Edited version of private advice

Authorisation Number: 1052358880056

Date of advice: 13 February 2025

Ruling

Subject: Assessable income - honorarium

Question

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

Answer

Yes, the information you have provided supports a finding that the honorarium payment you will receive is not a true honorarium. The payment is considered remuneration paid to an officer holder as ordinary income for performing duties of the office.

This ruling applies for the following periods:

Year ended XX XXXX 20YY

Year ended XX XXXX 20YY

The scheme commenced on:

XX XXXX 20YY

Relevant facts and circumstances

In XXXX 20YY, you commenced employment as an XXXX Assistant in Organisation A.

You were elected as XXXX of the Entity and began this role on XX XXXX 20YY. This is a voluntary position with a term of XX year/s.

You expect to end this role on XX XXXX 20YY.

The Entity is run by an executive committee of volunteer members who are responsible for the general operation and direction of the Entity.

The Entity is a not-for-profit organisation with an established constitution with rules of membership. The XXXX must be a member of Entity and is elected by the members.

You expect to receive the honorarium payment within the year ended XX XXXX 20YY.

The estimated value of the honorarium payment is $XX subject to budget of the Entity.

You will not receive the honorarium payment until after the approval of the 20YY budget.

You provided a list of your duties you must fulfill as XXXX of the Entity.

Fulfilling all of your obligations as XXXX of the Association would take you approximately XX hours a year.

The honorarium paid to the XXXX by the Entity is set at the discretion of the entity and is not contractually required to be paid.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Reasons for decision

Under subsection 6-5(1) of the ITAA 1997 an amount is assessable income if it is income according to ordinary concepts (ordinary income). 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.

Paragraph 3 of Taxation Ruling IT 2639 Income Tax - personal services income defines 'income from personal services' and states that:

[3] "Income from personal services" is income that an individual taxpayer earns predominantly as a direct reward for his or her personal efforts by, for example, the provision of services, exercise of skills or the application of labour...

Personal gifts are generally not considered income at first glance. A voluntary payment or gift that is not related in any way to personal exertion will not be assessable (Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47). However, a voluntary payment incidental to an office, employment or services would qualify as ordinary income.

Whether a gift is assessable income depends on the quality or character of the gift in the hands of the recipient. The relevant factors to be taken into account in determining that quality or character include:

•                     How, in what capacity, and for what reasons the recipient received the gift.

•                     Whether the gift is of a kind that is a common incident of the recipient ' s calling or occupation.

•                     Whether the gift is made voluntarily.

•                     Whether the gift is solicited.

•                     If the gift can be traced to gratitude engendered by some service rendered by the recipient to the donor, whether the recipient had already been remunerated fully for that service.

•                     The motive of the donor (but it is seldom, if ever, decisive), and

•                     Whether the recipient relies on the gift for regular maintenance of themself and any dependants.

Taxation Determination TD 2006/22 Income tax: is disaster relief money received from charities, to which local, state or federal government or their agencies have made payments, assessable income of taxpayers carrying on a business? at paragraph 5 states:

[5] that if the facts surrounding the transaction show that the payment or transfer was made without legal obligation but is nevertheless so related to the recipient ' s employment, or to services rendered, or to a business carried on that it is, in substance and in reality, not a mere gift but the product of an income-earning capacity, it will be regarded as assessable income of the recipient.

In Case Z16, 92 ATC 183, an honorarium was held not to be assessable income. It was held that the activities of the taxpayer bore no relevance to any income-producing vocation or calling. It was clear that the payment came to the taxpayer by virtue of her office; however, it bore no relation to the quantum of the taxpayer ' s expenses and there was no evidence to suggest that the honorarium was motivated by commercial considerations.

Taxation Ruling TR 2002/21: Income tax: Pay As You Go (PAYG) Withholding from salary, wages, commissions, bonuses or allowances paid to office holders relevantly provides at paragraphs 28-29:

[28] The notion of office holder's remuneration being a 'salary' is affirmed in Halsbury's Law, Volume 16 at paragraph 7:

Office-holders. The categorisation of an individual as an officeholder 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...

[29] A true honorarium paid to an office holder would not be salary, wages, commission, bonuses or allowances that would be subject to withholding under section 12-45 in Schedule 1 to the TAA. However, as indicated in the above paragraph, it is likely that the remuneration paid to a modern office holder would be ordinary salary for performing the duties of the office rather than an honorarium for filling an office.

Application to your circumstances

The following factors are favourable considerations that the payment is not ordinary income:

•                     You are receiving the amount as a lump sum payment.

•                     Your previous role as XXXX received no honorarium.

•                     Your primary employment has limited relevance to your volunteer role.

The following factors are unfavourable considerations that the payment is ordinary income:

•                     As you are unable to provide reasons for the payment's creation or its purpose, it is determined that the payment is in recognition of services you provide to the Association fulfilling your duties as XXXX.

•                     You have advised that the payment is expected after budget approval.

•                     You receive no other remuneration for your services provided in your position as XXXX.

•                     An objective determination that there are legitimate commercial justifications for receiving this payment, given its substantial value and the services you render in your capacity as XXXX.

The nature of the transaction indicates that, although the payment is voluntary and made without legal obligation, it is regarded as being connected to services provided and arising from an income-generating activity.

The payment you receive is not considered a true honorarium, therefore it is ordinary income that is assessable income under section 6-5 of the ITAA 1997.

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