Edited version of your written advice

Authorisation Number: 1012704811796

Ruling

Subject: Honorarium

Question

Do the payments received in relation to your role as director form part of your assessable income?

Answer

Yes.

This ruling applies for the following period

Year ending 30 June 2014

The scheme commenced on

1 July 2013

Relevant facts

The arrangement that is the subject of the Ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

• the application for private ruling, and

• additional information including the code of conduct for directors.

You are a director of a registered club.

The members of the club vote at the annual general meeting to give the directors a financial honorarium.

Currently the honorarium is paid monthly.

The payment is taxed, however no superannuation is required to be paid.

You do not have a written contract. The club has a Code of Conduct for the Directors which outline the duties of the Directors.

Under the Code of Conduct, any payment of an honorarium to a Director in respect of his or her services to the club as a Director must first be approved by a resolution passed at a General Meeting of the Club.

You are not an employee of the club.

You were nominated by members of the club who felt you had a level of skill, knowledge and community involvement which would benefit the club. You were subsequently voted in by the members at a general election.

You also receive a telephone/internet allowance per annum. This is included in your monthly payment.

You do not need to provide receipts or timesheets to the club. You provide a written report at each monthly board meeting outlining the activity for the month.

As part of your duties you travel to the club and other premises for meetings. You also attend workshops/seminars hosted by various clubs.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 15-2

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

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.

Based on case law, it can be said that ordinary income generally includes receipts that are earned, expected, relied upon, and have an element of periodicity, recurrence or regularity.

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. Taxation Ruling TR 2002/21: Income tax: Pay As You Go (PAYG) Withholding from salary, wages, commissions, bonuses or allowances paid to office holders 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 (TAA). 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 holder's 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...

What constitutes a 'True Honorarium'?

Whether a payment received is assessable income depends upon a close examination of all relevant circumstances

The following factors indicate a 'true honorarium':

a) The payment is received for personal reasons.

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

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

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

e) The payment is not legally required or expected

f) There is no obligation on the part of the payer to make the payment.

g) The payment is a token amount compared to the services provided or expenses incurred by the recipient.
h) The form of the receipt, that is, whether it is received as a lump sum or periodically.

i) Whether the payments have been earned.

In your case, the club pays you monthly payments as well as an annual allowance.

The Club's Code of Conduct refers to the payment of the honorarium to a director as being in respect of services to the club. Therefore it is considered that your payments are connected with your services rendered and not paid for personal reasons.

Although the payments may not be relied upon or expected for your day-to-day living expenses, the payments are made regularly each month.

As the payments have been approved at the Club's general meeting, the club is obliged to make the payments.

Although the amount is not a substantial amount in relation to the time you devote to your director's duties, it is not a one off token amount.

Although there is no employment agreement regarding your role as a Director of the Club, the payments have an element of periodicity and are in consequences of services rendered to the club.

After considering the full circumstances of your payments as a director it is considered that the payments are not a true honorarium, but rather are paid to you in connection to the services you are providing to the club. Therefore the payments are assessable under section 6-5 of the ITAA 1997.

Please note, that where such payments are not assessable under section 6-5 of the ITAA 1997, section 15-2 of the ITAA 1997 is relevant. Section 15-2 of the ITAA 1997 states that the assessable income includes the value of all allowances, gratuities, compensations, benefits, bonuses and premiums provided in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you.