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Edited version of your written advice
Authorisation Number: 1012823435645
Ruling
Subject: Director - PAYG withholding
Question:
Is the company required to withhold an amount from the director's fees paid to the individuals in role as non-executive directors?
Answer:
Yes.
This ruling applies for the following period:
Year ending 30 June 2015
The scheme commenced on:
1 July 2014
Relevant facts and circumstances
The company has a constitution agreement and has appointed a number of non-executive directors to its board.
The non-executive directors receive payments for undertaking their fiduciary duties and for attending meetings in relation to the company.
All the non-executive directors are not employees of the company.
The non-executive directors do not provide sole trading services to the company.
Relevant legislative provisions
Taxation Administration Act 1953 Schedule 1, Division 12.
Taxation Administration Act 1953 Schedule 1, Section 12-1
Taxation Administration Act 1953 Schedule 1, Section 12-40
Taxation Administration Act 1953 Schedule 1, Section 15-10
Taxation Administration Act 1953 Schedule 1, Section 16-155
Reasons for decision
Pay as you go (PAYG) withholding requirements
Division 12 of Schedule 1 to the Taxation Administration Act 1953 (TAA) outlines the provisions for payments from which amounts must be withheld.
Section 12-40 in Schedule 1 to the TAA provides that a company must withhold an amount from a payment of remuneration it makes to an individual:
a) if the company is incorporated - as a director of the company, or as a person who performs the duties of a director of the company; or
b) if the company is not incorporated - as a member of the committee of management of the company, or as a person who performs the duties of such a member.
Section 12-40 in Schedule 1 to the TAA is subject to three general exceptions listed in section 12-1 in Schedule 1 to the TAA:
• an entity need not withhold an amount from a payment made under section 12-40 in Schedule 1 to the TAA where the whole of the payment is exempt income of the entity receiving the payment;
• in working out how much to withhold, the payer may disregard so much of the payment as is a living away from home allowance benefit as defined by section 136 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA);
• in working out how much to withhold, the payer may disregard so much of the payment as is an expense payment benefit as defined by section 136 of the FBTAA and is not an exempt benefit by virtue of the operation of section 22 of that Act which relates to cents per kilometre payments for motor vehicles.
Payments of salary and wages and directors fees are income according to ordinary concepts and are included in an individual's assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).
In this case, the non-executive directors are not employees of the company and are not engaged by the company as sole traders for the services they render. The non-executive directors are appointed under the company constitution and as such hold the role as a fiduciary. Where the director's fees payments are to be made to the non-executive directors of the company, the payments are not considered exempt income as the directors fees are income according to ordinary concepts and are included in an individual's assessable income in the year of receipt. Therefore as no other PAYG withholding exceptions apply the company is required to withhold the relevant amount from the directors fees paid to the non-executive directors.
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