Class Ruling CR 2005/26
Date of effect: 30 June 2005


Class of entities or scheme: 4. The class of persons to which this Ruling applies is the full time medical practitioners ('Specialists') of a Victorian Health Service ('The Health Service') who elect to participate in a 100% payment private practice arrangement offered in the Letter of Appointment for Medical Specialist. | Qualifications: 5. The Commissioner makes this Ruling based on the precise arrangement identified in the Ruling. 6. The class of persons defined in this Ruling may rely on its contents provided the arrangement actually carried out is carried out in accordance with the arrangement described in paragraphs 10 to 15. 7. If the arrangement actually carried out is materially different from the arrangement that is described in this Ruling, then: 8. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to: 9. This Ruling applies for the income year ended 30 June 2005 and subsequent income years. However, the Ruling only applies to the extent that: 10. The arrangement that is the subject of this Ruling is described below. This description is based on the following documents. These documents, or relevant parts of them, as the case may be, form part of the arrangement and are to be read with this description. The relevant documents or parts of documents incorporated into this description of the arrangement are: Copies of the following documents are attached to this ruling: 11. The Specialists are employees of The Health Service. Their employment conditions are contained in the Letter of Appointment for Medical Specialist and The Health Service's Certified Agreement, which contains clauses relating to rights of private practice and rates of pay. Each Specialist has the right under the Letter of Appointment for Medical Specialist to elect to participate in a private practice arrangement. 12. On accepting appointment the Specialist may participate in the private practice arrangement. If they do so they are required to sign a copy of the Private Practice Agreement and the craft group Special Purpose Fund Agreement to formalise their participation in the arrangement. 13. As part of their remuneration package the Specialist receives a private practice component. 14. Under Clause 7 of the Private Practice Agreement, the medical practitioner appoints The Health Service as agent to render accounts and collect payments. All fees in respect of a private practice conducted under the Private Practice Agreement are required to be paid over to The Health Service under the terms of the Letter of Appointment for Medical Specialist. 15. Under the terms of the Private Practice Agreement the Specialist uses The Health Service's infrastructure and resources but is not required to pay an infrastructure charge. | Remuneration and private practice component: 16. The remuneration including the private practice component paid to the Specialist under the contract of employment is assessable income to the Specialist under section 6-5 of the ITAA 1997. The private practice component paid to the Specialist by The Health Service under the terms of the Specialist's appointment is remuneration related to the Specialist's employment. | Private practice income: 17. The gross fees of the Specialist, billed under the 100% payment private practice arrangement, are derived as ordinary income and are assessable income of the Specialist under section 6-5 of the ITAA 1997. | Deductibility of amounts paid over to The Health Service: 18. A deduction is allowable under section 8-1 of the ITAA 1997 to the Specialist for an amount equal to the gross fees paid over to The Health Service as part of the terms of appointment. | Remuneration and private practice component: 19. The remuneration including the private practice component paid to the Specialist under the contract of employment is assessable income of the Specialist under section 6-5 of the ITAA 1997. 20. The private practice component is paid to the Specialist under the terms of the Specialist's employment as set out in the Letter of Appointment. It is unrelated to the amount (if any) of fees generated by the Specialist from the 100% payment private practice arrangement. It is considered that the private practice component represents a payment related to the Specialist's employment as it is a condition of their employment. | Private practice income: 21. Under the private practice arrangement, the Specialist attends to private patients in the hospital utilising the hospital's infrastructure and resources. However, the Specialist is providing a direct medical service to their private patients in the Specialist's private practice and not in their capacity as an employee of The Health Service. The gross fees of the Specialist are derived as ordinary income and are assessable income of the Specialist under section 6-5 of the ITAA 1997. The Health Service acts as the Specialist's agent in billing and collecting the amounts due by the patient (Clause 7 of the Private Practice Agreement). 22. The decision in a Board of Review case reported as Case T44 86 ATC 366 supports the assessability of the fees. In that case it was held that funds received by a hospital as a result of accounts issued by it to the private patients of a doctor employed by a hospital, were assessable to the individual as ordinary income. | Deductibility of amounts paid over to The Health Service: 23. Under subsection 8-1(1) of the ITAA 1997, a Specialist in a 100% payment private practice arrangement is entitled to claim a deduction for an amount equal to the gross fees paid over to The Health Service. 24. The Specialist is required, as a condition of employment, to pay over all fees charged or to be charged from the private practice under the 100% payment arrangement. In these circumstances, the payment over to The Health Service of the fees derived from private practice is an expense that the Specialist incurs in gaining assessable income. This view is supported by the decision in the Full Federal Court case of Service v. FC of T (2000) 97 FCR 265; 2000 ATC 4176; (2000) 44 ATR 71. 25. The fees are paid over as a condition of employment and this creates the connection with the activities which more directly gain or produce the assessable income. Therefore, the deduction for the amount paid over is a 'work related expense'. | Non-commercial loss provisions: 26. Depending on the particular circumstances of a Specialist conducting a private practice under the 100% payment arrangement, Division 35 of the ITAA 1997 - Deferral of losses from non-commercial business activities - may have application. If the Specialist makes a 'loss' from this business activity and does not meet one of the tests set out in sections 35-30, 35-35, 35-40, or 35-45 of the ITAA 1997, or the Commissioner has not exercised the discretion set out in section 35-55 of the ITAA 1997, then the loss deferral rule in subsection 35-10(2) of the ITAA 1997 will apply. 41. Below is a detailed contents list for this Class Ruling: Commissioner of Taxation 27 April 2005 | Sample Letter of Appointment for Medical Specialist: Date:...................... Dear Dr. , Following your interview with the Medical Appointments Committee on [date], I am pleased to offer you an appointment as a Full-time Specialist in . Your appointment will be for a period of .. years, commencing on or about the [date], with the first year being a probationary year. At the conclusion of your probationary year your performance will be assessed by the Director .... The satisfactory completion of the review will result in your contract continuing for a further .. years. The terms and condition of your employment are covered by the [Certified Agreement], a copy of which is attached. Should you have any queries in relation to this agreement please feel free to contact me on ....................or Dr. on .............................. Yours sincerely, | GENERAL MANAGER SERVICES: Enc. To : Mr. , General Manager, Services, ' The Health Service' | Acceptance: I accept the offer of appointment and the terms and conditions set out in the General Manager Services' letter dated the [date]. I confirm that I agree to abide by the 'Health Service' By-Laws and the Policies including the Professional Code of Conduct for Medical Staff and Guidelines for Medical Staff appointed to ' The Health Service' , as amended from time to time. Name : DR . Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Date . . . . . . . . . . . . . . . . . | Sample Version of document: ' Group' is to be replaced with name, eg . Cancer Services, Intensive Care Services, etc . ' Health Service' is to be replaced with the name of the Health Service . | Sample Version of document: ' Group' is to be replaced with name, eg . Cancer Services, Intensive Care Services, etc . ' Health Service' is to be replaced with the name of the Health Service . NOTES 1. The above rates will be adjusted from 1 July each year by reference to the CPI movement as reflected in the 12 months up to the March quarter index. 2. The Commonwealth Government SES rates will be updated on an annual basis. Not previously issued as a draft

Ruling: Remuneration and private practice component: 16. The remuneration including the private practice component paid to the Specialist under the contract of employment is assessable income to the Specialist under section 6-5 of the ITAA 1997. The private practice component paid to the Specialist by The Health Service under the terms of the Specialist's appointment is remuneration related to the Specialist's employment. | Private practice income: 17. The gross fees of the Specialist, billed under the 100% payment private practice arrangement, are derived as ordinary income and are assessable income of the Specialist under section 6-5 of the ITAA 1997. | Deductibility of amounts paid over to The Health Service: 18. A deduction is allowable under section 8-1 of the ITAA 1997 to the Specialist for an amount equal to the gross fees paid over to The Health Service as part of the terms of appointment. | Remuneration and private practice component: 19. The remuneration including the private practice component paid to the Specialist under the contract of employment is assessable income of the Specialist under section 6-5 of the ITAA 1997. 20. The private practice component is paid to the Specialist under the terms of the Specialist's employment as set out in the Letter of Appointment. It is unrelated to the amount (if any) of fees generated by the Specialist from the 100% payment private practice arrangement. It is considered that the private practice component represents a payment related to the Specialist's employment as it is a condition of their employment. | Private practice income: 21. Under the private practice arrangement, the Specialist attends to private patients in the hospital utilising the hospital's infrastructure and resources. However, the Specialist is providing a direct medical service to their private patients in the Specialist's private practice and not in their capacity as an employee of The Health Service. The gross fees of the Specialist are derived as ordinary income and are assessable income of the Specialist under section 6-5 of the ITAA 1997. The Health Service acts as the Specialist's agent in billing and collecting the amounts due by the patient (Clause 7 of the Private Practice Agreement). 22. The decision in a Board of Review case reported as Case T44 86 ATC 366 supports the assessability of the fees. In that case it was held that funds received by a hospital as a result of accounts issued by it to the private patients of a doctor employed by a hospital, were assessable to the individual as ordinary income. | Deductibility of amounts paid over to The Health Service: 23. Under subsection 8-1(1) of the ITAA 1997, a Specialist in a 100% payment private practice arrangement is entitled to claim a deduction for an amount equal to the gross fees paid over to The Health Service. 24. The Specialist is required, as a condition of employment, to pay over all fees charged or to be charged from the private practice under the 100% payment arrangement. In these circumstances, the payment over to The Health Service of the fees derived from private practice is an expense that the Specialist incurs in gaining assessable income. This view is supported by the decision in the Full Federal Court case of Service v. FC of T (2000) 97 FCR 265; 2000 ATC 4176; (2000) 44 ATR 71. 25. The fees are paid over as a condition of employment and this creates the connection with the activities which more directly gain or produce the assessable income. Therefore, the deduction for the amount paid over is a 'work related expense'. | Non-commercial loss provisions: 26. Depending on the particular circumstances of a Specialist conducting a private practice under the 100% payment arrangement, Division 35 of the ITAA 1997 - Deferral of losses from non-commercial business activities - may have application. If the Specialist makes a 'loss' from this business activity and does not meet one of the tests set out in sections 35-30, 35-35, 35-40, or 35-45 of the ITAA 1997, or the Commissioner has not exercised the discretion set out in section 35-55 of the ITAA 1997, then the loss deferral rule in subsection 35-10(2) of the ITAA 1997 will apply. 41. Below is a detailed contents list for this Class Ruling: Commissioner of Taxation 27 April 2005 | Sample Letter of Appointment for Medical Specialist: Date:...................... Dear Dr. , Following your interview with the Medical Appointments Committee on [date], I am pleased to offer you an appointment as a Full-time Specialist in . Your appointment will be for a period of .. years, commencing on or about the [date], with the first year being a probationary year. At the conclusion of your probationary year your performance will be assessed by the Director .... The satisfactory completion of the review will result in your contract continuing for a further .. years. The terms and condition of your employment are covered by the [Certified Agreement], a copy of which is attached. Should you have any queries in relation to this agreement please feel free to contact me on ....................or Dr. on .............................. Yours sincerely, | GENERAL MANAGER SERVICES: Enc. To : Mr. , General Manager, Services, ' The Health Service' | Acceptance: I accept the offer of appointment and the terms and conditions set out in the General Manager Services' letter dated the [date]. I confirm that I agree to abide by the 'Health Service' By-Laws and the Policies including the Professional Code of Conduct for Medical Staff and Guidelines for Medical Staff appointed to ' The Health Service' , as amended from time to time. Name : DR . Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Date . . . . . . . . . . . . . . . . . | Sample Version of document: ' Group' is to be replaced with name, eg . Cancer Services, Intensive Care Services, etc . ' Health Service' is to be replaced with the name of the Health Service . | Sample Version of document: ' Group' is to be replaced with name, eg . Cancer Services, Intensive Care Services, etc . ' Health Service' is to be replaced with the name of the Health Service . NOTES 1. The above rates will be adjusted from 1 July each year by reference to the CPI movement as reflected in the 12 months up to the March quarter index. 2. The Commonwealth Government SES rates will be updated on an annual basis. Not previously issued as a draft


Appendix: Remuneration and private practice component: 19. The remuneration including the private practice component paid to the Specialist under the contract of employment is assessable income of the Specialist under section 6-5 of the ITAA 1997. 20. The private practice component is paid to the Specialist under the terms of the Specialist's employment as set out in the Letter of Appointment. It is unrelated to the amount (if any) of fees generated by the Specialist from the 100% payment private practice arrangement. It is considered that the private practice component represents a payment related to the Specialist's employment as it is a condition of their employment. | Private practice income: 21. Under the private practice arrangement, the Specialist attends to private patients in the hospital utilising the hospital's infrastructure and resources. However, the Specialist is providing a direct medical service to their private patients in the Specialist's private practice and not in their capacity as an employee of The Health Service. The gross fees of the Specialist are derived as ordinary income and are assessable income of the Specialist under section 6-5 of the ITAA 1997. The Health Service acts as the Specialist's agent in billing and collecting the amounts due by the patient (Clause 7 of the Private Practice Agreement). 22. The decision in a Board of Review case reported as Case T44 86 ATC 366 supports the assessability of the fees. In that case it was held that funds received by a hospital as a result of accounts issued by it to the private patients of a doctor employed by a hospital, were assessable to the individual as ordinary income. | Deductibility of amounts paid over to The Health Service: 23. Under subsection 8-1(1) of the ITAA 1997, a Specialist in a 100% payment private practice arrangement is entitled to claim a deduction for an amount equal to the gross fees paid over to The Health Service. 24. The Specialist is required, as a condition of employment, to pay over all fees charged or to be charged from the private practice under the 100% payment arrangement. In these circumstances, the payment over to The Health Service of the fees derived from private practice is an expense that the Specialist incurs in gaining assessable income. This view is supported by the decision in the Full Federal Court case of Service v. FC of T (2000) 97 FCR 265; 2000 ATC 4176; (2000) 44 ATR 71. 25. The fees are paid over as a condition of employment and this creates the connection with the activities which more directly gain or produce the assessable income. Therefore, the deduction for the amount paid over is a 'work related expense'. | Non-commercial loss provisions: 26. Depending on the particular circumstances of a Specialist conducting a private practice under the 100% payment arrangement, Division 35 of the ITAA 1997 - Deferral of losses from non-commercial business activities - may have application. If the Specialist makes a 'loss' from this business activity and does not meet one of the tests set out in sections 35-30, 35-35, 35-40, or 35-45 of the ITAA 1997, or the Commissioner has not exercised the discretion set out in section 35-55 of the ITAA 1997, then the loss deferral rule in subsection 35-10(2) of the ITAA 1997 will apply.


What this Class Ruling is about | Preamble: The number, subject heading, What this Class Ruling is about (including Tax law(s), Class of persons and Qualifications sections), Date of effect, Arrangement and Ruling parts of this document are a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953. CR 2001/1 explains Class Rulings and Taxation Rulings TR 92/1 and TR 97/16 together explain when a Ruling is a 'public ruling' and how it is binding on the Commissioner. | What this Class Ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the 'tax law(s)' identified below apply to the defined class of persons, who take part in the arrangement to which this Ruling relates. | 2. This class ruling does not address the tax consequences of work related payments and benefits provided from the Special Purpose Fund. | Tax law(s): 3. The tax laws dealt with in this Ruling are: | SAMPLE PRIVATE PRACTICE AGREEMENT | PURPOSE OF THIS AGREEMENT | MEANING OF PRIVATE PRACTICE | TERM OF PRIVATE PRACTICE AGREEMENT | EXERCISE OF PRIVATE PRACTICE RIGHTS | APPOINTMENT OF ' HEALTH SERVICE' AS AGENT | FEES SET BY MEDICAL PRACTITIONER | PROVISION OF INFORMATION TO ' HEALTH SERVICE' | AMOUNTS ALLOCATED TO THE CRAFT SPECIAL PURPOSE FUND | EXECUTION OF SEPARATE DOCUMENTS | SAMPLE SPECIAL PURPOSE FUND AGREEMENT | Administration of 'Group' Special Purpose Fund | Payment of Non-Salary Benefits | Listing of Allowable Benefits | Documentation of Expenses | Carry Forward of Accumulated Funds | Audit of Payments from the Fund | Meetings of Practitioners | SCHEDULE 2: Accommodation and living expenses


Related rulings: CR 2001/1 TR 92/1 TR 97/16 CR 2003/34
Legislative references: - ITAA 1997 6-5 - ITAA 1997 8-1 - ITAA 1997 8-1(1) - ITAA 1997 Div 35 - ITAA 1997 35-10(2) - ITAA 1997 35-30 - ITAA 1997 35-35 - ITAA 1997 35-40 - ITAA 1997 35-45 - ITAA 1997 35-55 - Copyright Act 1968 - TAA 1953 Pt IVAAA
Case references: Board of Review Case T44 86 ATC 366
Subject references: business income health professionals medical practitioners work related expenses