Edited version of private advice

Authorisation Number: 1052371073239

Date of advice: 14 March 2025

Ruling

Subject: GST - director services

Question 1

Are you making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on your supply of services as director of companies within the X group?

Answer 1

No.

Relevant facts and circumstances

You are registered for GST.

You have a consulting business. You are based in Australia. You are registered for GST. You are required to be registered for GST based on the GST turnover from your sole trader consulting business alone.

You are a non-executive director of companies with the X group and may look to sit on other organisations' boards as a non-executive director.

The X companies are charities, and they provide aged care.

You are paid by Y which is the company responsible for the X entities.

You are not an employee of the X companies. However, you have received a letter of appointment from the X group of companies. The appointment is for a specified period.

The letter of appointment from the X group states that you have been appointed as a non-executive director of each group company set out in the schedule to the letter. The schedule lists a specified number of companies. The letter of appointment offers remuneration including superannuation. You will be paid a director's fee of $X per year in aggregate for your role and services as a non-executive director inclusive of superannuation.

The director's fee you receive is not income tax exempt income.

The letter of appointment from X refers to you as key personnel.

The letter of appointment states:

You are expected to provide the services as a non-Executive Director and to carry out your duties in accordance with the law and standards of good corporate governance. It is expected that you will devote sufficient time to be fully prepared for all meetings. You will also be required to undertake any special duties or arrangements, having regard to your particular skills and experience, as agreed with the relevant Board from time to time.

You are not running any of the X companies and your work as non-executive director does not involve anything financial.

You act as a sounding board for ideas and will say if you think if some planned action is a good idea.

You will:

•                     vote on matters affecting the X companies

•                     be involved in implementing charitable activities

•                     discuss direction of X companies.

In the case of the sector, non-executive directors are members of an organisation's board of directors who are not a part of the executive team or involved in the day to day running of the business. The board of directors is a term used to describe the top level of an organisational structure that has oversight of a company's operations. Under the provisions of the Act, all providers need to ensure the right mix of people on the Board of Directors to drive the continuous improvement processes that deliver the high quality of care and services that Australians deserve.

The duties you perform for the X companies are different to the type of work you do in your consulting firm.

Your consulting work is primarily focussed on the community not-for-profit sector and improving outcomes for disadvantaged groups, including advocacy by supporting development of new services.

For example, last year, you worked with Z to assist them to develop a specific proposal in an unrelated sector. You have never undertaken, and you do not undertake, any consulting work in the aged care sector.

You did not have consulting business connections with the X companies prior to being appointed as an X director.

At the time you applied for the position of non-Executive Director of Y and were successful, you were working in a full-time role for a company that was not part of the X group, and you were not undertaking any consulting work. You commenced working as a consultant in an unrelated capacity after you were advised that you were successful in obtaining the position of non-Executive Director for Y after you left your role.

X advertised a vacancy for a non-Executive Director on a certain organisation's webpage. You applied for this role through that organisation by submitting a CV and cover letter. You then went through a series of recruitment interviews and competency processes to be selected and appointed.

The basis of your appointment was due to your qualification as a Graduate of a certain organisation's course and your prior work experience as a General Manager for a different provider, giving you a unique ability to represent the interests of Australians on the board, which is a requirement under the Act

Currently you have one bank account to collect consulting fees and director fees, but the director fees are accounted for separately in a particular accounting system.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

Reasons for decision

Summary

As you are an individual and the director fees you receive are subject to PAYG withholding under section 12-40 of Schedule 1 to the Taxation Administration Act 1953 (TAA) and you have not accepted your role as non-executive director of the X companies in the course of or in connection with your consulting business, your activities as director of the X companies are not enterprise activities that you carry on for the purposes of the GST Act. Therefore, you do not supply your director services in the course or furtherance of an enterprise that you carry on. Hence, you do not meet the requirement of paragraph 9-5(b) of the GST Act.

As all of the requirements of section 9-5 of the GST Act are not met, you do not make a taxable supply under section 9-5 of the GST Act in respect of your supply of services as a director of companies within the X group. Therefore, GST is not payable on the supply of your director services to the companies within the X group.

Detailed reasoning

GST is payable on taxable supplies.

You make a taxable supply if you meet the requirements of section 9-5 of the GST Act, which states:

You make a taxable supply if

(a)          the supply is made for consideration; and

(b)          the supply is made in the course or furtherance of an enterprise that you carry on; and

(c)           the supply is connected with the indirect tax zone (which includes Australia), and

(d)          you are registered or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input

taxed.

The supply of your director services is for consideration (the remuneration). Therefore, the requirement of paragraph 9-5(a) of the GST Act is met.

The supply of your director services is connected with Australia, as you perform the services in Australia. Therefore, the requirement of paragraph 9-5(c) of the GST Act is met.

You are registered for GST. Therefore, the requirement of paragraph 9-5(d) of the GST Act is met.

There are no provisions of the GST Act under which the supply of your director services is GST-free or input taxed.

Therefore, what remains to be determined is whether you supply the director services in the course or furtherance of an enterprise that you carry on.

Paragraph 9-20(2)(a) of the GST Act provides that enterprise does not include an activity, or series of activities, done by a person in connection with earning withholding payments covered by subsection 9-20(4) of the GST Act (unless the activity or series is done in supplying services as the holder of an office that the person has accepted in the course of or in connection with an activity or series of activities of a kind mentioned in subsection 9-20(1) of the GST Act such as an activity, or series of activities, done in the form of a business).

Subsection 9-20(4) of the GST Act provides that it covers withholding payments covered by any of the provisions in Schedule 1 to the Taxation Administration Act 1953 (TAA) listed in the table. The table provides at item 2 that the withholding payments covered include withholding payments required under section 12-40 from payments to company directors.

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) provides guidance on determining whether an entity carries on an enterprise, for ABN entitlement purposes.

Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 refers to how MT 2006/1 considers the meaning of the terms 'entity' and 'enterprise' for the purposes of the A New Tax System (Australian Business Number) Act 1999 (ABN Act).

The ABN Act uses the definitions of these terms that are contained in the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Paragraph 1 of GSTD 2006/6 states that the principles in MT 2006/1 apply equally to the terms 'entity' and 'enterprise' and can be relied upon for GST purposes.

Paragraphs 340 to 344 of MT 2006/1 state:

Activities done as a withholding payment earner

340. Under paragraph 9-20(2)(a) of the GST Act 'enterprise' also does not include an activity, or series of activities, done by a person in connection with earning withholding payments covered by subsection 9-20(4) of the GST Act.

341. Withholding payments covered by subsection 9-20(4) of the GST Act are those contained in any of the provisions in Schedule 1 to the TAA.

Exception to the exclusion

342. The exclusion from being an enterprise does not apply if the activity or activities are done in supplying services as the holder of an office that the withholding payment earner has accepted in the course of or in connection with an activity or series of activities of the kind mentioned in subsection 9-20(1) of the GST Act.

343. The exception to the exclusion will apply where a person has accepted an appointment as a holder of an office and supplies services in the course of or in connection with:

•                     that person's own enterprise as a sole trader;

•                     the enterprise of a partnership of which the individual is a partner;

•                     the enterprise of a trust of which the person is a trustee; or

•                     the enterprise of an employer of which the person is an employee.

344. 'Holders of an office' are those included in items 2 and 3 of the table in subsection 9-20(4) of the GST Act. These are company directors and office holders to which section 12-45 of Schedule 1 to the TAA applies. Office holders include members of Parliament, statutory office holders, members of the Defence Force or police forces, common law office holders and some members of local governing bodies. The table in subsection 9-20(4) of the GST Act is set out in paragraph 341 of this Ruling.

The TAA (referred to above) is the Taxation Administration Act 1953.

Determining whether PAYG withholding applies to your director fees

Section 12-40 of Schedule 1 to the TAA (section 12-40) provides that a company must withhold an amount from a payment of remuneration it makes to an individual:

(a)          if the company is incorporated--as a director of the company, or as a person who performs the duties of a director of the company; or

(b)          if the company is not incorporated--as a member of the committee of management of the company, or as a person who performs the duties of such a member.

However, section 12-1 of Schedule 1 to the TAA provides exceptions to this rule.

You are an individual and you are receiving payments of remuneration for your directorship services from what we understand to be an incorporated company.

Subsection 12-1(1) of Schedule 1 to the TAA provides that an entity need not withhold an amount under section 12-40 from a payment if the whole of the payment is exempt income (for income tax purposes) of the entity receiving the payment.

The whole of the director fee payment you receive is not income tax exempt income. Therefore, the exception in subsection 12-1(1) of Schedule 1 to the TAA from PAYG withholding requirement does not apply.

Subsection 12-1(1A) of Schedule 1 to the TAA provides that an entity need not withhold an amount under section 12-40 from a payment if the whole of the payment is not assessable income and is not income tax exempt income of the entity receiving the payment.

If GST hypothetically applied to a director fee that you received, the GST component of the director fee payment would not have been income tax assessable income or income tax exempt income (NANE income). However, this exclusion for NANE income would not have applied to the remainder of the director fee payment.

Subsection 12-1(2) of Schedule 1 to the TAA provides that in working out how much to withhold under section 12-40, disregard so much of the payment as is a living - away - from - home allowance benefit as defined by section 136 of the Fringe Benefits Tax Assessment Act 1986 (FBT Act)

The exception in subsection 12-1(2) of Schedule 1 to the TAA does not apply to your situation as the director fee is not a living away from home allowance benefit as defined by section 136 of the FBT Act.

Subsection 12-1(3) of Schedule 1 to the TAA provides that in working out how much to withhold under section 12-40 from a payment, disregard so much of the payment as:

(a)          is an expense payment benefit as defined by section 136 of the FBT Act; and

(b)          is not an exempt benefit under section 22 of that Act (about reimbursement of car expenses on the basis of distance travelled).

The exception in subsection 12-1(3) of Schedule 1 to the TAA does not apply to your situation as the director fee is not an expense payment benefit as defined by section 136 of the FBT Act and it is not an exempt benefit under section 22 of that Act (about reimbursement of car expense on the basis of distance travelled).

As you are receiving director fees from a company that is incorporated and none of the exceptions in section 12-1 of Schedule 1 of the TAA apply, PAYG withholdings must be deducted from your director fees, pursuant to section 12-40 of Schedule 1 to the TAA.

Therefore, your activities as director of the X companies would not be classed as an enterprise unless these activities are done in supplying services as the holder of an office that you have accepted in the course of or in connection with an activity or series of activities of the kind mentioned in subsection 9-20(1) of the GST Act.

We shall now determine whether you are supplying your director services as the holder of an office that you have accepted in the course of or in connection with an activity or series of activities of a kind mentioned in subsection 9-20(1) of the GST Act, specifically the consulting business, which is an enterprise under paragraph 9-20(1)(a) of the GST Act, as it is a series of activities in the form of a business.

In accordance with paragraph 344 of MT 2006/1, you are an office holder for the purposes of section 9-20 of the GST Act, as you are a company director.

Paragraph 345 of MT 2006/1 provides that whether an activity or activities done in supplying services as the holder of an office has occurred 'in the course of' or 'in connection with' an enterprise must be determined after considering all the facts and circumstances surrounding the activity.

Paragraph 354 of MT 2006/1 provides that consideration may be given to the subject matter or area of business activity of the enterprise, and its correlation with the activities of the relevant position (such as director of a company).

Paragraph 354 of MT 2006/1 states:

354. No one fact or circumstance will determine the issue and an examination of the relationship between the actual accepted position and the enterprise in which the individual works is required. One consideration may be the final outcome in relation to the receipts from the activity. If the receipts become part of the enterprise's funds and are treated in a like manner to other ordinary receipts it may be considered that the activity occurs in the course of the entity's enterprise. If the funds are received and retained by the individual it can be considered that the activity did not occur 'in the course of' or 'in connection with' the enterprise. Another consideration may be the subject matter or area of business activity of the enterprise, and its correlation with the activities of the relevant position.

The example from paragraph 355 of MR 2006/1 indicates that the fact that a director may have accepted their appointment as director because of the pre-existing connection between the director's sole trader business and the company they are a director of is a relevant factor.

We do not consider that you have accepted your role as non-executive director of the X companies in the course of or in connection with your consulting enterprise after considering all of the circumstances of your case, that is:

•                     The duties you perform for the X companies are different to the type of work you do in your consulting.

A board of directors is the governing body of a corporation or other organisation, whose members are elected by shareholders or members to set strategy, oversee management, and protect the interests of shareholders, members and stakeholders. Every public company must have a board of directors. It is not legally possible to engage a board director as an external consultant.

Your consulting is primarily focussed on the community not-for-profit sector and improving outcomes for disadvantaged groups, including advocacy by supporting development of new services. For example, last year, you worked with Z to assist them to develop a specific proposal in an unrelated sector. You have never undertaken, and you do not undertake, any consulting work in the aged care sector.

•                     You did not have consulting business connections with the X companies prior to being appointed as an X director.

•                     At the time you applied for the position of non-Executive Director of Y (the company for the X companies) and were successful, you were working in a full-time role for a company that was not part of the X group, and you were not undertaking any consulting work. You commenced working as a consultant in an unrelated capacity after you were advised that you were successful in obtaining the position of non-Executive Director for Y and after you left your role.

•                     The basis of your appointment was due to your qualification as a Graduate of a particular course and your prior work experience as a General Manager for a different provider, giving you a unique ability to represent the interests of Australians on the board, which is a requirement under the Act.

•                     X advertised a vacancy for a non-Executive Director on a certain organisation's webpage. You applied for this role through a certain organisation by submitting a CV and cover letter. You then went through a series of recruitment interviews and competency processes to be selected and appointed.

•                     This is completely different from a consulting role where the company would issue a "Request for Quote", or similar, and a response would be written including the cost breakdown of the hours of the consulting work and the detailed process to undertake the work. Consulting work has a start and end point - generally with the submission of a final report and presentation. This is completely different from the role of a non-executive director, which involves monthly meetings, reviewing reports, and an annual work plan.

•                     Although currently you have one bank account to collect consulting fees and director fees, the director fees are accounted for separately in a particular computer accounting system.

In summary, there is no connection between your role as director of the X companies and your consulting business.

As you are an individual and the director fees you receive are subject to PAYG withholding under section 12-40 and you have not accepted your role as non-executive director of the X companies in the course of or in connection with your consulting business, your activities as director of the X companies are not enterprise activities that you carry on for the purposes of the GST Act. Therefore, you do not supply your director services in the course or furtherance of an enterprise that you carry on. Hence, you do not meet the requirement of paragraph 9-5(b) of the GST Act.

As all of the requirements of section 9-5 of the GST Act are not met, you do not make a taxable supply under section 9-5 of the GST Act in respect of your supply of services as a director of companies within the X group. Therefore, GST is not payable on the supply of your director services to the X companies.