Fringe benefits tax: exempt benefits - duties of employee relating to a public hospital

Is the benefit provided to an employee in respect of her employment with a government department an exempt benefit under subsection 57A(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

No. The benefit provided to an employee in respect of their employment with a government department is not an exempt benefit under subsection 57A(2) of the FBTAA.

The employer is a State or a Territory.

The employer provides the employee with a benefit, the benefit being the use of the employer's motor vehicle.

The employee is employed within a Division of a Department of the State or Territory. The Division is responsible for the provision of health and hospital services in the State or Territory. This includes the allocation of funding to hospitals and health services, including public hospitals.

The public hospitals that the Division is responsible for are all 'public hospitals' and 'public benevolent institutions' as described in subparagraph 57A(2)(b)(i) of the FBTAA.

The employee does not perform their duties within the physical boundaries or site of a 'public hospital'.

The duties of the employee include: • The development of alternative funding options for the public hospitals within the State or Territory. • Monitoring expenditure of the public hospitals within the State or Territory. • Providing advice to the Minister in relation to the allocation of funding to public hospitals and hospital performance.

All references made in these reasons for decision are to the Fringe Benefits Tax Assessment Act 1986.

Subsection 57A(2) exempts from fringe benefits tax, the provision of benefits provided in respect of the employment of an employee when the duties of an employee relate to a public hospital in a particular way. (Note: this exemption is subject to a capping amount provided for in Part IIA).

Subsection 57A(2) provides as follows:

57A(2) Where: a) the employer of an employee is a government body; and b) the duties of the employment of the employee are exclusively performed in, or in connection with: (i) a public hospital that is a public benevolent institution; or ...a benefit provided in respect of the employment of the employee is an exempt benefit.

Paragraph 57A(2)(a) is satisfied as the employer of the employee is a State or a Territory that is a 'government body' as defined in subsection 136(1).

During the year the employee provided the employee with a benefit. During the year there was a public hospital which was also a public benevolent institution. In order to apply the exemption it is necessary to determine whether the duties of the employee related to the public hospital in a particular way as described by paragraph 57A(2)(b).

An analysis of the words of paragraph 57A(2)(b) shows that it contains two limbs. If the employer is able to satisfy one of the two limbs then the benefit will be an exempt benefit.

The word 'in' within its present context denotes physical location, physical precinct or physical situation. For a public hospital, the institution may in fact be located over separate physical sites, much the same as a university campus.

To satisfy this limb, the employee would be required to exclusively perform her duties of employment within the physical boundaries or sites of a public hospital which is a public benevolent institution. As this has not occurred the first limb within paragraph 57A(2)(b) is not satisfied.

This second limb needs to be considered for employees whose duties of employment are not exclusively performed within the physical precinct of a public hospital.

The presence of the word 'exclusively' or 'only' was discussed by Kitto J in Lloyd v Federal Commissioner of Taxation (1955) 93 CLR 645. At page 672 Kitto J said, In neither case is the restriction as precise as it would be if the word "exclusively" or "only" were found in s. 8 (5) after "public educational purposes", for then no gift could attract the exemption if any part of the corpus or income of the property given could be applied, consistently with the gift, for any purpose, however minor in importance, which was collateral or independent as distinguished from being a purpose of or incidental to public education...

The meaning of the phrase 'in connection with' was discussed in Burswood Management Ltd v A-G (1990) 23 FCR 144. In a joint decision the court said: 'The words "in connection with" are words of wide import; and the meaning to be attributed to them depends on their context and the purpose of the statute in which they appear.'

The purpose of the former subsection 57A(2) was discussed in paragraph 1.4 of the Replacement Supplementary Explanatory Memorandum (Senate) to the A New Tax System (Fringe Benefits) Act 2000 (EM). The EM said: Under section 57A of the FBTAA 1986, a benefit provided to an employee of a public hospital which is a PBI, or to an employee of a government body where the employee works exclusively for a public hospital that is a PBI, is wholly exempt from FBT.

This description also applies to the current year subsection 57A(2) as the rewritten words remain the same.

In considering what is the extent or degree of the 'connection' required by the second limb the words of the EM provide assistance in that they require the employee to work exclusively for a public hospital.

An employee working exclusively for a public hospital would have to be fully engaged in a principal activity of the public hospital, or at least the work duties would be incidental to that principal activity. Refer also Ngurratjuta Pmara/Ntjarra Aboriginal Corp v. Commissioner of Taxes (No 2) (2000) 155 FLR 196; 2000 ATC 4264.

In the present case the employee is not engaged in a principal activity of a public hospital nor is her work incidental to that principal activity. Her work activities can be described as being governmental in nature and collateral or independent to the activities of the public hospital.

The second limb within paragraph 57A(2)(b) is therefore not satisfied.

As the employer has not satisfied either the first or second limbs of paragraph 57A(2)(b) the benefit is not an exempt benefit.