ATO Interpretative Decision

ATO ID 2012/94

Fringe Benefits Tax

Issue

Is the employer, a local government council, an 'authority of the State' for the purposes of the extended definition of 'associate' in subsection 159(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision

Yes. The employer is an 'authority of the State' for the purposes of subsection 159(2) of the FBTAA as the employer has been given the power by the State to direct and control the affairs of the people within its jurisdiction on behalf of the State and in the interests of the community.

Facts

The employer is a local government council. It has the power under an Act of Parliament of a State to make local laws for and otherwise ensure the good rule and local government of the territory within its jurisdiction.

The functions and powers given to the employer under State legislation are matters within the constitutional power of the State and the employer can only do something that the State can validly do.

State laws prevail over local laws to the extent of any inconsistency.

The State, through the relevant Minister ('the Minister'), can suspend or revoke a local law if the Minister believes the law is contrary to or inconsistent with local government principles (such as transparent decision-making, good governance and ethical and legal behaviour).

Before making certain local laws the employer must consult with relevant Government entities about the overall State interest in the proposed law and give the Minister a copy of the proposed law.

When a local law is made, the employer must give the Minister a copy of the law.

The Minister can gather information to evaluate whether the employer is performing its responsibilities properly. If not, the Minister can take remedial action.

The employer's borrowings are subject to approval by the State and the State is required to audit the employer.

The State is not subject to rates and charges which are levied on rateable land.

Reasons for Decision

All legislative references are to the FBTAA unless otherwise stated.

Subsection 159(2) extends the generality of the expression 'associate' for the purposes of the FBTAA. In particular, paragraph 159(2)(d) deems a State to be an associate of each authority of the State.

The phrase 'authority of the State' is not defined in the FBTAA. However, a number of decided cases have considered the meaning of 'authority of a State' and 'authority'.

In Committee of Direction of Fruit Marketing v. Australian Postal Commission (1980) 144 CLR 577 (the Fruit Marketing case) the High Court unanimously decided that the Committee of Direction of Fruit Marketing was an authority of the State of Queensland for the purposes of the Postal Services Act 1975. Gibbs J stated at 580:

The expression "authority of a State" refers to a body which exercises power derived from or delegated by the State, but the fact that a body is established under State law and possesses power conferred upon it by State law will not necessarily mean that the body is an authority of a State...The words "authority of a State" naturally mean a body which is given by the State the power to direct or control the affairs of others on behalf of the State - ie, for the purposes of and in the interests of the community or some section of it. In some cases it may be decisive that the body concerned is given exceptional powers of a kind not ordinarily possessed by an individual or a company, and that those powers are intended to be exercised for a purpose that would ordinarily be regarded as a purpose of government. On the other hand, in some cases it may be decisive that the body is conducted in the interest, and for the profit, of its members. In all cases, however, it is necessary to have regard to all the relevant circumstances in order to determine the character of the body in question.

In FC of T v. Bank of Western Australia Ltd; FC of T v. State Bank of New South Wales Ltd 96 ATC 4009; (1995) 133 ALR 599 the meaning of the word 'authority' was considered in the context of the phrase 'the official use,... and not for sale by,... an authority which is completely controlled by,... a State' in the Sales Tax (Exemptions and Classifications) Acts 1935 and 1992 was considered by the Full Federal Court. In that case Hill J looked at a number of Australian cases as to the meaning of the word 'authority'. He derived the following propositions from those cases:

•

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: The Western Australian Turf Club v. FC of T 78 ATC 4133; (1978) 139 CLR 288 (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.

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A private body, corporate or unincorporated, established for profit will not be an authority: Renmark Hotel Inc v. FC of T (1949) 8 ATD 424; (1949) 79 CLR 10 (Renmark Hotel) per Rich J at ATD 429; CLR 17, FC of T v. Silverton Tramways Co Ltd (1953) 10 ATD 295; (1953) 88 CLR 559 (Silverton Tramways) per Dixon CJ at ATD 297; CLR 566.

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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.

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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: the Fruit Marketing case.

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The body in question must perform a traditional or inalienable function of government and have governmental authority for so doing: Renmark Hotel per Rich J at ATD 428; CLR 16, General Steel Industries Inc v. Commissioner for Railways (NSW) (1964) 112 CLR 125 per Barwick CJ at 134, Re Anti-Cancer Council of Victoria; Ex parte the State Public Services Federation (1992) 175 CLR 442 per Mason CJ, Brennan and Gaudron JJ at 450-451.

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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.

•

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 Tramways 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.

In this case, the functions and powers given to the employer under the State legislation are matters within the constitutional power of the State. Under the State legislation the employer has been given the power to direct and control the affairs of the people within its jurisdiction in the interests of the community.

Having regard to the degree of control over the employer exercisable by the State, it is considered that the employer is an instrument of the State and that the employer is exercising its powers on behalf of the State.

The State, through the Minister, has the power to revoke or suspend a local law. State laws prevail over local laws to the extent of any inconsistency. Before making certain local laws the employer must consult with relevant Government entities about the overall State interest and provide the Minister with a copy of the proposed law. When a local law is made the employer must provide the Minister with a copy of the law. The Minister can gather information to evaluate whether the employer is performing its responsibilities properly and, if not, the Minister can take remedial action. The employer's borrowings are subject to approval by the State and the State is required to audit the employer. The State is not subject to rates and charges which are levied on rateable land.

Further, the powers granted to the employer by the State are exceptional powers of a kind not ordinarily possessed by an individual or a company and are intended to be exercised for a purpose that would ordinarily be regarded as a purpose of government.

Therefore, it is considered that the employer is 'an authority of the State' for the purposes of the extended definition of 'associate' in subsection 159(2).

Year of income:  Year ending 31 March 2013

Legislative References:
Fringe Benefits Tax Assessment Act 1986
   subsection 159(2)
   paragraph 159(2)(d)

Case References:
Committee of Direction of Fruit Marketing v Australian Postal Commission
   (1980) 144 CLR 577
   [1980] HCA 23

Keywords
Associate
FBT associates
Fringe benefits
Fringe benefits tax

Siebel/TDMS Reference Number:  1-4CA91F6; 1-77FOBM8

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  16 November 2012
Date reviewed:  16 November 2018

ISSN: 1445-2782