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Edited version of your written advice
Authorisation Number: 1013101295188
Date of advice: 7 October 2016
Ruling
Subject: PAYG withholding
Question 1
Does the entity have an obligation to withhold tax from payments made to street collectors under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)?
Answer
Yes
This ruling applies for the following period:
Year ending 30 June 2017
The scheme commences on:
1 July 2016
Relevant facts and circumstances
The entity is a charity registered with Australian Charities and Not-for-profits Commission.
A large percentage of your revenue is generated from donations collected via collection activities.
You use volunteers as street collectors.
Those collectors that are considered to be below the poverty line receive a percentage of what they collect as a beneficiary payment.
Each collector is required to make a signed declaration that they earn less than an amount below the poverty line per week and will notify the company if they start earning more than that amount per week.
Relevant legislative provisions
Tax Administration Act 1953 section 12-35 of Schedule 1
Tax Administration Act 1953 section 12-1(1A)
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 11-15
Reasons for decision
Subdivision 12-B (which comprises sections 12-35 to 12-60) of the Tax Administration Act 1953 (TAA 1953) deals with PAYG withholding from payments for work and services which includes payments to employees. Section 12-35 of Schedule 1 to the TAA 1953 provides that an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).
Subsection 12-1(1A) of Schedule 1 to the TAA 1953, however, provides an entity need not withhold an amount under section 12-35 or section 12-45 from a payment if the whole of the payment is not assessable income and is not exempt income of the entity receiving the payment.
Therefore, to work out whether an amount needs to be withheld from a payment it is necessary to determine whether the payment is assessable and not exempt income of the payee.
Section 11-15 of the Income Tax Assessment Act 1997 (ITAA 1997) lists those provisions dealing with income that may be exempt. There is nothing in this list that would make a commission exempt income of the payee.
Are payments to 'volunteers' assessable income?
Volunteers can be paid in cash, given non-cash benefits or given a combination of both cash and non-cash benefits. These payments can be given various descriptions, including honorariums, reimbursements and allowances.
How an amount is described does not determine its treatment for tax purposes. Whether a payment is assessable income in the hands of a volunteer depends on the nature of the payment and the recipient's circumstances.
Section 6-5 of the ITAA 1997 includes income according to ordinary concepts, which is called ordinary income is assessable income.
Generally, receipts which are earned, expected, relied upon and have an element of periodicity, recurrence or regularity are treated as ordinary income.
However, where a person's activities are a pastime or hobby rather than income producing, money and other benefits received from those activities are not assessable income.
To determine if an amount is assessable, the full facts surrounding both the payment and the recipient must be considered. A payment that is not assessable to a volunteer will have many of the following characteristics:
• The payment is to meet incurred or anticipated expenses.
• The payment has no connection to the recipient's income-producing activities or services.
• The payment is not received as remuneration or as a consequence of employment.
• The payment is not relied upon or expected by the recipient for day-to-day living.
• The payment is not legally required or expected.
• There is no obligation on the part of the payer to make the payment.
• The payment is a token amount compared to the services provided or expenses incurred by the recipient. Whether the payment is 'token' depends on the full facts surrounding the payment and recipient's circumstances.
While not a conclusive factor, the amount of the payment and how it is calculated will ascertain some of these characteristics.
In order to receive payment, the worker is identified as being below the poverty line and earning less than a certain amount per week. When the street collector conducts collection activities, the worker receives payment equal to a certain percentage of the donations collected. This payment would be relied upon by the worker for day to day living. It has a connection to the worker's income producing activities. It is not a token amount as it is a significant percentage of the amount collected by the individual worker.
Therefore, the allowance would be assessable income to the street collectors, accordingly the entity is required to withhold in accordance with section 12-35 of Schedule 1 to the TAA 1953.
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