Goods and Services Tax Ruling GSTR 2006/5
Date of effect: 28 March 2012

What this ruling is about: This document was published prior to 1 July 2010 and was a public ruling for the purposes of former section 37 of the Taxation Administration Act 1953 and former section 105-60 of Schedule 1 to the Taxation Administration Act 1953. From 1 July 2010, this document is taken to be a public ruling under Division 358 of Schedule 1 to the Taxation Administration Act 1953. A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. [ Note: This is a consolidated version of this document. Refer to the Legal Database (http://law.ato.gov.au) to check its currency and to view the details of all changes.]


Ruling: 6. The Commissioner considers that the Commonwealth, a State or a Territory includes a department, agency or organisation of the type referred to in the definition of 'government entity' in section 195-1. 7. Section 195-1 adopts the meaning of 'government entity' given by section 41 of the A New Tax System (Australian Business Number) Act 1999 . This means that the Commonwealth, a State or a Territory, as the case may be, includes any of the following: | Corporations: 8. The Commonwealth, a State or a Territory is not limited to the departments, agencies and organisations described at paragraph 7 and may include a corporation which is not a 'government entity' as defined in section 195-1. [3] However, not every corporation in which the Commonwealth or a State or Territory has an interest is part of the Commonwealth or the State or Territory. 9. The Commissioner considers that this issue is to be determined in accordance with the principles developed by the High Court of Australia in the cases concerning the meaning of 'a State' in section 114 of the Australian Constitution, most recently in SGH Ltd v. Commissioner of Taxation [2002] HCA 18; (2002) 2002 ATC 4366; (2002) 49 ATR 521; (2002) 210 CLR 51 (the SGH case). [4] The discussion which follows is drawn from these cases. 10. For ease of reference, the discussions refer to a State, as that is the context in which the issue most commonly arises for GST purposes, but the principles apply equally in determining whether a corporation is the Commonwealth or a Territory. Similarly, while the discussion focuses upon corporations, many of the principles could apply to other structures, such as a trust. 11. The fundamental principle established by these cases is that, if the corporation is discharging governmental functions for the State - that is, the State is carrying on the relevant business or other function through the corporation - the corporation is the State. [5] On the other hand, if the intention is for the corporation to perform its functions independently of, and not as an instrument of, the State - so that the concept of a State activity cannot be realistically applied to that which the corporation does - the corporation is not the State. [6] 12. To determine which of these characterisations applies in a particular case, the following principles should be considered: | Local governments: 13. Local governments may be a State or Territory. As is the case for corporations, the Commissioner considers that the principles developed by the High Court of Australia in cases concerning the meaning of 'a State' in section 114 of the Constitution, as described at paragraphs 8 to 12 of this Ruling, also apply in determining whether a particular local government is a 'State' or 'Territory' for the purposes of the GST Act. 14. There have been several cases in which the Courts have considered whether a local government is a 'State' for the purposes of section 114 of the Constitution. 15. In The Municipal Council of Sydney v. The Commonwealth [23] (' Municipal Council of Sydney' ), in three separate judgements, all judges of the High Court agreed that the Municipal Council of Sydney was the 'State' for the purposes of section 114 of the Constitution. The power delegated to the Council, by State legislation, which allowed the Council to levy rates, was the determinative factor in that case. 15A. In Deputy Commissioner of Taxation v. State Bank of New South Wales , [24] the High Court referred to the Municipal Council of Sydney decision and said: 15B. The Full Federal Court's decision in Greater Dandenong City Council v. Australian Municipal, Administrative, Clerical and Services Union [25] (' Dandenong City Council ) is another instance where a local government was considered to be a 'State' for the purposes of section 114 of the Constitution, albeit that it was the constitutional immunity under paragraph 51(xxxv) of the Constitution that was the key focus of that case. In his judgement, Finkelstein J referred to the Municipal Council of Sydney decision and considered several aspects of the statute under which the Council was established in reaching the conclusion that the Council was a 'mere instrumentality of the State'. [26] 15C. The Municipal Council of Sydney decision and the Dandenong City Council decision both turned upon the specific features of the particular Councils involved; those specific features being bestowed upon them by State legislation. 15D. These decisions demonstrate that the legislation constituting a particular local government must be considered to determine whether it is a State for the purposes of section 114 of the Constitution. These decisions do not stand for a general proposition that local governments are a State for the purposes of section 114 of the Constitution. 15E. The decisions in Municipal Council of Sydney and Dandenong City Council are contrasted with decisions where the Court has determined that local governments do not operate as instrumentalities of a State or Territory Crown, and therefore are not considered to have the immunities of the Crown. [27] However, the principles for determining whether an agency or instrumentality represents the 'Crown' and has been endowed with the privileges and immunities of the 'Crown' for a particular purpose are different to the principles applied to determine whether a body is a 'State' for the purposes of section 114 of the Constitution. [28] Therefore, a local government that does not share the immunities of the Crown may, nevertheless, be the State for the purposes of section 114 of the Constitution and may, similarly, be the State or Territory for the purposes of the GST Act. 16. Below is a detailed contents list for this Goods and Services Tax Ruling: Commissioner of Taxation 26 April 2006


Appendix: 6. The Commissioner considers that the Commonwealth, a State or a Territory includes a department, agency or organisation of the type referred to in the definition of 'government entity' in section 195-1. 7. Section 195-1 adopts the meaning of 'government entity' given by section 41 of the A New Tax System (Australian Business Number) Act 1999 . This means that the Commonwealth, a State or a Territory, as the case may be, includes any of the following: | Corporations: 8. The Commonwealth, a State or a Territory is not limited to the departments, agencies and organisations described at paragraph 7 and may include a corporation which is not a 'government entity' as defined in section 195-1. [3] However, not every corporation in which the Commonwealth or a State or Territory has an interest is part of the Commonwealth or the State or Territory. 9. The Commissioner considers that this issue is to be determined in accordance with the principles developed by the High Court of Australia in the cases concerning the meaning of 'a State' in section 114 of the Australian Constitution, most recently in SGH Ltd v. Commissioner of Taxation [2002] HCA 18; (2002) 2002 ATC 4366; (2002) 49 ATR 521; (2002) 210 CLR 51 (the SGH case). [4] The discussion which follows is drawn from these cases. 10. For ease of reference, the discussions refer to a State, as that is the context in which the issue most commonly arises for GST purposes, but the principles apply equally in determining whether a corporation is the Commonwealth or a Territory. Similarly, while the discussion focuses upon corporations, many of the principles could apply to other structures, such as a trust. 11. The fundamental principle established by these cases is that, if the corporation is discharging governmental functions for the State - that is, the State is carrying on the relevant business or other function through the corporation - the corporation is the State. [5] On the other hand, if the intention is for the corporation to perform its functions independently of, and not as an instrument of, the State - so that the concept of a State activity cannot be realistically applied to that which the corporation does - the corporation is not the State. [6] 12. To determine which of these characterisations applies in a particular case, the following principles should be considered: | Local governments: 13. Local governments may be a State or Territory. As is the case for corporations, the Commissioner considers that the principles developed by the High Court of Australia in cases concerning the meaning of 'a State' in section 114 of the Constitution, as described at paragraphs 8 to 12 of this Ruling, also apply in determining whether a particular local government is a 'State' or 'Territory' for the purposes of the GST Act. 14. There have been several cases in which the Courts have considered whether a local government is a 'State' for the purposes of section 114 of the Constitution. 15. In The Municipal Council of Sydney v. The Commonwealth [23] (' Municipal Council of Sydney' ), in three separate judgements, all judges of the High Court agreed that the Municipal Council of Sydney was the 'State' for the purposes of section 114 of the Constitution. The power delegated to the Council, by State legislation, which allowed the Council to levy rates, was the determinative factor in that case. 15A. In Deputy Commissioner of Taxation v. State Bank of New South Wales , [24] the High Court referred to the Municipal Council of Sydney decision and said: 15B. The Full Federal Court's decision in Greater Dandenong City Council v. Australian Municipal, Administrative, Clerical and Services Union [25] (' Dandenong City Council ) is another instance where a local government was considered to be a 'State' for the purposes of section 114 of the Constitution, albeit that it was the constitutional immunity under paragraph 51(xxxv) of the Constitution that was the key focus of that case. In his judgement, Finkelstein J referred to the Municipal Council of Sydney decision and considered several aspects of the statute under which the Council was established in reaching the conclusion that the Council was a 'mere instrumentality of the State'. [26] 15C. The Municipal Council of Sydney decision and the Dandenong City Council decision both turned upon the specific features of the particular Councils involved; those specific features being bestowed upon them by State legislation. 15D. These decisions demonstrate that the legislation constituting a particular local government must be considered to determine whether it is a State for the purposes of section 114 of the Constitution. These decisions do not stand for a general proposition that local governments are a State for the purposes of section 114 of the Constitution. 15E. The decisions in Municipal Council of Sydney and Dandenong City Council are contrasted with decisions where the Court has determined that local governments do not operate as instrumentalities of a State or Territory Crown, and therefore are not considered to have the immunities of the Crown. [27] However, the principles for determining whether an agency or instrumentality represents the 'Crown' and has been endowed with the privileges and immunities of the 'Crown' for a particular purpose are different to the principles applied to determine whether a body is a 'State' for the purposes of section 114 of the Constitution. [28] Therefore, a local government that does not share the immunities of the Crown may, nevertheless, be the State for the purposes of section 114 of the Constitution and may, similarly, be the State or Territory for the purposes of the GST Act.


What this Ruling is about | What this Ruling is about: 1. This Ruling discusses the meaning of 'Commonwealth, a State or a Territory' for the purposes of the following provisions of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act): | 2. This Ruling does not address: | 3. Unless otherwise stated, all references in this Ruling are to the GST Act. | Date of effect: 4. This Ruling applies [to tax periods commencing] both before and after its date of issue. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). | 4A. The Addendum to this Ruling that issued on 28 March 2012 explains the Commissioner's view of the law as it applied before and after its date of issue. You can rely on this Addendum from its date of issue (28 March 2012) for the purposes of section 357-60 of Schedule 1 to the Taxation Administration Act 1953. | Indeed, the decision in Sydney Municipal Council v The Commonwealth is direct authority for the proposition that a corporation exercising governmental functions is 'a State' for the purposes of section 114.


Related rulings: TR 2006/10
Legislative references: ANTS(ABN)A 1999 37 ANTS(ABN)A 1999 41 ANTS(GST)A 1999 9-20 ANTS(GST)A 1999 38-15 ANTS(GST)A 1999 38-25 ANTS(GST)A 1999 38-30 ANTS(GST)A 1999 38-445 ANTS(GST)A 1999 38-450 ANTS(GST)A 1999 72-95 ANTS(GST)A 1999 72-100 ANTS(GST)A 1999 75-10 ANTS(GST)A 1999 184-1 ANTS(GST)A 1999 195-1 Commonwealth of Australia Constitution Act 114 Commonwealth of Australia Constitution Act 51(xxxv) ITAA 1997 995-1 Public Service Act 1999 TAA 1953 Sch 1 357-60 TAA 1953 Sch 1 Div 358
Case references: Bodney v. Westralia Airports Corporation Pty Ltd (2000) 180 ALR 91 [2000] FCA 1609 (2000) 109 FCR 178
Subject references: agency Commonwealth corporation entity government department local government State Territory