Income tax exemption - State or Territory Bodies

Is an entity established by Act of Parliament of a State to manage superannuation funds exempt from income tax?

Yes. The entity is exempt from income tax under section 24AR of the Income Tax Assessment Act 1936 (ITAA 1936).

The functions of the entity are to invest and manage the public sector superannuation funds.

The entity is established by State or Territory legislation. The entity is not a company limited solely by shares. The legislation gives the power to direct its governing person or body as to the conduct of its affairs only to one or more government entities.

No income is generated other than through funds management investment activities.

Superannuation funds for the benefit of employees of the Commonwealth, State and Territory governments and government or semi-government authorities are generally referred to as public sector funds. These funds have been subject to tax as complying superannuation funds under Pt IX of the ITAA 1936 since 1 July 1988.

Division 1AB of the ITAA 1936 provides that bodies classified as State or Territory Bodies (STBs) and which are not excluded STBs will be exempt from income tax.

There are five ways in which a body will be regarded as being controlled by one or more government bodies and therefore be considered an STB. The tests for determining whether a body is controlled by one or more government entities are set out in section 24AO to section 24AS of the ITAA 1936.

The entity was established under an Act of a State Parliament that gave considerable level of direction and control to Government entities. This included the power of the relevant Minister to determine which funds are to be administered, the appointment of management, access and input to performance plans and books of account.