Private ruling: Income tax - exempt income - other - public authorities
Date of advice: 20 June 2019
Published: August 2019
Ruling period: Year ended 30 June 2020 | Year ended 30 June 2021 | Year ended 30 June 2022 | Year ended 30 June 2023
Date scheme commenced: 1 July 2019

Ruling: Q1: Is the ordinary income and statutory income of the Applicant exempt from income tax on the basis that the Applicant is a 'public authority constituted under an Australian law' under item 5.2 of the table in section 50-25 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: The Commissioner previously issued three favourable rulings confirming that the Applicant qualifies as a public authority constituted under an Australian law as described in item 5.2 of the table in section 50-25 of the ITAA 1997 and therefore its ordinary and statutory income is exempt pursuant to section 50-1 of the ITAA 1997. In its current application, the Applicant states that the ruling request is based on the same facts and circumstances as described in their previous rulings. The Applicant also confirms that there has been no significant change to the material facts or law to have an effect on the Commissioner's previous ruling decision. Background facts Before the Applicant's establishment, a statutory body was responsible for the delivery of services to the workers. Recently, legislation was repealed and new legislation was enacted. As a result, the statutory body was dissolved and the rights and liabilities of the statutory body were transferred to the Applicant and another Entity. The Applicant is a subsidiary of the other Entity, and is a private company created by the Act. The Minister has affirmed that the Applicant is an approved company. An approved company is outlined by the Act. A document reflects the functions and conditions stipulated in the Act. The Entity and the Applicant are companies limited by shares and their constitutions allow them to pay dividends to the respective shareholders. The shareholding of the Entity is wholly owned in equal shares by two shareholders. This is in accordance with the Act which stipulates that an approved company must be a company that is wholly owned in equal shares by the two shareholders. The Applicant has advised that notwithstanding these two shareholders of the Entity, the Entity has never declared or paid dividends to those shareholders, and no such distributions are intended to take place and any profits derived are reinvested by the Entity into carrying out its functions and providing services to the community. This is reflected in letters to both shareholders, which notified them that the Board resolved not to pay dividends to the shareholders year to year. The principal activity of the Applicant has been to provide rescue services for workers. These are functions specified in its Notice of Approval and in the objects in the Applicant's constitution. No changes have been made to the constitution. Orders have been developed by the Entity under the authority granted by the Act. Broadly, these orders relate to the administration of training schemes, workplace safety and the health and wellbeing of workers. There have been a number of changes to the Act, such as changes to definitions and minor administrative changes. There have been a number of minor changes to the website regarding the purpose and vision of the Entity and the Applicant. Relevant State Law The Applicant is subject to a number of statutory provisions in the Act. Broadly, the Act prescribes the powers of the Applicant, and outlines the boundaries of the Applicant's powers and functions. Despite the Applicant being legally and financially independent of government, the Act grants the Minister oversight to ensure that the Applicant supports the welfare of workers and for the public interest. These statutory powers and functions aim to serve the interests of, and promote the welfare of, workers.

Relevant legislative provisions: Income Tax Assessment Act 1997 , section 50-1 | Income Tax Assessment Act 1997, section 50-25

Reasons for decision: Summary: Section 50-1 of the ITAA 1997 states 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. Item 5.2 of the table in section 50-25 outlines that a 'public authority constituted under an Australian law' is an exempt entity. To be a public authority, the body in question should exercise control, power or command in its undertaking of a public nature for benefit of the community or of some section or geographical division of the community and it should have governmental authority to do so. Paragraph 14 of Taxation Ruling IT 2632 Income tax: meaning of 'public authority' in definition of 'exempt public body' in Division 16D (IT 2632) outlines the key considerations of whether entities are public authorities: 14. The necessary steps in deciding in particular cases whether a body answers the description of a "public authority" within the Division 16D definition are 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 underlying Division 16D. Based on the principles outlined in IT 2632, the following factors have been considered in determining whether the Applicant 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. Conferred by statute and of a public nature The Applicant was approved by the Minister pursuant to the Act conferred with statutory functions (in accordance with the functions set out in the Act). The objects of the Applicant (as stated in the constitution) reflect only the functions in the Notice of Approval and provide that the Applicant exists to exercise functions which are in the public interest by promoting the welfare and safety of workers. Broadly, these functions include providing rescue services to ensure the welfare and safety of workers. The functions of the Applicant are subject to government oversight to ensure proper and transparent exercise of functions. The Actstates that the constitutions of the approved companies must not be amended in a way that is inconsistent with the Act, and such resolutions must be passed by government. The Actoutlines that the Actprevails over any inconsistent provisions in an approved company's constitution. The Actprovides that an approved company may be required to report to the Minister on health and welfare matters of workers, or any other matters relevant to approved company's functions. The Act provides that an approved company can, with the Minister's approval, make orders in regards to its functions that are not inconsistent with the Act. Further, the Act outlines that approved companies may, with Ministerial approval, conduct searches, compel and retain information in accordance with its functions. The Actdirects that where an approved company appoints an employee or an officer as an inspector to assist with the functions of the approved company, it must provide the Minister with a list of the names of the people appointed. The Actallows the Minister, among other things, to regulate the functions, and the acts or omissions of the approved company. Further, the Applicant's constitution requires it submit a draft financial operating plan in respect of each financial year to the Minister. Approved companies are required to note any comments on the draft plan that are made by Minister and to consider whether the plan should be amended before adoption by the company. As such, the Applicant cannot adopt a business/operating strategy that is inconsistent with their approved functions. The Applicant has been conferred functions by statute that are of a public nature because these functions are exercised in the public interest. Specifically, under government authority, the Applicant's functions are to promote the welfare and safety of workers. In view of the above, it is evident that the Applicant has been conferred powers and functions under the Act to serve the interests of the public, and operates under governmental authority to deliver services to promote the welfare of workers and for the public interest. Exercise powers and functions not possessed by the ordinary citizen As an approved company, the Entity and the Applicant have been conferred coercive powers under the Act. For example, the Act provides that owners of workplaces must pay contributions to the Applicant to defray costs incurred in exercising its functions and it must determine in each financial year the amount that an owner of the workplace must pay in respect of the workplace. The Applicant may make different determinations of the contributions payable by different workplaces taking into consideration a range of factors specified under the Act. The Act provides that the Applicant must for each year serve on each owner a notice which specifies the amount the owner is required to pay under the Act, the method by which the amount was determined, the date which the amount was determined, and the date by which the amount must be paid. Pursuant to the Act, the Applicant can make orders with the approval of the Minister, provided they are not inconsistent to its functions. The Applicant also has powers of inspection to carry out searches, require information and retain information in the exercise of its functions pursuant to the Act. It cannot be said that these are powers or functions which a private corporation possesses. Evidently, the Applicant exercises powers and functions not possessed by the ordinary citizen. Operates for the public benefit The Act stipulates that an approved company must be a company that is wholly owned in equal shares by the specified shareholders, or be a subsidiary of such a company. The Applicant is wholly owned by an approved company. The constitution of the Entity and the Applicant provide the capacity for the payment of dividends to the shareholders. However, the Board of the Entity made a formal resolution to notify the shareholders that it was not the intent on the establishment of the company to pay dividends to shareholders and the policy of the Entity is that no dividends shall be paid to shareholders out of profits earned by the Entity from year to year. The appointment of the shareholders of an 'approved company' under the Act and conferring on them the right to nominate equal numbers of directors was not to provide those organisations any private gain. Rather, they were appointed to represent employer and employee interests in the governance and administration of the Applicant and ensure that interests of all key stakeholders would be taken into account in the Applicant's operations for the benefit of workers. The Entity and its Applicant, assumed the functions performed by the statutory body for the benefit of workers and not for private commercial gain for the respective shareholders. The Applicant has not been established for the private interests of its members. Rather it operates for the industry and the section of the public involved in that industry. As such this results in the provision of a public benefit. Conclusion Having regard to the public duties, statutory functions and powers conferred on the Applicant, the Applicant has been established to perform a function of government to deliver services to the workers. The Applicant does not have features that are inconsistent with the concept of a 'public authority'. Therefore, the Applicant is exempt from income tax pursuant to section 50-1 of the ITAA 1997 on the basis that it qualifies as a 'public authority under and Australian law' under item 5.2 of the table in section 50-25 of the ITAA 1997.