Tax treatment of payments to public office holders

2010 amendment to Income Tax Act clarifies the tax treatment of payments made to certain public office holders including local government representatives.

The Income Tax Act 2007 has been amended to clarify the tax treatment of payments made to certain public office holders.

Background

Schedular payments are generally certain payments made when the relationship between the parties is not strictly one of employer and employee. Schedular payments made to non-employees are subject to withholding tax. They are treated as PAYE income payments for the purposes of the PAYE rules.

Payments made to certain public office holders were subject to withholding tax as they were covered under the definition of "honoraria" in the Income Tax (Withholding Payments) Regulations 1979. However, after the rewrite of the Income Tax Act, it became unclear how payments made to certain public office holders should be taxed. Schedule 4 of the Income Tax Act 2007 that set out the rates of tax to be withheld from schedular payments did not explicitly include payments made to certain public office holders. As a result, there was no explicit authority for the payers of fees to public office holders to withhold tax from those payments.

Key features

Schedule 4, part B of the Income Tax Act 2007 has been amended to clarify that payers must withhold tax from payments made to certain public office holders.

Schedular payments are subject to a tax rate of 33% for each dollar of payments made for work or services performed by:

  • a local government elected representative;
  • an official of a community organisation, society, or club;
  • a chair or member of a committee, board or council; or
  • an official, chair, or member of a body or organisation similar to the ones described above.

The term "honorarium" defined in section CW 62B has been amended so that it applies for the purposes of that section only.

Application date

The amendment applies for payments made in the 2008-09 and later income years other than a payment:

  • for work or services performed before 7 September 2010; and
  • from which the payer is not obliged to withhold an amount of tax, ignoring this amendment.