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Why is it called the 'Australian Capital Territory'? The Australian Capital Territory (ACT) encompasses the city of Canberra. It is entirely surrounded by the state of New South Wales and is by far the smallest self-governing internal territory in Australia. The territory is so called because it contains the nation's capital.
The area was given over to the capital after the nation became federated. New South Wales gave the territory over to the Federation in 1911, two years before the capital was named.