Private ruling: Taxation of your allowance
Date of advice: 7 September 2015
Published: September 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Is your council allowance considered to be income? | A1: Yes


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

Reasons for decision: Summary: 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 (section 446-5 of Schedule 1 of the Taxation Administration Act 1953 ). There is no indication that your Council has passed such a resolution and your councillor's allowance has not been treated as though such a resolution has been passed. Therefore you are not considered to be an employee of the council and the allowance is not considered to be in the form of salary and wages. 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 Income Tax Assessment Act 1997 (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 a councillor allowance to remunerate you for the duties you performed as a councillor. The allowance is considered to be ordinary income because it is associated with rewards for personal services that you rendered to the council. The councillor allowance you received is therefore fully assessable to you under subsection 6-5(2) of the ITAA 1997.

Relevant facts: You are an elected local government councillor | You are paid an allowance. | 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.