Edited version of your private ruling

Authorisation Number: 1012541348249

Ruling

Subject: honorarium

Question

Are the payments received by you from an entity for performing office holder duties, as a volunteer, assessable income?

Answer

Yes

This ruling applies for the following periods

Year ended 30 June 2013

Year ending 30 June 2014

The scheme commenced on

1 July 2012

Relevant facts

The entity passed a motion at the Annual General Meeting (AGM) held in 2012 to pay an honorarium to the Chairperson. This amount was to be paid in regular periodic instalments.

At the same AGM the entity also passed a motion to pay an honorarium to the Treasurer. This amount was to be paid in regular periodic instalments.

You performed both Chairperson and Treasurer roles and were paid the amounts as specified above.

The entity passed a motion at the AGM held in the recent year to pay an honorarium to the Chairperson. This amount was to be paid in regular periodic instalments.

At the same AGM the entity also passed a motion to pay an honorarium to the Treasurer. This amount was to be paid in regular periodic instalments.

At the same AGM the entity also passed a motion to pay an honorarium to the Secretary. This amount was to be paid in regular periodic instalments.

You performed the Chairperson, Treasurer and Secretary roles and were paid the amounts as specified above.

All amounts were paid for any, and all hours, required to perform the voluntary roles.

You are currently employed full time elsewhere.

The total amount received from the entity in the 2012-13 financial year was substantial percentage of your employment income.

Relevant legislative provisions

Income Tax Assessment Act Subsection 6-5(1)

Reasons for decision

Summary

The amounts paid to you are not considered an honorarium; rather they are payments of remuneration for services. The amounts received are assessable income.

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. If the payment is not a true honorarium, it may be classed as 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 1953. 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 is an honorarium 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.

What constitutes a 'True Honorarium'?

In determining whether an amount is ordinary income, the courts have established the following principles:

· What receipts ought to be treated as income must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as a statute dictates otherwise;

· Whether the payment received is income depends upon a close examination of all relevant circumstances; and

· Whether the payment received is income is an objective test.

The following factors indicate a 'true honorarium'. Each criterion will be addressed in relation to your facts:

The payment is received for personal reasons;

In this case, the payment is received by you in consideration of the services you provide. It is not paid for personal reasons. It appears that the entity had trouble attracting more than one person willing to volunteer their time to do any of the three positions (Chairman, Treasurer and Secretary). The entity's solution to this problem was to offer payment for services to attract someone to take on the roles, which you accepted.

The payment has no connection to the recipient's income-producing activities or services rendered;

Although you contend that the payment has no connection with your income-producing activities or services rendered, the payment is received in direct response to the provision of services you provide to the entity in your position as Chairman, Treasurer and Secretary and, therefore, is in fact connected to the receipt of payment.

The payment is not received as remuneration or as a consequence of employment, services rendered, or any business;

The payment is received as remuneration for the services rendered by you to the entity.

The payment is not relied upon or expected by the recipient for day-to-day living;

You received a sum of money in the 2012-13 financial year which was a substantial percentage of your employment income. It is stated in the facts that the income from your normal employment provides for your day to day living expenses. It is arguable whether you expected payment in the 2012-13 financial year after payments were made in the previous year.

The payment is not legally required or expected;

The payment is not legally required to be made as the positions are voluntary. However, the payments could arguably be expected as they are not inconsequential amounts.

There is no obligation on the part of the payer to make the payment; 

The remuneration for the voluntary positions is set at the AGM for the upcoming year, an obligation to make payment, therefore, arises at that time.

The payment is a token amount compared to the services provided or expenses incurred by the recipient.  

The payments for filling the chairman position, treasurer & secretary are not considered token amounts as the total receipt in the 2012-13 financial year is a substantial percentage of your full time employment.

The form of the receipt, that is, whether it is received as a lump sum or periodically;  

The payments received by you for providing services as the Chairman, Treasurer and Secretary are not received as a lump sum but periodically.

Whether the payments have been earned:  

The payments are earned as they directly relate to the services performed by you in fulfilling your duties as Chairman, Treasurer and Secretary of the entity.

Conclusion

After considering the above indicators as a whole, the amounts paid to you in both the 2011-12 financial year and the 2012-13 financial year are not true honoraria. Of significant weight in determining this matter were the size of the amounts in question, the fact that they were paid as a consequence of your services, they were not paid for personal reasons and that they were paid on a regular monthly basis.

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