Edited version of private advice

Authorisation Number: 1052207772072

Date of advice: 23 January 2024

Ruling

Subject: FBT - capping thresholds

Question 1

Are the benefits provided to the employees ofthe Employer benefits due to their provision by an employer who meets the requirements of a category that is specified in section 57A of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

Are the exempt benefits provided to employees of Employer in relation to their employment subject to the capping threshold under Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA?

Answer

No.

Question 3

Are the exempt benefits provided to employees of Employer in relation to their employment subject to the capping threshold under Step 3 of the Method Statement in subsection 5B(1E) of the FBTAA?

Answer

Yes.

This private ruling applies for the following periods:

Fringe Benefits Tax (FBT) year ended March 20YY

FBT year ended March 20YY

FBT year ended March 20YY

FBT year ended March 20YY

The scheme commences on:

1 April 20YY

Relevant facts and circumstances

The Employer is an Australian incorporated organisation which is registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC), with the charity subtypes that include 'Public Benevolent Institution' (PBI) and 'Advancing Health'.

The Employer is registered as a PBI.

The Employer is owned by a religious institution.

The Employer is substantially funded by patients on a 'fee for service' basis with most of the fees incurred by patients for private health services received at Employer funded by partial or full reimbursement from private health funds. The remaining funding is largely government funding provided under service contracts voluntarily entered into by Employer.

However, further funding is provided to the Employer in limited cases from independent third parties in the form of donations and investments.

The Employer provides a defined volume of services to 'public patients' under its voluntary contract agreement with XXX Health.

The Employer's service agreement with XXX Health is freely negotiated and entered into, and the Employer does not provide any services for no consideration.

Although the Employer treats public patients under its contract with XXX Health, it is not owned or controlled by the Federal or State government or any government department, office, or statutory body. Additionally, there is no government control over the Employer's Board of Directors or operations.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 5B(1E)

Fringe Benefits Tax Assessment Act 1986 section 57A

Fringe Benefits Tax Assessment Act 1986 section 65J

Fringe Benefits Tax Assessment Act 1986 section 123C

Reasons for decision

Question 1

Are the benefits provided to the employees of the Employer exempt benefits due to their provision by an employer who meets the requirements of a category that is specified in section 57A of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

The benefits provided by the Employer in respect of the employment of employees are exempt benefits due to the Employer's registration as a Public Benevolent Institution (PBI).

Detailed reasoning

Relevant law

As per the following subsections within section 57A of the FBTAA, benefits provided in respect of the employment of an employee by PBIs, Health Promotion Charities, some Hospitals and Public Ambulance Services ('section 57A employers') are exempt benefits if certain conditions are satisfied:

57A(1)

Where the employer of an employee is a registered public benevolent institution endorsed under section 123C, a benefit provided in respect of the employment of the employee is an exempt benefit.

57A(2)

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;

(iii) (Repealed by No 124 of 2013)

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

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.

57A(4)

A benefit provided in respect of the employment of an employee is an exempt benefit if the employer of the employee is a hospital carried on by a society or association that:

a)    is exempt from income tax under Division 50 of the Income Tax Assessment Act 1997; and

b)    is not a company referred to in paragraph 65J(5)(a) or (b); and

c)    is not a registered public benevolent institution or registered health promotion charity.

57A(5)

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

a)    the employer of the employee is a registered health promotion charity; and

b)    the registered health promotion charity is endorsed under subsection 123D(1).

Subsection 65J(1) of the FBTAA outlines the criteria required to be satisfied in order for an employer to be considered a rebatable employer, as follows:

An employer is a rebatable employer for a year of tax if the employer:

a)    is exempt from income tax at any time during the year of tax under any of the provisions set out in the following table; and

b)    satisfies the special conditions (if any) set out in the following table.

The table set out under subsection 65J(1) of the FBTAA includes the following types of employers:

•         Registered charities

•         Scientific institutions

•         Public educational institutions

•         Specific societies, associations or clubs established for certain purposes; and

•         Specific trades or unions.

Section 123C of the FBTAA defines the requirements for an entity to attain endorsement by the Commissioner as a PBI.

123C(1):

The Commissioner must endorse an entity as a public benevolent institution if:

(a)    the entity is entitled to be endorsed as a public benevolent institution (see subsection (2)); and

(b)    the entity has applied for that endorsement in accordance with Division 426 in Schedule 1 to the Taxation Administration Act 1953.

123C(2):

An entity is entitled to be endorsed as a public benevolent institution if the entity:

(a)    is a registered public benevolent institution; and

(b)    has an ABN; and

(c)    is not an employer in relation to which step 2 of the method statement in subsection 5B(1E) applies.

The term 'public hospital' is not defined in the FBTAA. No cases have considered the meaning of 'public hospital' in the context of the FBTAA. Authorities dealing with the meaning of 'public hospital' in other legislation have held the determination is a question of fact. Relevantly, the High Court held not-for-profit (NFP) hospitals carried on by religious orders were not 'public hospitals'. Those authorities considered the ordinary or common meaning of the term and equivalence between legislation in the same jurisdiction.

There are 3 key cases that deal directly with the concept of a 'public hospital' in similar statutory contexts:

a.    O'Connell v The Council of the City of Greater Newcastle (1941) 41 SR (NSW) 190 (O'Connell)

•                    The NSW Court of Appeal held that 'public hospital' was not determined solely by the presence of public control or ownership; it instead turned on the purposes of the hospital.

b.    The Little Company of Mary (SA) Incorporated v The Commonwealth (1942) 66 CLR 368 (Little Mary)

•                    The High Court upheld the view that public control was not determinative; the character of the hospital was a question of fact with no single matter being conclusive. The Court found that the hospital was not a 'public hospital', despite being non-profit, as it:

o        was under denominational control; there was no public control and no obligation to continue operating the hospital for any purpose

o        did not offer any general 'right of admission' to the public, namely any free or publicly funded services; whilst no group was precluded from accessing services, the hospital charged fees for all services, and

o        did not rely on public funding or grant, instead generating revenue from the fees it charged.

c.     Australian Hospital Care (Latrobe) Pty Ltd v Commissioner of Taxation [2000] FCA 1509 (Latrobe)

•                    The Federal Court followed the principles in Little Mary with the test turning on the circumstances of the hospital's operation. The hospital was found to not be a 'public hospital' based on the following:

o        the hospital was privately-owned and run to profit its members

o        whilst the hospital had obligations to provide free public health services to the public, and was controlled by the State, these controls arose out of voluntary undertakings under contracts entered into by the hospital, and

o        whilst the hospital received state funding, this funding was primarily in the form of payments for the free health services it was providing under contract.

Application to your circumstances

For the Employer to be categorised as a 'section 57A employer', the Employer must meet the requirements of 123C of the FBTAA to qualify as an endorsed PBI.

The Employer is registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC), with the charity subtypes that include 'PBI' and 'Advancing Health'. the Employer is a registered PBI and is endorsed under section 123C of the FBTAA.

Therefore, as the Employer is an endorsed PBI, it is a 'section 57A employer' pursuant to subsection 57A(1) of the FBTAA.

To be categorised as a 'section 57A employer' pursuant to subsection 57A(2) of the FBTAA, the entity must be a government body such as a State Health Department.

The Employer is an Australian incorporated organisation, is owned by a religious institution and is not owned or controlled by the Federal or State government or any other government department, officer or statutory body.

Therefore, the Employer cannot be categorised as a 'section 57A employer' pursuant to subsection 57A(2) of the FBTAA.

To be categorised as a 'section 57A employer' pursuant to subsection 57A(3) of the FBTAA, the entity must be a public hospital or provide public ambulance services or services that support those services.

Meaning of a 'public hospital' and a 'private hospital'

As previously discussed, no cases have considered the meaning of 'public hospital' in the context of the FBTAA. Authorities dealing with the meaning of 'public hospital' in other legislation have held the determination is a question of fact. Relevantly, the High Court held NFP hospitals carried on by religious orders were not 'public hospitals'. Those authorities considered the ordinary or common meaning of the term, and equivalence between legislation in the same jurisdiction.

As provided above, the O'Connell, Little Mary and Latrobe casesdeal directly with the concept of a 'public hospital' in similar statutory contexts.

Drawing from these cases, the main indicia that establish whether a hospital is a 'public hospital' include:

1.    the ownership of the hospital and whether it is run for profit

2.    the level of public/government control over the hospital's operations (and whether any control is regulated or arises voluntarily by contract)

3.    whether the hospital offers free/public-funded services to the public, or if it charges fees for its services, and

4.    whether the hospital is funded by public grant or is self-funded.

In applying these indicia to the Employer's circumstances:

1.    The Employer has a fully private ownership structures, which has a charitable and not-for-profit structure.

2.    The Employer is not owned or controlled by the government or any government department, office or statutory body. Additionally, there is no government control over the Employer' Board of Directors or operations.

3.    Whilst the Employer provides a defined volume of services to XXX Health under their voluntary contract, this agreement was freely negotiated and entered into by the Employer.

4.    The Employer does not provide any services for no consideration. Any public health services provided to patients of XXX Health are paid for on a 'fee for service' basis via the v with XXX Health.

5.    The Employer is substantially funded by providing private patients services on a 'fee for service' basis, which are partially funded either by way of reimbursement from a private health fund of the patient, or paid directly to the Employer by XXX Health, or paid by the patient directly.

Therefore, the Employer is not considered a 'public hospital' for the purposes of the FBTAA and is not eligible to be categorised as a 'section 57A employer' under subsection 57A(3) of the FBTAA.

To be categorised as a 'section 57A employer' pursuant to subsection 57A(4) of the FBTAA, the employer must be:

...a hospital carried on by a society or association that:

a)    is exempt from income tax under Division 50 of the Income Tax Assessment Act 1997; and

b)    is not a company referred to in paragraph 65J(5)(a) or (b); and

c)    is not a registered public benevolent institution or registered health promotion charity.

The Employer is a registered charity and as such is not a rebatable employer as defined by section 65J of the FBTAA. The Employer therefore cannot be categorised as a 'section 57A employer' under subsection 57A(4) of the FBTAA.

Under subsection 57A(5) of the FBTAA, a benefit provided in respect of the employment of an employee is an exempt benefit if:

a)    the employer of the employee is a registered health promotion charity; and

b)    the registered health promotion charity is endorsed under subsection 123D(1).

The Employer is not a registered health promotion charity. Therefore, the Employer cannot be categorised as a 'section 57A employer' under subsection 57A(5) of the FBTAA.

Therefore, the benefits provided by the Employer to their employees in respect of their employment are exempt benefits pursuant to subsection 57A(1) of the FBTAA due to the Employer's registration as a PBI.

Question 2

Are the exempt benefits provided to employees of the Employer in relation to their employment subject to the capping threshold under Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA?

Summary

As the Employer is qualified as an endorsed PBI, it is not subject to the capping threshold under Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA.

Detailed reasoning

Relevant law

Benefits provided by a 'section 57A employer' will be exempt where the total grossed-up value of certain benefits (which are benefits not otherwise exempt) provided to each employee during the FBT year is equal to, or less than, the relevant capping threshold. If the total grossed-up value of certain benefits provided to an employee is more than that capping threshold, the employer will need to pay FBT on the excess.

The capped benefit amount is determined by reference to the employer's 'aggregate non-exempt amount' in accordance with the Method Statement in subsection 5B(1E) of the FBTAA. Step 2 of the Method Statement states:

If:

(a)    (Repealed by No 142 of 2003)

(b)    the employer is a government body and the duties of the employment of one or more employees are as described in paragraph 57A(2)(b) (which is about duties of employment being exclusively performed in or in connection with certain hospitals); or

(c)    the employer is a public hospital; or

(ca)    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; or

(d)    the employer is a hospital described in subsection 57A(4) (which is about hospitals carried on by certain societies and associations that are exempt from income tax);

subtract $17,000 from the individual grossed-up non-exempt amount for each employee of the employer referred to in paragraph (c), (ca) or (d), or each employee referred to in paragraph (b), for the year of tax. However, if the individual grossed-up non-exempt amount for such an employee is equal to or less than $17,000, the amount calculated under this step for the employee is nil.

Application to your circumstances

As concluded in the response to Question 1, the Employer is an endorsed PBI and is not considered to be:

•         a government body for the purposes of subsection 57A(2) of the FBTAA

•         a public hospital for the purposes of subsection 57A(3) of the FBTAA

•         an employer that provides public ambulance services or services that support these services for the purposes of subsection 57A(3) of the FBTAA

•         a hospital carried on by a society or association for the purposes of subsection 57A(4) of the FBTAA.

On this basis, the $17,000 capping threshold under Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA does not apply to the Employer.

Question 3

Are the exempt benefits provided to employees of the Employer in relation to their employment subject to the capping threshold under Step 3 of the Method Statement in subsection 5B(1E) of the FBTAA?

Summary

As the Employer is an endorsed PBI, it is subject to the capping threshold under Step 3 of the Method Statement in subsection 5B(1E) of the FBTAA.

Detailed reasoning

Relevant law

Benefits provided by 'section 57A employers' will be exempt where the total grossed-up value of certain benefits (which are benefits not otherwise exempt) provided to each employee during the FBT year is equal to, or less than, the relevant capping threshold. If the total grossed-up value of certain benefits provided to an employee is more than that capping threshold, the employer will need to pay FBT on the excess.

The capped benefit amount is determined by reference to the employer's 'aggregate non-exempt amount' in accordance with the Method Statement in subsection 5B(1E) of the FBTAA. Step 3 of the Method Statement states:

If step 2 does not apply in respect of one or more employees of the employer, reduce the individual grossed-up non-exempt amount for each such employee by $30,000, but not below nil.

Steps 2 and 3 of the Method Statement in subsection 5B(1E) of the FBTAA provide that registered PBIs which do not operate a public hospital have a higher FBT exemption cap of $30,000 grossed-up value (that is, the value of the benefit plus the notional FBT liability) per employee, while a $17,000 per employee FBT exemption cap applies to employees of government and non-government public hospitals, and hospitals run by rebatable employers (relevantly, charities that are not PBIs).

Application to your circumstances

As concluded in the response to Question 2, the Employer is not subject to the capping threshold under Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA on the basis that the Employer is a registered and endorsed PBI.

Therefore, the Employer is entitled to the capping threshold of $30,000 under Step 3 of the Method Statement in subsection 5B(1E) of the FBTAA. That is, the individual grossed-up non-exempt amount of benefits provided to each of the Employer employees should be reduced by the $30,000 FBT exemption cap (but not below nil).