Edited version of your private ruling

Authorisation Number: 1012351576306

Ruling

Subject: Tax Exempt Benefits: duties of employees in public hospitals and ambulance services

Question 1

Will employees who provide support services for public hospitals be eligible for the exemption in subsection 57A(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) when providing those services from within a public service agency?

Answer

Yes.

Question 2

Will employees who provide support services for public ambulance services be eligible for the exemption in subsection 57A(3) of the FBTAA when providing those services from within a public service agency?

Answer

Yes.

This ruling applies for the following periods:

1 April 2013 - 31 March 2014

1 April 2014 - 31 March 2015.

The scheme commenced on:

1 February 2012.

Relevant facts and circumstances

Under reforms put in place, various services are now provided by a public service organization to various agencies, including hospitals and ambulance services.

The public service organisation is a nominated State or Territory body under section 135S of the FBTAA.

The Teams are located at a location which is not within the precincts of a hospital.

Employees providing services to hospitals

Employees in the Teams perform functions exclusively for public hospitals. The functions that these employees perform are 'quarantined' through the use of internal management controls, so that these employees do not provide services to any other agencies.

These Teams are established for the sole purpose of providing services on behalf of the public hospitals. All employees work exclusively to provide services to the public hospitals. Some employees within the Teams are dedicated to the management and the internal control activities necessary to perform the functions exclusively for public hospitals, and others are dedicated to perform other tasks exclusively for the public hospitals.

Employees providing services to ambulance services

Employees in specific Teams provide functions predominantly to the ambulance services. Occasionally, these employees will have spare capacity to assist other Teams with workload peaks in their particular work areas. This would only form a small portion of their duties, with the rest of the work being performed for the ambulance service.

All employees work predominantly to provide services to the public ambulance service. Some employees within the Teams are dedicated to the management and the internal control activities necessary to perform the functions for public ambulance services, and others are dedicated to perform other tasks for the public ambulance services.

Relevant legislative provisions

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

Fringe Benefits Tax Assessment Act 1986 subsection 57A(3)

Fringe Benefits Tax Assessment Act 1986 section 135S

Fringe Benefits Tax Assessment Act 1986 subsection 135U(5)

Income Tax Assessment Act 1997 subsection 328-175(6).

Reasons for decision

Question 1

Will employees who provide support services for public hospitals be eligible for the exemption in subsection 57A(2) of the FBTAA when providing those services from within a public service agency?

Detailed reasoning

Subsection 57A(2) of the FBTAA provides an exemption for certain employees of a government body. It states:

57A(2)  [Duties of employee relating to public hospital]  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) …, or

(iii) a hospital carried on by a society that is a non-profit society for the

purposes of section 65J or by an association that is a non-profit

association for the purposes of section 65J;

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

It contains two conditions that must be satisfied for the exemption to apply:

1. the employer must be a government body, and

2. the duties of employment must be performed either:

· exclusively in a hospital, or

· exclusively in connection with a hospital.

Is the employer a government body?

The public service organisation is a nominated State or Territory body. As subsection 135U(5) of the FBTAA provides that a nominated State or Territory body will be taken to be a government body, the first condition is satisfied.

Are the duties of employment performed exclusively in a hospital?

The first test in paragraph 57(2)(b) of the FBTAA, requires that the duties of an employee must be exclusively performed in a public or non-public hospital. The word 'in' within the context of paragraph 57A(2)(b) of the FBTAA denotes physical location, physical precinct or physical situation. To satisfy this test, the employee would be required to exclusively perform their duties within the land and buildings occupied by a hospital.

As the employees will not be physically located at a public hospital, the first limb of the second condition is not met.

Are the duties of employment performed exclusively in connection with a hospital?

Paragraph 57A(2)(b) of the FBTAA 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 (1987) 15 FCR 487; (1987) 77 ALR 103, 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 J. in Butler v. Johnston & Others (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)."

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 limb 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.

The employees will be employed in discrete units, exclusively performing duties in support of the hospitals. Internal controls will be put in place to quarantine the duties from support duties performed by other interagency Teams in the public service organisation.

These duties are incidental to the running of public hospitals, and consist of administrative support in finance, human resources, payroll, information technology and the statutory reporting requirements. These are the same duties as the employees were formerly performing within the hospitals, with the addition of internal controls to ensure that the work performed remains exclusively in support of public hospitals within a branch framework of interagency support. These functions, while incidental to the main purpose of public hospitals, are nonetheless essential to the operation of the hospitals.

The training the staff will be required to undertake, is to achieve efficiencies in the administrative running of the public hospital system. This makes it incidental to the objectives of hospital operations. This view is consistent with the view expressed in ATO ID 2003/40, which states that:

An employee working exclusively for a public hospital would have to be fully engaged in a principal activity of the public hospital, or at least the work duties would be incidental to that principal activity.

As the employees will perform functions incidental to the objectives of the public hospitals, the second limb of paragraph 57A(2)(b) of the FBTAA will be satisfied.

Therefore, the exemption in subsection 57A(2) of the FBTAA will apply to the employees who only provide services to public hospitals. However, the exemption will not apply if the employee provides services to an agency that is not a hospital.

Question 2

Will employees who provide support services for public ambulance services be eligible for the exemption in subsection 57A(3) of the FBTAA when providing those services from within a public service agency?

Detailed reasoning

Subsection 57A(3) of the FBTAA provides an exemption under certain conditions, and states that:

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) the employer provides public ambulance services or services that support those

services and the employee is predominantly involved in connection with the provision of those services.

The relevant paragraph is paragraph (b), which requires:

· the employer to provide public ambulance services or services that support those services, and

· the employee to be predominantly involved in connection with the provision of those services.

Does the employer provide ambulance services or services that support those services?

The relevant employer is a government agency. The second option at paragraph (b) of subsection 57A(3), identifies an employer who provides services that support those (public ambulance) services. The Explanatory Memorandum to the Tax Laws Amendment (2004 Measures No.2) Bill 2004, provides the following explanation in relation to the intention of paragraph 57A(3)(b) of the FBTAA:

8.12 An employer would provide 'services that support those services' in circumstances such as where the employer operates a call centre which answers emergency telephone calls made to public ambulance services. This would be the case even in circumstances where the call centre operated calls for other emergency services.

8.13 An employer would not be providing 'services that support those services' in circumstances where the service being provided has only an indirect connection with the provision of public ambulance services, or is merely similar to the provision of public ambulance services. For example, a commercial provider of transportation to hospitals would not be providing services that support public ambulance services.

The Teams will be providing support services to the public ambulance services.

Are the employees predominantly involved in connection with the provision of public ambulance services?

Unlike the employees undertaking duties in the hospital Teams, the employees in the ambulance Teams do not provide services solely to the ambulance service. These employees will also perform support functions for other government agencies if there is spare capacity to do so. The amount of time spent assisting other government agencies in non-ambulance support duties such as invoicing and payroll, is anticipated to be around 10-20% of overall duties performed.

Guidance for determining whether this affects the application of paragraph 57A(3)(b) is provided in paragraph 8.14 of the Explanatory Memorandum to the Tax Laws Amendment (2004 Measures No.2) Bill 2004, which stated:

8.14 An employee would be 'predominantly' involved if for at least half of their employment with the employer over the course of the relevant FBT year, they were involved in connection with the provision of those services. An employee would be 'involved in connection with the provision of those services' if they were working as a public ambulance officer. An employee would also be 'involved in connection with the provision of those services' if they were providing secretarial services for an employer who provides public ambulance services or services that support those services.

In applying this paragraph, an employee will be predominantly involved in connection with the provision of the services, if at least 50% of their duties are in connection with the provision of ambulance services. This application is consistent with the interpretation of the word 'predominantly' in relation to other taxation provisions. For example, in the context of subsection 328-175(6) of the Income Tax Assessment Act 1997 (ITAA 1997), where it is accepted that a depreciating asset will be let 'predominantly' on a depreciating asset lease if it is or might reasonably be expected to be let more than 50% of the time on a depreciating asset lease.

As the employees will be providing support services for ambulance services for a minimum of 80% of their overall duties, the employees' duties will meet the definition of 'predominantly' as presented in the Explanatory Memorandum.

Therefore, the exemption in subsection 57A(3) of the FBTAA will apply to the employees located in those Teams that provide services to the ambulance service.

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