Edited version of your written advice

Authorisation Number: 1012858209722

Date of advice: 12 August 2015

Ruling

Subject: Income - assessability of payments

Question:

Are the payments you receive from reviewing the work of students from other educational institutions assessable income?

Answer:

Yes

This ruling applies for the following periods:

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

This scheme commenced on:

1 July 2012

Relevant facts:

You are employed at an educational institution.

You are a leading researcher in your area of research.

You have received requests from other educational institutions to assess their students' work.

The students' work you review and examine are in your area of research and expertise.

You have previously examined students' work from other educational institutions once or twice a year.

In some years you have declined requests to examine a student's work from other education facilities.

You receive a payment from the other educational universities when you review and assess one of their student's work.

You spend a large number of hours reviewing and assessing the student's work and if you charged your time at consultancy rates it would be significantly higher than the payment you currently receive.

The payment you receive for reviewing and assessing a student's work is called an honorarium by the other educational institutions and is paid into your bank account.

Usually the only expense you incur in order to undertake these reviews is for electricity (you normally undertake these reviews at night at your home).

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Reasons for Decision

Summary

The payments you receive from the reviews are not considered true honorariums as the payments are for professional services related to your income-earning activities and consequently should be included as part of your assessable income in the year the payments are received.

Detailed reasoning

Honorarium
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 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 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 a payment 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.

It is not necessary for all of these characteristics to exist for a particular receipt for that receipt to be considered ordinary income.

Section 15-2 of the ITAA 1997 states that the assessable income of a taxpayer shall include:

the value to you of all allowances, gratuities, compensations, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you (including any service as a member of the Defence Force)

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':

• 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 as a consequence of employment, services rendered, or any business;

• 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;

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

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

• Whether the payments have been earned.

In your case, you have received a number of payments since you started undertaking these reviews several years ago. You believe these payments are for your volunteering work in examining the students' work, similar to payments made to other volunteers such as a referee.

Applying the factors to your circumstances

a) The payment is received for personal reasons
In your case, you hold the positon of an academic at an educational institution and the payments you receive as an examiner were not provided to you for your personal qualities or because of a personal relationship you had with the payer or for holding a voluntary position or office.

b) The payment has no connection to the recipient's income-producing activities or services rendered
You are engaged as an academic and while there is no specific condition or term of your employment to undertake the review, it is noted in your position description that to be an effective leader and teacher your duties can included assessing and giving feedback to students. Therefore it is arguable that payments which you receive from the other educational institutions has a connection or is an extension of your income-earning activities as an academic in your field of expertise you would not have been offered these reviews if you did not have the education and knowledge within this area of research.

c) The payment is not received as remuneration or as a consequence of employment, services rendered, or any business
In your case, you argue that the payments are not assessable income as you believe the payments are made for volunteering your time similar to that of a volunteer referee as noted the following example:

Michael works as a computer programmer at the local city council and volunteers as a referee for the local rugby union. This year, he organised an accreditation course for new referees. He applied for a grant, arranged advertising, assembled course materials and booked venues. Michael is awarded an honorarium of $100 for his efforts. The honorarium is not assessable.

Generally where a person is engaged as a volunteer referee it is consider they are engaged in a pastime or hobby. While it is arguable in the above example that Michael uses his computer skills to book the venue, advertise and assemble the course materials, these type of computer skills are generic skills that most professional people would hold; clearly Michael is not using his programing skills for example to write code and debug computer programs for the referees association.

However where a payment is received for professional services voluntarily provided the payment is assessable income as noted in the following example

Judy has a graphic design business and volunteers at the local art gallery. Judy prepares the gallery's annual report using her business's software and equipment. At the gallery's annual general meeting, Judy is awarded an honorarium of $800 in appreciation of her services. This honorarium will be assessable income to Judy because it is a reward for services connected to her income producing activities.

In your case, the services you provide to other educational institutions are not as a result of an activity arising out of a pastime or hobby. As noted at paragraph 3 of Taxation Ruling IT 2639, where a person exercises their skills and their labour in the provision of services - the income the person earns from the activity is income from personal services. Therefore for the utilisation of your skills and abilities as an academic in your area of research, the payment you receive is a reward for services connected to your income-producing activities.

d) The payment is not relied upon or expected by the recipient for day-to-day living
As noted above it is not necessary for all of the characteristics of ordinary income to exist for a particular receipt to be ordinary income. While it's arguable the payment is not relied upon, there is an expectation that upon completing the review that the payer will make the payment to you.

e) The payment is not legally required or expected
While the payment is not legally required, it appears the usual practice that educational institutions pay an amount to academics from other educational institutions who examine their students' work. As it is the usual practice, it can be argued that such payment would be expected.

f) There is no obligation on the part of the payer to make the payment
In your case, the payer by their actions considers there is an obligation to make the payment to the examiner for their services.

g) The payment is a token amount compared to the services provided or expenses incurred by the recipient.
There are no set amounts or limits as to what constitutes a 'token amount'. Consideration must be given to all of the circumstances surrounding both the payment and the recipient.

In Case Z16, 92 ATC 183 (Case Z16) an honorarium was held not to be assessable income. The taxpayer was elected a district officer of a friendly society for a three-year term. Long-standing practice had been to pay the district officer $100 per year to cover out-of-pocket expenses. The taxpayer declared the $100 as income and claimed $3,510 in respect of motor vehicle expenses. It was held that the activities of the taxpayer bore no relevance to any income-producing vocation or calling. It was clear that the payment came to the taxpayer by virtue of her office; however, it bore no relation to the quantum of the taxpayer's expenses and there was no evidence to suggest that the honorarium was motivated by commercial considerations. In addition, the amount of the honorarium was miniscule when ranged alongside the time and effort expended by the taxpayer although it must be said that the quantum of the payment is not the decisive factor. A situation may arise when the quantum of a payment is a factor to be considered in determining whether it should be characterised as one for services rendered rather than some reimbursement for expenses. The fact of the taxpayer holding office in the society explains the payment to her but does not characterise it. Given the conclusion that the honorarium was not assessable income, it followed that the expenses were non-deductible.

Your circumstances can be distinguished from Case Z16 in that assessing of the students' work by you does have relevance to your income-producing vocation or calling as an academic. The making of the payments did not come to you by virtue of holding the office. While the quantum of the amount is not a decisive factor as noted in Case Z16, in your case the amounts paid were not miniscule or token amounts nor were the payments made to cover out-of-pocket expenses as noted in Case Z16. While it is acknowledged that the amounts you receive are significantly less than the rate you would normally receive for your services, the amounts are not considered so small as to be token amounts.

h) The form of the receipt, that is, whether it is received as a lump sum or periodically
You have received either one or two payments per financial year.

i) Whether the payments have been earned.
The payments made to you relate to the services performed rather than for personal reasons or to cover expenses incurred. 

After considering the above indicators as a whole, the amounts paid to you in the relevant financial years are not considered to be a true honorarium for the following reasons:

• The payments were not made for personal reasons or for holding a voluntary position or office.

• The payments have connection to your income-producing activities as an academic as the payments are for services rendered to other educational institutions.

• While the payments may not have an element of periodicity, recurrence or regularity there is an expectation that upon undertaking a review a payment is to be received by you.

• The amounts paid are not minuscule or token amounts to cover out-of-pocket expenses.

• While the payments are not legally required, they are expected as it is the usual practice for educational institutions to make these payments.

• The payments are earned as the payments you received are a reward for services connected to your income-producing activities.

Accordingly as the payments are not considered a true honorarium, the payments you receive are assessable income as they are a reward for services connected to your income-producing activities.