Edited version of private ruling

Authorisation Number: 1011667638729

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Ruling

Subject: FBT: Subsection 57A(2) of the FBTAA 1986 - exempt benefits for employees working in a public hospital

Question 1

Is the employer a 'government body' for the purposes of paragraph (a) of section 57A(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer: Yes.

Question 2

Will a benefit provided to an employee be an exempt benefit under section 57A(2) of the FBTAA if:

(a) all the duties of the employee are performed at the public hospital?

Answer: Yes

(b) the duties of the employee are not performed at the public hospital, but the duties are exclusively in connection with the public hospital?

Answer: Yes

(c) the duties of the employee are performed at the public hospital but some duties are for the area health department?

Answer: Yes

(d) the duties of employment are not performed at the public hospital and are not exclusively in connection with the public hospital?

Answer: No

This ruling applies for the following period

Years 1 April 2010 to 31 March 2013.

The scheme commences on:

1 April 2009

Relevant facts and circumstances

The employer is a government body that provides a diverse range of information and communication services to the government including:

· network access for both data and voice;

· data storage;

· business application development and management;

· hardware;

· ICT project management; and

· a services desk.

The bodies to which services are provided include a public hospital.

Some of the employees are located within the hospital building.

Other employees are not located within the hospital building, but only provide services to the hospital.

The remaining employees provide services to departments. Some of these employees may undertake duties for the hospital from time to time.

Relevant legislative provisions

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

Fringe Benefits Tax Assessment Act 1986 Subsection 135T(1)

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

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Section 5B.

Reasons for decision

Will a benefit provided to an employee be an exempt benefit under section 57A(2) of the FBTAA where the duties are either exclusively carried out in a public hospital, or are exclusively in connection with a public hospital?

Summary

In considering whether the exemption in subsection 57A(2) of the FBTAA applies to a benefit that has been provided to an employee it is necessary to consider whether:

(1) the employer of the employee is a government body; and

(2) the duties of employment of the employee are exclusively performed either;

(i) in a public hospital or a hospital that comes within sub paragraph 57A(2)(b)(iii) of the FBTAA; or

(ii) in connection with a public hospital or a hospital that comes within sub paragraph 57A(2)(b)(iii) of the FBTAA.

In considering the first requirement the employer of the employees is a government body.

Detailed reasoning

Subsection 57A(2) of the FBTAA 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; or

(ii)

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

There are two requirements that need to be considered as part of this subsection. They are whether:

1. the employer of the employee is a government body; and

2. the duties of employment of the employee are exclusively performed either:

(i) in a public hospital or a hospital that comes within sub paragraph 57A(2)(b)(iii); or

(ii) in connection with a public hospital or a hospital that comes within sub paragraph 57A(2)(b)(iii).

Is the 'employer' a 'government body'?

Part XIC of the FBTAA enables a State or Territory to nominate an 'eligible State or Territory body' to be taken to be the employer of the employees that have a sufficient connection with the body.

Subsection 135T(1) of the FBTAA defines the bodies that are an 'eligible State or Territory body' by reference to the relevant State or Territory Acts.

The requirements that must be satisfied for an eligible State or Territory to be nominated as an employer are contained in Section 135S of the FBTAA. In general terms, it requires the State or Territory to make a nomination in the approved form on or before 21 May of the first year in which the administrative unit is to be treated as an employer.

Once a nomination is made subsection 135U(1) of the FBTAA provides that the nominated State or Territory body is to be taken to be the employer of each employee of the State or Territory that has a sufficient connection with the body. Under subsection 135U(2) of the FBTAA an employee of the State or Territory has a sufficient connection with a body if he or she performs his or her duties of employment wholly or principally in the body.

An eligible State or Territory body which is a nominated State or Territory body is taken to be a 'government body' under paragraph 135U(5) of the FBTAA.

Therefore, the first requirement of subsection 57A(2) of the FBTAA will be satisfied as the employer of the employees is a government body.

Are the duties of employment of the employee exclusively performed either:

(i) in a public hospital or a hospital that comes within sub paragraph 57A(2)(b)(iii) of the FBTAA; or

(ii) in connection with a public hospital or a hospital that comes within sub paragraph 57A(2)(b)(iii) of the FBTAA?

Summary

The duties of an employee will satisfy the requirements of paragraph 57A(2)(b) of the FBTAA when the duties are either:

· exclusively performed in the physical location of a hospital, or

· are such that the employee is exclusively engaged in activities that enable a hospital to carry out its functions.

Both of the tests contain an exclusive requirement. The word 'exclusively' requires an approach not admitting anything other than what is provided for in the tests.

In applying these principles the employees can be divided into the following three categories:

· employees who undertake all their duties within the public hospital;

· employees not located within the public hospital whose duties only relate to the functions of the public hospital; and

· employees not located within the public hospital whose duties can relate to any of the departments.

The employees that undertake all their duties at the public hospital will satisfy the first test in paragraph 57A(2)(b) of the FBTAA as all their duties are being undertaken within the physical location of a public hospital.

The fact that some of the duties may be for the benefit of the Department will not affect the conclusion that the first test in paragraph 57A(2)(b) of the FBTAA is satisfied.

Employees who do not perform all of their duties exclusively within the physical location of a hospital will not satisfy the first test in paragraph 57A(2)(b) of the FBTAA. Therefore, these employees will not satisfy the first test in paragraph 57A(2)(b) of the FBTAA.

In considering whether the second test in paragraph 57A(2)(b) of the FBTAA is met it is necessary to consider whether the duties are exclusively for the benefit of the hospital. The second test will not be satisfied where an employee performs some of their duties for the benefit of the Department.

Detailed reasoning

The second requirement to be considered is whether the one of the two tests contained in paragraph 57A(2)(b) of the FBTAA are satisfied. The duties of an employee will satisfy the requirements of paragraph 57A(2)(b) of the FBTAA when the duties are either:

· exclusively performed in the physical location of a hospital, or

· are such that the employee is exclusively engaged in activities that enable a hospital to carry out its functions.

The meaning of exclusively

Both of the tests contain an exclusive requirement. The word 'exclusively' requires an approach not admitting anything other than what is provided for in the tests.

In Lloyd v. Federal Commissioner of Taxation (1955) 93 CLR 645 at p671, Kitto J in considering whether a gift was made 'exclusively' or 'only' for the purpose of public education stated:

…for then no gift could attract the exemption if any part of the corpus or income of the property given could be applied, consistently with the gift, for any purpose, however minor in importance, which was collateral or independent as distinguished from being a purpose of or incidental to public education.

The first test

The first test requires the duties to be exclusively performed at a hospital.

The Macquarie Dictionary [Multimedia], version 5.0.0, 01/10/01 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.

It is considered that the meaning of the word 'in' in the phrase 'exclusively performed in', 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) of the FBTAA requires that the duties of the employment of the 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.

Where some but not all of the duties of employment of an employee are performed in the physical location of a hospital the first test will not be satisfied. In such situations, it is necessary to consider the second test to determine whether the employee's duties satisfy paragraph 57A(2)(b) of the FBTAA.

The second test

The second test in paragraph 57A(2)(b) of the FBTAA is satisfied where the duties are exclusively performed 'in connection with' a hospital.

In the Federal Court decision of Hatfield v. Health Insurance Commission, Davies J in considering the meaning of the expression 'in connection with' stated;

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) of the FBTAA 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.

In applying these principles the employees can be divided into the following four categories:

· employees who undertake all their duties within the public hospital;

· employees who undertake all their duties within the hospital compound but some duties relate to the area health department;

· employees not located within the public hospital whose duties only relate to the functions of the public hospital; and

· employees not located within the public hospital whose duties can relate to any of the departments.

The employees that undertake all their duties at the public hospital will satisfy the first test in paragraph 57A(2)(b) of the FBTAA as all their duties are being undertaken within the physical location of a public hospital.

The fact that some of the duties may be for the benefit of the Department will not affect the conclusion that the first test in paragraph 57A(2)(b) of the FBTAA is satisfied.

Employees who do not perform all of their duties exclusively within the physical location of a hospital will not satisfy the first test in paragraph 57A(2)(b) of the FBTAA.

Therefore, these employees will not satisfy the first test in paragraph 57A(2)(b) of the FBTAA.

In considering whether the second test in paragraph 57A(2)(b) of the FBTAA is met it is necessary to consider whether the duties are exclusively for the benefit of the hospital. If all the employee's duties are 'in connection with' the public hospital, this test will be satisfied.

The second test will not be satisfied where an employee performs some of their duties for the benefit of the area health department.