Edited version of your private ruling

Authorisation Number: 1012226473634

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. Th attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Assessability of honorarium

Question

Is the honorarium you receive from the Club in your role as a director assessable income?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2012

The scheme commenced on:

1 July 2011

Relevant facts and circumstances

You are a director of a club.

A resolution was passed at the club's annual general meeting guaranteeing payment of an honorarium to the club's directors.

As a director of the club, you receive an honorarium which is paid on a monthly basis.

Your duties include attending a number of meetings which are held outside normal business hours. Total time spent in carrying out these duties is approximately 10 to 15 hours a month.

You also represent the club at various events and intra-club meetings and presentations.

Your duties as a director of the club are not related to your regular source of income.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Reasons for decision

A true 'honorarium' is typified by the following:

· the honorarium is a one off payment made to the service provider who had no expectation of receiving the payment

· the payment is a token amount compared to the value of the services provided and/or the expenses incurred by the recipient

· there is no obligation on the part of the payer to make the payment; and

· the duties performed by the recipient are purely benevolent.

True honorariums are not included in assessable income. Taxation Ruling TR 2002/21 states, at paragraph 29, that 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 Taxation Administration Act 195. Merely referring to a payment as an honorarium, however, does not mean that the payment is exempt from PAYG provisions and it is likely that 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.

Taxation Ruling TR 2002/21, at paragraph 28, discusses the notion of officer holders remuneration being a salary. It states that:

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.

When an honorarium is considered assessable income?

A payment or other benefit received by a taxpayer is assessable income if it is either income in the ordinary sense of the word (ordinary income); or an amount or benefit that through the operation of the provisions of the tax law is included in assessable income (statutory income).

Under subsection 6-5(1) of the Income Tax Assessment Act 1997 (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 defines 'income from personal services' and states that:

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. The inclusion of predominantly in this definition allows for the situation where personal services involve the use of some equipment, for example the drawing board of an architect.

Other characteristics of income that have evolved from case law include receipts that:

· are earned

· are expected

· are relied upon and

· have an element of periodicity, recurrence or regularity.

Ordinary income has the characteristics of being periodic, recurring and regular (FC of T v. Dixon (1952) 86 CLR 540; ATD 82).

As a director of the Club, you receive a monthly payment for the services that you provide in your capacity as a director. The payments do not come under the general interpretation as being an honorarium The payments have characteristics of being income as they are expected and have an element of regularity and recurrence.

Therefore, the payments received are assessable income under section 6-5 of the ITAA 1997.