Edited version of private advice

Authorisation Number: 1051509739972

Date of advice: 9 May 2019

Ruling

Subject: PAYG withholding

Question

Does the not-for- profit organisation have an obligation to withhold amounts under Division 12 of Schedule 1 to the Tax Administration Act 1953 (TAA) in relation to payments to officials for officiating at matches or attendance at referee education meetings?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The organisation provides officials to carry out refereeing duties for a range of different sporting competitions.

The officials receive nominal payments.

The payments are intended to contribute to, rather than fully cover, the expenses incurred by the referees in preparing for the officiating at matches.

The purpose of payment is to encourage members of the organisation to participate in local sporting activities by subsidising the cost associated with participation.

The motivation of the officials is contended to be the love of the sport and the desire to contribute to the community. Involvement in the game enhances fitness and fosters social camaraderie.

Relevant legislative provisions

Tax Administration Act 1953 Section 12-35 of Schedule 1

Tax Administration Act 1953 Section 10-5 of Schedule 1

Tax Administration Act 1953 Subsection 6-5(2) of Schedule 1

Income Tax Assessment Act 1997 Subsection 6-5

Income Tax Assessment Act 1997 Subsection 6-5(2)

Income Tax Assessment Act 1997 Subsection 6-5(4)

Income Tax Assessment Act 1997 Section 15-2

Income Tax Assessment Act 1997 Subsection 15-2(1)

Reasons for decision

All legislative references are to the Income Tax Assessment Act 1997, unless specifically stated otherwise.

Division 6 of Schedule 1 to the Tax Administration Act 1953 (TAA) requires taxpayers to pay income tax at regular intervals as it is earned during the year. This system of collecting is called Pay As You Go (PAYG), which has two components: PAYG withholding and PAYG instalment. Subsection 6-5(2) of Schedule 1 to the TAA states that:

Under PAYG withholding, amounts are collected in respect of particular kinds of payments or transactions. Usually, someone who makes a payment to you is required to withhold an amount from the payment, and then to pay the amount to the Commissioner.

Section 10-5 of Schedule 1 to the TAA lists a summary of the different kinds of payments that are subject to PAYG withholding.

Section 12-35 in Schedule 1 of the TAA requires an entity to withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee.

However, Subsection 12-1(1) of Schedule 1 to the TAA provides you with an exception that in working out the amount to be withheld under Section 12-35, you should disregard so much of the payment as is exempt income of the individuals receiving the payment.

Whether or not there is a withholding requirement in relation to particular employment entitlements will depend on if those entitlements constitute assessable income and, if so, when and to whom.

Therefore, we need to examine the assessability of the referee payments to determine whether there is a withholding obligation.

Ordinary income

Under subsection 6-5(1) an amount is assessable income if it is income according to ordinary concepts (ordinary income).

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

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

Relevant factors in determining whether an amount is ordinary income include:

·         whether the payment is the product of any employment, services rendered, or any business;

·         the quality or character of the payment in the hands of the recipient

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

·         the motive of the person making the payment. Motive, however, is rarely decisive as in many cases a mixture of motives may exist.

Where a taxpayer's activities constitute a pastime or hobby rather than an income-producing activity, money and other benefits received from the pursuit of that pastime or hobby will not be included in the taxpayer's assessable income as ordinary income of the taxpayer.

Participation in activities generating pastime or hobby receipts is a social or personal pursuit of a non-commercial nature. Pastime or hobby receipts are not intended to, nor do they usually, cover expenses. Even regular receipts obtained from a pastime or hobby are still characterised as receipts from a pastime or hobby and, accordingly, are not assessable income. A receipt that is an incident of a pastime or hobby would also not be assessable, even if it arises from the provision of a service.

The activities of the officials who referee are accepted as being a social or personal pursuit of a non-commercial nature, which is motivated by their personal enjoyment in participating in the sport.

The officials' refereeing activities are accepted as constituting a pastime or hobby and the payments received are accepted as being from the pursuit of that pastime or hobby rather than an income producing activity. Thus the payments are not ordinary income.

Statutory income

Section 6-10 includes in assessable income amounts that are not ordinary income; these amounts are statutory income. A list of the statutory income provisions can be found in section 10-5. That list includes reference to section 15-2.

Subsection 15-2(1) provides that:

Your assessable income includes 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...

The main issue to consider with respect to section 15-2 is whether the payment is '...provided to you in respect of...any employment of or services rendered...'. Whilst the referees are not considered 'employees', section 15-2 also includes in assessable income those allowances, etc., which are paid 'in respect of' services rendered.

The payments received by officials are considered to be incidental to a pastime and not a product or incident of any employment or a reward for services rendered. As such, they are not assessable under section 15-2.

Pay As You Go (PAYG) withholding

As explained above, payments made to officials who are engaged in a hobby or pastime are not assessable income. The payments are not regarded as withholding payments under Division 12 of Schedule 1 to the TAA.

The organisation will not be required to withhold amounts from payments to referees.