Private ruling: Income tax exemption
Date of advice: 1 April 2021
Published: June 2021
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the Company a public authority constituted under an Australian law as described in item 5.2 of the table in section 50-25 of the Income Tax Assessment Act 1997 (ITAA 1997) and therefore its income exempt from income tax? | A1: Yes

Relevant facts and circumstances: The Company is registered as an Australian public company limited by guarantee. The constitution provides the objects for which the Company is established. The Company is to act as a body authorised by governments to undertake a particular function for government programs and projects. The Company operates as a non-profit organisation and in the event of winding up its surplus income and assets would be transferred to a body approved as a charitable institution. The Company was established by federal and state legislations and is accordingly regulated and governed by federal and state government regulations and guidelines. As such, it demonstrates that the Company is not a profit generating organisation.

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 provides 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. Section 50-25 of the ITAA 1997 covers exempt government entities. Item 5.2 of the table in section 50-25 provides that 'a public authority constituted under an Australian law' is an exempt entity. There are no special conditions that must be met for this item. The term public authority constituted under an Australian law is not defined in the ITAA 1997. Taxation Ruling IT 2632 Income tax: meaning of 'public authority' in definition of 'exempt public body' in Division 16D provides the Commissioner's view on whether a particular body is public authority. IT 2632 at paragraph 14 states that in determining whether a particular body is a 'public authority' it is necessary 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. Since the publication of IT 2632, there have been Federal Court cases involving the nature of a public authority. In FC of T v. Bank of Western Australia Limited; FC of T v. State Bank of New South Wales Limited 96 ATC 4009 at 4027, after considering a number of cases in relation to the meaning of public authority, Hill J derived the following propositions: 1. 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: 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. 2. A private body, corporate or unincorporated, established for profit will not be an authority: Renmark Hotel at ATD 429; CLR 17 per Rich J, Silverton Tramway per Dixon CJ at ATD 297; CLR 566. 3. 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. 4. 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 at 580. 5. The body in question must perform a traditional or inalienable function of government and have governmental authority for so doing: Renmark Hotel at ATD 428; CLR 16 per Rich J, General Steel per Barwick CJ at 134, Anti-Cancer Council case at 450-451 per Mason CJ, Brennan and Gaudron JJ. 6. 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. 7. 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 Tramway 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. The Company was established and operates to perform a particular function of government for the community. It is accepted that the Company operates in a non-profit manner. The Company does not have features that are inconsistent with the concept of a public authority. Therefore, the Company's income is exempt from income tax pursuant to section 50-1 of the ITAA 1997 on the basis that it qualifies as a public authority constituted under an Australian law under item 5.2 of the table in section 50-25 of the ITAA 1997.