Private ruling: Income tax exemption
Date of advice: 29 June 2021
Published: September 2021

Ruling: Question 1 | Is the ordinary income and statutory income of the entity exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 ("ITAA 1997") on the basis that it is a public authority constituted under an Australian law pursuant to item 5.2 of the table in section 50-25 of the ITAA 1997? | Answer | Yes. | This ruling applies for the following periods: | Income year ending 30 June 2022 | Income year ending 30 June 2023 | Income year ending 30 June 2024 | Income year ending 30 June 2025 | Income year ending 30 June 2026

Relevant facts and circumstances: The entity is a not for profit company that is incorporated under the Corporation Act . A provision of a relevant Act provides for the granting of the power to monitor the activities of a particular industry. This power has been conferred on the entity. Monitoring and administering of this industry is necessary in order to protect the public's interest. The objects provided in the entity's Memorandum of Association align with the powers provided in the relevant Act. The entity supports community groups or projects whose objects are similar to those of the entity by way of donations and sponsorship. Relevant legislative provisions Income Tax Assessment Act 1997 50-1 Income Tax Assessment Act 1997 50-25 Reasons for decision Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the ordinary and statutory income of entities covered by the tables listed in Subdivision 50-A of the ITAA 1997 is exempt from income tax. Section 50-25 of the ITAA 1997 is provided in Subdivision 50-A of the ITAA 1997 and 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. The term 'public authority constituted under an Australian law' is not defined in the ITAA 1997. Taxation Ruling No. IT 2632 Income tax: meaning of 'public authority' in definition of 'exempt public body' in Division 16D (IT 2632) provides the Commissioner's view on whether a particular body is 'public authority'. IT 2632 at paragraph 14 states that in determining whether a particular body is a 'public authority' it is necessary to: (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. 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 at 4027, the following propositions regarding 'public authorities' were derived from case law: 1. 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: Western Australian Turf Club per Stephen J with whom Barwick CJ agreed at ATC 4134; CLR 290. No one factor will be determinative, rather there will be a "range of considerations'': the Fruit Marketing case at 580. 2. A private body, corporate or unincorporated, established for profit will not be an authority: Renmark Hotel at ATD 429; CLR 17 per Rich J, Silverton Tramway per Dixon CJ at ATD 297; CLR 566. 3. Incorporation by legislation is not necessary before a body may be classified as an authority: Renmark Hotel per Rich J at ATD 430; CLR 19, Western Australian Turf Club at ATC 4135; CLR 293. 4. For a body to be an authority of a State or of the Commonwealth, 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: the Fruit Marketing case at 580. 5. The body in question must perform a traditional or inalienable function of government and have governmental authority for so doing: Renmark Hotel at ATD 428; CLR 16 per Rich J, General Steel per Barwick CJ at 134, Anti-Cancer Council case at 450-451 per Mason CJ, Brennan and Gaudron JJ. 6. It is not necessary for a person or body to be an authority that he, she or it have coercive powers, whether of an administrative or legislative character: Renmark Hotel per Rich J at ATD 430; CLR 18. Conversely the fact that a person or body has statutory duties or powers will not of itself suffice to characterise that person or body as an authority: Western Australian Turf Club per Stephen J at ATC 4137; CLR 297. 7. 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: Silverton Tramway per Dixon CJ at ATD 297 and 298; CLR 565 and 567. The central concept is the ability to exercise power or command: the Fruit Marketing case per Gibbs J at 580. Based on the principles established in case law and IT 2632, the following factors have been considered in determining whether the entity is a 'public authority constituted under Australian law' for the purposes of item 5.2 of the table in section 50-25 of the ITAA 1997. Public authority Not a private body, corporate or unincorporated, established for profit The Memorandum of Association of the entity contains appropriate non-profit and winding up clauses that prevent the entity from distributing its profits or assets among members on a daily operational basis and on its winding up, and ensure that all income and property are used solely for the promotion of its objects. On the basis of the information provided and the not-for-profit clause of its Memorandum which prohibit distribution, payment or transfer of income or property to a member, it is accepted that the entity is aware of its non-profit responsibilities and operates as a not for profit entity. Incorporation by legislation is not necessary The entity is not incorporated by an Act of Parliament. However it was held in Renmark Hotel at ATD 429; CLR 17 per Rich J that incorporation by legislation is not necessary for an entity to be a public authority. An agency or instrument of government set up to exercise control or execute a function in the public interest The objects stated in the entity's Memorandum indicate that it serves the public through the administering and monitoring of a particular industry. These activities are necessary in order to protect the public's interest in this industry. The relevant Act conferred this power to the entity to carry it out on behalf of the relevant authority. Perform a traditional or inalienable function of government and have governmental authority for so doing The enactment of an Act granted the entity the power to monitor a particular industry. Coercive powers An entity possessing coercive powers is not a necessary element for it to be considered a 'public authority'. However, an indication that an entity possesses coercive powers is that it can exercise powers and functions not possessed by the ordinary citizen. In this case, certain businesses are compelled to be under the control and ongoing monitoring of this entity. Control, power or command for the public advantage or execute a function in the public interest The relevant authority has conferred power and control on the entity to monitor the relevant industry. The entity executes the power in the public interest. Constituted under an Australian law Item 5.2 states the term 'constituted under an Australian law'. Paragraphs 16 and 17 in IT 2632 discuss the meaning of 'constitute': 16. The ordinary meaning of the word "constitute", according to the Macquarie Dictionary is "to set up or found (an institution etc)." The expression "is constituted" (emphasis added) in subparagraph (c)(i) of the definition of "exempt public body" indicates that the particular organisation or body concerned and its activities must be looked at year by year, and not merely at the time it was first set up or founded. In addition, the context of the word "constituted", indicates that the particular organisation or body concerned must be constituted as a public authority. 17. The expression "constituted under" a relevant law makes it clear, as Stephen J pointed out in the W.A. Turf Club Case (139 CLR at 293; 78 ATC at 4135; 8 ATR at 492), that an entity need not, from its origin, have possessed those qualities which make it a public authority. It may acquire the necessary attributes subsequently and, if it does so as a result of legislation, it will thereupon have become a public authority that is constituted under the relevant law. His Honour's views apply even more strongly to the expression "constituted by or under" a relevant law in the definition here. The relevant authority authorises the entity to monitor the operation of the relevant industry. In accordance with paragraph 17 of IT 2632, it is determined that the entity has subsequently acquired the necessary attributes to deem it a public authority. It is therefore accepted that the entity is a public authority constituted under an Australian law. Conclusion Having regard to the public duties and powers conferred on the entity, it is accepted that it has been established and operates to perform a function of government. It is also accepted that it operates in a non-profit manner. It does not have features that are inconsistent with the concept of a 'public authority'. Therefore, the entity is exempt from income tax pursuant to section 50-1 of the ITAA 1997 on the basis that it qualifies as a 'public authority constituted under an Australian law' under item 5.2 of the table in section 50-25 of the ITAA 1997.