Edited version of private ruling

Authorisation Number: 1011453354034

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Ruling

Subject: Fringe benefits tax: public hospital

Question

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

Answer: Yes.

This ruling applies for the following period/s:

Year ending 31 March 2011

Year ending 31 March 2012

The scheme commences on:

15 June 2010

Relevant facts and circumstances

You are a company limited by guarantee.

You provided a copy of your Constitution which includes your objects.

You have over 180 beds including:

· in-patient beds

· VIP rooms

· intensive care and coronary care beds

· full digital operating theatres

· cardiac angiography suites

· chemotherapy beds; and

· surgical beds

· You employ two doctors, 200 nursing staff and a significant number of specialist medical practitioners.

· You provide the following services:

· anaesthetics

· cardio-procedural

· cardio nonprocedural

· cardiothoracic surgery

· consulting physicians

· dentistry

· dermatology

· ear nose and throat

· ear nose and throat, ear surgery, skull base surgery, implantable hearing surgery

· endocrinology

· gamma knife

· gastroenterology

· general medicine

· general surgery

· gynaecology

· haemotology

· hand surgeon

· maxillofacial surgery

· neurology

· neurophysiology

· neurosurgery

· nuclear medicine

· oncology

· ophthalmology

· oral surgery

· orthopaedic surgery

· orthopaedics and spinal surgery

· paediatrics

· pain management

· pathology

· physiotherapy

· plastic surgery

· radiation oncology

· radiology

· renal physician

· respiratory

· rheumatology

· ultrasound

· urology

· vascular surgery

You have been endorsed as a charitable institution.

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

Summary

The benefits will be exempt benefits under subsection 57A(3) of the FBTAA if you are a public hospital.

In considering whether you are a public hospital it is necessary to consider whether:

· you are a hospital; and

· if you are a hospital whether you are a public hospital for the purposes of the FBTAA.

In applying the definition of a hospital that is contained in the Tax Office publication GiftPack it is accepted that you are a hospital as:

· you are an institution;

· your dominant objective is the provision of continuous medical care and treatment for sickness disease or injury; and

· you provide associated accommodation and nursing services.

In applying the meaning of the word 'public' as discussed in Taxation Ruling TR 2000/10 it is accepted that you are a public hospital for the purposes of subsection 57A(3) of the FBTAA.

Therefore, as you are a public hospital, the benefits provided to your employees will be exempt benefits under subsection 57A(3) of the FBTAA. However, it should be noted that section 5B of the FBTAA limits the exemption by providing that an FBT liability will arise if the value of certain benefits provided to an individual employee exceeds $17,000.

Detailed reasoning

Subsection 57A(3) of the FBTAA provides that 'a benefit provided in respect of the employment of an employee is an exempt benefit if the employer of the employee is a public hospital'.

Therefore, for the benefits to come within subsection 57A(3) you must be a public hospital.

In considering whether you are a public hospital it is necessary to consider the following issues:

· Are you a hospital?

· If you are a hospital, are you a public hospital?

Are you a hospital?

As the term 'hospital' is not defined within the FBTAA, it is necessary to consider the ordinary meaning provided by several court cases.

These decisions are summarised in the definition of a hospital contained on page 12 of the publication GiftPack which states:

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.

In considering whether you satisfy the common characteristics contained within these definitions, it is necessary to consider the following three questions:

1. Are you an institution?

2. Is the dominant objective the provision of continuous medical care and treatment for sickness, disease or injury?

3. Do you provide associated accommodation and nursing services on your premises?

Are you an institution?

Although there is no statutory definition of the term institution, there are a number of court cases, which provide guidance.

An institution has been described as 'the body (so to speak) called into existence to translate the purpose as conceived in the mind of the founders into a living and active principle' (Mayor of Manchester v. McAdam (1896) 3 TC 491 at 497; AC 500 at 511 (Mayor of Manchester) per Lord Nacnaghten).

In Pamas Foundation (Inc) v. Deputy Commissioner of Taxation 92 ATC 4161; 23 ATR 189 the Full Federal Court applied the decision of Christian Enterprises Ltd v. Comr of Land Tax (1968) 88 WN (Pt2) (NSW) 112 to conclude that the word institution is to be given a meaning greater than a structure controlled and operated by family members and friends. The fact that the foundation in that case was incorporated did not mean that it was also an institution. It was relevant that the foundation had a small and exclusive membership.

Another case involving an organisation that was held not to be an institution despite being incorporated was the Federal Court decision of The Trustees of the Allport Bequest v. FCT 88 ATC 4436; 19 ATR 1335. In that case, the organisation's sole activities were to manage trust property and apply the income in donations to such other charitable organisations and objects as it determined. Northrop J characterised the organisation's activities as those of simple or mere trustees. They were insufficient to constitute the organisation as an institution. The fact that it had a recognised identity and permanent nature was not sufficient.

An institution must have a separate identity. Constituent documents and separate accounts and records will help to indicate a separate identity. The need for a separate identity is illustrated by the decision in Case X33 90 ATC 308. In that case a gift of land was made to a church to facilitate the construction of an old peoples' home. Although there was some evidence that separate funds were held for a home, no institution existed separately from the church. Even though it is possible to consider an aged persons' home as a public benevolent institution it could not be established that the home was an institution outside of the church.

These cases indicate that the question of whether an organisation is an institution depends upon a range of factors including its activities, size, permanence and recognition. Even if the organisation is incorporated this in itself is not sufficient for the organisation to be considered to be an institution. If the organisation is controlled and operated by family members and friends it will not be considered to be an institution. If another body controls the organisation the organisation will not be considered to be an institution in its own right.

Taxation Ruling TR 92/17 Income tax and fringe benefits tax: exemptions for 'religious institutions' states at paragraph 4:

A body is an "institution" for the purposes of both the ITAA and the FBTAA if it is an establishment, organisation or association, instituted for the promotion of some object (especially one of public or general utility) that is religious, charitable, educational, etc…

In applying these cases to your situation, it is accepted that you are an institution as:

· you are a company limited by guarantee;

· you have a separate constitution which sets out your objectives, powers and functions, and

· requires you to keep separate accounts and records of your activities.

Is the dominant objective the provision of continuous medical care and treatment for sickness, disease or injury?

In considering the dominant objective it is necessary to refer to both the company objects and the list of the services that are being provided.

The primary objective as set out in the Constitution is to manage and control the Hospital and any other Health Facilities under its control.

The list of medical specialties that you provide is set out in the facts.

As this list indicates you provide continuous medical care and treatment for sickness, disease or injury and the primary objective is to manage and control the hospital it is accepted that the dominant objective is the provision of continuous medical care and treatment for sickness, disease or injury.

Do you provide associated accommodation and nursing services on your premises?

As you have over 180 beds including in-patient beds this condition is satisfied.

As each of the three conditions is satisfied it is accepted that you are a hospital.

Are you a public hospital?

As the term 'public hospital' is not defined within the FBTAA it is necessary to consider its ordinary meaning.

In discussing the contemporary common understanding or ordinary meaning of the term 'public hospital', Merkel J in Australian Hospital Care (Latrobe) Pty Ltd v. Commissioner of Taxation [2000] FCA 1509; (2000) 105 FCR 20; (2000) 45 ATR 593; 2000 ATC 4723 referred to the decisions in O'Connell v. The Council of the City of Greater Newcastle (1941) 41 SR (NSW) 190 and the Little Company of Mary (SA) Incorporated v. The Commonwealth (1942) 66 CLR 368 before stating at paragraph 51:

The question of whether a particular institution is a public hospital according to common understanding is a question of fact to be resolved upon a consideration of all the circumstances. The institutions with which each of the above cases was concerned were different from the institution under consideration in the present case. Thus, the cases on the meaning of the term "public hospital" in other statutory context, while of assistance, cannot be treated as authorities on what constitutes a public hospital.

On the basis of the relevant facts Merkel J concluded that the hospital was a privately owned and operated hospital that provided public hospital services to the public, rather than a public hospital as:

· it was privately owned for the purpose of gain or profit for its members

· the state regulation of the hospital's activities was indirect in the sense that it was pursuant to the voluntary undertaking of obligations under contract, rather than by statute or direct state control, and

· the funding was in the form of payments based on a fee for the service provided.

Further guidance as to the meaning of the word 'public' is provided by Taxation Ruling TR 2000/10 which discusses the meaning of the word 'public' in the context of what is a public library, public museum and public art gallery for purposes of gift deductibility under Division 30 of the Income Tax Assessment Act 1997 (ITAA 1997).

At paragraph 18, TR 2000/10 indicates that for an organisation to exist for the public benefit, it does not have to serve the entire community. It can serve a section of the community provided it is a wide and substantial section of the community.

In paragraph 19, TR 2000/10 refers to the principles In re Income Tax Acts (No 1) [1930] VLR 211. In considering whether a benevolent institution was public, Lowe J at 222 said that the word public in relation to institutions connotes:

…the carrying on of the institution for the benefit of the public generally, or at least of a definitely ascertainable section of the public, where the benefit of the institution is available without discrimination to every member of the public or of that section of it.

In applying these comments it is accepted that you are a public hospital as your services are available to any member of the public who requires medical treatment.