Edited version of private advice

Authorisation Number: 1052100956232

Date of advice: 5 May 2023

Ruling

Subject: Benefits provided to board directors

Question 1

Will benefits provided to the board directors of XX Health Service (XXHS) be exempt benefits pursuant to subsection 57A(2) of the FBTAA because the duties they perform are exclusively performed in, or in connection with a public hospital?

Answer

No, benefits provided to the board directors of a XXHS will not be exempt benefits pursuant to subsection 57A(2) of the FBTAA because the duties they perform are not exclusively in, or in connection with a public hospital.

Question 2

Will benefits provided to the board directors of a XXHS be exempt benefits pursuant to subsection 57A(3) of the FBTAA because the employer of the employee is a public hospital?

Answer

No, benefits provided to the board directors of a XXHS will not be exempt benefits as the employer of the employee is not a public hospital for the purposes of subsection 57A(3).

This ruling applies for the following periods:

FBT year ending 31 March 20XX

Relevant facts and circumstances

•         XXHS is bound by a Service Agreement with the State Government to deliver acute care, aged care, allied, disability and community health services.

•         XXHS must appoint a board of directors. Board directors perform high level strategic functions related to the operation of the hospital.

•         There is only one board, with responsibility for all of the public health service facilities and public hospital facilities.

•         Board members are paid a nominal remuneration for the attendance at meetings.

•         The role of the board includes:

-       setting the strategy and direction of the organisation, in line with government priorities

-       having ultimate accountability for the delivery of safe and quality care, including cultural safety

-       leadership succession planning and performance management of the Chief Executive Officer

-       overall oversight of the performance and delivery of key policy priorities

-       ensuring the ongoing financial viability of the organisation.

•         Board directors are only remunerated for their attendance at Board meetings.

Relevant legislative provisions

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

Fringe Benefits Tax Assessment Act 1986 subsection 57A(3)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision

Detailed reasoning

Subsection 57A(2) of the FBTAA states:

(2) 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.

Employer is a government body

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.

XXHS has responsibility on behalf of the state for a number of local public hospitals and public health services.

XXHS is an authority of the State or Territory because of factors including:

•         it is incorporated under the HSA and is also subject to a level of control and accountability pursuant to the HSA:

•         it is bound by a Service Agreement with the Department of Health to deliver acute care, aged care, allied, disability and community health services.

•         XXHS must comply with directions issued by the Secretary.

Therefore, the employer of the employees is a government body, the first criterion of the exemption in paragraph 57A(2)(a) has been satisfied.

Are Board directors' employees within the meaning of the FBTAA?

An 'employee' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employee.

The definition of 'current employee' includes a person who receives 'salary or wages' (subsection 136(1) of the FBTAA).

'Salary or wages' is defined in subsection 136(1) of the FBTAA to mean:

(a) a payment from which an amount must be withheld (even if the amount is not withheld) under a provision in Schedule 1 to the Taxation Administration Act 1953 listed in the table, to the extent that the payment is assessable income; and...

Amounts withheld under Schedule 1 to the Taxation Administration Act 1953 ("TAA") are referred to as Pay As You Go (PAYG) withholding amounts.

The table in the definition of 'salary or wages' includes a reference to section 12-40 of Schedule 1 to the TAA, which covers payments to company directors. Payment of remuneration for performing duties as a director of a company is specifically a payment from which PAYG must be withheld. Section 12-40 of Schedule 1 to the TAA provides that:

A company must withhold an amount from a payment of remuneration it makes to an individual:

(a)        if the company is incorporated - as a director of the company, or as a person who performs the duties of a director of the company; or ...

Company includes a body corporate incorporated under statute, such as XXHS. The Board

members are appointed as directors to XXHS. The Board performs the duties under the HSA pursuant to their appointment. The Board directors are directors of a company within the meaning of section 12-40 of the TAA.

Therefore, remuneration paid by XXHS to Board directors is subject to the withholding obligations under section 12-40 of the Schedule to the TAA. This position is consistent with Taxation Ruling TR 2002/21 Income tax: Pay As You Go (PAYG) Withholding from salary, wages, commissions, bonuses or allowances paid to office holders in which it is recognised that payments to members of a board of management of a government body that is a statutory corporation will be subject to withholding obligations under section 12-40.

As company directors subject to withholding payments, XXHS Board directors are employees for the purposes of the FBTAA. Accordingly, remuneration paid to Board directors of XXHS is salary or wages under the FBTAA, making these individuals employees for the purposes of the FBTAA.

The duties of the employment of the employee are exclusively performed in, or in connection with a public 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?

Paragraph 2 of TD 2015/12 provides the following 'tests' to determine 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) of the FBTAA:

•         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

•         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.

As the board directors do not perform their duties physically "in" a hospital, an analysis must be conducted to determine whether the duties are performed "exclusively in connection with" a public hospital to enable the hospital to carry out its functions.

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

The ATO definition of hospital is contained in the "Gift Pack for deductible gift recipients and donors" DGR table Item 1.1.2:

"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".

As stated in Southern Cross Community Healthcare Pty Ltd v Chief Commissioner of State Revenue, hospitals focus on acute care and medical emergencies, where the purpose is to diagnose, treat and stabilise the condition of a patient.

XXHS has responsibility for both the local public hospitals and public health services in the area.

That is, in addition to hospital care, XXHS provides a broad range of Community Health services, including:

•         aged care services

•         allied healthcare

•         disability services

•         community services.

These additional services are not considered to be public hospital services.

Therefore, given the broad scope of services provided by XXHS, board director's duties are not considered to be exclusively performed in connection with a public hospital.

Question 2

Will benefits provided to the board directors of XXHS be exempt benefits pursuant to subsection 57A(3) of the FBTAA because the employer of the employee is a public hospital?

Answer

No

Summary

Benefits provided to the Board directors of XXHS will not be exempt benefits because the employer of the employee is not a public hospital for the purposes of subsection 57A(3) of the FBTAA.

Detailed reasoning

A benefit provided in respect of the employment of an employee is an exempt benefit if:

(a)        the employer of the employee is a public hospital; or

(b)        the employer provides public ambulance services or services that support those services and the employee is predominantly involved in connection with the provision of those services.

XXHS is the employer of the Board directors. These employees undertake public hospital and public health services duties.

As outlined in Question 1, XXHS is a government body because:

•         it is incorporated under the HSA and is also subject to a level of control and accountability pursuant to the HSA:

•         it is bound by a Service Agreement with the Department of Health to deliver acute care, aged care, allied, disability and community health services.

•         XXHS must comply with directions issued by the Secretary.

XXHS is not considered to be a public hospital for the purposes of subsection 57A(3). Rather, XXHS comprises hospital care, aged care and community health services within the broader health service.

Therefore, as the employer of the employee is not considered to be a public hospital for FBT purposes, benefits provided to Board directors will not be exempt benefits pursuant to subsection 57A(3) of the FBTAA.