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Edited version of your written advice
Authorisation Number: 1051183608183
Date of advice: 31 January 2017
Ruling
Subject: Income tax on council payments
Question
Does the payment received for being a duly elected representative of a local council form part of your taxable income?
Answer
Yes
This ruling applies for the following periods:
Year ended 30 June 2016
The scheme commences on:
1 July 2015
Relevant facts and circumstances
You are a duly elected representative of a local Council
You received payments in return for being a representative on the Council.
The council has issued you with a PAYG payment summary with no tax withheld from the payments.
Relevant legislative provisions
Taxation Administration Act 1953 section 446-5
Income Tax Assessment Act 1997 subsection 6-5
Taxation Administration Act 1953 Section 12-35 of Schedule 1
Reasons for decision
Question
A person who holds office as a member of a local government council is not an employee of the council, except where the council has passed a unanimous resolution to be treated as such and has notified the Commissioner accordingly (section 446-5 of the Taxation Administration Act 1953 (TAA)). There is no indication that your Council has passed such a resolution therefore you are not considered to be an employee of the council.
However, this does not mean that allowances paid to a member of a local governing body are not considered to be ordinary income under the general assessability provisions in section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).
Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources 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.
All remuneration or rewards for personal services, whether received in the capacity of an employee or otherwise, in connection with personal services, is income according to ordinary concepts (see Scott v C of T (NSW) (1935) 3 ATD 142).
In your case, you are receiving a councillor allowance to remunerate you for the duties you performed as a councillor. The allowance is considered to be ordinary income because it is associated with rewards for personal services that you rendered to the council.
The councillor allowance you received is therefore fully assessable to you under subsection 6-5(2) of the ITAA 1997.