Private ruling: Income tax exempt entity
Published: June 2012
Ruling period: Year ended 30 June 2008 | Year ended 30 June 2009 | Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012
Date scheme commenced: 1 July 2007

Ruling: Q1: Is the rulee exempt from income tax pursuant to section 24AM of the ITAA 1936 on the basis that it is a state or territory body as described in section 24AO of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes.

Relevant facts and circumstances: The Company was incorporated as a company limited by shares. The Company has 10,000 shares on issue owned by the following: · 9,999 shares owned by the Council · 1 share held by a director of the Council, on trust for the Council.

Relevant legislative provisions: Income Tax Assessment Act 1936 Division 1AB of Part III, | Income Tax Assessment Act 1936 Section 24AM, | Income Tax Assessment Act 1936 Section 24AN and | Income Tax Assessment Act 1936 Section 24AO.

Reasons for decision: Summary: Division 1AB of Part III of the ITAA 1936 exempts the income of a State/Territory body (STB) from income tax. Section 24AM of ITAA 1936 states: The income of a State/Territory body (an STB) is exempt from income tax unless section 24AN applies to the STB. There are five ways in which a body can be an STB as provided for in sections 24AO to 24AS of the ITAA 1936. The first way a body can be an STB is stated in section 24AO of the ITAA 1936. 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. Government entity is defined in section 24AT of the ITAA 1936 as: (a) a State; or (b) a Territory; or (ba) a municipal corporation or other local governing body (within the meaning of section 50-25 of the Income Tax Assessment Act 1997 ); or (c) another STB that is not an excluded STB. Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines 'local governing body' as a local governing body established under State or Territory Law. The term municipal corporation is not defined in legislation but its meaning can be determined from case law. In the High Court case of Federated Engine-Drivers and Firemen's Association of Australasia v. Broken Hill Pty Co Ltd (1911) 12 CLR 398 Barton J said that "a municipal corporation is a part of the governmental power of the State." Generally, a municipal corporation is a corporation constituted for the purposes of local government to provide an essential service to the inhabitants of an aggregation of local authority areas. The Company is a company limited by shares. All of the Company shares are beneficially owned by the Council in the following structure: · 9,999 shares owned by the Council · 1 share held by an individual on trust for the Council The Council is a local government entity. The Council is regarded as a government entity under paragraph (ba) of section 24AO of the ITAA 1936 as 'a municipal corporation or other local governing body.' It is considered that the Company is a STB. Under Section 24AN excluded STBs are not exempt from tax. Section 24AT defines excluded STB as an STB that: · at a particular time, is prescribed as an excluded STB in relation to that time; or · is a municipal corporation or other local governing body (within the meaning of section 50-25 of the ITAA 1997; or · is a public educational institution to which any of paragraphs 50-55(a) to (c) of the ITAA 1997 applies; or · is a public hospital to which any of paragraphs 50-55(a) to (c) of the ITAA 1997 applies; or · is a superannuation fund. None of the above apply to the Company. The Company is not an excluded STB. The Company is considered a STB and exempt from income tax.

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