Edited version of your written advice

Authorisation Number: 1013045836076

Date of advice: 11 July 2016

Ruling

Subject: Whether the Administrator for a Local Council is an Employee or an Office Holder

Question 1

Is the Administrator for the Local Council an office holder for Pay As You Go (PAYG) Withholding purposes?

Answer

Yes.

Question 2

If the answer to Question 1 is 'Yes', is the Local Council required to withhold an amount of tax from remuneration paid to its Administrator pursuant to section 12-45 of Schedule 1 to the Taxation Administration Act 1953?

Answer

Yes.

Question 3

Is the Administrator for the Local Council an employee within the meaning of 'employee' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes.

Period to which your private ruling applies

12 May 2016 to 30 June 2018

Date upon which the scheme commences

12 May 2016

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below.

The Administrator for the Local Council was appointed by proclamation in accordance with the applicable State's law.

The Administrator holds, for a specified term, all of the statutory functions of the governing body and Mayor of the Local Council.

Administrator remuneration is paid out of council funds.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Income Tax Assessment Act 1997 Subsection 995-1(1)

Taxation Administration Act 1953 Schedule 1 Section 12-45

Reasons for decision

Question 1

Is the Administrator for the Local Council an office holder for Pay As You Go (PAYG) Withholding purposes?

Summary

The Administrator for the Local Council is an office holder for PAYG Withholding purposes.

Detailed reasoning

Taxation Ruling TR 2002/21 Income tax: Pay As You Go (PAYG) Withholding from salary, wages, commissions, bonuses or allowances paid to office holders (TR 2002/21) sets out the Commissioner's view on the circumstances in which a person holds an appointment, office or position under the Constitution or an Australian law, or whether a person is otherwise in the service of the Commonwealth, a State or a Territory for income tax and PAYG purposes. Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines 'Australian law' as a Commonwealth law, a State law or a Territory law. That provision also defines a 'local governing body' as a local governing body established by or under a State or Territory law.

The Local Council was established under a State law. It is thus a local governing body within the meaning of a 'local governing body' in subsection 995-1(1) of the ITAA 1997.

Pursuant to the applicable State's law:

• The State's Governor may dismiss a Mayor and councillors, declaring all civic offices in relation to a council vacant, and appoint an Administrator for a specified term.

• When an appointed Administrator of a new council takes office:

• any persons holding civic office in relation to the council cease to hold office, and

• the Administrator has all the functions of the council until immediately before the first meeting of the council held after the fresh election.

• An Administrator must be paid a salary from the council's funds determined by the Governor.

• The Governor may terminate an Administrator's appointment at any time.

• An Administrator ceases to hold office:

• immediately before the first meeting of the council held after the fresh election, or

• if the Administrator's appointment is earlier terminated by the Governor.

The relevant State's law defines 'council' to mean the council of an area, which includes an Administrator; 'councillor' to mean a person elected or appointed to civic office (which includes a Mayor); and 'civic office' to mean the office of councillor or Mayor.

The State's Governor issued a proclamation pursuant to the relevant State law, which incorporated a number of governance requirements in respect of Administrators for new councils. Such requirements included the following:

• If the position of the Administrator for a new council becomes vacant, another person may be appointed to fill the position.

• The Administrator for a new council has, for a specified term, the functions of the council and the Mayor of the council.

• An Administrator does not hold an office or a place of profit under the new council.

The elected member representatives (councillors, including the Mayor) comprise the governing body of the council and have the responsibility of directing and controlling the affairs of the council in accordance with the relevant State's law. Essentially, the councillors and Mayor are elected to a civic office requiring them to make decisions about the running of the council and put forward views of the people in the community in accordance with the relevant State's law.

An Administrator is not elected as a councillor or appointed to a civic office and therefore does not become a member of the governing body. Administrators are appointed in the absence of a governing body to ensure the effective administration of the council in carrying out the duties and functions ordinarily expected of the governing body. That is, Administrators consider issues and make decisions necessary to fulfil the statutory functions of the council.

The characteristics of an office holder are encapsulated in paragraphs 14 and 15 of TR 2002/21, as stated below:

14. An individual is considered to be appointed or engaged under an Act where you can identify either:

• the particular office, position or appointment; or

• the constitution of the relevant body (such as a panel, board committee or tribunal) to which the individual has been appointed,

in the relevant legislation or statutory instrument.

15. …the appointment, office or position must also exhibit the following characteristics of an office holder:

• Independent existence: The office must exist regardless of the individual who occupies the office from time to time - that is, if the individual currently occupying the office vacates that office, the office must continue to exist to be filled by another individual;

• Duties, functions, responsibilities or powers: The office must have identifiable duties, functions, responsibilities or powers other than a mere advisory function. These features of the office (or of the panel, board, committee or tribunal to which the individual has been appointed) would usually be specified in the relevant legislation or statutory instrument; and

• The relevant duties, functions, responsibilities or powers must attach to the office itself, rather than the individual who occupies the office.

16. It should be noted that the duties of an office holder are independent duties deriving from a source other than the orders of the payer or a contract with the payer. Therefore, where the document that sets out the office holder's duties and responsibilities is a contract with the payer, it is more likely that the individual would be an employee or independent contractor (rather than an office holder).

Lord Bridge of Harwich considered the concept of 'appointment', 'office' or 'position' when handing down his judgment in Edwards (Inspector of Taxes) v Clinch [1981] AC 845:

First, the "appointed person" has no employer in any ordinary sense; he exercises his functions quite independently. Secondly, he is not acting in any personal capacity, but in a capacity which derives its existence wholly from, and is clothed with powers and duties by, his statutory appointment…

Further, the categorisation of an individual as an office holder is discussed in Halsbury's Law, Volume 16 at paragraph 7:

Office-holders. The categorisation of an individual as an office-holder tends to be of more significance in the law relating to income taxation than in employment law. While it is true that in the case of certain major offices the individual's status as an office-holder may mean that he is not an employee, in most cases this will not be so and there will be nothing to prevent the ordinary definition of 'employee' from being satisfied. Even if the office-holder does not qualify as an employee, there may still be aspects of employment law applicable to him, particularly in relation to the payment of wages, since the remuneration of a modern office-holder is likely to be construed as an ordinary salary for performing the duties of the office, not as the archaic form of an honorarium for filling an office...

The Commissioner therefore considers the following in respect of the office of the Administrator for the Local Council:

1. The office of Administrator for the Local Council is readily identifiable in the relevant State's law.

2. Given, in accordance with the relevant State's law, another person may be appointed to fill the position or office of Administrator for the Local Council if the position or office is vacant, the office of Administrator is independent of the person appointed to that office.

3. The relevant State's law, which provides that the Administrator of a new council has the functions of the council and the Mayor of the council, demonstrates that the office of Administrator for the Local Council has identifiable duties, functions, responsibilities or powers. Such duties, functions, responsibilities or powers are more than a mere advisory function and attach to the office itself under the relevant State's law, rather than the individual who occupies the office of Administrator.

4. As the office of the Administrator for the Local Council is appointed under the relevant State's law, with remuneration paid to the Administrator out of council funds, the duties of the Administrator for the Local Council are independent duties derived from a source other than the orders of the payer or a contract with the payer. It is fair and reasonable to conclude that an individual appointed to an office or position of Administrator for the Local Council has no identifiable employer. In particular, the relationship between the Local Council and its Administrator does not have any of the features of a common law employer/employee relationship.

Therefore, it is considered that the Administrator for the Local Council has been appointed to hold an office and perform duties of that office under the relevant State's law, which is an Australian law.

As such, the Administrator for the Local Council is an office holder for PAYG Withholding purposes.

Question 2

If the answer to Question 1 is 'Yes', is the Local Council required to withhold an amount of tax from remuneration paid to its Administrator pursuant to section 12-45 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Summary

The Local Council is required to withhold an amount of tax from remuneration paid to its Administrator pursuant to paragraph 12-45(1)(b) of Schedule 1 to the TAA.

Detailed reasoning

Part 2-5 of Schedule 1 to the TAA deals with the collection of amounts in respect of particular types of payments.

Division 12 of Schedule 1 to the TAA deals with payments from which amounts must be withheld, which are referred to as PAYG Withholding amounts.

Subdivision 12-B of Schedule 1 to the TAA deals with payment made for work and services.

As per the response to Question 1 above, the Commissioner considers that the position or office of the Administrator for the Local Council is an office holder for PAYG Withholding purposes.

Section 12-45 of Schedule 1 to the TAA states:

12-45(1) An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as:

(a) a member of an Australian legislature; or

(b) a person who holds, or performs the duties of, an appointment, office or position under the Constitution or an Australian law; or

(c) a member of the Defence Force, or of a police force of the Commonwealth, a State or a Territory; or

(d) a person who is otherwise in the service of the Commonwealth, a State or a Territory; or

(e) a member of a local governing body where there is in effect, in accordance with section 446-5, a unanimous resolution by the body that the remuneration of members of the body be subject to withholding under this Part.

12-45(2) This section does not require an amount to be withheld from a payment to an individual as a member of a *local governing body unless it is one to which paragraph (1)(e) applies.

In TR 2002/21, the Commissioner explains that the terms 'salary', 'wages', 'commissions' and 'bonuses' are not defined terms, and that each carries its ordinary meaning as interpreted by the Courts.

As mentioned in the response to Question 1, the Administrator for the Local Council is not a member of a local governing body (the Local Council). Therefore, paragraph 12-45(1)(e) of Schedule 1 to the TAA is not applicable in the current circumstances, regardless of whether or not the Local Council has in effect a unanimous resolution in accordance with section 446-5 of Schedule 1 to the TAA that the remuneration of members of the body be subject to PAYG Withholding.

The Administrator for the Local Council is also not a member of an Australian legislature¹ or a member of the Defence Force or a police force. As such, paragraphs 12-45(1)(a) and 12-45(1)(c) of Schedule 1 to the TAA are also not applicable.

Paragraph 12-45(1)(b) of Schedule 1 to the TAA would be applicable in the current circumstances. Subsection 995-1(1) of the ITAA 1997 defines the term 'Australian law' to mean a Commonwealth, a State or a Territory law, and defines a 'State law' to mean a law of a State.

For paragraph 12-45(1)(b) of Schedule 1 to the TAA to apply in the current circumstances, the relevant appointment, office or position under Australian law must feature the characteristics stipulated in paragraphs 14 and 15 of TR 2002/12 (as outlined in the response to Question 1).

It was established in the response to Question 1 above that the Administrator for the Local Council satisfies the characteristics of an office holder as described in paragraphs 14 and 15 of TR 2002/21, such that it was concluded that the Administrator for the Local Council has been appointed to hold an office and perform duties of that office under an Australian law.

As the Administrator for the Local Council is a person who holds, or performs the duties of, an appointment, office or position under an Australian law, which satisfies paragraph 12-45(1)(b) of Schedule 1 to the TAA, paragraph 12-45(1)(d) of Schedule 1 to the TAA is not applicable.

Therefore, the Local Council is required to withhold an amount of tax from remuneration paid to its Administrator pursuant to paragraph 12-45(1)(b) of Schedule 1 to the TAA.

Question 3

Is the Administrator for the Local Council an employee within the meaning of 'employee' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

For Fringe Benefits Tax (FBT) purposes, the Administrator for the Local Council is an employee within the meaning of 'employee' in subsection 136(1) of the FBTAA.

Detailed reasoning

Subsection 136(1) of the FBTAA defines the term 'employer' to include, among other things, a 'current employer', which is defined in subsection 136(1) of the FBTAA to mean 'a person (including a government body) who pays, or is liable to pay, salary or wages'.

The term 'employee' is defined in subsection 136(1) of the FBTAA to include, among other things, a 'current employee', which is defined in subsection 136(1) of the FBTAA to mean a 'person who receives, or is entitled to receive, salary or wages'.

The term 'salary or wages' is defined in subsection 136(1) of the FBTAA to include, among other things, a payment from which an amount must be withheld (even if the amount is not withheld) under specified provisions in Schedule 1 to the TAA. One of these specified provisions is section 12-45 of Schedule 1 to the TAA.

As concluded in the response to Question 1 above, the Administrator for the Local Council is an office holder for the purposes of paragraph 12-45(1)(b) of Schedule 1 to the TAA, which therefore requires the Local Council to withhold an amount from salary, wages, commission, bonuses or allowances it pays to its Administrator. On this basis, it is considered that the Administrator will receive, or will be entitled to receive, salary or wages within the meaning of 'salary or wages' in subsection 136(1) of the FBTAA.

For the purposes of the FBTAA, an employee includes a person who receives, or is entitled to receive, salary or wages. Therefore, as the Administrator for the Local Council is an individual who receives, or is entitled to receive salary or wages, the Administrator is an employee for FBT purposes within the meaning of 'employee' in subsection 136(1) of the FBTAA.

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