Private ruling: Director's fees
Date of advice: 3 October 2017
Published: February 2018
Ruling period: Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021
Date scheme commenced: 1 July 2017

Ruling: Q1: Is your income received as director’s fees included in your assessable income? | A1: Yes. | Q2: Are you entitled to a deduction for the payment of your directors fees received from an independent company, payable to your employer, in the financial year which the obligation to your employer to make the payment arises? | A2: Yes.

Relevant facts and circumstances: You are an employee. You have been invited to join the Board of a company as a director. As part of your employment, you are prohibited to receive payment of the director’s fees. You are required to remit all of the director’s fees received to your employer.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Detailed Reasoning - Director’s fees: Section 6-5 of the Income Tax Assessment Act of 1997 (ITAA 1997) provides that an amount is assessable income if it is income according to ordinary concepts. Director’s fees which are paid for a taxpayer’s services are considered to be ordinary income. In your case, you will receive remuneration for your services as a director. These payments are ordinary income and be included in your assessable income under section 6-5 of the ITAA 1997. | Detailed Reasoning - Deductibility of director’s fees paid over to an employer: Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. As a term of maintaining your employment and subsequently taking up the role of board, you are required by your employer to pay onwards to them any amount of remuneration gained for your services as a board member. In these circumstances, the amounts payable to the employer are outgoings that you necessarily incur in producing your assessable income being the director’s fees. Under subsection 8-1 of the ITAA 1997, you are entitled to claim a deduction for amounts payable to the employer to the extent of fulfilling the statement of terms that has been set out. | Detailed Reasoning - Timing of an expense: You incur an expense in an income year when: ● you receive a bill or invoice for an expense that you are liable for and must pay (even if you don't pay it until after the end of the income year); or ● you do not receive a bill or invoice but you are charged and you pay for the expense. The point at which you are liable to pay the director’s fees to the employer is the time you are entitled to the deduction.