Draft Taxation Ruling

SST D11

Sales tax: authorities and public authorities for the purposes of Items 126 and 127

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  View the Erratum notice for this document.
  This document has been finalised.

FOI status:

draft only - for comment

Preamble

Chapter 1: What this Ruling is about

1.1 This Ruling is the first in a series of Rulings that explain the exemption Items in Chapter 14 of Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992 (ST (E&C) Act) - 'Goods for use by governments, hospitals etc.'

1.2 This Ruling sets out the ATO view on what is an authority for the purposes of Item 126 in Schedule 1 to the ST (E&C) Act and a public authority for the purposes of Item 127 in that Schedule.

1.3 Government entities can take a number of legal forms including departments, commissions, boards, statutory authorities, statutory corporations, and companies incorporated under the Corporations Law. This Ruling explains the terms 'authorities' and 'public authorities'. It will help bodies to determine whether they satisfy the requirements of paragraphs (b) or (c) of subitem 126(1) or paragraph (b) of subitem 127(1).

Chapter 2: Date of effect

2.1 This Ruling will be effective immediately upon its release in final form. It replaces any other public or private rulings to the extent that they are inconsistent with this Ruling, effective three months from the date of final release of this Ruling. However, if a person will pay less sales tax because of this Ruling, it can be acted upon immediately upon its release in final form. Nothing in this Ruling may be taken as automatically authorising a refund before the date of effect of the Ruling. Credit claims will be considered on their individual merits.

Withdrawal of ST 2000 series ruling

2.2 This Ruling covers the information given in Sales Tax Ruling ST 2076 - 'Public Authorities' which will be withdrawn on finalisation of this draft Ruling.

Chapter 3: Interpretation of paragraphs (b) and (c) of subitem 126(1)

3.1 Paragraph (b) of subitem 126(1) provides exemption for goods for use by an authority:

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that is completely controlled by an Australian government; and

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whose expenditure is exclusively borne by that government.

3.2 Paragraph (c) of subitem 126(1) provides exemption for goods for use by an authority:

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that is completely controlled by two or more Australian governments; and

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whose expenditure is exclusively borne by those governments.

An 'Australian government' for the purposes of Item 126 is defined in subitem 126(3) to mean the Commonwealth, a State, the Australian Capital Territory or the Northern Territory. ^[F1]

3.3 Item 126 does not cover goods for use by:

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State or Territory owned bodies as defined in section 3D of the ST (E&C) Act;

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local government bodies covered by Item 127; or

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certain Commonwealth-controlled authorities that may have claimed exemption under an exemption provision in their own legislation. ^[F2]

What is an authority?

3.4 The word 'authority' is an ordinary English word and it signifies a body that has the right or power to exercise authority or command. ^[F3] The Macquarie Dictionary (3rd ed) defines the word 'authority' to mean:

'1. The right to determine, adjudicate, or otherwise settle issues or disputes; the right to control, command, or determine. 2. a person or body with such rights.'

3.5 While the courts have, on a number of occasions, determined whether or not particular bodies are authorities or public authorities, no single test has emerged. ^[F4]

3.6 When considering whether or not a body is an authority for the purposes of the subitem, usually no one factor is determinative. ^[F5] Rather, there is a range of considerations that must be taken into account in order to determine the character of the body in question. Ultimately, the decision about the status of a particular body is a question of fact and degree dependant upon the particular circumstances of that case.

3.7 A number of propositions have been derived from the courts. These were summarised by Hill J in the Bank of WA case: ^[F6]

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a private body, corporate or unincorporated, established for profit is not an authority;

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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;

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the body in question must perform a traditional or inalienable function of government and have governmental authority for doing so;

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for a body to be an authority, it is not necessary that it has coercive powers and the possession of coercive powers does not of itself characterise a body as an authority;

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as a minimum, a body is required to possess exceptional powers. However, the possession of exceptional powers is not of itself sufficient to characterise a body as an authority. For example, a private utility that may have the legal right to enter premises would not be an authority solely because of that power;

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incorporation by legislation is not a requirement for a body to be classed as an authority.

Completely controlled by an Australian government

3.8 The prominent features of a body (depending on its structure) completely controlled by an Australian government may include the following: ^[F7]

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it is governed by a board of directors and the composition of the board is controlled by the government;

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the board of directors is required to consult with the Minister;

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the content of the Memorandum and Articles of Association is controlled by the Minister;

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voting shareholders are eligible Ministers or other government representatives who hold their shares on behalf of the State;

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the obligations of the body are guaranteed by the government; and

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the board of directors is required to provide a written statement of corporate intent to its voting shareholders who are entitled to vary, from time to time, the statement of corporate intent initially agreed to by the board and the voting shareholders.

Whose expenditure is exclusively borne by that government

3.9 The phrase 'expenditure exclusively borne by that government' was considered by the Full Federal Court in Totalizator Agency Board v. FC of T. ^[F8] The majority of the Court held that Item 126 should be interpreted narrowly and, in line with this intention, made the following observations:

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a reference to the word 'exclusively' means that if any expenditure at all is not 'borne' by the State then the requirements of the section are not met;

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the government bears the expenditure exclusively when it alone provides the money;

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if the body uses money of its own (perhaps generated by fees and charges) in addition to funds provided by a government, the government does not bear the expenditure exclusively.

Chapter 4: Interpretation of paragraph (b) of subitem 127(1)

4.1 Paragraph (b) of subitem 127(1) provides exemption for goods for use by a public authority that is:

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constituted by a law of the Commonwealth or of a State or Territory; and

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constituted for the purpose of carrying out some or all of the functions that are ordinarily carried out by a municipal, shire or district council that is constituted for general purposes of local government.

What is a public authority?

4.2 Many of the decided cases have considered the meaning of the word 'authority' in the context of the expression 'public authority'. Hill J in the Bank of WA case commented on the distinction between an 'authority' and a 'public authority': ^[F9]

'It is difficult, however, to see that the addition of the word "public" significantly alters the meaning of the word "authority", particularly where it is used, as in the present context, in relation to governmental authorities. To the extent that the word "public" does affect the meaning of the word "authority" it can only be in the emphasis upon the public character of the body, or the public nature of the activity with which the body is concerned rather than the intrinsic characteristics of the body itself.'

4.3 To be a public authority, the body in question should exercise control, power or command in its undertaking of a public nature for the benefit of the community or of some section or geographical division of the community and it should have governmental authority to do so. ^[F10]

4.4 Where a body has a variety of functions, the question of whether it is a public authority for the purposes of paragraph (b) of the subitem is one of fact and degree that often requires a balancing of the various features of the body concerned. This question should be approached by looking for features that are alien to the concept of what is a public authority and determining the importance of those factors to that body. ^[F11] Generally, it is the ATO's considered view that a body is not a public authority where:

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individuals have a financial interest in its profits or assets;

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its public functions are merely incidental or subordinate to its private pursuits; or

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its powers derive from a private or non-statutory source.

Constituted by a law of the Commonwealth or of a State or Territory

4.5 There are two essential principles from the decided cases ^[F12] in relation to the phrase 'constituted by an Act of Parliament': ^[F13]

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the body must be both established and constituted by an Act or Acts; and

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it is not required that the Act or Acts should relate to the particular entity exclusively. All that is necessary is that the body should be constituted by some Act or Acts for the purpose mentioned.

Constituted for the purpose of local government or a local council

4.6 To determine whether or not a body is constituted for a particular purpose, reference must be made to the governing documents of the body, and in particular the objects of an unincorporated body and the Memorandum and Articles of Association of an incorporated body.

4.7 Generally, clear evidence, in the form of an express pronouncement, should be available, if requested, to demonstrate that the public authority has been formed for the purpose of carrying out some or all of the functions that are ordinarily carried out by a local government body. The mere fact that a public authority has been invested with the power to perform functions ordinarily carried out by a council, does not necessarily mean that the public authority has been constituted for that purpose or purposes.

Carrying out some or all of the functions that are ordinarily carried out by a municipal, shire or district council

4.8 To qualify as a public authority for the purposes of paragraph (b) of subitem 127(1), a body must perform one or more of the functions ordinarily carried out by a municipal, shire or district council constituted for general purposes of local government.

4.9 Councils in different jurisdictions may be invested with different authorised functions and, therefore, it is not possible to list all functions that are classified as authorised functions for the purposes of determining whether or not the public authority satisfies the requirements of paragraph (b) of subitem 127(1).

4.10 Generally, the following tests apply:

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the council must be authorised by law to perform the function;

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the function must be carried out for a public purpose; and

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the function must not result in a profit that is distributable either directly or indirectly to an individual.

Chapter 5: Your comments

5.1 If you wish to comment on this Draft Sales Tax Ruling, please send your comments by 27 February 1998 to:

Commissioner of Taxation
17 December 1997

This Draft Ruling has been finalised by SST 10

References

ATO references:
NO 97/3779-1 97/8133-3

Subject References:
authorities and public authorities

Legislative References:
Sales Tax Assessment Act 1992 130
Sales Tax (Exemptions and Classifications) Act 1992 3D
Sales Tax (Exemptions and Classifications) Act 1992 126(3)
Sales Tax (Exemptions and Classifications) Act 1992 Sch 1
Sales Tax (Exemptions and Classifications) Act 1992 Sch1-126
Sales Tax (Exemptions and Classifications) Act 1992 Sch1-126(1)
Sales Tax (Exemptions and Classifications) Act 1992 Sch1-126(1)(b)
Sales Tax (Exemptions and Classifications) Act 1992 Sch1-126(1)(c)
Sales Tax (Exemptions and Classifications) Act 1992 Sch1-127
Sales Tax (Exemptions and Classifications) Act 1992 Sch1-127(1)
Sales Tax (Exemptions and Classifications) Act 1992 Sch1-127(1)(b)

Case References:
FC of T v. Bank of WA Ltd; FC of T v. State Bank of NSW Ltd
96 ATC 4009
(1995) 32 ATR 380

In re East and West India Dock Company
[1888] 38 Ch D 576
Government Insurance Office of New South Wales v. DFC of T
92 ATC 4178
(1992) 35 FCR 247
Renmark Hotel Incorporated v. FC of T
(1949) 79 CLR 10
Totalizator Agency Board v. FC of T
96 ATC 4782
(1996) 33 ATR 413
The Western Australian Turf Club v. FC of T
(1978) 139 CLR 288