established by a bi-national agreement between the Australian and …… governments. Article 11 of the bi-national agreement provides that, in effect, the rulee is exempt from taxation of every kind in Australia. Accordingly, the rulee is exempt from fringe benefits tax under paragraph 55(b) of the FBTAA. As the circumstances of the Company have not changed, the ruling will be extended for another four years.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Subject: Exemption from Income tax and fringe benefits tax as a public authority: The rulee, has lodged an application for a private ruling regarding whether it is exempt from income tax and fringe benefits tax. | The rulee administers charitable educational activities. It also provides an information service to Australian institutions and individuals interested in study or institutional linkages overseas. The rulee's principal office is in Australia, although meetings of the Board and its committees can be held wherever the Board decides. The rulee's activities also can be conducted in places approved by the Board. | The Commissioner has previously issued two favourable rulings to the rulee on the issue of their exempt status. | The rulee confirms that all its activities remain the same as those included in the original ruling and that there has been no material change in circumstances since the issuing of the last ruling. | On the basis of the rulee's submission and confirmation, all information and documents submitted to the ATO in relation to the original ruling are still current and are to be incorporated into the factual circumstances of this private ruling including: | · a copy of the bi-national agreement . | · a copy of the Act that established the rulee as a legal entity. | The bi-national agreement includes the following clauses: | There shall be established a foundation to be known as ………. to replace the ….. The ……. be recognised by the Government of the Commonwealth of Australia and the Government of ……………as a bi-national organisation created and established to facilitate the administration of the educational and cultural programme to be financed by funds made available to the (rulee) for such purpose. Except as provided in Article 3 hereof the (rulee) shall be exempt from the domestic and local laws of the ………. and Australia as they relate to the use and expenditure of currencies and credits for currencies and the acquisition of property for the purposes set forth in the present agreement. | The funds made available under the present agreement (including any accruals arising from investments of other use thereof as interest or otherwise), within the conditions and limitations hereinafter set forth, shall be used by the (rulee) for the purpose of: | (1) financing studies, research, instruction, and other educational activities of or for (i) citizens and national of the ………in Australia, and nationals of the ……………in Australia, and (ii) citizens of Australia in ………….schools and institutions of learning located in or outside the ……….; | (2) financing visits and interchanges between the ………. and Australia of students, trainees and teachers at all educational levels; and | (3) financing such other related educational and cultural programmes and activities as are provided for in budgets approved in accordance with Article 3 hereof. | Article 3: All commitments, obligations or expenditure by the rulee shall be made pursuant to an annual budget to be approved by the Secretary of State and the Prime Minister. Such budget shall not exceed $......... dollars, unless the two Governments agree otherwise. | … Assets, supplies, and any other articles intended for official use of the rulee shall be exempt in Australia from customs duties, excises, surtaxes, and every other form of taxation. | All funds and other property used for the purposed of the entity, and all official acts of the entity within the scope of its purposes shall likewise be exempt from taxation of every kind in Australia. | For income tax, the Original Ruling applied to the income years ended 30 June 2004 to 2006. | In relation to fringe benefits tax the Original Ruling applied to the period 1 April 2003 to 31 March 2006. | For income tax, the rulee applied for an extension of the Original Ruling for the income years ending 30 June 2007 to 2011. | In relation to fringe benefits tax the Rulee applied for an extension of the Original Ruling for the period 1 April 2006 to 31 March 2011. | Under the current private ruling request, for income tax, the rulee is seeking an extension of the original ruling for the income years ending 30 June 2012 to 2016. | In relation to fringe benefits tax the Rulee is seeking an extension of the Original Ruling for the period 1 April 2011 to 31 March 2016. | Other Relevant Comments: This ruling is based an all legislative provisions and Taxation Rulings applicable to the original ruling and second ruling.