Edited version of private advice

Authorisation Number: 1052199219839

Date of advice: 18 December 2023

Ruling

Subject: FBT - exempt benefits

Question

Will benefits provided to the board directors of the Employer be exempt benefits pursuant to subsection 57A(3) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) because the employer of the employee is a public hospital?

Answer

Yes

This ruling applies for the following periods:

Year ended 31 March 2023

Year ended 31 March 2024

Year ended 31 March 2025

Year ended 31 March 2026

The scheme commenced on:

1 April 2022

Relevant facts and circumstances

The Employer is not registered with the Australian Charities and Not-for-Profits Commission (ACNC) and is not endorsed as a Public Benevolent Institution (PBI).

The Employer is a Deductible gift recipient (DGR).

The Minister of Health and Aged Care has declared the Employer to be a public hospital under Section 121-5(6) of the Private Health Insurance Act 2007.

The Employees' of the Employer are employed directly by the Employer.

The Employer is incorporated as a body corporate with perpetual succession under Section 31 of the Health Services Act 1988 (HSA).

The Employer is a teaching hospital, offering services to both public and private patients. They provide services which include:

•         Emergency department and care

•         Maternity and newborn services

•         Paediatric services

•         Intensive Care

•         Rehabilitation, palliative care and geriatric services

•         Perioperative services

•         General Medicine and Surgery

•         Oncology and day services

•         Dialysis

•         Mental Health (Inpatient and community services)

•         Ambulatory Services

•         Pathology

•         Medical Imaging

•         Pharmacy

•         Allied Health Services

•         Hospital-at-home programs to support the hospital's patients in receiving care at home

•         Specialist out-patient clinics.

These services are provided to public patients who are admitted to the hospital facility or who receive services on a non-admitted basis (ie as outpatients of the hospital facility).

The Employer's board of directors oversee the management of the public hospital as a public health service under the Health Services Act 1988. They are accountable to the Minister of Health for conduct, performances and culture.

The board meets monthly to discuss overall governance and strategic direction of the health service, oversee financial and service performance, respond to the needs of the local area and meet the regulatory and government policy requirements and standards for health services.

The Employers board of directors are appointed under subsection 33(1) of the HSA.

The Employer offers its Board Directors the opportunity to enter into a salary packaging arrangement, whereby the Board Directors receive certain benefits while agreeing to forego a portion of their director's fees.

The Employer remunerates board directors pursuant to the Remuneration Guidelines.

Relevant legislative provisions

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

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Taxation Administration Act 1953 Section 12-40.

Reasons for decision

Question 1

Will benefits provided to the board directors by the Employer be exempt benefits pursuant to subsection 57A(3) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) because the employer of the employee is a public hospital?

Answer

Yes.

Detailed reasoning

Under subsection 57A(3):

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.

Is the employer a public hospital?

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".

The Department of Health and Aged Care provides the following definition of public hospital:

A public hospital in Australia is one that is:

•         Recognised and approved to operate as a public hospital by state and territory governments.

•         Funded by the Australian Government, state and territory governments.

•         Must be declared to be a hospital by the Minister for Health and Aged Care under Section 121-5(6) of the Private Health Insurance Act 2007 to receive private health insurer benefits.

The Employer has been declared as a 'public' hospital by the Minister for Health and Aged Care under Section 121-5 (6) of the Private Health Insurance Act 2007 and is funded by the state and territory.

Therefore, the Employer is considered a 'public' hospital for the purposes of section 57A(3) of the FBTAA.

Are board director's 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 statue, such as the Employer. The Board directors are appointed as directors under subsection 33(1) of the HSA. The Board performs the duties under subsection 33(2) of 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 the Employer to Board directors is subject to the withholding obligations under section 12-40 of the Schedule to the TAA.

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

Are benefits provided in respect of the directors' employment?

As discussed, Board directors are considered employees of the Employer as per the FBTAA. They are appointed to the role of to perform duties required of Board directors under the HSA, therefore their duties are in respect of their employment.

Conclusion

Benefits provided toBoard directors will be exempt benefits under section 57A(3) of the FBTAA as the Employer of the employee is a public hospital.