Private ruling: Exempt from income tax
Date of advice: 20 March 2023
Published: 8 May 2023
Ruling period: x YY 20XX - XX YY 20ZZ | x YY 20ZZ - xx YY 20VV | x YY 20VV - xx YY 20WW | x YY 20WW - xx YY 20UU | x YY 20UU - xx YY 20YY

Ruling: Q1: Does the entity qualify as a Public Authority under Item 5.2 of the Table in Section 50-25 of the Income Tax Assessment Act 1997 ('ITAA 1997'), and therefore is exempt from income tax, for the years from x YY 20XX to xx YY 20YY (x years)? | A1: Yes. | Q2: Does the entity also qualify as a society or association established for the purpose of promoting the development of agricultural resources in accordance with Item 8.2(a) of the Table in Section 50-40 of the ITAA 1997? | A2: Yes. | Q3: If the answer to questions 1 and 2 above is both yes, will one tax exemption preference over the other? | A3: No.

Relevant facts and circumstances: Corporation History 1. First established in 19XX following the commissioning of an agricultural benefit in the XXX area, the YYY Area was conceived by the government of the day as a purpose-built scheme, designed to feed and provide employment opportunities for a growing nation. 2. The entity is responsible for the distribution of agricultural benefits in the YYY Area. 3. The objective of the entity is to supply these benefits, invest moneys for replacement of supply, build infrastructure, enter commercial arrangements for the supply of benefits, and hold the necessary licences. 4. The entity is prevented from distributing profits to its members. 5. The entity is prevented from distributing to its members any property on dissolution or winding up. Information provided 6. You have provided a number of documents containing detailed information in relation to the entity, including: • Private Binding Ruling ('PBR') Application, dated xx Y 20XY 7. We have referred to the relevant information within these documents in applying the relevant tests to your circumstances. Assumption(s) Not applicable.

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 50-40 | Income Tax Assessment Act 1997 Section 995-1 Further issues for you to consider | Not applicable.

Reasons for decision: Summary: All legislative references are to the Income Tax Assessment Act 1997 ('ITAA 1997') unless otherwise stated. The entity is exempt from income tax pursuant to section 50-1 of the ITAA 1997 as a public authority constituted under an Australian law as described in Item 5.2 of section 50-25 of the ITAA 1997. | Summary: The entity qualifies as a society or association established for the purpose of promoting the development of agricultural resources in accordance with Item 8.2(a) of the Table in Section 50-40 of the ITAA 1997. | Summary: As the answer to both Questions 1 and 2 is 'yes', one tax does not preference over the other. | Detailed Reasoning - Public Authorities: 8. Section 50-1 of the ITAA 1997 provides that the ordinary and statutory income of entities covered by the tables listed in Subdivision 50-A are exempt from income tax. 9. Section 50-25 of the ITAA 1997 covers exempt Government entities. Item 5.2 of the table in section 50-25 provides that 'a public authority constituted under an Australian law' is an exempt entity. There are no special conditions that must be met for this item. 10. The term'public authority constituted under an Australian law' is not defined in the ITAA 1997. Taxation Ruling IT 2632 entitled 'Income tax: meaning of 'public authority' in definition of 'exempt public body' in division 16D' provides the Commissioner's view on whether a particular body is a public authority. 11. It is considered in the context of Division 16D of the Income Tax Assessment Act 1936 ('ITAA 1936') which relates to a denial of tax deduction associated with property which is the subject of a finance lease or similar arrangements where that property is used by or controlled by an "exempt public body". 12. Paragraph 2 of TR IT 2632 notes that an exempt public body is defined in Subsection 159GE(1) ITAA 1936 as: a. the Commonwealth, a State or a Territory; b. a municipal authority or other local governing body, the income of which is wholly exempt from tax; or c. a public authority (emphasis added) i. that is constituted by or under a law of the Commonwealth, a State or a Territory; and ii. the income of which is wholly exempt from tax. 13. Paragraph 2 of the TR IT 2632 notes that the Commissioner confirms that "public authority" is not a defined term in the ITAA 1936 (or ITAA 1997) but that its meaning has been considered by the High Court of Australia. 14. Paragraphs 4 to 11 of TR IT 2632 consider a number of court decisions which have been made in relation to 'public authority' in paragraph 23(d) of the ITAA 1936 (which is equivalent to section 50-25 of the ITAA 1997). 15. In Renmark Hotel Incorporated v FC of T (1949) 79 CLR 10 at page 19, Rich J stated: The characteristics of a public authority seem to be that it should carry on some undertaking of a public nature for the benefit of the community or of some section or geographical division of the community and that it should have some governmental authority to do so. 16. Paragraph 14 of TR IT 2632 sets out the necessary considerations for determining whether a body answers the description of a 'public authority' within the Division 16D of Part III of the Income Tax Assessment Act 1936 (' ITAA 1936' ) definition as follows: (a) Weigh all relevant circumstances, especially the nature of the functions of the body concerned, treating the question of the status of the body as essentially a question of fact and degree to be determined in the light of the particular facts of each case. (b) Consider whether the body has one primary function or a variety of functions not all of which involve the exercise of powers and functions not possessed by the ordinary citizen and which have been conferred by statute and are essentially of a public nature. (c) 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 a characteristic of a "public authority". The examination will involve a consideration of: i. the significance of any features of the body clearly alien to, or inconsistent with, the concept of what is a public authority; and ii. the relevant statutory context, namely, the overall statutory scheme and policy underlying Division 16D. 17. Paragraphs 15 to 19 of TR IT 2632 discuss the meaning of 'constituted by or under' a relevant law and essentially provides that a year by year consideration is necessary to determine whether a body is set up, founded or established as a public authority by or under the relevant law, or has acquired the attributes and qualities of a public authority. | Detailed Reasoning - Society or Association: 18. The terms 'Society' and 'Association' are not defined in the legislation, therefore they take on their ordinary meaning for an entity. 'Society' and 'Association' are defined in the Macquarie Dictionary as ' an organisation of people with a common purpose and having a formal structure' . 19. Item 8.2(a) of the Table in section 50-40 of the ITAA 1997 outlines who qualifies as a society or association established for the purpose of promoting the development of agricultural resources in Australia. A special condition listed there is that it is not carried on for the profit or gain of its individual members. | Detailed Reasoning - Not carried on for the Profit or Gain of its Individual Members: 20. For an entity to be considered tax exempt under section 50-40 of the ITAA 1997, it is necessary to establish that the entity is not carried on for the profit or gain of its individual members. 21. The Commissioner of Taxation v. Co-operative Bulk Handling Limited [2010] FCAFC 155 (CBH case) case concluded that it is generally accepted that an entity is not carried on for profit where it is prevented from distributing its assets or profits to its members. 22. The courts have held in Commissioner of Taxation v Cappid [1971] HCA 79 that this section is not limited to companies established for charitable purposes, and a company which is trading for profit is not precluded from being a tax-exempt entity. 23. An entity may nonetheless be precluded from being a tax-exempt entity where it is carried on for the gain of its members. In AAT Case 80 (1987) 18 ATR 3579, whilst there was no finding of profit-making intention, the AAT held that the Company did not meet the conditions for tax exemption on the basis that the company was carried on for the "gain" of its members. 24. However, in Commissioner of Taxation v. Co-operative Bulk Handling Limited [2010] FCAFC 155 (CBH case) the courts did not find a predominant purpose of promoting the development of resources to members, as bulk handling of grain benefited not only its members, but all grain growers in Western Australia. | Detailed Reasoning - Established for the Purpose of Promoting the Development of Agricultural Resources: 25. In determining whether section 50-40 of the ITAA 1997 should apply, it is necessary to determine whether MIL is established for the sole or dominant purpose of promoting the development of the specified resources. 26. The Commissioner of Taxation considers that the term "development" takes on a broad meaning. In particular, the Commissioner states in Taxation ruling IT 2415 at paragraph 8: The term "development" must be taken to be used in a commercial or business sense, ie.it comprehends all elements which must be taken into account to ensure that the specified resources are used in the best interests of Australia. 27. In this regard, the majority of the High Court accepted in FCT v. Broken Hill Pty Co. Ltd 69 ATC 4028; (1969) 1 ATR 40 at ATC 4031-4032; ATR 45 that the development of mining property: covers any preparation, adaptation or equipment of the property for the exploitation of an inherent potentiality which cannot be exploited, or full exploited without some such preliminary treatment. 28. The following activities were accepted by the Federal Court in Commissioner of Taxation v. Co-operative Bulk Handling Limited [2010] FCAFC 155 to be promoting the development of the grain growing industry: • "Improving the quality of grain both as grown and maintained through its delivery, storage and handling; • on securing its continued marketability so that production can be maintained and increased; and • on enhancing the reputation of wheat growth in Western Australia". 29. Accordingly, it is evident that activities that promote the development of agriculture can either be direct or indirect, and is not restricted to growing, harvesting, and breeding activities. | Detailed Reasoning - Australian agricultural resources: 30. As noted in Item 8.2(a) in section 50-40 of the ITAA 1997, the tax exemption only applies to associations whose activities promote the development of "Australian agricultural resources". 31. The Shorter Oxford English Dictionary defines agriculture as the "the science and art of cultivating land; including the gathering in of the crops and the rearing of livestock; farming (in the widest sense)". | Detailed Reasoning - Sole or dominant purpose: 32. The purpose requirement of section 50-40 of the ITAA 1997 has been considered extensively in case law and Australian Taxation Office ('ATO') Taxation Rulings. 33. Per Boating Industries Association of New South Wales v FCT 85 ATC 4224; (1985) 16 ATR 383 whether the 'sole or dominant' purpose of the organisation is the promotion of development of agriculture is a question of fact and degree that ultimately depends on objectively weighing up all the features of the organisation. 34. Importantly, the measure of 'sole or dominant' implies a single or main purpose, there may be other objectives, but it would be expected that other purposes are ancillary to the dominant purpose. 35. Specifically, the purpose of the organisation is determined not only through its objects or governing documents, but also through consideration of its main activities. | Detailed Reasoning - Question 1: 36. The entity is responsible for the distribution of agricultural benefits to over xxx landholdings owned by over yyy of its shareholders to help create a diverse and highly productive agricultural region being the XXX Area. 37. The entity's business is governed by an operating licence granted. Under the terms of the operating licence, the entity is authorised to carry on the business of supplying agricultural benefits provided to it and to exercise its functions under the XXX Act. 38. The above indicate that the entity is carrying on an undertaking of a public nature for the benefit of a section or geographical division of the community. 39. The entity is a non-profit entity. Its Constitution prevents the distribution of profits to its members during its operation and upon winding up. Upon winding up, any surplus property is required to be distributed to an institution having similar objects. 40. For the above reasons, we consider that the entity is a public authority constituted under an Australian law as described in Item 5.2 of section 50-25 of the ITAA 1997. The entity is therefore exempt from income tax pursuant to section 50-1 of the ITAA 1997. | Detailed Reasoning - Question 2: 41. For an entity to be considered exempt under Item 8.2(a) of section 50-40 of the ITAA 1997, it must satisfy the following: • The organisation must be a non-profit association or society; and • Established for the dominant or principal purpose of promoting the development of agricultural resources of Australia. 42. The entity is an association for the purposes of section 50-40 of the ITAA 1997 on the basis that it is an incorporated body of members with a common purpose of providing agricultural benefits to communities in the XXX Area. 43. The entity is not carried on for the profit or gain of its individual members as it is prevented from distributing the profits or assets to members during operation and upon winding up by its Constitution. 44. Furthermore, it is noted that the entity is not being carried on for the gain of its members. Since its incorporation, the entity has been involved in the delivery of major government funded projects to automate and modernise agricultural benefits in the XXX Area. 45. It is apparent that the entity's core activities involve the delivery of agricultural benefits to enable productivity in communities in the XXX Area. Specifically, this includes the maintenance and improvement of infrastructure and the delivery of benefits to farmers in the XXX Area to grow, harvest and breed agricultural products. 46. Further, the entity is involved in public engagement and education to future proof agricultural benefits in the XXX Area to ensure that Australia's industries continue to be "productive, resilient and sustainable" in the future. | Detailed Reasoning - Question 3: 47. An entity is considered to be tax exempt under section 50-1 of the ITAA 1997 if it falls within any of the Items listed in the Tables listed in sections 50-5 - 50.45, if they also satisfy the relevant conditions for that Item. 48. The wording in Division 50 Exempt Entities does not indicate that any of the Items listed in the Division should take preference over another. 49. Accordingly, the entity's exemption from income tax pursuant to section 50-1 of the ITAA 1997 as a public authority as described in Item 5.2 of section 50-25 of the ITAA 1997, and also in accordance with Item 8.2(a) of the Table in Section 50-40 of the ITAA 1997, does not place one tax exemption in preference over the other.