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Edited version of your private ruling
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Ruling
Subject: Income tax exempt status
Question 1
Is the Entity exempt from income tax under section 24AM of the Income Tax Assessment Act 1936 (ITAA 1936) on the basis that it is a state/territory body under section 24AO of the ITAA 1936?
Answer
Yes
This ruling applies for the following periods:
Year ending 30 June 2011
Year ending 30 June 2012
The scheme commences on:
30 July 2010
Relevant facts and circumstances
The Entity was established in 2010 as a public company limited by shares.
The sole shareholder of the Entity is a Pty Ltd Company.
The shares of the Pty Ltd Company are held by an individual.
The constitution of the Entity indicates that the Pty Ltd Company holds its share in the Entity as trustee for The Trust.
The deed of trust for The Trust states that the trust is established to provide benefits to the beneficiary. The beneficiary of The Trust is the Council.
The terms of the trust do not allow for amendments to be made to the beneficiary of the trust.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 24AM,
Income Tax Assessment Act 1936 Section 24AO,
Income Tax Assessment Act 1936 Section 24AT and
Income Tax (Excluded STBs) Regulations 1997 Regulation 3.
Reasons for decision
Summary of decision
The Entity is an STB under section 24AO of the ITAA 1936 because it is a company limited by shares and all its shares are beneficially owned by a government entity. The Entity is not an excluded STB and so it is exempt from income tax.
Detailed reasoning
A State/Territory body (STB) is exempt from income tax under section 24AM of the ITAA 1936 unless it is an excluded STB.
Under section 24AO of the ITAA 1936 a body can be an STB if:
· it is a company limited solely by shares; and
· all the shares in it are beneficially owned by one or more government entities.
(a) Company
The Entity is a public company that is limited by shares. Therefore, the first requirement has been met.
(b) Government ownership
All of the shares in the Entity must be beneficially owned by a government entity.
A government entity is defined in section 24AT as:
· a State; or
· a Territory; or
· a municipal corporation or other local governing; or
· another STB that is not an excluded STB.
The sole share of the Entity is held by a Pty Ltd Company as trustee for The Trust. The sole beneficiary of The Trust is the Council. The Council is a municipal corporation. Therefore, a government entity is the beneficial owner of the shares in the Entity and so the second requirement has been met.
An excluded STB is defined in section 24 AT as an STB that:
· at a particular time, is prescribed as an excluded STB in relation to that time; or
· is a municipal corporation or other local governing body; or
· is a public educational institution; or
· is a public hospital; or
· is a superannuation fund.
All the STBs prescribed as excluded are listed at Regulation 3 of the Income Tax (Excluded STBs) Regulations 1997. There are two schedules to the Regulations; schedule 1 covers the year 1994-95 and schedule 2 the 1995-96 and 1996-97 financial years. Each schedule is listed on a state by state basis.
The Entity is not included in the list of excluded STBs under either schedule. The Entity is not a prescribed STB.
It is clearly evident that the Entity is not a, municipal corporation or local governing body, public hospital, a public educational institution or a superannuation fund.
The Entity does not fit any of the five criteria of an excluded STB. Therefore, the Entity is considered to be an STB and exempt from income tax pursuant to section 24AM of the ITAA 1936.
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