What this Ruling is about
This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates.
The relevant provisions dealt with in this Ruling are: • section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997); • section 8-1 of the ITAA 1997; and • Division 35 of the ITAA 1997.
The class of entities to which this Ruling applies is the fixed term, full time dentists, dental specialists and dental prosthetists (Dentists) of a Victorian public health service or registered community health centre (the Health Service) who elect to participate in a 100% donation private practice arrangement offered in the Letter of Appointment for such Dentists.
The General Dentists' Victorian Public Sector Multi-Enterprise Agreement 2009-2013 (the Agreement) defines such Dentists as a person who has current registration as a Dentist with the Dental Practice Board of Victoria or successor.
The Commissioner makes this Ruling based on the precise scheme identified in this Ruling.
The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 9 to 15 of this Ruling.
If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: • this Ruling has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled; and • this Ruling may be withdrawn or modified.
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Date of effect
This Ruling applies from 1 July 2012 to 30 June 2016. The Ruling continues to apply after 30 June 2016 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10).
Scheme
The following description of the scheme is based on information provided by the applicant. The following documents, or relevant parts of them form part of and are to be read with the description: • application for Class Ruling dated 29 February 2012 lodged by the Victorian Department of Health; • sample Letter of Appointment for dentists attached to Class Ruling application; • sample Private Practice Agreement attached to Class Ruling application; • a copy of the General Dentists' Victorian Public Sector Multi-Enterprise Agreement 2009-2013; and • information received on Medicare Chronic Disease Dental Scheme (MCDDS) from the website of Dental Health Services Victoria (DHSV). Copies of the following documents are attached to this ruling: • The sample letter of Appointment (Attachment A); and • The sample Private Practice Agreement (Attachment B).
The Dentists are employees of the Health Service. Their employment conditions are contained in the Letter of Appointment for the Dentists. Rights of Private Practice Agreement and General Dentists' Victorian Public Sector Multi-Enterprise Agreement 2009-2013 contain clauses relating to rights of private practice and rates of pay.
Each Dentist has the right, under the Letter of Appointment, to elect to participate in a private practice arrangement. If the Dentist elects to exercise the right of private practice, the Dentist is required to sign a copy of the Private Practice Agreement to formalise their participation in the arrangement.
Under Clause 7 of the Private Practice Agreement, the Dentist is an independent, self employed person who wishes to provide dental services at the private practice located at the Health Service. For the private practice purposes, the relationship between the Dentist and the Health Service is not of employer and employee. The Health Service acts as an agent for the Dentist so far as the private practice of the Dentist is concerned. The arrangement between the Dentist and the Health Service regarding private practice is as follows: • the Health Service provides practice management services including administrative and clinical support, and physical consulting room facilities (Practice Management Services) for the Private Practice in return for and subject to payment of the Practice Management Fee; • all bill is collected by the Health Service as agent for the Dentist from the private practice; and • the Dentist is entitled to receive the balance remaining, after deduction of the Practice Management Fees owed to the Health Service.
The Dentists are required, as stated in the Letter of Appointment, to pay over all the fees collected from the private practice, to the Health Service.
MCDDS is an initiative of the Commonwealth Government to provide Medicare dental services to people with chronic conditions and complex care needs. These patients are referred by the General Practitioners (GPs) directly to the Dentists. Eligible patients can access up to $4,250 in Medicare benefits for dental services over two consecutive calendar years.
The Health Service could deliver the MCDDS in accordance with the Health Insurance Act 1973 , provided the following requirements are met: • the Dentists are able to exercise their right of private practice as per the General Dentists' Victorian Public Sector Multi-Enterprise Agreement 2009-13; and • during hours of public employment, the Dentists are not engaging in private practice while providing MCDDS services.
Ruling
The fees collected and paid by the Health Service to the Dentists for private practice is assessable income of the Dentists under section 6-5 of the ITAA 1997. The private practice component paid to the Dentists by the Health Service under the terms of the Dentists' appointment is remuneration related to the Dentists' employment.
The gross fees of the Dentists, billed under the 100% donation private practice arrangement, are derived as ordinary income and are assessable income of the Dentists under section 6-5 of the ITAA 1997.
A deduction is allowable under section 8-1 of the ITAA 1997 to the Dentists for an amount equal to the gross fees paid over to the Health Service as part of the terms of appointment.
Appendix 1 - Explanation
The remuneration including the private practice component paid to the Dentist under the contract of employment is assessable income of the Dentists under section 6-5 of the ITAA 1997.
The private practice component is paid to the Dentists under the terms of the Dentists' employment as set out in the Letter of Appointment. It is considered that the private practice component represents a payment related to the Dentists' employment as it is a condition of their employment.
Under the private practice arrangement, the Dentists attend to private patients in the Health Service utilising the Health Service's infrastructure and resources. However, the Dentists are providing direct dental services to their private patients in the Dentists' private practice and not in their capacity as an employee of the Health Service. The gross fees of the Dentists are derived as ordinary income and are assessable income of the Dentists under section 6-5 of the ITAA 1997. The Health Service acts as the Dentists' agent in billing and collecting the amounts due by their patients (Clause 2 of the Private Practice Agreement).
Fees collected and paid over by the Health Service to Dentists providing MCDDS through private practice is also ordinary income of the Dentists and assessable under section 6-5 of the ITAA 1997.
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.
Under subsection 8-1(1) of the ITAA 1997, a Dentist in a 100% donation private practice arrangement is entitled to claim a deduction for an amount equal to the gross fees paid over to the Health Service.
The Dentists are required, as a condition of employment, to pay over all fees charged or to be charged from the private practice under the 100% donation arrangement. In these circumstances, the payment over to the Health Service of the fees derived from private practice is an expense that the Dentists incur 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.
Similarly, deduction is also allowed in relation to fees derived under MCDDS and paid over to the Health Service as it is the condition of employment to pay over all fees generated from private practice conducted at the Health Service.
The fees generated from private practice 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'.
Depending on the particular circumstances of the Dentists conducting a private practice under the 100% donation arrangement, Division 35 of the ITAA 1997 - Deferral of loss from non-commercial business activities - may have application. If the Dentists make 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 subsections 35-10(2) of the ITAA 1997 will apply.
Appendix 2 - Detailed contents list
The following is a detailed contents list for this Ruling: Paragraph What this Ruling is about 1 Relevant provision(s) 2 Class of entities 3 Qualifications 5 Date of effect 9 Scheme 10 Ruling 17 Remuneration and private practice component 17 Private practice income 18 Deductibility of amounts paid over to the Health Service 19 Appendix 1 - Explanation 20 Remuneration and private practice component 20 Private practice income 22 Deductibility of amounts paid over to the Health Service 25 Non-commercial loss provisions 29 Appendix 2 - Detailed contents list 30 Attachment A - Sample letter of appointment 31 Attachment B - Sample Private Practice Agreement 32