Edited version of private ruling

Authorisation Number: 1011712771528

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Ruling

Subject: Fringe benefits tax - application of subsection 57A(2)

Question 1

Will the benefits provided to your employees be exempt benefits under subsection 57A(3) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No.

Question 2

Will the benefits provided to its employees whose duties are exclusively performed in a public hospital be exempt benefits under subsection 57A(2) of the FBTAA?

Answer

Yes.

Question 3

Will the benefits provided to its employees whose duties are not exclusively performed in a public hospital be exempt benefits under subsection 57A(2) of the FBTAA?

Answer

No.

This ruling applies for the following period:

Year ended 31 March 2011

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 57A(2)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Relevant facts and circumstances

You are a statutory authority.

You provide services to various organisations including public hospitals and commercial organisations located in the private sector.

You do not provide accommodation to patients.

Some of your employees undertake their duties in a hospital.

Some of your employees undertake their duties on your premises.

One of your premises is collocated on the site of a hospital.

Reasons for decision

Will the benefits provided to the employees be exempt benefits under subsection 57A(3)?

In general terms the exemption in subsection 57A(3) will apply to all of the employees if you are a public hospital.

Subsection 57A(3) states:

A benefit provided in respect of the employment of an employee is an exempt benefit if:

(a) the employer of the employee is a public hospital; or

(b) …

Are you a public hospital?

The term 'public hospital' is not defined within the FBTAA. However, the following definition of 'hospital' is provided within the publication titled GiftPack:

A hospital is an institution in which patients are received for continuous medical care and treatment for sickness, disease or injury. Providing accommodation is integral to a hospital's care and treatment. Clinics that mainly treat ambulatory patients who return to their homes after each visit are not hospitals. However, day surgeries that provide beds for patients to recover after surgery may be hospitals. Homes providing nursing care in respect of feeding, cleanliness and the like are not hospitals. However, nursing homes for people suffering from illness are accepted as hospitals. Hospices for the terminally ill will generally be hospitals. Minor outpatient and nursing care will not prevent an institution from being a hospital.

A key component of this definition is the requirement for the institution to provide accommodation. You do not provide accommodation on your premises.

Therefore, you are not be considered to be a public hospital and subsection 57A(3) will not apply to the benefits provided to the employees.

Will the benefits provided to the employees be exempt benefits under subsection 57A(2)?

Subsection 57A(2) of the FBTAA provides an exemption for benefits provided to an employee of a government body who performs their duties in a particular way.

Subsection 57A(2) states:

Where -

(a) the employer of an employee is a government body: and

(b) the duties of the employment of the employee are exclusively performed in, or in connection with:

(i) a public hospital;

(ii) …

(iii) …

a benefit provided in respect of the employment of the employee is an exempt benefit.

In determining whether this subsection will apply to the benefits provided to your employees it is necessary to consider the following questions:

1. Are you a 'government body'?

2. If you are a 'government body' will the duties of the employee be either:

§ exclusively performed in a public hospital, or

§ exclusively performed in connection with a public hospital?

1. Are you a 'government body'?

Subsection 136(1) of the FBTAA defines 'government body' to mean

the Commonwealth, a State, a Territory or an authority of the Commonwealth or of a State or Territory

As you are not the Commonwealth, a State or a Territory it is necessary to consider whether you will be 'an authority of a State'.

The FBTAA does not define the term 'authority of the State' and there are no cases that have directly considered the meaning of the term for the purposes of the FBTAA. However, there are a number of cases that have considered this term in the context of other legislation.

In Stack and Others v. Brisbane City Council and Others (1995) 131 ALR 333 the Brisbane City Council was held to be an 'authority of the State' under the Patents Act 1990. Cooper J held that a body will be an 'authority of the State' if its functions are 'impressed with the stamp of government' or if it has been given by the State the power to direct or control the affairs of others on behalf of the State. The role and involvement of the executive, through the Governor in Council or the appropriate minister, is also a relevant factor.

In Federal Commissioner of Taxation v. Bank of Western Australia Ltd (1995) 133 ALR 559 the Federal Court examined whether the Bank of Western Australia and the State Bank were 'authorities' for the purposes of the Commonwealth sales tax legislation. In considering this issue, Hill J stated a number of relevant propositions for determining whether a body is an authority: These were:

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

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

§ 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;

§ 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; and

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

It is accepted that you are an 'authority of the State' as:

§ you are incorporated as a statutory authority;

§ you hold property on behalf of the Crown; and

§ you are required to report to the appropriate minister.

Therefore, as you are an 'authority of the State' you are a 'government body'.

2(a) Will the duties of employment of the employees be exclusively performed in a public hospital?

The first test in paragraph 57A(2)(b) requires that the duties of an employee must be 'exclusively performed in….a public or non-profit hospital'.

The Macquarie Dictionary defines the meaning of 'in' as:

inclusion within space or limits, a whole, material or immaterial surroundings, etc.; in the city, in the army, dressed in white; in politics

The word 'in' can take various meanings. For example the word 'in' can mean physical location or it can refer to being 'in' a body to which one belongs to, such as 'in the army'.

It is considered that the meaning of the word 'in' in the phrase 'exclusively performed in', and in the context of this provision, means the duties must be performed in the physical location of a hospital which would be within the land and buildings occupied by a hospital.

Accordingly, the first test in paragraph 57A(2)(b) requires that the duties of the employment of an employee of a government body must be exclusively performed in the physical location of a hospital.

There may be occasions where land and buildings are utilised for separate and identifiable purposes and where one of those purposes includes the conducting of a hospital. In these cases it would be necessary to identify that part of the land and buildings where a hospital is being conducted as being a place in a hospital where an employee's duties must be performed.

In applying these tests, the first test will only apply to some of the employees. These are the employees that only perform their employment duties within the physical location of a hospital.

This will not include the employees that perform at least part of their duties within your premises as you are not a hospital.

Nor will include those employees that undertake at least part of their duties in a part of the complex that is not occupied by the hospital. As set out above, where the employees perform their duties in buildings that are used for more than one purpose, the exemption is restricted to those employees who carry out their duties on the part of the land and buildings that are occupied by a hospital.

2(b) Will the duties of employment of the employees be exclusively performed in connection with a public hospital?

Paragraph 57A(2)(b) can also be satisfied where the duties of a government body employee are exclusively performed in connection with a hospital. In the Federal Court decision of Hatfield v. Health Insurance Commission, Davies J considered the meaning of the expression 'in connection with';

Expressions such as "relating to", "in relation to", "in connection with" and "in respect of" are commonly found in legislation but invariably raise problems of statutory interpretation. They are terms which fluctuate in operation from statute to statute. As was said by Blackburn, Gallop & Neaves JJ in Butler v. Johnston (1984) 55 ALR 265 at 268:-

"It is clear that the words 'in respect of' can convey a meaning of wide import, but their exact width will depend upon the context in which they appear. Reference to individual cases on different statutes is of little assistance in determining their particular meaning. The court has to construe the meaning of the words with reference to the purpose or object underlying the legislation in which they appear (s 15AA of the Acts Interpretation Act 1901(Cth))."

The terms may have a very wide operation but they do not usually carry the widest possible ambit for they are subject to the context in which they are used, to the words with which they are associated and to the object or purpose of the statutory provision in which they appear.

In the context of this provision the term 'exclusively performed in connection with' takes a narrower, rather than a wider meaning.

Accordingly, the second test in paragraph 57A(2)(b) requires that the duties of the employment of an employee of a government body are such that the employee is exclusively engaged in activities that enable a hospital to carry out its functions.

Although, it is accepted that some of the services that you provide are for a hospital, the employees who provide the services are acting on your behalf, rather than on behalf of the hospital. This is indicated by the fees that are received for the services provided to the hospitals and the fact that services are not just provided for hospitals.

Even if it was possible to conclude that an employee in carrying out a test that was paid for by a hospital was acting on behalf of the hospital, the exclusive requirement would not be satisfied as services are also provided to the private sector and commercial organisations.

Therefore, the exemption contained in subsection 57A(2) will not apply to the benefits provided to employees whose duties of employment are not exclusively performed in a hospital.

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