Edited version of private advice

Authorisation Number: 1052185476855

Date of advice: 20 November 2023

Ruling

Subject: PAYG withholding - honorariums

Question

Is the entity required to withhold PAYG tax from the honorarium payments to members of a Human Research Ethics Committee (HREC) under section 12-45 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer

Yes.

This ruling applies for the following period:

1 July 2023 to 30 June 2024

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

The entity provided the terms and conditions under which the HREC is being selected, engaged, and paid.

Relevant legislative provisions

Taxation Administration Act 1953 Section 12-45 of Schedule 1

Taxation Administration Act 1953 Section 12-45 of Schedule 1

Taxation Administration Act 1953 Paragraph 12-45(1)(d) of Schedule 1

Reasons for decision

Summary

The provided information supports that the current payments referred to by the entity as honorarium payments are not true honorarium payments for filling an office, but are rather renumeration paid to an office holder as ordinary salary for performing the duties of the office.

While ordinarily the members of the HREC receiving honorariums would not be considered common law employees of the entity under section 12-35 of the TAA, they are considered to be office holders, as covered by the extended definitions in paragraph 12-45(1)(d) of Schedule 1 to the TAA.

Consequently, the entity is subject to PAYGW requirements for its HREC members' honorarium payments.

Detailed reasoning

Paragraph 12-45(1)(d) of Schedule 1 of the TAA 1953 dictates that:

An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as:

(a) to (c) .....

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

(e) ...

Paragraphs 17-20 of 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) provides guidance on payments to office holders:

17. The common law has identified two types of individuals in the service of the Crown:

•         office holders; and,

•         common law employees of the Crown

18. Payments to common law employees of the Crown are subject to PAYG withholding under section 12-35 in Schedule 1 to the TAA. Payments to office holders whose office is under the Constitution or an Australian law are covered by paragraph 12-45(1)(b) in Schedule 1 to the TAA. Payments to individuals in other offices, such as police officers, military officers and members of Parliaments or local governing bodies are specifically subject to PAYG withholding under paragraphs 12-45(1)(a), (c) and (e) in Schedule 1 to the TAA. Therefore the only office holders who are not already covered by the previously mentioned withholding events are common law office holders.

19. A common law office holder would come within paragraph 12-45(1)(d) in Schedule 1 to the TAA where the office has the characteristics mentioned in paragraph 15 of this Ruling and is not an office under the Constitution or an Australian law. That is, there needs to be an existence independent of the office, and the duties or functions should be attached to the office rather than to the individual. The relationship created with the office holder should be with the Crown itself and not with the person who brought the office into existence by the exercise of a general law or a statutory power.

20. An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as a common law office holder in the service of the Commonwealth, a State or a Territory.

Paragraph 15 of TR 2002/21 states:

... 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.

The HREC is not set up under Australian law so it must be determined if the positions within have the characteristics of an office holder under paragraph 15 of TR 2002/21. The provided information shows the HREC has an independent existence - if a person vacates their position, the position will be filled by someone else.

The HREC has identifiable duties and does not just have an advisory function. Its role is to review research applications and follows the National Statement on Ethical Conduct in Human Research 2023. Its function attaches to the committee itself and not just to the individual in the office.

Additionally, the minimum requirements for HREC under the National Statement from 1 January 2024 show community representatives are a requirement across the board for HRECs.

The provided information further states that each meeting must be attended by three members not employed by the entity or by a related body, so these members are required to participate, even if they can't attend each meeting. Therefore, the extended definitions under the TAA apply to the HREC members receiving honorariums.

The meanings of 'salary',' wages', 'commission', 'bonuses' and 'allowances' in respect of individuals covered by section 12-45 of Schedule 1 to the TAA are discussed at paragraphs 27-29 of TR 2002/21.

Paragraph 27 of the ruling provides that the terms carry their ordinary meaning.

Paragraph 28 states that an office holder's remuneration is considered to be salary.

Paragragh 29 provides that remuneration paid to an office holder is considered ordinary salary for performing the duties of that office. As such, the honorariums would be considered salary and PAYG tax is required to be withheld.