Edited version of private advice

Authorisation Number: 1052340049270

Date of advice: 18 December 2024

Ruling

Subject: Fringe benefits tax - exemption

Question 1

Is the organisation considered a 'public hospital' for the purposes of paragraph (c) of Step 2 of the Method Statement in subsection 5B(1E) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer 1

No

Question 2

Is the organisation considered a 'rebatable employer' for the purposes of paragraph (d) of Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA?

Answer 2

No

Question 3

Should the aggregate non-exempt amount for the organisation for the current and subsequent tax years be worked out under Step 3 of the Method Statement in subsection 5B(1E) of the FBTAA?

Answer 3

Yes

This ruling applies for the following periods:

Fringe Benefits Tax (FBT) year ending XX March 20XX

FBT year ending XX March 20XX

FBT year ending XX March 20XX

FBT year ending XX March 20XX

The scheme commenced on:

XX April 20XX

Relevant facts and circumstances

The organisation

The organisation is a not-for-profit community entity which offers a range of healthcare services to patients including medical and surgical.

The organisation is privately owned.

It is not owned or controlled by the Federal or State government nor any government department, office or statutory body.

There is no government control over the organisation's Board of Directors or operations.

The organisation is a registered charity with the Australian Charities and Not-for-profits Commission (ACNC). Its charity sub-types are 'Public Benevolent Institution' and 'Advancing social and public welfare'.

The organisation recently received a Notice of Endorsement for Charity Tax Concessions from the ATO as being an endorsed Public Benevolent Institution under section 123C of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) from XX April 20XX.

Services

The organisation provides health and other benevolent initiatives/services.

Income

As the organisation is a not-for-profit organisation, 100% of its revenue is used for the advancement of health care and other benevolent initiatives.

Income is derived by the services provided.

These are generally paid by patients through their private health insurance on a 'fee for service' basis.

A small percentage of patients do not have private health insurance and pay for their services directly to the organisation.

The organisation provides a discount to full fee-paying patients who are aged pensioners or do not have private health insurance.

The only other sources of income received is:

•                     donations

•                     interest on investments

•                     rent from commercial and residential tenants

•                     car parking charges for patients, visitors, and staff cafeteria.

•                     The organisation does not provide any service for nil consideration.

Relevant legislative provisions

FBTAA subsection 5B(1E)

FBTAA section 57A

FBTAA section 65J

FBTAA section 123C

Reasons for decision

Question 1

Is the organisation considered a 'public hospital' for the purposes of paragraph (c) of Step 2 of the Method Statement in subsection 5B(1E) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

No, the organisation is not considered to be a 'public hospital' for the purposes of paragraph (c) of Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA.

Detailed reasoning

Under section 57A of the FBTAA, benefits provided by the following employers in respect of the employment of an employee are exempt from Fringe Benefits Tax (FBT) up to a specified cap:

•                     registered Public Benevolent Institutions (PBIs) endorsed under section 123C of the FBTAA

•                     registered health promotion charities

•                     public hospitals

•                     hospitals run by a rebatable employer (relevantly, charities that are not PBIs)

•                     government employers whose employees work in public and not-for-profit hospitals, and

•                     public ambulance services.

Benefits provided by the employers listed above 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.

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

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 statutes have held the determination is a question of fact. These authorities include Little Company of Mary (SA) Incorporated v Commonwealth [1942] HCA 26 (Little Mary) and Australian Hospital Care (Latrobe) Pty Limited v Commissioner of Taxation [2000] FCA 1509 (Latrobe). Relevantly, the High Court held in Latrobe and Little Mary that not-for-profit 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.

In particular, the Court in Little Mary ruled that the hospital was not a 'public hospital', despite being non-profit, as:

•                     it was under denominational control

•                     there was no public control

•                     the majority of patients paid for their medical treatment, and there was no offer of free or publicly funded services, and

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

The principles in Little Mary were followed in Latrobe, which despite providing public health care services, was ruled not to be a 'public hospital' based on the following factors:

•                     The hospital was privately-owned and run to profit its members.

•                     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.

•                     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.

A range of indicia emerge from these cases that can assist in considering whether a hospital satisfies the ordinary meaning of a 'public hospital', which include:

•                     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, and

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

However, despite these indicia of a 'public hospital', the Full Federal Court in Commissioner of Taxation v Hunger Project Australia [2014] FCAFC 69 has, in the context of the FBTAA, abstained from approaching a question about the ordinary or common meaning of a word or expression '... as a legal question to be dealt with by the mechanical application of past authority, irrespective of the present current understanding of the expression in the currently spoken English language...' or whether its meaning could be gleaned from other statutes which may use the same term.

Whilst acknowledging the Full Federal Court's comments, it is noted that Commonwealth legislation has, since at least 1953, distinguished between a 'public hospital' and a 'private hospital'. More recently, paragraph 121-5(8) of the Private Health Insurance Act 2007 requires that the Minister for Health's declaration that a facility is a 'hospital' must also include a statement as to whether the hospital is a public hospital or private hospital. The Australian Institute of Health and Welfare's Glossary, accessed XX December 20XX, contains the following definitions:

•                     Public hospital: A hospital controlled by a state or territory health authority. In Australia, public hospitals offer free diagnostic services, treatment, care, and accommodation to all eligible patients.

•                     Private hospital: A privately owned and operated institution, catering for patients who are treated by a doctor of their own choice. Patients are charged fees for accommodation and other services provided by the hospital and by relevant medical allied health practitioners. The term includes acute care and psychiatric hospitals as well as private free-standing day hospital facilities.

The term 'private hospital' is not used in the FBTAA, and such hospitals may be operated by not-for-profit or for-profit entities. The FBTAA does not provide any concessional treatment by way of a per-employee exemption cap for a for-profit entity that operates a private hospital.

Definition of a PBI

Section 123C of the FBTAA deals with the endorsement of a PBI, which states that:

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.

Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA states the following:

5B(1E) How to work out aggregate non-exempt amount

An employer's aggregate non-exempt amount for the year of tax is worked out as follows.

Method statement

Step 1.

...

Step 2.

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 $XX 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 $XX, the amount calculated under this step for the employee is nil.

...

Therefore, pursuant to section 123C of the FBTAA, an entity cannot be endorsed as a PBI if it, amongst other things, is a 'public hospital'.

Application to your circumstances

The organisation charges fees for services (thus being self-funded). The vast majority of the funding for the organisation is from payments received for providing private health services on a 'fee for service' basis, which are funded either by way of reimbursement from a private health fund of the patient or paid by the patient directly.

The organisation is privately owned and is not controlled by the government or any government body. Additionally, there is no control over the Board of Directors of the organisation or daily operations. As such, there is no government control of the operations of the organisation.

The organisation cannot be treated as a 'public hospital' for the following reasons:

•                     It is privately owned (despite being a not-for-profit structure).

•                     It is not owned by or controlled by any government entity.

•                     It does not provide services for nil consideration.

•                     It receives the vast majority of its funding from payments received for providing private health 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 by the patient directly.

Therefore, the organisation should be considered a 'private hospital'. Additionally, as the organisation is a registered PBI endorsed under section 123C of the FBTAA, it cannot be considered a 'public hospital'.

Accordingly, the organisation is not a 'public hospital' under Step 2 paragraph (c) of the Method Statement in subsection 5B(1E) of the FBTAA.

Question 2

Is the organisation considered a 'rebatable employer' for the purposes of paragraph (d) of Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA?

Summary

No, the organisation is not considered a rebatable employer for the purposes of paragraph (d) of Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA.

Detailed reasoning

Paragraph (d) of Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA applies to employers where 'the employer is a hospital described in subsection 57A(4) (which is about hospitals carried on by societies and associations that are rebatable employers).'

Subsection 57A(4) states:

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 is a rebatable employer.

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.

•         Specific trades or unions.

Application to your circumstances

The organisation is a registered charity with the ACNC and therefore meets the first-mentioned criteria of being considered one of the employer types set out under subsection 65J(1) of the FBTAA.

In order to be considered a rebatable employer, the organisation is also required to satisfy the specific conditions attached to this particular employer type. These conditions are set out in the table in subsection 65J(1) of the FBTAA as follows:

The registered charity is not a rebatable employer for the year of tax if it:

(a) is a registered public benevolent institution; or

(b) is a registered health promotion charity; or

(c) is an institution of the Commonwealth, a State or a Territory; or

(d) has not been endorsed under subsection 123E(1); or

(e) is not an institution.

In this case, the organisation is a registered charity and is a registered PBI with the ACNC.

The organisation does not meet any of the other criteria under subsection 65J(1) of the FBTAA and, accordingly, is not a 'rebatable employer' for the purposes of paragraph (d) of Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA.

Question 3

Should the aggregate non-exempt amount for the organisation for the current and subsequent tax years be worked out under Step 3 of the Method Statement in subsection 5B(1E) of the FBTAA?

Summary

Yes, Step 3 of the Method Statement in subsection 5B(1E) of the FBTAA would apply such that the individual grossed-up non-exempt amount of benefits provided to each employee would be reduced by the higher FBT exemption cap of $XX (but not below nil).

Detailed reasoning

The exempt 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 in 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 $XX, but not below nil.

Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA was outlined in the response to Question 1 of this Ruling.

Application to your circumstances

The organisation is endorsed as a PBI for the purposes of section 123C of the FBTAA. As outlined in the response to Question 1, an entity is not entitled to be endorsed as a PBI if Step 2 of the Method Statement in subsection 5B(1E) applies (that is, pursuant to section 123C of the FBTAA, an entity cannot be endorsed as a PBI if it, amongst other things, is a 'public hospital').

It was determined in the response to Question 1 that the organisation was not considered to be a 'public hospital' under paragraph (c) in Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA.

In addition, as outlined in the facts provided, the organisation:

•                     is not a government body for the purposes of paragraph (b) of Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA, and

•                     does not provide public ambulance services or services that support public ambulance services for the purposes of paragraph (ca) of Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA.

Further, it was determined in the response to Question 2 that the organisation was not a 'rebatable employer' for the purposes of paragraph (d) of Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA.

Therefore, as Step 2 of the Method Statement in subsection 5B(1E) of the FBTAA does not apply in the current circumstances, it is considered that Step 3 of the Method Statement in subsection 5B(1E) of the FBTAA would apply such that the individual grossed-up non-exempt amount of benefits provided to each employee would be reduced by the higher FBT exemption cap of $XX (but not below nil).