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Ruling

Subject: PAYG withholding - visiting speakers

Question 1

Is the Organisation required to withhold tax under the Pay As You Go (PAYG) system from the money it gives to the visiting speakers?

Answer

No.

This ruling applies for the following periods:

2011-12 financial year

2012-13 financial year

2013-14 financial year

2014-15 financial year

The scheme commences on:

1 July 2011

Relevant facts and circumstances

The Church has a foreign service and an English service. The Organisation runs the English service. The Organisation allows visiting speakers to address the Church's congregation from time to time.

Most of the speakers are pastors.

Most of the speakers visit only once a year.

The speakers may come from Australia or overseas. Most of the speakers come from overseas. In past years speakers have come from a number of overseas countries.

Some of the speakers receive remuneration for the services they render and / or compensation for the travel expenses they are expected to incur in rendering the services from the organisation for which they work. Generally, neither the Church nor the Church's congregation are aware of whether the speaker receives remuneration and / or compensation.

The Organisation gives some money to the speakers. It regards the money as a gift or a token of appreciation.

The Organisation collects money from the Church's congregation. There may be one or two collections. A general collection is made to collect money for the Church. A special collection may also be made to collect money for the speaker. If only a general collection is made, the Organisation gives an amount of money to the speaker. If a special collection is also made, the Organisation gives the amount of money collected to the speaker. The Organisation may top up the amount collected and give the topped up amount to the speaker. The Organisation will only top up the amount collected if it considers that the speaker deserves more money due to their personal circumstances. The Organisation is not always aware of the speaker's personal circumstances. The amount given to a speaker is generally between $200 and $250 and does not exceed $300.

Relevant legislative provisions

Taxation Administration Act 1953 Schedule 1 Chapter 2 Part 2-5

Reasons for decision

Summary

The Organisation is not required to withhold tax under the PAYG system from the money it gives to the speakers.

Detailed reasoning

The PAYG withholding provisions are contained in Part 2-5 of Chapter 2 of Schedule 1 to the Taxation Administration Act 1953.

These provisions require an entity to withhold tax from a payment it makes if the payment is a withholding payment unless the payment is exempt income or non-assessable non-exempt income of the entity receiving the payment.

These provisions do not require an entity to withhold tax from a payment it makes if the payment is not assessable income of the entity receiving the payment.

Taxation Ruling IT 2674 provides guidelines for determining whether gifts received by church workers are assessable income.

IT 2674 provides that:

· To determine whether a gift is assessable income it is necessary to consider:

· The quality or character of the gift in the hands of the recipient.

· The whole of the circumstances in which the gift is received.

· Why the recipient received the gift.

· Whether the gift is of a kind which is a common incident of the recipient's occupation.

· Whether the gift is made voluntarily.

· Whether the gift is solicited.

· If the gift can be traced to gratitude arising from services rendered by the recipient to the donor, whether the recipient has already been remunerated fully for that service.

· The motive of the donor.

· Whether the recipient relies on the gift to support themselves and any dependants.

A gift is assessable income if it is a product or an incident of any employment of or services rendered by the church worker. This is the case even if the donor is not legally obliged to make the gift or if the church worker is not in any way motivated by the prospect of receiving the gift.

A gift is not assessable income if it is received by a church worker for personal reasons, that is, if it is given to the church worker because of their personal needs or qualities.

In Case Z16 92 ATC 183 (Case Z16) the Administrative Appeals Tribunal (AAT) considered whether an honorarium was assessable income. The facts and decision of this case are as follows:

Facts

The taxpayer was elected as the district officer of a friendly society for a three year term. Her role was to assist in the administration of the branches in the district. The taxpayer received a $100 honorarium during each year of her term. She understood that the honorarium was paid to her as a contribution towards the expenses she incurred in doing her work.

The AAT held that the honorarium was not assessable income of the taxpayer for the following reasons:

It was reasonable for the taxpayer to expect that a payment similar to the payments made to previous incumbents would be made to her. However, whether a payment was made to her depended on the goodwill of the members of the society.

The honorarium cannot be regarded as a reward for services rendered by the taxpayer. The taxpayer's work as a district officer did not constitute an income producing vocation. The honorarium does not bear any relation to the time and energy expended by the taxpayer on her work.

The honorarium was paid to the taxpayer in recognition of the fact that she had incurred expenses in doing her work and would help to cover those expenses. However, it does not bear any relation to the quantum of the expenses.

The honorarium was not motivated by genuine commercial considerations.

The fact that the taxpayer held an office in the society explains why the honorarium was paid to her but does not characterise it. The honorarium does not have the quality of income in her hands.

Application to your circumstances

The following factors are relevant in determining whether the money the Organisation gives to a visiting speaker is assessable income of the speaker:

The amount of money given to a speaker is insignificant.

A speaker has an expectation of receiving some money as it is common practice for a church to give money to a visiting speaker.

A speaker would not rely on the money to support themselves. They have an expectation of receiving some money but they do not know how much money they will receive and the amount of money they will receive will be insignificant.

A speaker does not address the Church's congregation in order to receive the money.

Neither the Church nor the Church's congregation is legally obliged to give money to a speaker.

The Organisation regards the money given to a speaker as a gift or a token of appreciation.

The Church gives money to a speaker if it is aware of the speaker's personal circumstances and considers that the speaker deserves more money than has been collected from the Church's congregation due to the speaker's circumstances.

There is unlikely to be any relationship between the total amount of money a speaker receives from the Organisation and the organisation for which they work and the amount of remuneration a speaker could expect to receive for addressing the Church's congregation if they received a market rate of pay.

There is unlikely to be any relationship between the total amount of money a speaker receives from the Organisation and the organisation for which they work and the amount of expenses a speaker is expected to incur in addressing the Church's congregation.

A speaker receives the money because they render services to the Church in the form of addressing the Church's congregation. However, the circumstances under which the money is received indicate that the money is not a product or an incident of the services rendered by the speaker and does not have the character of income in the hands of the speaker.

IT 2674 and Case Z16 support this view.

Therefore, the Organisation is not required to withhold tax under the PAYG system from the money it gives to the speakers.