Edited version of your written advice

Authorisation Number: 1013105445466

Date of advice: 13 October 2016

Ruling

Subject: Tax Implications of Remuneration Paid to Administrator of Local Council

Question 1

Is the Administrator for the Local Council an office holder for Pay As You Go (PAYG) Withholding purposes?

Answer

Yes.

Question 2

If the answer to Question 1 is 'Yes', is the Local Council required to withhold an amount of tax from remuneration paid to its Administrator pursuant to section 12-45 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer

No.

Question 3

Are any benefits provided to the Administrator of the Local Council subject to fringe benefits tax (FBT)?

Answer

No.

Period to which your private ruling applies

20XX to 20YY

Date upon which the scheme commences

20XX

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below.

The Administrator for the Local Council was appointed by proclamation in accordance with the applicable State's law.

The Administrator holds, for a specified term, all of the statutory functions of the governing body and Mayor of the Local Council.

Administrator remuneration is paid out of council funds.

The Local Council has not made a resolution pursuant to section 446-5 of Schedule 1 to the Taxation Administration Act 1953 (TAA).

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 995-1(1)

Taxation Administration Act 1953 Schedule 1 Section 12-45

Question 1

Is the Administrator for the Local Council an office holder for Pay As You Go (PAYG) Withholding purposes?

Summary

The Administrator for the Local Council is an office holder for PAYG Withholding purposes.

Detailed reasoning

Taxation Ruling TR 2002/21 Income tax: Pay As You Go (PAYG) Withholding from salary, wages, commissions, bonuses or allowances paid to office holders (TR 2002/21) sets out the Commissioner's view on the circumstances in which a person holds an appointment, office or position under the Constitution or an Australian law, or whether a person is otherwise in the service of the Commonwealth, a State or a Territory for income tax and PAYG purposes. Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines 'Australian law' as a Commonwealth law, a State law or a Territory law. That provision also defines a 'local governing body' as a local governing body established by or under a State or Territory law.

The Local Council was established under a State law. It is thus a local governing body within the meaning of a 'local governing body' in subsection 995-1(1) of the ITAA 1997.

Pursuant to the applicable State's law:

• The State's Governor may dismiss a Mayor and Councillors, declaring all civic offices in relation to a council vacant, and appoint an Administrator for a specified term.

• When an appointed Administrator of a new council takes office:

• any persons holding civic office in relation to the council cease to hold office, and

• the Administrator has all the functions of the council until immediately before the first meeting of the council held after the fresh election.

• An Administrator must be paid a salary from the council's funds determined by the Governor.

• The Governor may terminate an Administrator's appointment at any time.

• An Administrator ceases to hold office:

• immediately before the first meeting of the council held after the fresh election, or

• if the Administrator's appointment is earlier terminated by the Governor.

The relevant State's law defines 'council' to mean the council of an area, which includes an Administrator; 'Councillor' to mean a person elected or appointed to civic office (which includes a Mayor); and 'civic office' to mean the office of Councillor or Mayor.

The State's Governor issued a proclamation pursuant to the relevant State law, which incorporated a number of governance requirements in respect of Administrators for new councils. Such requirements included the following:

• If the position of the Administrator for a new council becomes vacant, another person may be appointed to fill the position.

• The Administrator for a new council has, for a specified term, the functions of the council and the Mayor of the council.

• An Administrator does not hold an office or a place of profit under the new council.

The Local Council's Code of Conduct provides that Councillors or the Administrator(s) are the governing body of the Local Council. The applicable State law, which governs the appointment of Administrators, provides that the Administrator has the functions of the council and the Mayor of the council.

It can be seen that the Administrator of the Local Council is appointed to fulfil the role of all Councillors and also the Mayor, until such time as new Councillors are elected in the forthcoming elections. Until that time, the Administrator is the sole member of the Local Council.

The characteristics of an office holder are encapsulated in paragraphs 14 and 15 of TR 2002/21, as stated below:

14. An individual is considered to be appointed or engaged under an Act where you can identify either:

• the particular office, position or appointment; or

• the constitution of the relevant body (such as a panel, board committee or tribunal) to which the individual has been appointed,

in the relevant legislation or statutory instrument.

15. …the appointment, office or position must also exhibit the following characteristics of an office holder:

• Independent existence: The office must exist regardless of the individual who occupies the office from time to time - that is, if the individual currently occupying the office vacates that office, the office must continue to exist to be filled by another individual;

• Duties, functions, responsibilities or powers: The office must have identifiable duties, functions, responsibilities or powers other than a mere advisory function. These features of the office (or of the panel, board, committee or tribunal to which the individual has been appointed) would usually be specified in the relevant legislation or statutory instrument; and

• The relevant duties, functions, responsibilities or powers must attach to the office itself, rather than the individual who occupies the office.

16. It should be noted that the duties of an office holder are independent duties deriving from a source other than the orders of the payer or a contract with the payer. Therefore, where the document that sets out the office holder's duties and responsibilities is a contract with the payer, it is more likely that the individual would be an employee or independent contractor (rather than an office holder).

Lord Bridge of Harwich considered the concept of 'appointment', 'office' or 'position' when handing down his judgment in Edwards (Inspector of Taxes) v Clinch [1981] AC 845:

First, the "appointed person" has no employer in any ordinary sense; he exercises his functions quite independently. Secondly, he is not acting in any personal capacity, but in a capacity which derives its existence wholly from, and is clothed with powers and duties by, his statutory appointment…

Further, the categorisation of an individual as an office holder is discussed in Halsbury's Law, Volume 16 at paragraph 7:

Office-holders. The categorisation of an individual as an office-holder tends to be of more significance in the law relating to income taxation than in employment law. While it is true that in the case of certain major offices the individual's status as an office-holder may mean that he is not an employee, in most cases this will not be so and there will be nothing to prevent the ordinary definition of 'employee' from being satisfied. 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...

The Commissioner therefore considers the following in respect of the office of the Administrator for the Local Council:

1. The office of Administrator for the Local Council is readily identifiable in the relevant State's law.

2. Given, in accordance with the relevant State's law, another person may be appointed to fill the position or office of Administrator for the Local Council if the position or office is vacant; the office of Administrator is independent of the person appointed to that office.

3. The relevant State's law, which provides that the Administrator of a new council has the functions of the council and the Mayor of the council, demonstrates that the office of Administrator for the Local Council has identifiable duties, functions, responsibilities or powers. Such duties, functions, responsibilities or powers are more than a mere advisory function and attach to the office itself under the relevant State's law, rather than the individual who occupies the office of Administrator.

4. As the office of the Administrator for the Local Council is appointed under the relevant State's law, with remuneration paid to the Administrator out of council funds, the duties of the Administrator for the Local Council are independent duties derived from a source other than the orders of the payer or a contract with the payer. It is fair and reasonable to conclude that an individual appointed to an office or position of Administrator for the Local Council has no identifiable employer. In particular, the relationship between the Local Council and its Administrator does not have any of the features of a common law employer/employee relationship.

Therefore, it is considered that the Administrator for the Local Council has been appointed to hold an office and perform duties of that office under the relevant State's law, which is an Australian law.

As such, the Administrator for the Local Council is an office holder for PAYG Withholding purposes.

Question 2

If the answer to Question 1 is 'Yes', is the Local Council required to withhold an amount of tax from remuneration paid to its Administrator pursuant to section 12-45 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Summary

The Local Council is not required to withhold an amount of tax from remuneration paid to its Administrator pursuant to paragraph 12-45(1)(e) of Schedule 1 to the TAA.

Detailed reasoning

Part 2-5 of Schedule 1 to the TAA deals with the collection of amounts in respect of particular types of payments.

Division 12 of Schedule 1 to the TAA deals with payments from which amounts must be withheld, which are referred to as PAYG Withholding amounts.

Subdivision 12-B of Schedule 1 to the TAA deals with payment made for work and services.

As per the response to Question 1 above, the Commissioner considers that the position or office of the Administrator for the Local Council is an office holder for PAYG Withholding purposes.

Section 12-45 of Schedule 1 to the TAA, which applies to payments to office holders, states:

12-45(1) An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as:

(a) a member of an Australian legislature; or

(b) a person who holds, or performs the duties of, an appointment, office or position under the Constitution or an Australian law; or

(c) a member of the Defence Force, or of a police force of the Commonwealth, a State or a Territory; or

(d) a person who is otherwise in the service of the Commonwealth, a State or a Territory; or

(e) a member of a local governing body where there is in effect, in accordance with section 446-5, a unanimous resolution by the body that the remuneration of members of the body be subject to withholding under this Part.

12-45(2) This section does not require an amount to be withheld from a payment to an individual as a member of a *local governing body unless it is one to which paragraph (1)(e) applies.

As mentioned in the response to Question 1, the Code of Conduct adhered to by the Local Council provides that Councillors or the Administrator(s) are/is the governing body of the Local Council. The applicable State law, which governs the appointment of Administrators, provides that the Administrator has the functions of the Local Council and the Mayor of the Local Council. The Administrator is appointed to fulfil the role of all Councillors and also the Mayor, until such time as new Councillors are elected in the forthcoming elections. Until that time, the Administrator is the sole member of the Local Council.

Accordingly, the Commissioner accepts that the Administrator is a member of a local governing body for the purposes of section 12-45 of Schedule 1 to the TAA. In particular, paragraph 12-45(1)(e) of Schedule 1 to the TAA is applicable in the current circumstances.

Section 446-5 of Schedule 1 to the TAA provides the requirements for a unanimous resolution by local governing bodies. The Local Council has not made a unanimous resolution pursuant to section 446-5 that the remuneration of its Administrator be subject to withholding.

Therefore, the Local Council is not required to withhold an amount of tax from remuneration paid to its Administrator pursuant to paragraph 12-45(1)(e) of Schedule 1 to the TAA.

Question 3

Are any benefits provided to the Administrator of the Local Council subject to fringe benefits tax (FBT)?

Summary

Any benefits paid to the Administrator of the Local Council are not subject to FBT.

Detailed reasoning

Provisions of the Fringe Benefits Tax Assessment Act 1986 will only come into effect for benefits provided to the Administrator of the Local Council where a resolution pursuant to section 446-5 of Schedule 1 to the TAA is made.

As no such resolution has been made, benefits provided to the Administrator of the Local Council will not be subject to fringe benefits tax.