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Ruling

Subject: Payments to worker for voluntary work

Question 1

Will amounts described as Honorarium proposed to be paid to a religious practitioner by a religious institution be assessable under section 6-5 of the Income Tax Assessment Act 1997?

Answer

Yes

This ruling applies for the following periods:

1 July 2012 to 30 June 2013.

Relevant facts and circumstances

The Religious Institution is a not for profit institution. It conducts prayer and religious services for the parish members and caters to their religious needs.

Religious practitioner serves as a parish priest/minister of the religious institution.

Religious practitioner conducts weekly service for the parish throughout the year on a voluntary basis.

Religious practitioner also undertakes all religious needs of all parish members spread over the whole Metropolis. Examples of this include:

· Weddings

· House blessings

· Baptism

· Conducts services in other congregations on a monthly basis

· Funeral services

Religious practitioner does not receive any income from the Religious Institution or the parish members for any of his services rendered to the Religious Institution or the community.

Religious Institution wishes to pay an honorarium amount every year for his voluntary services to the Religious Institution.

The payment won't be made on a weekly/fortnightly or monthly basis.

There is no written contractual agreement between Religious Institution and religious practitioner regarding the work the will be performing for the Religious Institution and the honorarium payment

Expenses are incurred by the Religious Institution and paid by the Religious Institution. Honorarium payments are not reimbursements for expenses incurred by the religious practitioner on behalf of the Religious Institution.

There are no expenses incurred by religious practitioner and paid for by the Religious Institution connected with services conducted in other congregations. Religious practitioner is accommodated and looked after by members in their homes during these travels.

Religious Institution also provides religious practitioner a car to visit parish members and also for their private use. Religious practitioner uses the car to commute to their other full time job. The usage of the car between their private use and that for the use of the Religious Institution will be on a 50: 50 ratio.

The Religious Institution pays for the running costs of the car e.g. petrol, service, rego, insurance etc.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Subsection 6-5(1)

Reasons for decision

Question 1

Summary

The amount described as an honorarium that is proposed to be paid to religious practitioner is assessable income to religious practitioner under section 6-5 of the Income Tax Assessment Act 1997 (IT 1997) as it is paid for professional services rendered to religious institution.

Question 1

Detailed reasoning

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 by the courts to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business. The Australian taxation Office Publication 'Tax basics for non-profit organisations' explains the meaning of the terms volunteers, employees and honorarium and payments to volunteers.

How an individual worker is described does not determine their status as employee, independent contractor or volunteer of an organisation for tax purposes. Whether an individual is an employee, independent contractor or volunteer of an organisation depends on the facts/circumstances surrounding the relationship with the organisation.

Likewise, how a payment to an independent contractor is described does not determine its assessability. Why a payment is made will determine this.

You describe the payments proposed to be made as an honorarium.

An honorarium can describe:

· an honorary reward for voluntary services

· a fee for professional services voluntarily rendered

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

· the payment is generally a one off payment to a voluntary service provider for duties performed

An honorarium may be paid in money or as property.

Whether an honorarium payment is assessable income in the hands of a recipient depends on the nature of the payment and the recipient's recipient's circumstances.

Fees received for professional services voluntarily rendered are assessable income. In this situation the volunteer may be entitled to a deduction for expenses incurred in performing these professional services.

Further, the amount of an honorarium is not a conclusive factor in deciding whether it is assessable income.

Taxation Ruling IT 2674 Income tax: gifts to missionaries, ministers of religion and other church workers - are the gifts income? (IT 2674) contains the Commissioner's views on the assessability of gifts to ministers of religion, missionaries and other church workers,, and provides further assistance in determining if the proposed payment to religious practitioner will be assessable, income.

Paragraphs 12, 14 33, 35, & 36 of IT 2674 state:

12. If a church worker receives a gift because of, in respect of, for, or in relation to any income-producing activity of the church worker, the gift is assessable income. The income-producing activity can arise from the church worker's office or occupation or some service rendered or to be rendered by the church worker. In other words, a gift (even if it is a receipt of a one-off nature) is assessable income if it is possible to:

(a) relate the receipt of the gift by the church worker to any income-producing activity on his or her part; or

(b) point to any employment, personal exertion or other income-earning activity by the church worker of which the receipt of the gift is in a relevant sense a product or incident.

14. Gifts are often made to church workers both as an expression of goodwill towards them personally and also as a reward for some income-producing activity of the church worker or in recognition of the church worker's calling or occupation. If a substantial reason - it does not have to be the dominant reason - a gift is received by a church worker is his or her occupation or some income-producing activity on his or her part, the gift is income, even though the gift is also received on personal grounds.

Examples

33. Bronwyn reads about the work of Luke, a church worker, and is motivated to send a gift by Luke's devoted pastoral care and evangelistic commitment. Luke's employment as a church worker is a substantial reason for the gift being received, even though it is a one-off receipt. Luke should include the gift in his tax return for the year of income in which he receives the gift.

35. James is a missionary with Suburban Church. Because of particular interest in his work, supporters (including other churches of the same and different denominations) send him gifts. The gifts are of money which the donors require James to earmark to acquire capital assets. The assets are to be owned by James, rather than by his missionary society. They are to be used in James' missionary work and for his private purposes as occasion demands (both uses being of a substantial nature). These gifts are assessable income. James should include them in his tax return for the year of income in which they are received.

36. Matthew is a visiting evangelist who receives voluntary unsolicited gifts of money and gifts in kind called 'love offerings' when he addresses a gathering of worshippers. These gifts are received because those attending are spiritually move to make the gifts. Matthew is not in any way motivated by the prospect of receiving gifts. Rather, he is motivated only by a genuine commitment to his religious beliefs. The gifts are assessable income and should be included in Matthew's tax return for the year of income in which he receives them.

Even where a payment is made without legal obligation but is nevertheless is so related to the recipient's employment, or to services rendered that it is, in substance and in reality, not a mere gift but a product of an income-earning capacity, it will be regarded as assessable income of the recipient (Taxation Determination TD 2006/22).

The position that the religious practitioner occupies is an important necessary office of the Religious Institution that has to be filled voluntarily or otherwise. The religious practitioner is at present provided with a car for use in the performance of his priest duties and for his private use on a 50:50 ratio. In addition to the provision of the car, it is now proposed to pay religious practitioner an honorarium of approximately $6,000., All in all the payment of $6,000 to $8,000 plus the provision of a car for both Religious Institution and private use amount to a significant reward for services performed by religious practitioner for the Religious Institution. Religious practitioner's duties as a parish priest are considered income producing activities. The payments are considered fees received for professional services voluntarily rendered and therefore assessable income to religious practitioner.

There are a number of English decisions in connection with the assessability of amounts or benefits received by the holder of an ecclesiastical office, which confirm the above conclusion.

In Cooper v Blakiston (1907) 2 KB 688, (affd (1909) AC 104) Buckley LJ said-

``The question is not what was the motive of the payment was, but what was the character in which the recipient received it? Was it received by him by reason of his office?''

An annual Christmas gift of £100 from the congregation ( Re Strong (1878) 1 TC 207), Easter offerings given as a result of appeals for the purpose of increasing the stipends of clergymen ( Blakiston v Cooper (1909) AC 104; 5 TC 347), payments from the ``Queen Victoria Clergy Sustentation Fund'' formed to augment salaries of clergy receiving less than a specific amount ( Herbert v McQuade (1902) 4 TC 489), grants religious from a minister's stipend augmentation fund ( Poynting v Faulkner (1905) 5 TC 145), and the proceeds of voluntary collections taken in church for the benefit of an assistant stipendiary curate ( Slaney v Starkey (1931) 16 TC 145) have all been held to be assessable.

As stated earlier and confirmed by the court decisions above the proposed payments to religious practitioner in his capacity as parish priest have the characteristics of ordinary income.

Accordingly the honorarium payments by Religious Institution to religious practitioner are income within ordinary concepts and assessable under subsection 6-5(1) of ITAA 1997.