Private ruling: Exempt entities
Date of advice: 8 July 2016
Published: August 2016
Ruling period: Income year ending 30 June 2016 | Income year ending 30 June 2017 | Income year ending 30 June 2018 | Income year ending 30 June 2019 | Income year ending 30 June 2020
Date scheme commenced: The scheme has commenced

Ruling: Q1: Is Company X an 'Australian government agency' for the purposes of section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes.

Relevant facts and circumstances: Company X was established by statute to provided government services. Company X is a non-profit company which represents the State and has the status, privileges and immunities of the State. Part of Company X's activities include providing employees under contract to perform duties involving relevant programs.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 23AG | Income Tax Assessment Act 1997 section 995-1 | Tax and Superannuation Laws Amendment (2015 Measures No. 4) Act 2015

Reasons for decision: Summary: Company X is considered to be an 'Australian government agency' as defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the purposes of section 23AG of the ITAA 1936 (as amended by item 1 of Schedule 2 to the Tax and Superannuation Laws Amendment (2015 Measures No. 4) Act 2015 ( TSLAA 2015), with effect from 1 July 2016). | Detailed Reasoning - Detailed reasoning: Under section 23AG of the ITAA 1936, the foreign earnings of Australian residents for tax purposes, who have been engaged in specified foreign service for a continuous period of not less than 91 days, are exempt from Australian personal income tax. The particular types of foreign service covered by the exemption are set out in subsection 23AG(1AA) of the ITAA 1936. One of the specified types of service is 'the delivery of X by the person's employer' (paragraph 23AG(1AA)(a) of the ITAA 1936). Item 1 of Schedule 2 of the TSLAA 2015 amends paragraph 23AG(1AA)(a) of the ITAA 1936 so that it will provide that foreign earnings are exempt from Australian tax if they are directly attributable to: (a) the delivery of Australian official development assistance by the person's employer (except if that employer is an Australian government agency (within the meaning of the Income Tax Assessment Act 1997)). Section 995-1 of the ITAA 1997 defines an 'Australian government agency' to mean: (a) the Commonwealth, a State or a Territory; or (b) an authority of the Commonwealth or of a State or a Territory. An 'authority of the Commonwealth or of a State or a Territory' is not defined in either the ITAA 1997 or ITAA 1936, however, a number of decided cases have considered the meaning of 'authority of a State' and 'authority'. In Committee of Direction of Fruit Marketing v. Australian Postal Commission (1980) 144 CLR 577 (the Fruit Marketing case) the High Court unanimously decided that the Committee of Direction of Fruit Marketing was an authority of the State of Queensland for the purposes of the Postal Services Act 1975 . Gibbs J stated at 580: The expression "authority of a State" refers to a body which exercises power derived from or delegated by the State, but the fact that a body is established under State law and possesses power conferred upon it by State law will not necessarily mean that the body is an authority of a State...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 - ie, for the purposes of and in the interests of the community or some section of it. In some cases it may be decisive that the body concerned is given exceptional powers of a kind not ordinarily possessed by an individual or a company, and that those powers are intended to be exercised for a purpose that would ordinarily be regarded as a purpose of government. On the other hand, in some cases it may be decisive that the body is conducted in the interest, and for the profit, of its members. In all cases, however, it is necessary to have regard to all the relevant circumstances in order to determine the character of the body in question. In FC of T v. Bank of Western Australia Ltd; FC of T v. State Bank of New South Wales Ltd 96 ATC 4009; (1995) 133 ALR 599 the meaning of the word 'authority' was considered in the context of the phrase 'the official use,... and not for sale by,... an authority which is completely controlled by,... a State' in the Sales Tax (Exemptions and Classifications) Acts 1935 and 1992 was considered by the Full Federal Court. In that case Hill J looked at a number of Australian cases as to the meaning of the word 'authority'. He derived the following propositions from those cases: • 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: The Western Australian Turf Club v. FC of T 78 ATC 4133; (1978) 139 CLR 288 (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. • A private body, corporate or unincorporated, established for profit will not be an authority: Renmark Hotel Inc v. FC of T (1949) 8 ATD 424; (1949) 79 CLR 10 (Renmark Hotel) per Rich J at ATD 429; CLR 17, FC of T v. Silverton Tramways Co Ltd (1953) 10 ATD 295; (1953) 88 CLR 559 ( Silverton Tramways ) per Dixon CJ at ATD 297; CLR 566. • 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. • 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. • The body in question must perform a traditional or inalienable function of government and have governmental authority for so doing: Renmark Hotel per Rich J at ATD 428; CLR 16 , General Steel Industries Inc v. Commissioner for Railways (NSW) (1964) 112 CLR 125 per Barwick CJ at 134, Re Anti-Cancer Council of Victoria; Ex parte the State Public Services Federation (1992) 175 CLR 442 per Mason CJ, Brennan and Gaudron JJ at 450-451. • 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. • 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 Tramways 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. In applying the above propositions to Company X's circumstances, Company X will be considered an 'Australian government agency' as it is an 'authority of a State' within the meaning of section 995-1 of the ITAA 1997 for the following reasons including: a) Company X's powers derive from a statutory source; b) Company X's primary function is to provide services to the general public; c) Company X functions on a non-profit basis and no individuals have a financial interest in its profits or assets; d) Providing certain services to the general public is a traditional government function and Company X has governmental authority to provide those services. e) Company X is funded by the State and is directly accountable to the relevant State government Minister. In conclusion, Company X is considered to be an 'Australian government agency' as defined in section 995-1 of the ITAA 1997 for the purposes of section 23AG of the ITAA 1936 (as amended by item 1 of Schedule 2 to the TSLAA 2015, with effect from 1 July 2016).