Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1012689784821

Ruling

Subject: Assessable income

Question

Is the allowance assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You were an elected local government councillor.

You were paid an allowance from the council to cover some costs.

The council did not issue a payment summary and you did not keep any records.

You had a full time job and some business activity.

You were not an employee of the Council, you did not have a work contract and you did not issue invoices for any service to the council.

The ATO has not been notified by the council that it has passed a unanimous resolution to treat its councillor's as employees and your councillor's allowance has not been treated as though such a resolution has been passed.

Relevant legislative provisions

Taxation Administration Act 1953 Schedule 1 section 446-5

Income Tax Assessment Act 1997 section 6-5

Reasons for decision

The word allowance is defined in the Macquarie dictionary as a definite sum of money allotted or granted to meet expenses or requirements. An allowance will usually consist of the payment of a definite predetermined amount to cover an estimated expense, and will be paid regardless of whether the recipient incurs the expected expense.

Paragraph 90 of Taxation Ruling TR 1999/10 Income tax and fringe benefits tax: Members of Parliament - allowances, reimbursements, donations and gifts, benefits, deductions and recoupments provides the following:

Section 446-5 to Schedule 1 of the Taxation Administration Act 1953 (TAA) states that a person who holds office as a member of a local government council is not an employee of the council, except where the council has passed a unanimous resolution to be treated as such and has notified the Commissioner accordingly. There is no indication that the council has passed such a resolution therefore you are not considered to be an employee of the council.

However, this does not mean that allowances paid to a member of a local governing body are not considered to be ordinary income under the general assessability provisions in section 6-5 of the ITAA 1997.

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Ordinary income has generally been held to include three categories, namely income from rendering personal services, income from property and income from carrying on a business.

All remuneration or rewards for personal services, whether received in the capacity of an employee or otherwise, in connection with personal services, is income according to ordinary concepts (see Scott v C of T (NSW) (1935) 3 ATD 142).

In your case, you are receiving an allowance to cover costs incurred with attending meetings. The amount paid was a fixed amount paid monthly based on the annual amount. The amount was therefore considered to be an estimated expense as it was paid whether the expense was incurred or not. Therefore the amount paid is considered to be an allowance and is ordinary income because it is associated with rewards for personal services that you rendered to the council.

The allowance you received is therefore assessable to you under subsection 6-5(2) of the ITAA 1997.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).