Edited version of private advice

Authorisation Number: 1051643191927

Date of advice: 16 July 2020

Ruling

Subject: Is the employer a public hospital for the purposes of the FBT capping thresholds

Question

Is the employer a public hospital under Step 2, paragraph (c) of the Method Statement in subsection 5B(1E) of the Fringe Benefits Tax Assessment Act 1986?

Answer

No

This ruling applies for the following periods:

FBT year ended 31 March 2021

FBT year ended 31 March 2022

FBT year ended 31 March 2023

FBT year ended 31 March 2024

The scheme commences on:

1 April 2020

Relevant facts and circumstances

The employer operates several non-profit hospitals in Australia.

The four hospitals have the same facts and circumstances, in particular:

·   They have a fully private ownership structure

·   They do not receive any public funding, and rely solely on fees charged for services and funding contributions from other entities within the employer's corporate structure

·   They do not provide any free, charitable or publicly funded medical services; all services are fee-based either through private health insurance or out-of-pocket expenditure

·   They are not bound to provide services by any government or council regulation to the public.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 5B

Fringe Benefits Tax Assessment Act 1986 section 57A

Reasons for decision

Section 57A of the FBTAA provides a Fringe Benefits Tax exemption where specified employers provide benefits in respect of the employment of their employees including:

·   Registered Public Benevolent Institutions

·   Registered health promotion charities

·   Public and not-for-profit hospitals

·   Government employers whose employees work in public and not-for-profit hospitals and

·   Public ambulance services.

Benefits provided by these employers will be exempt where the total grossed-up value of certain benefits (which are benefits not otherwise exempt) provided to each employee during the FBT year is equal to, or less than, the relevant capping threshold. If the total grossed-up value of certain benefits provided to an employee is more than that capping threshold, the employer will need to pay FBT on the excess.

This amount is determined by reference to the employer's 'aggregate non-exempt amount' in accordance with the Method Statement in subsection 5B(1E) of the FBTAA, which relevantly states:

Is the employer a 'public hospital'?

In the context of this ruling, the relevant question is whether the employer is a 'public hospital' under step 2 paragraph (c) of the Method Statement in subsection 5B(1E) of the FBTAA.

It is not a point of contention that the facilities operated by the employer are hospitals. They meet our published view on the definition of a hospital carried on by a society or organisation at item 1.1.2 of the DGR table at https://www.ato.gov.au/non-profit/getting-started/in-detail/types-of-dgrs/dgr-table/?page=2:

The society or association must be a registered charity.

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.

Examples are hospitals run by churches and religious orders.

The question is whether the four hospitals operated by the employer are each a public hospital for the purposes of subsection 5B(1E) of the FBTAA.

Meaning of public hospital

The term 'public hospital' is not defined in the FBTAA. As such, it takes its ordinary meaning.

Whilst the term has not been judicially considered in the context of the FBTAA, there are several cases that deal with the meaning of a "public hospital" in similar statutory contexts:

O'Connell v The Council of the City of Greater Newcastle (1941) 41 SR (NSW) 190 (O'Connell): The NSW Court of Appeal held that the term "public hospital" was not determined solely by the presence of public control or ownership; it instead turned on the purposes of the hospital

The Little Company of Mary (SA) Incorporated v The Commonwealth (1942) 66 CLR 368 (Little Mary): The High Court upheld the view in O'Connell that public control was not determinative; the character of the hospital was a question of fact with no single matter being conclusive. The Court found that the hospital was not a "public hospital", despite being non-profit, as it:

·   was under denominational control; there was no public control and no obligation to continue operating the hospital for any purpose

·   did not offer any general "right of admission" to the public, namely any free or publicly funded services; whilst no group was precluded from accessing services, the hospital charged fees for all services

·   did not rely on public funding or grant, instead generating revenue from the fees it charged.

Australian Hospital Care (Latrobe) Pty Ltd v Commissioner of Taxation [2000] FCA 1509 (Latrobe): The Federal Court followed the principles in Little Mary with the test turning on the circumstances of the hospital's operation. The hospital was found to not be a "public hospital" based on the following factors:

·   The Hospital was privately-owned and run to profit its members

·   Whilst the hospital had obligations to provide free public health services to the public, and was controlled by the State, these controls arose out of voluntary undertakings under contracts entered into by the hospital

·   Whilst the hospital received state funding, this funding was primarily in the form of payments for the free health services it was providing under contract.

While these cases identified several key indicia of a 'public hospital', we also note that the Full Federal Court in Federal Commissioner of Taxation v Hunger Project Australia [2014] FCAFC 69 (Hunger Project Australia) has cautioned against approaching a question about the ordinary or common meaning of a word or expression either:

·   'as a legal question to be dealt with by the mechanical application of past authority, irrespective of the present current understanding of the expression in the currently spoken English language' (Hunger Project at [38] citing Ambulance Service (NSW) v Deputy Commissioner of Taxation [2002] FCA 1023, [40]-[42] in which Allsop J cites Little Mary); or

·   'as if the answer can necessarily be gleaned from the apparent intention of Parliament in the statute, or other statutes that may use the expression' (Hunger Project [45]).

Similarly, in Latrobe the Federal Court indicated that, while cases considering the term "public hospital" in other statutory contexts could provide assistance, they could not be relied on as pure authority of the meaning of the term.

Nevertheless, we view the that a range of indicia emerge from these cases that can assist in considering whether a hospital satisfies the ordinary meaning of a "public hospital":

·   The ownership of the hospital and whether it is run for profit

·   The level of public/government control over the hospital's operations (and whether any control is regulated or arises voluntarily by contract)

·   Whether the hospital offers free/public-funded services to the public, or if it charges fees for its services

·   Whether the hospital is funded by public grant or is self-funded.

Moreover, aside from any legal meaning of a 'public hospital', there exists a distinction between 'public' ('jointly funded by the Commonwealth and the states and territories') and 'private' ('funded through private health insurance, individual out-of-pocket payments') health in Australia's health system. Such health services are provided through 'public' and 'private' hospitals, thus giving rise to a current ordinary or common understanding of those terms.

With this contextual background in mind, we consider that the hospitals operated by the employer do not meet the definition of a public hospital for the following reasons:

·   They have a fully private ownership structure (albeit a not-for-profit structure)

·   They are not bound to provide services by any government or council regulation to the public

·   They do not receive any public funding, and rely solely on fees charged for services and funding contributions from other entities within the employer's ownership structure and

·   They do not provide any free, charitable, or publicly funded medical services; all services are fee-based either through private health insurance or out-of-pocket expenditure.

Accordingly, the employer is not a public hospital under Step 2, paragraph (c) of the Method Statement in subsection 5B(1E) of the FBTAA.

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