ATO ID 2009/159: Employer's fringe benefits taxable amount: change in employer's status from endorsed public benevolent institution to a hospital
Date of decision: 14 December 2009
Year of income: Year ended 31 March 2010
Business line: Superannuation and Employer Obligations

Issue
For the purposes of subsection 5B(1E) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) where the employer's status changes during the FBT year from being a public benevolent institution (PBI) that is endorsed, to that of a hospital that is not endorsed: will the employer remain entitled to the $30,000 capped exemption for each employee who was employed both before and after this change while being provided with benefits throughout the FBT year?

Decision
Yes. Under subsection 5B(1E) of the FBTAA, the employer will remain entitled to the $30,000 capped exemption for each employee who was employed both before and after the change while being provided with benefits throughout the FBT year.

Facts
The employer is an entity carried on by a non-profit society. For the first part of the FBT year the employer had two business activities: the operation of an aged care facility and the operation of a hospital. During this period the predominant activity of the employer was the provision of aged care. As a result, the employer was a PBI that was not a hospital. Midway through the FBT year the aged care facility was sold and the employer's activities from that day were only in relation to carrying on a hospital. From that day, the employer was a hospital carried on by a non-profit society (the second part of the FBT year). Those employees who were attached to the hospital before the sale of the aged care facility continued in their employment with the employer for the remainder of the FBT year. These employees were provided with benefits throughout the FBT year. In a previous FBT year the employer entity was endorsed by the Commissioner as a PBI under subsection 123C(1) of the FBTAA. The entity remained endorsed for the first part of the FBT year. With effect from the commencement of the second part of the FBT year the entity's endorsement as a PBI under subsection 123C(1) of the FBTAA was revoked by the Commissioner. The revocation occurred as the entity became an employer to which step 2(d) of the method statement in subsection 5B(1E) of the FBTAA commenced to apply. As a result the entity was no longer entitled to be endorsed as a PBI under subsection 123C(2) of the FBTAA.

Reasons for decision
Summary: The employer was for the first part of the FBT year an endorsed PBI for the purposes of subsection 57A(1) of the FBTAA. The employer was for the second part of the FBT year a hospital carried on by a society or association that meets the requirements of subsection 57A(4) of the FBTAA. Benefits provided during the FBT year by the employer to its employees were exempt under section 57A of the FBTAA. Subsection 5B(1D) of the FBTAA requires an adjustment to be made to an employer's fringe benefits taxable amount for the year of tax where benefits have been provided to an employee in respect of their employment which are exempt benefits under section 57A of the FBTAA. Subsection 5B(1D) of the FBTAA requires that the employer's fringe benefits taxable amount is increased by the employer's 'aggregate non-exempt amount' for the year of tax. The aggregate non-exempt amount for the year of tax is determined under the method statement in subsection 5B(1E) of the FBTAA. Step 1 of the method statement determines the 'individual grossed-up non-exempt amount' for each employee. Step 2(d) of the method statement, which is relevant in these circumstances, requires for each employee's individual grossed-up non-exempt amount to determine whether the employer is a hospital described in subsection 57A(4) of the FBTAA. If step 2(d) is satisfied, the individual grossed-up non-exempt amount is reduced by $17,000. Where step 2 of the method statement does not apply, step 3 will apply to reduce the employee's individual grossed-up non-exempt amount by $30,000 [see Note]. From 1 April 2016, if any amount remains from the calculation under either step 2 or 3, step 4 may apply to further reduce the employee's individual grossed-up non-exempt amount (but not below zero) by the lesser of $5,000 and the grossed-up taxable value of any salary packaged meal entertainment and entertainment facility leasing benefits provided to an employee. Step 5 of the method statement adds together the amounts calculated under step 4 in relation to the employees of the employer. The total amount ascertained at step 5 is the employer's aggregate non-exempt amount for the year of tax concerned. In this case, the effect of the employer being endorsed as a PBI for the first part of the FBT year and being a hospital for the second part is that the step 1 individual grossed-up non-exempt amount for the year of tax may consist of two categories of benefits received by an employee: For an employee who only received benefits in relation to their employment in the first part of the FBT year, such as an employee who resigned from the employer during that first part, all benefits provided to that employee would be benefits received as a result of the employer being an endorsed PBI which is not a hospital carried on by a society or association that meets the criteria in subsection 57A(4) of the FBTAA. The step 1 amount for this employee is an amount to which step 2(d) would not apply. For this employee, step 3 of the method statement will apply to reduce the individual grossed-up non-exempt amount by $30,000. For an employee who only received benefits in relation to their employment in the second part of the FBT year, such as an employee who commenced employment at any time during that second part, all benefits provided to that employee would be benefits received as a result of the employer being a hospital described in subsection 57A(4) of the FBTAA. The step 1 amount for this employee is an amount to which step 2(d) would apply. For this employee, Step 2 of the method statement will apply to reduce the individual grossed-up non-exempt amount by $17,000. However, as described in the facts, employees were employed by the same employer during the first part of the FBT year when it was a PBI which was not a hospital and during the second part of the FBT year when it was a hospital. These employees were provided with benefits throughout the FBT year. In these circumstances, the step 1 amount for these employees cannot be described as an amount where the employer was a hospital as described in subsection 57A(4) of the FBTAA for the year of tax: Step 2 does not apply. For these employees, Step 3 of the method statement will apply to reduce the individual grossed-up non-exempt amount by $30,000. Accordingly, under subsection 5B(1E) of the FBTAA, the employer will remain entitled to the $30,000 capped exemption for each employee who was employed both before and after the employer's change in status while being provided with benefits throughout the FBT year.

Legislative references: Fringe Benefits Tax Assessment Act 1986 section 5B subsection 5B(1B) subsection 5B(1C) subsection 5B(1D) subsection 5B(1E) section 57A subsection 57A(1) subsection 57A(4) subsection 123C(1)
Subject references: Fringe benefits tax Exempt benefits FBT Public Benevolent Institutions FBT tax-exempt body Aggregate non-exempt amount