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Ruling
Subject: Payment to a committee member
Question
Is the payment made to the member of the executive committee subject to Pay As You Go (PAYG) withholding?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 2012
Year ending 30 June 2013
The scheme commences on:
1 July 2011
Relevant facts and circumstances
The entity is a company that is not incorporated.
It is planning to pay a significant sum of money to a member of its executive committee (the member).
A motion was passed at the annual general meeting (AGM) to pay the committee member for their contribution to the entity.
The member will perform various tasks for the entity such as liaising with individuals and other entities.
Relevant legislative provisions
Taxation Administration Act 1953 Paragraph 12-40(b) of Schedule 1
Reasons for decision
Summary
The amount to be paid to the member is not considered an honorarium; rather it is a payment of remuneration for services. There is a requirement under PAYG legislation to withhold an amount from the payment to the member.
Detailed reasoning
An honorarium is a payment or gesture made on personal grounds that is either tangible or intangible and can be referred to as an ex-gratia payment, bona-fide (or true) honorarium or gift.
True honorariums are not included in assessable income and will not be subject to PAYG withholding or instalments.
A true honorarium is typified by the following:
· the payment is received for personal reasons;
· the payment has no connection to the recipient's income producing activities or services rendered;
· the payment is not received as remuneration or 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, and
· the payment is a token amount compared to the services provided or expenses incurred by the recipient.
If the payment is not a true honorarium, it may be classed as assessable income.
The present circumstances
The member will be paid the amount because of the liaison activities they perform with individuals and other entities on behalf of the entity. Therefore they will be paid for the services they provide to the entity and not for personal reasons.
With the information provided it is not known whether the payment has a connection with the member's other income producing activities nor whether it will be relied upon or expected by the member for day-to-day living.
The entity is obligated to pay the amount as it passed a motion at the AGM to make the payment. Prior to the motion being passed, there was no legal requirement for the entity to make the payment.
The minutes of the AGM do not specify how the payment will be paid to the member. However, the payment is not a token amount.
Taking the above factors as a whole, it is considered that the amount paid to the member is not a true honorarium. Rather it is payment of remuneration for services that the member will provide.
Paragraph 12-40(b) of Schedule 1 to the Taxation Administration Act 1953 provides that a company that is not incorporated must withhold an amount from a payment of remuneration it makes to an individual as a member of the committee of management of the company, or as a person who performs the duties of such a member.
The entity is a company that is not incorporated. The payment in question is a payment of remuneration to an individual as a member of the committee of management of the company, or as a person who performs the duties of such a member.
Therefore, the payment is subject to PAYG withholding.