Private ruling: Income tax exempt, deductible gift recipient status fringe benefits tax exemption
Published: April 2013
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014

Ruling: Q1: Will the Company continue to be entitled to be endorsed as income tax exempt pursuant to section 50-105 of the ITAA 1997 if the proposed changes occur? | A1: Yes | Q2: Will the Company continue to be entitled to be endorsed as a deductible gift recipient (DGR) pursuant to section 30-120 of the ITAA 1997 if the proposed changes occur? | A2: Yes | Q3: Will benefits provided in respect of the employment of employees by the Company continue to be exempt benefits pursuant to section 57A (3) of the FBTAA 1986 if the proposed changes occur? | A3: Yes

Relevant facts and circumstances: The Company is a company limited by guarantee. The Company is an entity listed with the Australian Charities and Not-for-profits Commission (ACNC) as a Registered Charity. The Company is endorsed as exempt from income tax as a Registered Charity as described in item 1.1 of the table in section 50-5 of the Income tax Assessment Act 1997 (ITAA 1997). The Company is endorsed as a deductible gift recipient (DGR) - public hospital, as an entity described in item 1.1.1 of section 30-20 of the ITAA 1997. The Company previously received a private binding ruling which confirmed that the benefits it provides to its employees are exempt benefits by virtue of subsection 57A (3) of the Fringe Benefits Assessment Act 1986 (FBTAA 1986). The Company manages and controls a hospital and employs staff of the hospital. The Company receives moneys from the following sources: · fees from patients, Medicare and private health insurers; · fees from car parking and subleasing of the premises to service providers; · donations from the public; The Company is the lessee of a hospital and the employer of the staff of the hospital. The hospital is a technologically superior hospital providing, acute surgery facilities and accommodation and continuous general medical care and treatment for patients suffering sickness, disease or injury. All doctors, nursing staff and other staff employed by the hospital are employed exclusively in the kind of work ordinarily performed in relation to the operation of a hospital. The hospital also engages a significant number of specialist medical practitioners as accredited practitioners of the hospital. Proposed Changes The Company proposes to change from a company limited by guarantee to a company limited by shares. The Company will amend its constitution to reflect these changes. The proposed constitution of the Company continues to provide that no dividends or further payments are to be made to members other than for reasonable remuneration for services provided and that on a winding up of the Company if there is any property remaining after satisfaction of: (a) debts and liabilities; (b) the cost charges and expenses of the winding up or reconstruction; or (c) the repayment of the amount paid up on subscription a class of funding share; neither the Company nor any person may directly or indirectly transfer the surplus property by way of distribution bonus or otherwise to or for any member. The Company's objects as stated in the draft constitution remain unchanged.

Relevant legislative provisions: 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 | Income tax Assessment Act 1997 Section 50-105 | Income tax Assessment Act 1997 Section 50-110 | Income tax Assessment Act 1997 Section 30-20 | Income tax Assessment Act 1997 Subsection 30-20 (1) | Income tax Assessment Act 1997 Section 30-120 | Income tax Assessment Act 1997 Subsection 30-125 (1) | Income tax Assessment Act 1997 Section 995-1 | Fringe Benefits Assessment Act 1986 Subsection 57A (3) | Fringe Benefits Assessment Act 1986 Section 5B

Reasons for decision: Summary: The Company will continue to be entitled to be endorsed as income tax exempt pursuant to section 50-105 of the ITAA 1997 if the proposed changes occur. | Detailed Reasoning - Detailed reasoning: Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the income of certain types of organisations is exempt from income tax. Exemption from income tax as a Registered Charity under item 1.1 of section 50-5 of the ITAA 1997 is subject to the special conditions contained in sections 50-50 and 50-52 of the ITAA 1997. A Registered Charity is endorsed as such by the Australian Charities and Not-for-profits Commission (ACNC) and for the purposes of income tax, is defined in section 995-1 of the ITAA 1997 as: registered charity means an entity that is registered under the Australian Charities and Not-for-profits Commission Act 2012 as the type of entity mentioned in column 1 of item 1 of the table in subsection 25-5(5) of that Act. Section 50-50 of the ITAA 1997 provides that a Registered Charity is not exempt from income tax unless it has a physical presence in Australia, and to that extent incurs its expenditure principally in Australia. Section 50-52 of the ITAA 1997 stipulates that a Registered Charity is not exempt unless it is endorsed. An entity is entitled to be endorsed pursuant to section 50-110 of the ITAA 1997 if it has an ABN and meets the special conditions described in sections 50-50 of the ITAA 1997. The Company is currently exempt from income tax as it is a Registered Charity, has an ABN, is located in and incurs its expenditure in Australia and is endorsed. As the status of whether an entity is a Registered Charity or not is determined by the ACNC, this ruling can only address whether the proposed changes outlined in this ruling will affect whether the Company has a physical presence in and incurs its expenditure principally in Australia. The changed proposed by the Company will not affect it meeting the special conditions in section 50-50 or 50-52 of the ITAA 1997. Therefore provided it remains a Registered Charity, it will continue to be exempt from income tax | Summary: The Company will continue to be entitled to be endorsed as a deductible gift recipient (DGR) pursuant to section 30-120 of the ITAA 1997 if the proposed changes occur. | Detailed Reasoning - Detailed reasoning: Subsection 30-125(1) of the ITAA1997 provides that an entity is entitled to be endorsed as a DGR if it: · has an ABN. · is a fund, authority or institution as described in the relevant provisions (which meets any relevant special conditions); and · has suitable rules in relation to the transfer of gifts, contributions and other money received because of such gifts or contributions. In its current form, the Company is endorsed as a deductible gift recipient on the basis it is an entity described in item 1.1.1 of the table in subsection 30-20(1) of the ITAA 1997, as a 'public hospital'. The special conditions for a public hospital are that it must also be a Registered Charity. As part of its ruling application, the Company has submitted a draft constitution that would be adopted as a result of the proposed changes. The objects in the Company draft constitution remain unchanged. That is, the objectives of the Company are identical to those objects previously assessed as being in keeping with that of a pubic hospital. The draft constitution continues to require that the Company operate on a non-profit basis and to prevent any assets or income being paid or transferred as either bonuses or dividends to any members. All income and property must be applied solely to the Company objects. The draft constitution continues to stipulate that no dividends are to be paid by the Company. In accordance with section 30-120 of the ITAA 1997, the draft constitution also requires that upon winding up of the Company or revocation of its endorsement as a DGR, any gifts, contributions or money received on the basis of the Company being a DGR are to be transferred to another entity, provided it is an endorsed DGR. As there is no change to the activities of the Company and nor is there any material change to its constitution, the proposed change from a company limited by guarantee to a company limited by shares, will not disturb the Company's endorsement as a deductible gift recipient - public hospital, provided it remains a Registered Charity as outlined in the answer to question 1. | Summary: Benefits provided in respect of the employment of employees by the Company will continue to be exempt benefits pursuant to section 57A (3) of the FBTAA 1986 if the proposed changes occur. | Detailed Reasoning - Detailed reasoning: The Company previously received a private binding ruling which rules that it was a public hospital for the purposes of subsection 57A (3) of the FBTAA 1986. Subsection 57A (3) of the FBTAA 1986 provides in part: 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 proposed changes to be undertaken by the Company as outlined in this ruling will not affect the Company being characterised as a public hospital. As discussed on page 12 of the ATO publication GiftPack: A hospital is an institution in which patients are received for continuous medical care and treatment for sickness, disease or injury. Providing 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 from 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. After implementation of the proposed changes, the Company will continue to meet the definition of a hospital. It will continue to operate a hospital providing acute surgery facilities and accommodation and continuous general medical care and treatment for patients suffering sickness, disease or injury. It will continue to employ doctors, nurses and other staff exclusively, in the kind of work ordinarily performed in relation to the operation of a hospital. The Company will remain an institution, whose dominant objective is the provision of continuous medical care and treatment for sickness, disease or injury. It will continue to provide associated accommodation and nursing services on its premises. As such the Company will continue to meet the requirements of subsection 57A (3) of the FBTAA 1986 and be entitled to provide exempt benefits to employees. It should be noted that section 5B of the FBTAA 1986 operates to limit the exemption and that an FBT liability will arise if the value of certain benefits provided to an individual employee exceeds $17,000.