Private ruling: Withholding Obligations
Published: December 2014
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Questions and Answers | Is X required to withhold an amount, under the Pay As You Go Withholding (PAYG(W)) rules from the honorarium made to Instructors? Yes

Relevant facts and circumstances: X runs a community-based youth development organisation. Members of the community volunteer to be youth Instructors/Administrators (instructor) within the organisation. In recognition of their services, instructors may receive an allowance. This allowance has the following purposes: a) To recognise that the youth development organisation staffed and funded in partnership between X and the community. b) In acknowledgement of the partnership mentioned above, to provide instructors with an honorarium for the training, instruction and administration. Different rates of the allowance are paid for different levels of instructor; the level of instructors is based on experience and responsibilities. A person is appointed against these criteria. Where a position is vacant a person can move up for a period of time. The allowance is not paid automatically but rather the instructor must apply for the payment monthly (application must be made before the end of the month following the activity). An instructor can apply for the allowance for an annual maximum of 48 days, which is made up of any combination of full or part days. The relevant individual within X may approve an additional payment to a volunteer who is required to perform additional duties over the maximum number of days. The full day rate is based on 6 or more hours service during the day and a part day is 2 or more but less than 6 hours. For instance, an instructor may give up their Saturday morning. The allowance is paid for a combination of time and expenses. The payments are designed to ensure that the instructor is not out of pocket. The payments are to encourage the instructor to impart their knowledge and give up their time. Expenses include purchase of meals; training requirements; purchase of items for a particular activity, for example, sunscreen or clothing; and, if necessary, to purchase a youth's lunch. The instructor is only entitled to the payment for approved activities, they may do more activities. If applicable, X may make an additional payment for travel costs, meal allowance and vehicle allowance where travel is required as part of approved activities. Additional payments are made where extra activities are planned, for example, field trips where the instructor incurs extra expenses. These additional payments will generally be a reimbursement of the expenses. The instructors are required to: • follow the program and provide other activities • to run the youth group • organise activities • administration, for example, process enrolments, and • attend camps. X is required to make a payment for approved activities (the instructor must apply to have activities approved before they commence). X will not make the payment if there is insufficient budget. However, activities would not normally be approved if there is insufficient budget. Even for approved activities a percentage of instructors choose not to make claims. A failure to claim within the deadline does not permit a large amount of unpaid benefit to accrue to a person's credit. Instructors are not employees of X. However, they may be deemed employees for particular pieces of Legislation. X makes provision for the compensation of instructors for injuries and illnesses incurred in connection with their duties. While instructors are not employees of X, there are a small number of X's personnel, who volunteer and organise the program. The other instructors come from any profession (police, teachers, interested other people etc.). These volunteers have to go through a process before they are approved as instructors, they need to: apply, be selected and have their background checked and approved for working with children. The number of instructors per child group is governed by the same/similar adult/child ratios in similar situations. X will generally provide materials and equipment to instructors. There is some self-funding for specific items. There is no rostering from X, rather a particular group agree to meet at a particular time during the week. Timing of activities is up to the group to organise. Assumption(s) None

Relevant legislative provisions: Tax Administration Act 1953 section 12-35 of Schedule 1 | Tax Administration Act 1953 section 12-1(1A) | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 11-15 Further issues for you to consider | None | Anti-avoidance rules | Not applicable

Reasons for decision: Summary: Subdivision 12-B (which comprises sections 12-35 to 12-60) of the Tax Administration Act 1953 (TAA 1953) deals with PAYG withholding from payments for work and services which includes payments to employees and office holders. Section 12-35 of Schedule 1 to the TAA 1953 provides that an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity). Similarly, paragraph 12-45(1)(d) of Schedule 1 to the TAA 1953 provides that an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as a person who is in the service of the Commonwealth, a State or Territory. Therefore, liability to withhold from payments made to instructors, does not hinge on whether the individuals are employees of X, it is sufficient that they provide a service to X. Subsection 12-1(1A) of Schedule 1 to the TAA 1953, however, provides an entity need not withhold an amount under section 12-35 or section 12-45 from a payment if the whole of the payment is not assessable income and is not exempt income of the entity receiving the payment. Therefore, to work out whether an amount needs to be withheld from a payment it is necessary to determine whether the payment is assessable and not exempt income of the payee. Section 11-15 of the Income Tax Assessment Act 1997 (ITAA 1997) lists those provisions dealing with income that may be exempt. There is nothing in this list that would make an honorarium exempt income of the payee. Are payments to 'volunteers' assessable income? Volunteers can be paid in cash, given non-cash benefits or given a combination of both cash and non-cash benefits. These payments can be given various descriptions, including honorariums, reimbursements and allowances. How an amount is described does not determine its treatment for tax purposes. Whether a payment is assessable income in the hands of a volunteer depends on the nature of the payment and the recipient's circumstances. Section 6-5 of the ITAA 1997 includes income according to ordinary concepts, which is called ordinary income is assessable income. Generally, receipts which are earned, expected, relied upon and have an element of periodicity, recurrence or regularity are treated as ordinary income. However, where a person's activities are a pastime or hobby rather than income producing, money and other benefits received from those activities are not assessable income. To determine if an amount is assessable, the full facts surrounding both the payment and the recipient must be considered. A payment that is not assessable to a volunteer will have many of the following characteristics: • The payment is to meet incurred or anticipated expenses. • The payment has no connection to the recipient's income-producing activities or services. • The payment is not received as remuneration or as a consequence of employment. • The payment is not relied upon or expected by the recipient for day-to-day living. • The payment is not legally required or expected. • There is no obligation on the part of the payer to make the payment. • The payment is a token amount compared to the services provided or expenses incurred by the recipient. Whether the payment is 'token' depends on the full facts surrounding the payment and recipient's circumstances. While not a conclusive factor, the amount of the payment and how it is calculated will ascertain some of these characteristics. The allowance is a payment for the services provided by the instructors, 'for training, instruction and administration'. The rate of payment is determined by superiority and is paid for a combination of time and to cover expenses. While there is some freedom on how activities are undertaken, those activities must be approved in advance. Therefore, the allowance would be assessable income to the instructor, accordingly X is required to withhold in accordance with Schedule 1 to the TAA 1953.