Edited version of private advice

Authorisation Number: 1051764219251

Date of advice: 08 December 2020

Ruling

Subject: Fringe benefits tax - employees who perform services in a public hospital or a hospital carried on by a rebatable employer

Question One

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

Answer

Yes.

Question Two

Would the existing and transferring employee cohorts of the Employer be regarded as exclusively performing services 'in' a public hospital or a hospital carried on by a rebatable employer for the purposes of paragraph 57A(2)(b) of the FBTAA?

Answer

No.

Question Three

If the answer to Question Two is 'No', would the following existing or transferring employee cohorts of the Employer be regarded as exclusively performing services 'in connection with' a public hospital or a hospital carried on by a rebatable employer for the purposes of paragraph 57A(2)(b) of the FBTAA?

(a)  Transferring employees

(b)  Employees of the Employer's Procurement and Customer Engagement functions who 'exclusively' service public hospitals

(c)   Employees of the Employer's Procurement function who 'exclusively' service public hospitals as well as other eligible healthcare service providers, and

(d)  Employees of all the Employer's other functional areas.

Answer

(a)  Yes.

(b)  Yes.

(c)   No.

(d)  No.

This ruling applies for the following periods:

FBT years ending 31 March 2018 to 31 March 2023.

The scheme commences on:

1 April 2017.

Relevant facts and circumstances

The Employer is a statutory body corporate established by a State or Territory Government.

The Employer was established under the relevant State or Territory's health services legislation.

The general functions of the Employer are to supply or facilitate access to the supply of goods and services to public hospitals and other health or related services.

The existing employee cohorts of the Employer generally perform their duties at the Employer's office location.

In fulfilling its legislative functions, it is proposed that certain employees of Hospital A will be transferred to the Employer ('transferring employees').

The transferring employees currently operate a large warehouse which receives goods,

equipment and consumables exclusively purchased by public hospitals, manage safe storage

and arrange the transportation of these products to public hospitals as required.

The transferring employees currently enjoy the benefit of entitlement to be provided benefits

from their employer (Hospital A) which are exempt from FBT under section 57A of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

The roles of each the Employer's employees within its Procurement function can be practically segregated between the following two populations:

1.    Employees who deal 'exclusively' with public hospitals, and

2.    Employees who deal 'exclusively' with public hospitals and to other eligible healthcare services. The 'other eligible healthcare service' providers may include hospitals carried on by a society or an association that is a 'rebatable employer' or other community-focused healthcare providers.

Assumption

For the purposes of paragraph 57A(2)(b) of the FBTAA, each of the entities listed within the relevant State or Territory's health services legislation are either a public hospital or a hospital carried on by a society or association that is a rebatable employer.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 57A

Fringe Benefits Tax Assessment Act 1986 Paragraph 57A(2)(a)

Fringe Benefits Tax Assessment Act 1986 Paragraph 57A(2)(b)

Fringe Benefits Tax Assessment Act 1986 Subsection 65J(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

Question One

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

Summary

The Employer is a government body for the purposes of paragraph 57A(2)(a) of the FBTAA.

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 hospital carried on by a society or association that is a rebatable employer; ...

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

Subsection 136(1) of the FBTAA defines a 'government body' as 'the Commonwealth, a State, a Territory or an authority of the Commonwealth or of a State or Territory.'

The Employer is a statutory body established by a State or Territory Government - it is a body corporate with perpetual succession to enable certain health services and health support services to be provided with goods and services on best value terms within the particular State or Territory.

Therefore, the Commissioner considers that the Employer is a 'government body' for the purposes of paragraph 57A(2)(a) of the FBTAA on the basis that it is either a 'State/Territory', or an 'authority of the State/Territory'.

Question Two

Would the existing and transferring employee cohorts of the Employer be regarded as exclusively performing services 'in' a public hospital or a hospital carried on by a rebatable employer for the purposes of paragraph 57A(2)(b) of the FBTAA?

Summary

The existing and transferring employee cohorts of the Employer would not be regarded as exclusively performing services 'in' a public hospital or a hospital carried on by a rebatable employer for the purposes of paragraph 57A(2)(b) of the FBTAA.

Detailed reasoning

The first test in paragraph 57A(2)(b) of the FBTAA requires that the duties be performed exclusively 'in' the relevant type of hospital.

Taxation Determination 2015/12 Fringe benefits tax: when are the duties of the employment of an employee of an employer who is a government body exclusively performed in, or in connection with, a public hospital or a hospital carried on by a society or association that is a rebatable employer? (TD 2015/12) provides the Commissioner's views in determining whether the duties of an employee of an employer who is a government body are exclusively performed in the relevant type of hospital.

Paragraph 2 of TD 2015/12 provides that:

The duties of the employment of an employee of an employer who is a government body are exclusively performed in, or in connection with, a public hospital or a hospital carried on by a society or association that is a rebatable employer for the purposes of paragraph 57A(2)(b) when the duties of the employment of the employee satisfy any of the following tests:

•         the duties are performed 'in' a hospital such that the employee performs their duties at the physical location of the hospital facility where the activities of the hospital are being conducted

...

Paragraphs 44 and 45 of TD 2015/12 state:

44. When used as a preposition, the word 'in' can take different meanings. In this context the Macquarie Dictionary defines the word 'in' as including:

1. inclusion within space or limits, a whole, material or immaterial surroundings, etc.; in the city, in the army, dressed in white; in politics.

45. Therefore, the word 'in' can indicate inclusion within a physical space or geographical location. It can also suggest belonging to or being part of an organisation or group (such as 'in the army').

Paragraph 47 of TD 2015/12 provides that the preferred view of the 'in' test is satisfied when the duties of the employee are performed at the physical location of the hospital facility where the activities of the hospital are being conducted.

Paragraph 48 of TD 2015/12 further provides that a hospital's constituent documents or other informative material such as annual reports, local hospital network reports, or hospital board minutes can be used to identify a location where activities of the hospital are being conducted.

The ATO's definition of a 'hospital' is provided on its website within Item 1.1.2 of the table in the GiftPack for deductible gift recipients (DGRs) and donors:

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 being a hospital.

A hospital is therefore a place where patients are received for continuous medical care and treatment for sickness, disease or injury, and the provision of accommodation is seen as integral to that continuous care. The transferring employees are currently operating, and will continue to operate, the existing (or a subsequent) warehouse in order to assist the Employer in fulfilling its legislative function to supply or facilitate access to the supply of goods and services to public hospitals as provided under the relevant State or Territory's health services legislation. The existing warehouse is at a location that is, or would be, distant from the location where a particular hospital's provision of medical care is located. As such, the Commissioner considers that a warehouse cannot be considered to be a hospital, even where the warehouse premises may be regarded as the premises of a public hospital.

In executing their legislative functions of supplying, or facilitating the supply of, goods and services and establishing and maintaining a database of supply markets for access by public hospitals under the relevant State or Territory's health services legislation, the existing employee cohorts of the Employer generally perform their duties of employment at the Employer's business premises. Similar to a warehouse where the transferring employees perform their duties, the business premises are also at a location that is distant from the location where a particular hospital's provision of medical care is located.

Therefore, as neither of the employee populations exclusively perform services 'in' a hospital, the first test under paragraph 57A(2)(b) of the FBTAA is not satisfied.

Question Three

If the answer to Question Two is 'No', would the following existing or transferring employee cohorts of the Employer be regarded as exclusively performing services 'in connection with' a public hospital or a hospital carried on by a rebatable employer for the purposes of paragraph 57A(2)(b) of the FBTAA?

(a)  Transferring employees

(b)  Employees of the Employer's Procurement and Customer Engagement functions who 'exclusively' service public hospitals

(c)   Employees of the Employer's Procurement and Customer Engagement functions who 'exclusively' service public hospitals as well as other eligible healthcare service providers, and

(d)  Employees of all the Employer's other functional areas.

Summary

The transferring employees and employees of the Employer's Procurement and Customer Engagement functions who 'exclusively' service public hospitals would be regarded as exclusively performing services 'in connection with' a public hospital or a hospital carried on by a rebatable employer for the purposes of paragraph 57A(2)(b) of the FBTAA.

However, the exemption under subsection 57A(2) of the FBTAA would not apply to employees of the Employer's Procurement function who 'exclusively' service public hospitals as well as other eligible healthcare service providers (which may include hospitals carried on by a society or an association that is a 'rebatable employer' or other community-focused healthcare providers), nor would it apply to employees of all the Employer's other functional areas who oversee or support the duties of employees of the Procurement and Customer Engagement functions. This is because these employees would not be considered as 'exclusively' providing services 'in connection with' a public hospital or a hospital carried on by a rebatable employer under paragraph 57A(2)(b) of the FBTAA.

Detailed reasoning

The second test in paragraph 57A(2)(b) of the FBTAA requires that the employee's duties be performed exclusively 'in connection with'a public hospital.

TD 2015/12 provides the following 'tests' to help work out whether the duties of an employee of a government body are performed exclusively in connection with a type of hospital specified in paragraph 57A(2)(b):

•         the duties are performed 'in connection with' a hospital such that the employee performs their duties as a member of the hospital staff under the direction, management and control of the hospital board of management or chief executive officer, or

•         the duties are performed 'in connection with' a hospital such that the employee is engaged in duties that enable the hospital to carry out its functions.

This also demonstrates that the provision is broad enough to include employees who work as a member of a hospital's staff in addition to government employees who work in another departmental role (such as an employee of this Employer) with hospital-related duties but not as a member of the hospital staff.

The meaning of 'in connection with'

Following on, paragraph 53 of TD 2015/12 provides that the definition of 'in connection with' has been defined in Collector of Customs v. Cliffs Robe River Iron Associates per Bowen CJ, Morling and Neaves JJ at paragraph 16:

The meaning of the word 'connection' is both wide and imprecise. One of its common meanings is 'relation between things one of which is bound up with, or involved, in another'.

Similarly, in Burswood Management v. A-G (1990) 23 FCR 144 (Burswood Management), the Court stated in a joint decision:

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.

Further, paragraph 54 of TD 2015/12 states:

54. In Health and Research Employees Association of Australia v. University of Sydney (Health and Research Employees), Her Honour Gaudron J examined whether an employee who was employed by the Howard Florey Institute of Experimental Physiology and Medicine was a person employed in or 'in connection with' the University of Melbourne. At CLR 250, Her Honour said:

A more appropriate consideration is whether the employment which is claimed to be 'in connection with' universities and/or colleges of advanced education is so bound up or involved with their activities as to be necessarily supportive of or dependent upon such activities. The Institute, as observed earlier, has a separate legal identity. The evidence does not disclose either that the activities of the Institute necessarily depend upon the activities of the University of Melbourne or alternatively that the University's activities in any way depend upon the Institute'.

The Commissioner concludes in TD 2015/12 that the phrase 'in connection with' requires that the

employee's duties be so involved with the hospital activities that the employee supports the operation of the hospital and conversely that the employee is engaged in duties that allow the hospital to carry out its functions. Under this test, it is therefore not necessary that the duties of employment be performed at the physical location of the hospital.

The exemption will thus be satisfied when the duties of an employee are duties that allow the hospital to carry out its functions.

The meaning of 'exclusively'

The 'exclusively' requirement in paragraph 57A(2)(b) of the FBTAA requires that all of the duties of the employment of the employee must be performed for the required purposes, being 'in, or in connection with' a hospital. The FBT legislation does not provide any guidance on the interpretation of the term 'exclusively'. However, the Macquarie Dictionary defines 'exclusively' to mean 'limited to the object or objects designated' and 'shutting out all other activities: an exclusive occupation.'

Examples

In addition, TD 2015/12 provides examples of roles that are considered 'in connection with' a public hospital, and those roles that are not, including:

•         Administrative support employee (Example 4): The unit that the employee works for exclusively provides administrative support to a number of metropolitan public hospitals including procurement of hospital goods and services and payment of suppliers. The employee performs their duties at the Department premises which is outside the physical location of a public hospital. The employee is engaged in duties that enable a hospital to carry out its functions, and as such, the employee performs all of her duties 'in connection with' a public hospital.

•         Shared services manager (Example 5): The shared services group is part of a nominated State Administrative Services Department which is the employee's employer. The employee and his team provide information technology services to all areas of the Department of Health including areas concerned with delivery of public hospital services as well as areas which are not hospital-related such as the government relations area. The employee is not exclusively engaged in duties that enable a hospital to carry out its functions. As such, the employee does not perform all their services 'in connection with' a public hospital.

Hospital A employees transferring to the Employer ('transferring employees')

The Commissioner considers that the activities performed by the transferring employees at the warehouse (including receiving goods and consumables purchased by public hospitals, safe storage and arranging the transportation of these products to public hospitals) satisfies the conditions under paragraph 57A(2)(b) of the FBTAA. This conclusion is based on the following:

•         The transferring employees operate a large warehouse which receives goods and consumables exclusively purchased by public hospitals or the Employer, and which provides safe storage and arranges the transportation of these products to public hospitals as required.

•         Based on application of the principles in TD 2015/12, the transferring employees are considered to support the operation of the hospitals, whilst also allowing these hospitals to carry out their functions.

•         These duties promote the purpose of the relevant State or Territory's health services legislation, as the duties contribute to the development of health services in the particular State or Territory for the carrying on of hospitals.

As such, the transferring employees would be eligible for the exemption under section 57A of the FBTAA upon commencement of employment with the Employer.

(a)  Employees of the Employer's Procurement and Customer Engagement functions who 'exclusively' service public hospitals

The Commissioner is of the view that the employees of the Employer's Procurement and Customer Engagement functions who 'exclusively' service public hospitals are performing duties exclusively 'in connection with' a public hospital under paragraph 57A(2)(b) of the FBTAA. This conclusion is based on the following:

•         The employees facilitate the supply of goods and services that are integral to the function of a public hospital (one of the statutory role and objects for the Employer). These employees not only support the operation of the hospitals, but - in line with the principles in TD 2015/12 - also allow these hospitals to carry out their functions.

•         The employees exercise their employment duties 'exclusively' in connection with public hospitals (which we have assumed for this ruling are the relevant types of hospital mentioned in paragraph 57A(2)(b).

•         These duties promote the purpose of the relevant State or Territory's health services legislation, as the duties contribute to the development of health services in the particular State or Territory for the carrying on of hospitals.

•         Example 4 in TD 2015/12 provides that an administrative support officer whose division exclusively provides administrative support to public hospitals (including for the procurement of hospital goods and services and payment of suppliers) is deemed to be performing duties 'in connection with' a public hospital, thereby satisfying the requirements under paragraph 57A(2)(b) of the FBTAA.

(b)  Employees of the Employer's Procurement and Customer Engagement function who 'exclusively' service public hospitals as well as other eligible healthcare service providers

In order for the exemption in section 57A of the FBTAA to apply to employees of the Employer's Procurement and Customer Engagement functions who 'exclusively' service public hospitals as well as other eligible healthcare service providers, paragraph 57A(2)(b) provides that the duties of these employees must be exclusively performed either 'in, or in connection with':

                    (i)        a public hospital, or

                   (ii)        a hospital carried on by a society or an association that is a rebatable employer.

On the basis that these employees have provided services to both public hospitals and the other eligible healthcare services, it cannot be concluded that the duties of these employees have been 'exclusively' performed in connection with a public hospital, as their duties have not been 'limited to the object or objects designated' by the definition, and thus do not satisfy the first limb of paragraph 57A(2)(b) of the FBTAA.

In terms of the second limb of paragraph 57A(2)(b) of the FBTAA, a 'rebatable employer' is defined in subsection 65J(1) of the FBTAA, which provides that an employer will be considered a 'rebatable employer' if the employer:

                    (i)        is exempt from income tax under specific provisions of the ITAA 1997, and

                   (ii)        satisfies special conditions as outlined in Items 1 to 12 of subsection 65J(1) of the FBTAA.

The Commissioner considers that at least some of the other eligible healthcare service entities will neither be a public hospital, nor a hospital carried on by a 'rebatable employer' for the purposes of subparagraph 57A(2)(b)(ii) of the FBTAA. As such, the second limb of paragraph 57A(2)(b) of the FBTAA is not satisfied.

On the basis that the requirements under both limbs of paragraph 57A(2)(b) of the FBTAA have not been met, any benefits provided to employees of the Employer's Procurement function who 'exclusively' service public hospitals as well as other eligible healthcare service providers will not be considered an exempt benefit under subsection 57A(2) of the FBTAA.

(c)  Employees of the Employer's other functional areas

In order for the exemption in section 57A of the FBTAA to apply to employees of the Employer's other functional areas who oversee or support the duties of employees of the Procurement function, paragraph 57A(2)(b) provides that the duties of these employees must be exclusively performed either 'in, or in connection with':

                    (i)        a public hospital, or

                   (ii)        a hospital carried on by a society or an association that is a rebatable employer.

The Commissioner considers that the employees of the Employer's other functional areas would not be performing duties exclusively in connection with a public hospital. This is because these employees are considered to be too far removed to have the connection contemplated by paragraph 57A(2)(b) of the FBTAA that employees be engaged in duties that enable hospitals to carry out their functions.

Whilst the Employer needs the employees of the Employer's other functional areas to carry out the Employer's functions, this does not mean the duties of each employee in all of the other functional areas necessarily enable a hospital to carry out its functions.

The meaning of 'in connection with' is wide but its scope is not without limit. There still needs to be an evident connection between the duties of each respective employee in the other functional areas and that those duties enable a hospital to carry out its functions. Even though these employees may have a connection with or oversee the duties of employees in procurement or customer engagement, we could not conclude on that basis that this necessitates a conclusion that they all enable a hospital to carry out its functions.

Alternatively, paragraph 57A(2)(b) requires the duties be performed exclusively in connection with the type of hospital specified. If the employee's duties were also involved in servicing a small number of non-hospital entities, the duties are not exclusive to a relevant type of hospital. Though the provision would make some allowance for duties which are trifling in nature, we do not see this allowance extending to servicing of other non-hospital entities on the facts available.

On this basis, we also could not conclude that the duties of the employees of the Employer's other functional areas have been 'exclusively' performed in connection with a public hospital, as their duties have not been 'limited to the object or objects designated' by the definition, and thus do not satisfy the either of the limbs in paragraph 57A(2)(b) of the FBTAA.