Private ruling: Honorarium
Date of advice: 8 December 2015
Published: February 2016
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the payments from entity A be included in your assessable income? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, 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. Based on case law, it can be said that ordinary income generally includes receipts that are earned, expected, relied upon, and have an element of periodicity, recurrence or regularity. Any amount received that has sufficient nexus with an income earning activity such as teaching is generally characterised as ordinary income. An honorarium is a payment or gesture made on personal grounds that is either tangible or intangible and can be referred to as an ex gratia payment, bona fide (or true) honorarium or gift. True honorariums are not included in assessable income. Taxation Ruling TR 2002/21: Income tax: Pay As You Go (PAYG) Withholding from salary, wages, commissions, bonuses or allowances paid to office holders states, at paragraph 29, that a true honorarium paid to an office holder would not be salary, wages, commission, bonuses or allowances that would be subject to withholding under section 12-45 in Schedule 1 to the Taxation Administration Act 1953 (TAA). Merely referring to a payment as an honorarium, however, does not mean that the payment is exempt from PAYG provisions and it is likely that remuneration paid to a modern office holder would be ordinary salary for performing the duties of the office rather than an honorarium for filling an office. Taxation Ruling TR 2002/21, at paragraph 28, discusses the notion of officer holder's remuneration being a salary. It states that: Even if the office-holder does not qualify as an employee, there may still be aspects of employment law applicable to him, particularly in relation to the payment of wages, since the remuneration of a modern office-holder is likely to be construed as an ordinary salary for performing the duties of the office, not as the archaic form of an honorarium for filling an office... What constitutes a 'True Honorarium'? Whether a payment received is assessable income depends upon a close examination of all relevant circumstances The following factors indicate a 'true honorarium': a) The payment is received for personal reasons. b) The payment has no connection to the recipient's income-producing activities or services rendered. c) The payment is not received as remuneration or as a consequence of employment, services rendered, or any business. d) The payment is not relied upon or expected by the recipient for day-to-day living. e) The payment is not legally required or expected f) There is no obligation on the part of the payer to make the payment. g) The payment is a token amount compared to the services provided or expenses incurred by the recipient. h) The form of the receipt, that is, whether it is received as a lump sum or periodically. i) Whether the payments have been earned. In Kelly v. FC of T (1985) 80 FLR 155; 85 ATC 4283; (1985) 16 ATR 478 an employee of a football club received a $20,000 award from an unrelated party for being voted the best and fairest player for the season. Franklyn J held that the amount was assessable income of the sportsperson because it was directly related to his employment as a footballer. In your case, entity A pays you for your hours worked. While entity A may have described the payments as an honorarium, the fact that the payments are calculated based on your hours worked demonstrates a clear connection to the services provided. Although the payments may not be relied upon or expected for your day-to-day living expenses, the payments are made regularly. The total annual payments are not a one off token amount. It is not considered that the payments you receive from entity A are paid for personal reasons or have the characteristics of a true honorarium. After considering the full circumstances of your payments it is considered that the payments are paid to you in connection to the services you are providing. Even though you do not have a written employment agreement there is sufficient nexus between your income earning activities and the receipt of the payments. Accordingly the amount is ordinary income and assessable under section 6-5 of the ITAA 1997.

Relevant facts: You work at entity A. You have been working with them for several years. | You have not signed an employment agreement. | You are given duties to do. | You get paid per hour of work. | The payment is made by cheque sent in the mail at the end of a specific period. | The payment is designated by entity A as an honorarium.