Private ruling: Fringe benefits tax: Hospitals
Published: November 2012
Ruling period: 1 April 2012 to 31 March 2013 | 1 April 2013 to 31 March 2014 | 1 April 2014 to 31 March 2015

Ruling: Q1: Were all of the benefits provided to employees exempt benefits under subsection 57A(3) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: No. | Q2: Were all of the benefits provided to employees exempt benefits under subsection 57A(2) of the FBTAA? | A2: No. The exemption in subsection 57A(2) only applied to the benefits provided to employees whose duties of employment were exclusively performed in or in connection with a public hospital. | Q3: If the answer to either Question 1 or Question 2 is Yes, will all of the benefits provided to your employees after 30 June 2012 continue to be exempt benefits under either subsection 57A(2) or subsection 57A(3) of the FBTAA? | A3: A ruling will not be given in relation to this question as the answer to questions 1 and 2 is No.

Relevant facts and circumstances: You are a government department. You were nominated to be a 'nominated State or Territory body' under subsection 135S(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). The acute health services have been integrated with primary health services resulting in the formation of several Area Health Services (AHS). Each AHS encompasses an acute hospital and other health services. In 2009 you received a private ruling in relation to the application of subsection 57A(2) of the FBTAA to benefits provided to employees whose duties are exclusively performed in, or in connection with an Area Health Service. The ruling accepted that the exemption in subsection 57A(2) applied to the benefits. In the explanation attached to the private ruling, it was concluded that each Area Health Service was considered to be a public hospital for the purposes of the FBTAA. Your structure changed in the recent year due to particular reform. The Local Hospital Networks will directly manage public hospital services and functions and may also have responsibility for other health services. In accordance with this requirement, you established some Local Hospital Networks.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 subsection 57A(2) | Fringe Benefits Tax Assessment Act 1986 subsection 57A(3)

Reasons for decision: Summary: Were all of the benefits provided to employees exempt benefits under either subsection 57A(2) or subsection 57A(3) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? Subsections 57A(2) and 57A(3) of the FBTAA provide that any benefits provided to certain employees will be exempt benefits. However, this is subject to subsection 5B(1E) which provides that fringe benefits tax may be payable if the grossed-up value of certain benefits provided to an individual employee is more than $17,000. Subsection 57A(2) of the FBTAA states: Where (a) the employer of an employee is a government body; and (b) the duties are exclusively performed in, or in connection with: i. a public hospital; or ii. …; iii. a hospital carried on by a society that is a non-profit society for the purposes of section 65J or by an association that is a non-profit association for the purposes of 65J; a benefit provided in respect of the employment of the employee is an exempt benefit. 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; 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. If you are a public hospital the benefits provided to all employees will be exempt under paragraph 57A(3)(a). By contrast, if you are not a public hospital only the benefits provided to employees predominantly involved in the provision of the public ambulance services will come within subsection 57A(3). However, in such a scenario, the benefits provided to employees whose duties of employment are exclusively performed in or in connection with a public hospital will be an exempt benefit under subsection 57A(2). You have previously received a private ruling that accepted that subsection 57A(2) applied to the benefits provided to employees whose duties of employment are exclusively performed in, or in connection with one of the Area Health Services. | Detailed Reasoning - Are you a public hospital?: As the term "hospital" is not defined within the FBTAA, it is necessary to consider the ordinary meaning. The following definition of a hospital is contained with in the Tax Office publication GiftPack - for deductible gift recipients & donors : A hospital is an institution in which patients are received for continuous medical care and treatment for sickness, disease of injury. The provision of 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 illness are accepted as hospitals. Hospices for the terminally ill will generally be hospitals. Minor outpatient and nursing care will not prevent an institution from being a hospital. In considering whether this definition applies to you it is necessary to consider the following questions: · Are you an institution? · Is your dominant objective the provision of continuous medical care and treatment for sickness, disease or injury? · Do you provide associated accommodation and nursing services on your premises? In considering these questions, it is relevant to note that the private ruling that issued in relation to the benefits provided to employees whose duties of employment are exclusively performed in or in connection with a public hospital concluded that each of the Area Health Services: · was an institution; · that had a dominant objective the provision of continuous medical care and treatment for sickness, disease or injury; and · provided accommodation and nursing services on its premises. These conclusions were not disputed in your private ruling application. | Detailed Reasoning - Are you an institution?: There is no statutory definition of 'institution'. However, guidance as to the meaning of the term is provided by Taxation Ruling TR 92/17 Income tax and fringe benefits tax: exemptions for religious institutions (TR 92/17) and Taxation Ruling TR 2003/5 Income tax and fringe benefits tax: public benevolent institutions (TR 2003/5). Paragraph 4 of TR 92/17 states: A body is an 'institution' for the purposes of both the ITAA and the FBTAA if it is an establishment, organisation or association, instituted for the promotion of some object (especially one of public or general utility) that is religious, charitable, educational, etc. That definition was accepted by the High Court of Australia in YMCA of Melbourne v. FC of T (1926) 37 CLR 351 and later in Stratton v. Simpson (1970) 125 CLR 138. Further guidance as to the meaning of 'institution' is provided in paragraphs 91 to 93 of TR 2003/5 which state: 91. No particular structure is prescribed for public benevolent institutions. An institution has been described as 'the body (so to speak) called into existence to translate the purpose as conceived in the mind of the founders into a living and active principle' ( Mayor of Manchester v. McAdam (1896) 3 TC 491 at 497; [1896] AC 500 at 511 per Lord Macnaghten). Some institutions take the form of corporations limited by guarantee, unincorporated associations or charitable trusts. Incorporation is not sufficient on its own: Trustees of the Allport Bequest. An institution may be created by will: Lemm at 66 CLR 409-410 per Williams J. Whether a particular entity is an institution is indicated by a range of factors including activities, size, permanence and recognition. All relevant factors need to be considered and whether an institution exists will depend on its particular facts. Institutions accepted by the High Court in this and related contexts have included a Boys' Brigade, F6 a home for aged women, F7 a university and a university college, F8 a publisher of law reports, F9 a YMCA, F10 and an association of surgeons. F11 The word institution has a meaning 'greater than a structure controlled and operated by family members and friends': Pamas Foundation (Inc) v. DFC of T 92 ATC 4161 at 4168; (1992) 23 ATR 189 at 197. 92. A public benevolent institution will not necessarily be a juristic person ( Joyce v. Ashfield Municipal Council (1959) 4 LGRA 195 at 200 per Owen J), but will be capable of being separately identified. Constituent documents, separate accounts and records, separate premises, staff and management help to indicate a separate identity. The need for a separate identity is illustrated by the decision in Case X33 90 ATC 308; AAT Case 5773 (1990) 21 ATR 3305. A gift of land was made to a church to facilitate the construction of an old people's home. Although there was some evidence that separate funds were held for a home, no institution existed separately from the church. The church itself was not a public benevolent institution and therefore no income tax deduction was allowable. However, where a separate legal entity is set up by a church or other body, that fact does not preclude it from having an institutional character. 93. An organisation which merely manages property and makes distributions to other organisations will not be an institution within the compound phrase 'public benevolent institution' F12 . In Trustees of the Allport Bequest v. FC of T an organisation which was established by Act of Parliament was held to not be an institution and therefore not a public benevolent institution. Its sole activities were to manage trust property and apply the income in donations to such other charitable organisations and objects as it determined. Northrop J characterised the activities as those of simple or mere trustees; they were insufficient to constitute the organisation as an institution. F13 The fact that it had a recognised identity and permanent nature was not sufficient. (The lack of direct benefit by such organisations also points to them not being public benevolent institutions: cf Trustees of the Allport Bequest v. FC of T at 88 ATC 4441-4442; 19 ATR 1341.) See also Case X13 90 ATC 165; AAT Case 5560 (1989) 21 ATR 3132 and Case 101 (1945) 12 CTBR 823 at 834-836. An institution may be instituted in different ways including as a corporation, unincorporated association or trust. As set out in paragraph 92 of TR 2003/5 it is not necessary to be a juristic person. Owen J in Joyce v. Ashfield Municipal Council (1959) 4 LGRA at 200 said: Yet it is common knowledge that in many, and probably in the majority of cases, a public charity is not a juristic person, and this is also true of public hospitals and public benevolent institutions. … It seems improbable that the legislature would have intended par. (d) to operate only in those cases in which the "public hospital", the "public benevolent institution" or the "public charity" is a corporate entity. However, it must have a separate identity. Constituent documents and separate accounts and records will help to indicate a separate identity. The need for a separate identity is highlighted in the decision in Case X33 90 ATC 308; AAT Case 5773 (1990) 21 ATR 3305. In that case a gift of land was made to a church to facilitate the construction of an old peoples' home. Although there was some evidence that separate funds were held for a home, no institution existed separately from the church. Even though it is possible to consider an aged persons' home as a public benevolent institution it could not be established that the home was an institution outside of the church. Further, it involves more than mere incorporation or trustees merely administering trust property in accordance with a trust deed. In Pamas Foundation (Inc) v. Deputy Commissioner of Taxation 92 ATC 4161; 23 ATR 189 the Full Federal Court applied the decision of Christian Enterprises Ltd v Comr of Land Tax (1968) 88 WN (Pt2) (NSW) 112 to conclude that the word institution is to be given a meaning greater than a structure controlled and operated by family members and friends. The fact that the foundation in that case was incorporated did not mean that it was also an institution. It was relevant that the foundation had a small and exclusive membership, and that the scale of its activities was relatively small. In considering this guidance, you are a government department established by the Governor. As such you are a part of government. You are a body formed by government, controlled by government that performs functions on behalf of government. In considering whether such a body can be an association paragraphs 1 to 3 of Taxation Determination TD 95/56 Fringe benefits tax: can a body which is formed by government, is controlled by government and performs functions on behalf of government be an 'association' for the purposes of section 65J of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? (TD 95/56) state: 1. No. A body cannot be an 'association' where it is formed by government, is controlled by government and performs functions on behalf of government. 2. … The Shorter Oxford English Dictionary defines the term 'association' to be 'a body of persons associated for a common purpose; the organisation formed to effect their purpose'. The Macquarie Dictionary defines 'association' as being 'an organisation of people with a common purpose and having a formal structure'. Olsson J, in Quinton v. South Australian Psychological Board (1985) 38 SASR 523, also stated that the term 'association' has come to be regarded as attaching to a body of persons associated for a common purpose. 3. A body which is formed by government, is controlled by government and performs functions on behalf of government is clearly not formed to effect the purposes of the members of that body but is formed to effect the purposes of government. Combined with the fact that the members do not create the body (or have the power to dissolve it) and that the members do not have ultimate control over the functions of the body, such a body cannot be said to be an association. If you can not be an association, then the question arises as to how you can be 'an establishment, organisation or association, instituted for the promotion of some object … that is religious, charitable, educational, etc'. | Detailed Reasoning - Is your dominant objective the provision of continuous medical care and treatment for sickness, disease or injury?: Even if you are an 'institution', the exemption in subsection 57A(3) is only available to certain institutions. To be able to use subsection 57A(3) for the benefits provided to all employees, the institution must provide continuous medical care and treatment for sickness, disease or injury. In your ruling application in support of your contention that you have the necessary dominant objective you provided a table to show that: · most of your total budget expenditure relates to inpatient facility operational costs; · most of your total actual expenditure relates to inpatient facility operational costs; · most of your full time equivalent positions relate to inpatient facilities; and · most of your salary expenditure relates to employees undertaking their duties in inpatient facilities. In reviewing these figures we note the figures given in the table include the expenditure of the Health Services that were held to be public hospitals in the private ruling. Given you have not disputed the ruling's conclusion that the Health Services are separate institutions that are hospitals, the expenditure can not be treated as both your expenditure and expenditure of the Health Services. It can only be included once. As the Health Services are the institution that is providing the services, the expenditure is considered to be expenditure of the Health Services. Although you may provide much of this funding to the Health Services, the transaction between you and the Health Service does not involve the provision of inpatient care. Rather, it is the allocation of Government funds which is a function of Government rather than a hospital function. If this expenditure is removed from your table, the majority of your expenditure does not relate to inpatient facilities. In your application you also referred to the percentage of employees who are involved in the provision of inpatient care. Although this may be a relevant factor, it is not a determinative factor. For example, the fact that the majority of employees of a labour hire firm that provides temporary staff to hospitals perform their employment duties within a hospital does not make the labour hire firm a hospital. In such a scenario the labour hire firm is providing employees to a separate institution. It is not providing continuous medical care and treatment for sickness, disease or injury. Therefore, the fact that the majority of your employees perform their duties in a Health Service that is a hospital does not make you a hospital. In this regard it is relevant to note that subsection 57A(2) is based on the premise that the employees are performing their duties in a public hospital which is separate to the employing government body. In your ruling application you referred to the decision in Australian Council for Overseas Aid v. FC of T 80 ATC 4575; (1980) 11 ATR 343 ( Australian Council for Overseas Aid ) to contend that it is not necessary for you to actually provide the medical care. This application of this decision is discussed in paragraphs 63 to 65 of TR 2003/5. These paragraphs state: 63. In Australian Council for Overseas Aid v. FC of T 80 ATC 4575; (1980) 11 ATR 343 the Council did not itself dispense aid but coordinated and performed education, government liaison and other services for organisations which provided benevolent relief to poor people overseas. Connor ACJ accepted that it was a public benevolent institution. His Honour said at ATC 4577-4578; ATR 346: 'The taxpayer is not a separate institution or organisation carrying on an independent business in the course of which it serves persons other than its members. It appears to me that the taxpayer and its members should be looked at as a whole enterprise which is predominantly benevolent and of which the taxpayer is an integral part ... In this practical arrangement and division of function it seems that nearly everything which the taxpayer does is done in the course of and for the furtherance of the relief of poverty even though it is done in conjunction with other institutions.' 64. The decision has not been applied in any later reported case and doubt has been cast on its correctness (per Street CJ in Australian Council of Social Service at 85 ATC 4237; 16 ATR 396). 65. However we accept that a non-profit organisation may be a public benevolent institution in the circumstances of the Australian Council for Overseas Aid case where: · its members are predominantly public benevolent institutions; · it has a common benevolent purpose with its members; · it provides services only to its members (apart from any provided directly to persons in need of benevolent relief); · for those members which are not public benevolent institutions, it serves them only in relation to their public benevolent activities; · it does not carry on activities separately from its members; · its activities can be properly considered as a step in the benevolent process of the group of organisations; · it and its members can be appropriately regarded as one whole enterprise of which the organisation is an integral part; and · its activities are such that if they had been performed by the members themselves they would have been regarded as being carried on in the course of performing their benevolent activities. Although you provide services to the institutions that have been accepted as being a public hospital, your situation can be distinguished from that of the Australian Council for Overseas Aid as you are a separate institution that performs separate functions. Unlike the Health Services that only provide hospital services, you perform governmental functions by allocating resources and making policies. Although the majority of your employees may perform their employment duties in a hospital and the majority of the funds that you allocate may be to hospitals you provide the same services to your non hospital agencies. Therefore, we do not agree with your contention that your dominant objective is the provision of continuous medical care and treatment for sickness, disease or injury. | Detailed Reasoning - Do you provide accommodation and nursing services on your premises?: In accordance with the discussion above in relation to the provision of continuous medical care and treatment for sickness, disease or injury we do not agree with your contention that accommodation and nursing services are provided on your premises. The premises on which the accommodation and nursing services are provided are premises used by the Health Services. Given the Health Services have been accepted as being separate institutions the premises that they occupy can not be considered to be your premises. Therefore, given the premises on which the accommodation is provided are not your premises, we can not accept your contention that accommodation and nursing services are provided on your premises. | Detailed Reasoning - Conclusion: From the information provided you are not considered to be an institution that receives patients for continuous medical care and treatment for sickness, disease or injury. Therefore, you are not a public hospital. As you are not a public hospital the only benefits that will be exempt under subsection 57A(3) are the benefits provided to employees that are predominantly involved in connection with the provision of the public ambulance services. Further, subsection 57A(2) will only apply to those employees whose duties of employment are exclusively performed in, or in connection with a public hospital.

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