Private ruling: Sovereign immunity
Date of advice: 7 July 2025
Published: 1 September 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the ordinary and statutory income derived by Entity A from returns on its interests held in the Test Entities not assessable and not exempt income under section 880-105 of the Income Tax Assessment Act 1997 ( ITAA 1997 )? | A1: Yes.

Relevant facts and circumstances: Entity A Entity A is a resident of Country A, with its head office located in City A, Country A. Entity A is recognised as the central bank of Country A and is exempt from all taxes in Country A. Entity A was formally established by the Government of Country A ( the Government ) under Act A in accordance with the constitution of Country A ( the Constitution ). Entity A is a public legal entity with administrative and financial autonomy. The primary objective of Entity A is to achieve and maintain domestic price stability. Pursuant to the Constitution, non-renewable resource A shall be owed by the State, with income derived from this resource funding a financial reserve. Sovereign wealth fund A (SWFA) was established and has no legal personality and is an account of the Government held in Entity A. Entity A is the manager of SWFA and is responsible for: • the investment of capital of SWFA • receiving investment income of SWFA • maintaining the accounts of SWFA Act A provides that Entity A will be responsible for the supervision of a range of financial institutions. Act A provides Entity A with the power to open accounts for insurance companies and other financial institutions which are under the supervision of Entity A. Capital & Returns All income and gains arising on the investments of Entity A are for the sole and exclusive benefit of Country A and either retained by Entity A in reserve accounts or transferred to the budget of the State. The authorised capital of Entity A is provided by the Government. Investments Entity A will form part of a sovereign entity group including Country A and any entities in which the government of Country A either directly or indirectly hold 100% of the participation interests. No other entities in the sovereign entity group hold investments in Australia. Entity A does not trade in financial assets or operate commercially in the financial markets Entity A holds an Australian portfolio of equity investments. The equity interests in the Test Entities held by Entity A have the following characteristics: (a) Entity A and all members of its sovereign entity group hold collectively less than 10% of the total participation interests in each of the Test Entities. (b) Entity A and all members of its sovereign entity group would hold collectively less than 10% of the total participation interests in the Test Entities in the circumstances detailed in paragraph 880-105(4)(b) of the ITAA 1997. (c) The Test Entities are all entities listed on the Australian Securities Exchange ( ASX ). (d) Each of the Test Entities (including those comprising a stapled structure) is an Australian resident company or Managed Investment Trust ( MIT ). (e) Neither Entity A, nor any members of its sovereign entity group, has involvement in the day to day management of the business of any of the Test Entities. (f) Neither Entity A, nor any members of its sovereign entity group, has the right to appoint a director to the Board of Directors of any of the Test Entities. (g) Neither Entity A, nor any members of its sovereign entity group, holds the right to representation on any investor representative or advisory committee (or similar) of the Test Entities. (h) Neither Entity A, nor any members of its sovereign entity group, has the ability to direct or influence the operation of the Test Entities outside of the ordinary rights conferred by the interest held. (i) Entity A's interests in the Test Entities do not provide it with an entitlement to either directly or indirectly determine the identity of any person who make decisions that comprise the control and direction of the Test Entities' operations. (j) Entity A's interests, when combined with the other interests held within its sovereign entity group, do not provide an entitlement to either directly or indirectly determine the identity of any persons who make decisions that comprise the control and direction of the Test Entities' operations. (k) No person involved in the control and direction of the Test Entities' operations is accustomed or obliged to act in accordance with the directions, instructions or wishes of Entity A or members of Entity A's sovereign entity group.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 880-105

Reasons for decision: Summary: Section 880-105 of the ITAA 1997 provides that an amount of ordinary and statutory income that a sovereign entity receives as a return on an interest in another entity is not assessable and not exempt income if certain conditions are met. Those conditions are listed in subsection 880-105(1) of the ITAA 1997: (a) the sovereign entity is covered by section 880-125; and (b) the amount is a return on any of the following kinds of interest that the sovereign entity holds in another entity (the test entity ): (i) a membership interest; (ii) a debt interest; (iii) a non share equity interest; and (c) the test entity is: (i) a company that is an Australian resident at the time (the income time ) when the amount becomes ordinary or statutory income of the sovereign entity; or (ii) a managed investment trust in relation to the income year in which the income time occurs; and (d) the sovereign entity group of which the sovereign entity is a member satisfies the portfolio interest test in subsection (4) in relation to the test entity: (i) at the income time; and (ii) throughout any 12 month period that began no earlier than 24 months before that time and ended no later than that time; and (e) the sovereign entity group of which the sovereign entity is a member does not have influence of a kind described in subsection (6) in relation to the test entity at the income time. These conditions are considered below. Entity A is a covered sovereign entity Section 880-125 of the ITAA 1997 states: A sovereign entity is covered by this section if it satisfies all of the following requirements: (a) the entity is funded solely by public monies; (b) all returns on the entity's investments are public monies; (c) the entity is not a partnership; (d) the entity is not any of the following: (i) a public non-financial entity; (ii) a public financial entity (other than a public financial entity that only carries on central banking activities). These requirements are considered below. Entity A is a sovereign entity For an entity to be covered by section 880-125 of the ITAA 1997, it must be a sovereign entity. Section 880-15 of the ITAA 1997 defines a sovereign entity to be any of the following: (a) a body politic of a foreign country, or a part of a foreign country; (b) a foreign government agency; (c) an entity: (i) in which an entity covered by paragraph (a) or (b) holds a total participation interest of 100%; and (ii) that is not an Australian resident; and (iii) that is not a resident trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936 . A 'foreign government agency' is defined in subsection 995-1(1) of the ITAA 1997 as: (a) the government of a foreign country or of part of a foreign country; or (b) an authority of the government of a foreign country; or (c) an authority of the government of part of a foreign country. Entity A is the central bank of Country A, established by statute, and is a public legal entity. Entity A performs a number of government functions including issuing currency, managing monetary policy, and managing the foreign reserves. The capital of Entity A is held solely by the Government and is not transferable or subject to an encumbrance. Entity A was established by the Government as per the Constitution and undertakes its activities in accordance with the relevant Act. It acts as the fiscal agent of the State. Given the above circumstances, the Commissioner is satisfied that Entity A is an authority of the government of a foreign country, i.e. the government of Country A. Entity A is therefore considered to be a foreign government agency under paragraph 880-15(b) of the ITAA 1997 as it is an authority of the Government. As such, Entity A meets the requirements of being a sovereign entity in accordance with section 880-15 of the ITAA 1997. Entity A is funded solely by public monies and all returns on Entity A's investments are public monies Law Companion Ruling LCR 2020/3 - The superannuation fund for foreign residents withholding tax exemption and sovereign immunity ( LCR 2020/3 ) provides guidance on the term 'public monies'. In the context of Division 880, LCR 2020/3 provides at paragraph 54, that this phrase essentially means monies of a foreign government (or part of a foreign government) held for a public purpose which form part of the foreign government's (or part of the foreign government's) equivalent to Australia's Consolidated Revenue Fund ( Roy Morgan Research Pty Ltd v FC of T & Anor [2011] HCA 35). This would ordinarily include general tax revenue, proceeds from the issue of government bonds, the proceeds of privatisations etc. The authorised capital of Entity A is provided by the Government. Entity A is also in charge of holding and managing the official foreign reserves of Country A. Further, Entity A is the operational manager of SWFA and is responsible for the investment of its capital. The monies used to acquire securities in Australia originates from monies owned and controlled by the Government. Entity A is therefore funded solely by public monies. All returns on investments are retained by Entity A in its reserve accounts or transferred to the general budget of the State. No other person has the right to use, enjoy or dispose of the income and gains which arise on such investments. All returns on Entity A's investments are therefore public monies. Therefore, these requirements are satisfied. Entity A is not a partnership Entity A is a public law entity, with its legal status being defined by the Act and is not a partnership. Therefore, this requirement is satisfied. Entity A is not a public non-financial entity or public financial entity Subsection 880-130(1) of the ITAA 1997 defines the term public non-financial entity: An entity is a public non-financial entity if its principal activity is either or both of the following: (a) producing or trading non-financial goods; (b) providing services that are not financial services. Entity A's principal activity is not producing or trading non-financial goods, nor is it providing services that are not financial services. Therefore, Entity A is not a public non-financial entity. Subsection 880-130(2) of the ITAA 1997 defines the term public financial entity: An entity is a public financial entity if any of the following requirements are satisfied: (a) it trades in financial assets and liabilities; (b) it operates commercially in the financial markets; (c) its principal activities include providing any of the following financial services: (i) financial intermediary services, including deposit taking and insurance services; (ii) financial auxiliary services, including brokerage, foreign exchange and investment management services; (iii) capital financial institution services, including financial services in relation to assets or liabilities that are not available on open financial markets. As Entity A trades in financial securities and maintains depository accounts for banks and insurance companies, it satisfies the definition of a public financial entity provided for in subsection 880-130(2) of the ITAA 1997. However, subparagraph 880-125(d)(ii) of the ITAA 1997 states that public financial entities that only carry on central banking activities are not excluded from being a covered sovereign entity. Paragraph 81 of LCR 2020/3 provides some guidance regarding the Commissioner's view of what constitutes 'central banking activities' by listing the following activities as examples: • monetary policy development • issuing national currency • acting as custodian of international reserves, and • providing banking services to government. A further example of central banking activities is provided at paragraph 82 of LCR 2020/3, which states: 82. The Reserve Bank of Australia is Australia's central bank. The activities of the Reserve Bank of Australia are consistent with those outlined in paragraph 81 of this Ruling and provide a useful reference point in considering whether a public financial entity is undertaking central banking activities. Paragraph 83 further provides: 83. Whether a public financial entity is 'only' carrying on central banking activities is a question of fact. It is important to note that a public financial entity may carry on both central banking activities and non-central banking activities (for example, commercial banking). Where this is the case, the public financial entity is not excluded from subparagraph 880-125(d)(ii). The examples in LCR 2020/3 are not intended to be an exhaustive list of activities which constitute 'central banking activities', but rather serve as a reference point. As such, notwithstanding the above, consideration is given to the meaning of the phrase 'central banking activities,' and what other activities, if any, also constitute 'central banking activities.' As a starting point, given the term 'central bank' is not defined in the ITAA 1997, the ordinary meaning of the term is considered. The Macquarie Dictionary , [Online], viewed 16 June 2025, www.macquariedictionary.com.au defines 'central bank' as: noun the national banking organisation of a country which administers the monetary policy of a government, receives revenue, pays government expenditure and issues money, both paper and coin, as legal tender; reserve bank. Further, section 15AA of the Acts Interpretation Act 1901 states: In interpreting a provision of an Act, the interpretation that would best achieve the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) is to be preferred to each other interpretation. It is therefore necessary and proper to consider the context and legislative purpose of Division 880 of the ITAA 1997 in order to determine what activities fall within the ambit of 'central banking activities'. Division 880 of the ITAA 1997 was introduced as an integrity measure aimed at limiting access to tax concessions for foreign investors by codifying and limiting the scope of the sovereign immunity tax exemption. The Explanatory Memorandum to Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 (the EM) relevantly provides: 4.7 In practice, the Commissioner exempts investment income and gains derived by foreign governments and foreign government agencies from tax where: • the monies invested are and will remain government monies; and • the income is derived from a non-commercial activity. 4.8 In determining whether an investment in an entity is a commercial activity, the Commissioner takes into account the size of the direct and indirect investment and the actual or potential influence that may be exercised in respect of the entity's financial, operating and policy decisions. Therefore, the phrase 'central banking activities' should be construed through reference to the provision's overall objective and purpose of providing tax concessions for income and gains derived by foreign governments and foreign government agencies where the monies invested are and will remain government monies and the income is derived from a non-commercial activity. As such, activities which are not commercial in nature but relate to key aspects of a sovereign nation's financial system may also be considered to be central banking activities for the purposes of Division 880 of the ITAA 1997. Entity A is charged with regulating a range of domestic financial institutions. Further, Entity A has the ability to open and maintain cash and security accounts on its books for these financial institutions. Regulating these financial institutions and transacting with them on a non-commercial basis are necessary mechanisms to ensure the ongoing stability and integrity of Country A's domestic financial system. Resultantly, these activities are considered to fall within the meaning of 'central banking activities' for the purposes of subparagraph 880-125(d)(ii) of the ITAA 1997. In addition to Entity A's primary functions and responsibilities, Entity A also manages SWFA. SFWA's assets are built from the earnings emanating from exports of Country A's non-renewable resources. As such, these activities would be considered to fall under the custodianship and management of international reserves and therefore are central banking activities for the purposes of subparagraph 880-125(d)(ii) of the ITAA 1997. Therefore, this requirement is satisfied. Conclusion As Entity A satisfies each of the requirements in paragraphs 880-125(a) through (d) of the ITAA 1997 it is a sovereign entity that is covered by section 880-125 of the ITAA 1997 for the purposes of paragraph 880-105(1)(a) of the ITAA 1997. Entity A's return is received on a relevant interest in the Test Entities For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(b) of the ITAA 1997, it must be a 'return on' a membership interest, debt interest or non-share equity interest held by the sovereign entity in the test entities. As detailed in paragraph 4.37 of the EM, a 'return on' a membership interest, debt interest or non-share equity interest for the purposes of paragraph 880-105(1)(b) of the ITAA 1997 will include: (1) dividends - including non-share dividends and dividends that pass through a managed investment trust (MIT) (2) interest - including interest that passes through a MIT (3) fund payments made by a MIT (other than fund payments that are attributable to non-concessional MIT income), and (4) revenue gains made on the disposal of an interest in the test entity - including revenue gains that pass through a MIT. The Test Entities are entities in which Entity A holds an equity interest and earns returns in the form of dividends. As such, Entity A will receive amounts which satisfy the requirements of paragraph 880-105(1)(b) of the ITAA 1997. Entity A's income is received from Australian resident companies or MITs For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(c) of the ITAA 1997, it must be a return on an interest held in an entity that is either: (i) a company that is an Australian resident at the time (the income time ) when the amount becomes ordinary or statutory income of the sovereign entity; or (ii) a managed investment trust in relation to the income year in which the income time occurs. The Test Entities are ASX listed Australian resident companies and MITs at the relevant times. As such, Entity A receives income from entities which satisfy the requirements of paragraph 880-105(1)(c) of the ITAA 1997. Entity A's sovereign entity group satisfies the portfolio interest test For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(d) of the ITAA 1997, the sovereign entity and the sovereign entity group to which it belongs must satisfy the portfolio interest test in relation to the test entities at both the income time and throughout any 12 month period that began no earlier than 24 months before that time and ended no later than that time. The portfolio interest test is outlined in subsection 880-105(4) of the ITAA 1997, which states: A sovereign entity group satisfies the portfolio interest test in this subsection in relation to the test entity at a time if, at that time, the sum of the total participation interests that each member of the group holds in the test entity: (a) is less than 10%; and (b) would be less than 10% if, in working out the direct participation interest that any entity holds in a company: (i) an equity holder were treated as a shareholder; and (ii) the total amount contributed to the company in respect of non-share equity interests were included in the total paid-up share capital of the company. Section 880-20 of the ITAA 1997 provides the definition of sovereign entity group. Broadly, sovereign entities of the same foreign government will be members of the same sovereign entity group and sovereign entities of the same part of a foreign government will be members of the same sovereign entity group. Entity A is part of the sovereign entity group of Country A, which includes any entities in which the Government of Country A either directly or indirectly holds 100% of the participation interest. At the relevant times (as required by paragraph 880-105(1)(d) of the ITAA 1997), Entity A, and its sovereign entity group collectively, holds less than 10% of the total participation interests in each of the Test Entities. Furthermore, Entity A and its sovereign entity group collectively, would hold less than 10% of the total participation interests in the Test Entities in the circumstances detailed in paragraph 880-105(4)(b) of the ITAA 1997. Therefore, the portfolio test is satisfied. Entity A's sovereign entity group does not have influence of a kind described in subsection 880-105(6) of the ITAA 1997 in relation to the Test Entities at the income time For an amount of ordinary income or statutory income of a sovereign entity to satisfy paragraph 880-105(1)(e) of the ITAA 1997, the sovereign entity group to which the sovereign entity belongs must not have influence over the test entity of a kind described in subsection 880-105(6) of the ITAA 1997 at the income time. Subsection 880-105(6) of the ITAA 1997 states: A sovereign entity group has influence of a kind described in this subsection in relation to the test entity at a time if any of the following requirements are satisfied at that time: (a) a member of the group: (i) is directly or indirectly able to determine; or (ii) in acting in concert with others, is directly or indirectly able to determine; the identity of at least one of the persons who, individually or together with others, make (or might reasonably be expected to make) the decisions that comprise the control and direction of the test entity's operations; (b) at least one of those persons is accustomed or obliged to act, or might reasonably be expected to act, in accordance with the directions, instructions or wishes of a member of the group (whether those directions, instructions or wishes are expressed directly or indirectly, or through the member acting in concert with others). As such, there are two distinct sub-tests within the influence test. Sub-test 1 Sub-test 1 of the influence test, as contained in paragraph 880-105(6)(a) of the ITAA 1997, assesses whether the sovereign entity group is able to determine the identity of at least one of the persons who, individually or together with others, makes or is reasonably expected to make, decisions comprising the control and direction of the test entity's operations. This includes situations where the sovereign entity group is able to act in concert with others to determine the identity of a relevant decision-maker in the test entity. Sub-test 1 also extends to situations where the sovereign entity group, in its own right,holds the ability to approve or veto decisions which go to the control or direction of the test entity. Entity A's interests in the Test Entities do not provide it with an entitlement to either directly or indirectly determine the identity of any person who makes decisions that comprise the control and direction of the Test Entities' operations. Furthermore, Entity A's interests, when combined with the other interests held within its sovereign entity group, do not provide an entitlement to either directly or indirectly determine the identity of any person who makes decisions that comprise the control and direction of the Test Entities' operations. Sub-test 2 Sub-test 2 of the influence test, as contained in paragraph 880-105(6)(b) of the ITAA 1997, assesses whether at least one of the relevant decision-making persons of the test entity is accustomed or obliged to act, or might reasonably be expected to act, in accordance with the directions, instructions or wishes of the sovereign entity group. No person involved in the control and direction of the Test Entities' operations is accustomed or obliged to act in accordance with the directions, instructions or wishes of Entity A or members of Entity A's sovereign entity group. Based upon the above, the sovereign entity group of Entity A does not have influence of a kind described in subsection 880-105(6) of the ITAA 1997 and will, therefore, satisfy the requirements of paragraph 880-105(1)(e) of the ITAA 1997. Conclusion As all of the conditions listed in subsection 880-105(1) of the ITAA 1997 have been satisfied, section 880-105 of the ITAA 1997 will apply to the effect that an amount of ordinary or statutory income that is a return on the interest that Entity A holds in any of the Test Entities, is not assessable and not exempt income.

Does IVA apply to this private ruling?: Part IVA was not considered as part of this private ruling.