Private ruling: Income tax exemption - state or territory body
Date of advice: 22 October 2020
Published: December 2020
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 4 July 20XX

Ruling: Q1: Are you a State or Territory Body (STB) exempt from income tax under section 24AM of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes. | Q2: Are you required to prepare a tax return when it remains a tax exempt State or Territory Body for the whole of that income year as it was tax exempt from a prior date? | A2: Yes.

Relevant facts and circumstances: You are a State or Territory Body exempt from Commonwealth income tax under section 24AM of the Income Tax Assessment Act 1936 (ITAA 1936). You are a discretionary trust incorporated under the Trust Deed. A Trustee Company was set up acting as the Trustee. Two entities each own 50% of the Trustee Company with each also having 50% voting rights. Both were equal beneficiaries of the trust. In later years, a deed of settlement was entered into between the two entities which upon completion gave one entity 100% shareholdings and voting rights to the Trustee Company. This entity became the sole beneficiary of yours via a deed poll in that year. The effective date of the deed poll is defined as the date of completion under the deed of settlement. Although you became a wholly owned subsidiary of that entity, they are not part of a tax consolidated group. You have carried forward tax losses. The entity is tax exempt and operates under the National Taxation Equivalent Regime (NTER) environment.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 161(1) | Income Tax Assessment Act 1936 section 24AM. | Income Tax Assessment Act 1936 section 24AN. | Income Tax Assessment Act 1936 section 24AO. | Income Tax Assessment Act 1936 section 24AT. | Income Tax Assessment Act 1936 section 24AY. | Income Tax Assessment Act 1936 section 24AW | Income Tax Assessment Act 1936 section 24AS | Income Tax Assessment Act 1936 section 24AB. | Income Tax Assessment Act 1997 section 36-10. | Income Tax Assessment Act 1997 section 36-17. | Income Tax Assessment Act 1997 subsection 36-15 | Income Tax Assessment Act 1997 subsection 165-13 | Income Tax Assessment Act 1997 subsection 165-12 | Income Tax Assessment Act 1997 subsection 36-25 | Income Tax Assessment Act 1997 Subdivision 165-E | Income Tax Assessment Act 1997 section 165-210. | Income Tax Assessment Act 1997 subsection 50-25 | Income Tax Assessment Act 1997 subsection 50-55

Reasons for decision: Detailed Reasoning - Detailed reasoning: Section 24AM of the Income Tax Assessment Act 1936 (ITAA 1936) states that income of a State or Territory Body (STB) is exempt from income tax unless section 24AN applies to the STB. Section 24AN of the ITAA 1936 states income derived by an STB is not exempt from income tax under division 1AB of the ITAA 1936 if, at the time that income is derived, the STB is an excluded STB. Sections 24AO to 24AS of the ITAA 1936 provide five ways in which a body can be regarded an STB. Section 24AS of the ITAA 1936 provides that a body is an STB if: (a) it is not a company limited solely by shares; and (b) it is not established by State or Territory legislation; and (c) all the legal and beneficial interests (including, but not limited to, interests as to income, profits, dividends, capital and distributions of capital) in it are held only by one or more government entities; and (d) all the rights or powers (if any) to vote, appoint or dismiss its governing person or body and direct its governing person or body as to the conduct of its affairs are held only by one or more government entities. Section 24AT of the ITAA 1936 defines the meaning of 'excluded STB' and 'government entity' and provides that in this Division: excluded STB means an STB that: (a) at a particular time, is prescribed as an excluded STB in relation to that time; or (b) is a municipal corporation or other local governing body (within the meaning of section 50-25 of the Income Tax Assessment Act 1997 ); or (c) is a public educational institution to which any of paragraphs 50-55(a) to (c) of the Income Tax Assessment Act 1997 applies; or (d) is a public hospital to which any of paragraphs 50-55(a) to (c) of the Income Tax Assessment Act 1997 ) applies; or (e) is a superannuation fund. government entity means: (a) a State; or (b) a Territory; or (ba) ... or (c) another STB that is not an excluded STB. In your circumstances: · you are a trust · you were not established by state or territory legislation · the Deed of Settlement states that all the legal and beneficial interests in the trust are held by a government entity · all the rights or powers to vote, appoint or dismiss its governing person or body and direct its governing person or body as to the conduct of its affairs are held by that government entity. Therefore, you are a government entity within the meaning set out under section 24AS of the ITAA 1936. You do not fall within the categories of excluded STB as set out under section 24AT of the ITAA 1936, in that you are not: · at a particular time, prescribed as an excluded STB in relation to that time, or · a municipal corporation or other local governing body (within the meaning of section 50-25 of the Income Tax Assessment Act 1997 (ITAA 1997)); or · a public educational institution to which any of paragraphs 50-55(a) to (c) of the ITAA 1997 applies, or · a public hospital to which any of paragraphs 50-55(a) to (c) of the ITAA 1997 applies, or · a superannuation fund. Therefore, it is considered that you are an STB exempt from Commonwealth income tax under section 24AM of the ITAA 1936. | Detailed Reasoning - Question 2: Are you required to prepare a tax return when it remains a tax exempt State or Territory Body for the whole of that income year as it was tax exempt from a prior date? | Detailed Reasoning - Detailed reasoning: Subsection 161(1) of the ITAA 1936 states: Every person must, if required by the Commissioner by notice published in the Gazette , give to the Commissioner a return for a year of income within the period specified in the notice. Table L of the Legislative instrument 2009, registered for the purposes of subsection 161(1), states: Where the trustee of a trust estate has derived income (including capital gains) and the trustee is not covered by Tables M, N or O, a trust return is required to be lodged by the trustee resident in Australia. If there is no trustee resident in Australia, the return is to be lodged by the trust's public officer or, where no public officer is appointed, by the trust's agent in Australia. Tables M, N or O of the Legislative instrument do not apply to the trust. If no income is derived within a given income year and any of the other requirements in the Legislative Instruments to lodge an income tax return are not met and the Commissioner does not specify a requirement to lodge an income tax return, then no income tax return is required to be lodged by the trustee for that particular year. Examples as contained in the Legislative Instruments where an income tax return may be required to be lodged even though no income has been derived are: Table A, paragraph 2: Where the trustee has incurred a tax loss or made a net capital loss or is entitled to deduct a tax loss or apply a net capital loss of an earlier year of income, or being a company or trust estate has undeducted tax losses or unapplied net capital losses of any earlier year of income where those losses exceed $1,000. Table A, paragraph 3: Where the trustee has carried on a business Table A, paragraph 5: Where the trustee had an individual interest in the net income or partnership loss of a partnership which operated a primary production business (as defined) in Australia. Although the Legislative Instrument states who is required to lodge a return and does allow for exemptions, it also specifically states, as follows, that the instrument does not remove the Commissioner's power to require lodgment of a return: Nothing in this Instrument prevents the Commissioner or an authorised officer of the Australian Taxation Office from issuing a notice, pursuant to section 162 or 163 of the Income Tax Assessment Act 1936 , requiring a person to give the Commissioner, in the approved form, a return, or further returns, or any information, statement or document about the person's financial affairs for any year of income. Every person must, where required by the Commissioner by a notice published in the Gazette , give the Commissioner a return for a year of income within the period specified in the notice. Therefore, you are required by the Commissioner to lodge an Income Tax return.

This ruling applies for the following period