Edited version of private ruling

Authorisation Number: 1011827855313

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Ruling

Subject: Fringe benefits tax: hospital

Question

Will the benefits provided to employees be exempt benefits under subsection 57A(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following period

Year ended 31 March 2012

The scheme will commence on

1 July 2011

Relevant facts and circumstances

You have provided details of a number of changes to your structure and have sought a ruling as to whether subsection 57A(2) will continue to apply to the benefits provided to your employees after the changes occur.

Relevant legislative provisions

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

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

Will the benefits provided to employees be exempt benefits under subsection 57A(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

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) …

(iii) …

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

Therefore, a benefit provided to an employee will be an exempt benefit under subsection 57A(2) of the FBTAA if:

· the employer of the employee is a 'government body', and

· the duties of employment of the employee are exclusively performed in, or in connection with a public hospital.

In considering these two requirements:

(a) Is the employer a 'government body'?

A 'government body' is defined in subsection 136(1) to mean 'the Commonwealth, a State, a Territory or an authority of the Commonwealth or of a State or a Territory.

The employer is a 'government body'.

(a) Will the duties of employment be exclusively performed in, or in connection with a public hospital?

Paragraph 57A(2)(b) contains two limbs.

The first limb requires a consideration of whether the duties of the employment of the employee .are exclusively performed in a public hospital.

The word 'in' within its present context denotes physical location, physical precinct or physical situation. For a public hospital, the institution may in fact be located over separate physical sites, much the same as a university campus.

To satisfy this limb, the employee is required to exclusively perform his or her duties of employment within the physical boundaries or sites of a public hospital.

The second limb requires a consideration of whether the duties of the employment of the employee are exclusively performed in connection with a public hospital.

This second limb needs to be considered for employees whose duties of employment are not exclusively performed within the physical precinct of a public hospital.

The presence of the word 'exclusively' or 'only' was discussed by Kitto J in Lloyd v Federal Commissioner of Taxation (1955) 93 CLR 645. At page 672 Kitto J said,

In neither case is the restriction as precise as it would be if the word "exclusively" or "only" were found in s. 8 (5) after "public educational purposes", 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 meaning of the phrase 'in connection with' was discussed in Burswood Management Ltd v A-G (1990) 23 FCR 144. In a joint decision the court said: 'The words "in connection with" are words of wide import; and the meaning to be attributed to them depends on their context and the purpose of the statute in which they appear.'

The purpose of the former subsection 57A(2) was discussed in paragraph 1.4 of the Replacement Supplementary Explanatory Memorandum (Senate) to the A New Tax System (Fringe Benefits) Act 2000 (EM). The EM said:

Under section 57A of the FBTAA 1986, a benefit provided to an employee of a public hospital which is a PBI, or to an employee of a government body where the employee works exclusively for a public hospital that is a PBI, is wholly exempt from FBT.

In considering what is the extent or degree of the 'connection' required by the second limb the words of the EM provide assistance in that they require the employee to work exclusively for a public hospital.

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. Refer also Ngurratjuta Pmara/Ntjarra Aboriginal Corp v. Commissioner of Taxes (No 2) (2000) 155 FLR 196; 2000 ATC 4264.

As your employees will satisfy one of the limbs, the requirements of subsection 57A(2) will be satisfied if they work in a public hospital.

Will the entity be a hospital?

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

The following definition of a hospital contained on page 12 of the publication GiftPack for deductible gift recipients & donors summarises the various decisions:

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 this definition it is necessary to consider the following three questions:

· Will the entity be an institution?

· Will the dominant objectives of the entity be the provision of continuous medical care and treatment for sickness, disease or injury?

· Will the entity provide associated accommodation and nursing services on their premises?

Will the entity be 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 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 the entity it is accepted that it is an institution.

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

An analysis of your activities shows that this requirement is satisfied.

Will the entity provide associated accommodation and nursing services on their premises?

The entity will provide associated accommodation and nursing services.

Therefore, as each of the requirements are satisfied it is accepted that the entity will be a hospital.

Will the entity be 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.

None of these factors will apply as the entity will be incorporated as a statutory body that is subject to the direction of the Minister.

Taxation Ruling TR 2000/10 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.

As the services to be provided by the entity will be available to all the people we consider that their activities are for the benefit of the public.

Therefore, from the information provided we accept the entity will be a public hospital and the exemption in subsection 57A(2) will apply to any employees who undertake their duties either exclusively in the entity, or exclusively in connection with the entity.