Edited version of private advice

Authorisation Number: 1052263172703

Date of advice: 26 June 2024

Ruling

Subject:Income tax - exemption

Question 1

Will you continue to be entitled to be endorsed as income tax exempt entity pursuant to section 50-105 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Will you continue to be endorsed as a deductible gift recipient (DGR) pursuant to section 30-120 of the ITAA 1997?

Answer

Yes.

Question 3

Will the benefits provided in respect of the employment of employees of yours continue to be exempt benefits pursuant to subsection 57A(3) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) (noting that section 5B of the FBTAA operates to limit the exemption and also noting the cap for salary sacrificed meal entertainment and entertainment facility leasing expenses)?

Answer

Yes.

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20YY

Relevant facts and circumstances

You are a registered charity with the Australian Charities and Not-for-profits Commission (ACNC) currently endorsed as a Deductible Gift Recipient (DGR) as a 'public hospital' under item 1.1.1 of subsection 30-20(1) of the ITAA 1997.

You are currently endorsed as income tax exempt as a 'registered charity' under item 1.1 of section 50-5 of the ITAA 1997.

Since your establishment you have continued to manage and control a hospital and to be the employer of the staff at the hospital.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 5B,

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

Income Tax Assessment Act 1997 section 30-15,

Income Tax Assessment Act 1997 subsection 30-20(1),

Income Tax Assessment Act 1997 section 30-120,

Income Tax Assessment Act 1997 section 30-125

Income Tax Assessment Act 1997 section 50-1,

Income Tax Assessment Act 1997 section 50-5,

Income Tax Assessment Act 1997 section 50-50,

Income Tax Assessment Act 1997 section 50-52 and

Income Tax Assessment Act 1997 section 50-105.

Reasons for decision

Unless otherwise stated, all legislative references are to the Income Tax Assessment Act 1997.

Question 1

Summary

The company is entitled to be endorsed as an income tax exempt entity pursuant to section 50-105 provided it continues to be registered as a charity with the ACNC and has DGR status.

Detailed reasoning

An entity is exempt from income tax under section 50-1 if it is covered by the tables in Subdivision 50-A.

You are registered as a charity with the Australian Charities and Not-for Profits Commission (ACNC) therefore you are covered by the item 1.1 'registered charity' in the table in section 50-1.

A registered charity in section 50-5 must also comply with the special conditions in sections 50-50 and 50-52.

Subsection 50-50(1) will be met if you have a physical presence in Australia, and to that extent incurs your expenditure and pursues your objects principally in Australia, or is a Deductible Gift Recipient (DGR) under item 1 in the table in section 30-15.

You are currently endorsed as an item 1 DGR, in the table in section 30-15, by meeting the description of a 'public hospital' under subsection 30-20(1) in Subdivision 30-B. Therefore you meet the special condition in subsection 50-50(1) by virtue of being a DGR.

Subsection 50-50(2) requires that an entity must comply with all the substantive requirements in its governing documents and apply all of its income and assets solely for the purposes for which the entity is established. Your constitution states that you must apply your assets and income solely towards promoting the Company Objects and no part of the Company's assets or income may be paid or transferred directly or indirectly by way of dividend, bonus or otherwise to members. On the facts provided considering the activities undertaken there is nothing to indicate that you do not meet the special conditions under subsection 50-50(2).

Notably, section 50-52 states that an entity covered by item 1.1 in section 50-5 is not exempt from income tax unless it is endorsed as exempt under Subdivision 50-B. To be entitled to be endorsed as exempt under Subdivision 50-B MQ you must:

•         be a charity registered with the ACNC,

•         have an ABN, and

•         meet the special conditions under sections 50-50 and 50-52.

You currently meet all these requirements to be entitled to be endorsed.

On the facts provided, you are entitled to be endorsed as an income tax exempt entity pursuant to section 50-105 provided you continue to be registered as a charity with the ACNC and have DGR status.

Question 2

Summary

You will continue to be endorsed as a deductible gift recipient (DGR) pursuant to section 30-120 provided you continue to be a registered charity with the ACNC and a public hospital within subsection 30-20(1).

Detailed reasoning

Under section 30-125 an entity is entitled to be endorsed as a DGR if:

a)            it has an Australian Business Number (ABN),

b)            it is an institution described in item 1, 2 or 4 of the table in section 30-15, and

c)            meets the 'special conditions' relevant to the item of that table in which it is described.

You have an ABN and are currently endorsed as an item 1 DGR, in the table in section 30-15, by meeting the description of a 'public hospital' under subsection 30-20(1) in Subdivision 30-B.

The term 'public hospital' is not defined within the ITAA 1997. We consider that a range of indicia emerge from decided cases that can assist in considering whether a hospital satisfies the ordinary meaning of a 'public hospital'. These are as follows:

•         The ownership of the hospital and whether it is run for profit

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

•         Whether the hospital offers free/public-funded services to the public, or if it charges fees for its services

•         Whether the hospital is funded by public grant or is self-funded.

Moreover, aside from any legal meaning of a 'public hospital', there exists a distinction between 'public' ('jointly funded by the Commonwealth and the states and territories') and 'private' ('funded through private health insurance, individual out-of-pocket payments') health in Australia's health system. Such health services are provided through 'public' and 'private' hospitals, thus giving rise to a current ordinary or common understanding of those terms.

With this contextual background in mind, you are considered to be a public hospital for the following reasons:

•         The not for profit ownership structure with strict non-profit and winding up clauses in your constitution.

•         You are subject to the direct control of a council which has the functions conferred or imposed on it by or under XYZ Act 19XX.

•         The sources of funding consist of public funding and fees charged for services and borrowings and/ or share capital provided by an institution.

•         You are run for the benefit of ordinary members of the general public and open to the public so that the public possesses a right of admission.

The only special condition relevant to item 1 DGR, in the table in section 30-15, is that you must be 'in Australia'. Since you were established and are operated in Australia this requirement is met.

You are currently registered with the ACNC as a 'charity' with a sub-entity type of 'advancing health'.

On the facts provided, you are entitled to be endorsed as a DGR provided that you continue to be a registered charity with the ACNC and a public hospital within subsection 30-20(1).

Question 3

Unless otherwise stated, all legislative references are to the Fringe Benefits Tax Assessment Act 1986.

Summary

The benefits provided by the company to its employees are exempt benefits under subsection 57A(3). It should be noted however, that section 5B limits the exemption by providing that an FBT liability will arise if the value of certain benefits provided to an individual employee exceeds the specified amount.

Detailed reasoning

You will be entitled to Fringe Benefits Tax (FBT) exemption if it you are a public hospital.

Section 57A provides that certain employers are generally exempt from FBT on benefits provided to their employees. Specifically subsection 57A(3) states:

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;

...

The term 'public hospital' is not defined within 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.

Based on the discussion in the detailed reasoning under question 2, we consider you are a public hospital, accordingly the benefits provided to your employees will be exempt benefits.

However, subsection 5B(1D) provides that for a public hospital, the employer's fringe benefits taxable amount will include the employer's aggregate non-exempt amount.

The method for calculating the employer's aggregate non-exempt amount is contained in subsections 5B(1E) to 5B(1L). These subsections provide that a public hospital will only be liable to pay fringe benefits tax on the amount by which the total grossed-up value of certain benefits provided to an individual employee exceeds $17,000 per annum.

Subsection 5B(1E) also provides for a separate grossed-up cap of $5,000 for salary packaged meal entertainment.

The benefits provided to your employees are exempt benefits under subsection 57A(3). These exempt benefits are limited however under the rules in subsections 5B(1E) to 5B(1L).