Private ruling: Assessable income
Published: September 2014
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2010

Ruling: Q1: Is the allowance assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: You were an elected local government councillor. You were paid an allowance from the council to cover some costs. The council did not issue a payment summary and you did not keep any records. You had a full time job and some business activity. You were not an employee of the Council, you did not have a work contract and you did not issue invoices for any service to the council. The ATO has not been notified by the council that it has passed a unanimous resolution to treat its councillor's as employees and your councillor's allowance has not been treated as though such a resolution has been passed.

Relevant legislative provisions: Taxation Administration Act 1953 Schedule 1 section 446-5 | Income Tax Assessment Act 1997 section 6-5

Reasons for decision: Summary: The word allowance is defined in the Macquarie dictionary as a definite sum of money allotted or granted to meet expenses or requirements. An allowance will usually consist of the payment of a definite predetermined amount to cover an estimated expense, and will be paid regardless of whether the recipient incurs the expected expense. Paragraph 90 of Taxation Ruling TR 1999/10 Income tax and fringe benefits tax: Members of Parliament - allowances, reimbursements, donations and gifts, benefits, deductions and recoupments provides the following: If a Member receives a payment for an estimated expense, we consider the amount received by the Member to be an allowance, not a reimbursement. Section 446-5 to Schedule 1 of the Taxation Administration Act 1953 (TAA) states that 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. There is no indication that the 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 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 an allowance to cover costs incurred with attending meetings. The amount paid was a fixed amount paid monthly based on the annual amount. The amount was therefore considered to be an estimated expense as it was paid whether the expense was incurred or not. Therefore the amount paid is considered to be an allowance and is ordinary income because it is associated with rewards for personal services that you rendered to the council. The allowance you received is therefore assessable to you under subsection 6-5(2) of the ITAA 1997.