Income tax: allowances received by attendees at Centrelink reference group meetings

This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates.

The provisions dealt with in this Ruling are: • Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997); • Section 6-10 of the ITAA 1997; • Section 8-1 of the ITAA 1997; and • Section 900-50 of the ITAA 1997. All legislative references in this Ruling are to the ITAA 1997 unless otherwise indicated.

The class of entities to which this Ruling applies comprises attendees of reference group meetings held by the Commonwealth Services Delivery Agency (Centrelink) who receive a meal and incidentals allowance in relation to travel to attend a reference group meeting.

The attendees are: • representatives of peak bodies who attend in their capacity as employees of these organisations; and • volunteer attendees, who are either: - Centrelink customers (that is, benefit recipients); or - representatives of community organisations who are not employees of their organisations and who do not carry on a business of providing consultation services.

The Commissioner makes this Ruling based on the precise scheme identified in this Ruling.

The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 10 to 22 of this Ruling.

If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: • this Ruling has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled; and • this Ruling may be withdrawn or modified.

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This Ruling applies from 1 July 2007 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10).

The scheme that is the subject of the Ruling is described below. This description is based on the Application for Class Ruling dated 30 August 2007. This document forms part of, and is to be read with, this description.

As described in its Annual Report 2005-06, Centrelink has established a number of community reference groups nationally to gather input on and feedback about Centrelink's service delivery. The reference groups address service delivery issues relevant to, for example, older persons, those with mental health or disability issues and those from diverse language and cultural backgrounds.

The reference groups meet as the need arises, usually two or more times a year. They comprise representatives from peak community and service delivery bodies and may include Centrelink customers.

Attendees are invited to meetings depending on the relevance of the subject matter to them or their organisation. They are expected to contribute to discussions, provide feedback and assist with the resolution of issues but are not expected to undertake duties outside of the meetings.

Attendance is voluntary and Centrelink does not pay anything to attendees, or the organisations they represent, for the services they provide to Centrelink by attending the meetings.

Centrelink reference group meetings are normally held in Canberra but may, where more appropriate, be held in other places.

While an effort is made to invite sufficient contributors from the local area, sometimes Centrelink finds it necessary to invite people from other localities. These individuals may travel hundreds of kilometres to participate and may be required to stay overnight away from their usual place of residence.

Centrelink pays all travel and accommodation costs incurred by attendees who travel away from their ordinary residence. Payment is usually made direct to the third party provider. In no circumstances do the attendees receive money to pay for accommodation or travel.

Centrelink also pays a meal and incidentals allowance to attendees who travel away from their ordinary residence to cover the cost of meals consumed whilst travelling, and other incidental expenses. The travel does not have to involve an overnight stay away from their ordinary residence.

The allowance is paid by reference to the relevant rates for allowances that apply to Centrelink employees and is in accordance with the reasonable travel allowance rates for meals and incidental expenses as determined and published annually by the Commissioner of Taxation. [1]

Attendees who receive the allowance are not required to provide evidence of expenditure to Centrelink, nor are they required to refund any unspent portion.

The payment of the allowance is not covered by any provision in the Social Security Act 1991 .

Centrelink normally provides food and drink for attendees at the meetings. Where Centrelink provides a meal to attendees, no allowance is provided in respect of that meal.

The allowance payments to representatives of peak bodies who attend the meetings in their capacity as employees of their organisations are assessable as ordinary income under section 6-5.

The allowance payments made to volunteer attendees are not assessable as ordinary income under section 6-5 or as statutory income under section 6-10.

Expenses incurred in relation to meals and work-related incidental expenses by employee representatives of peak bodies who travel away from their ordinary residence overnight are deductible under section 8-1.

Expenses incurred in relation to work-related incidentals by employee representatives of peak bodies who do not travel away from their ordinary residence overnight are deductible under section 8-1. However, meal expenses incurred in conjunction with part-day travel are a private expense and are not deductible.

Expenses incurred by volunteer attendees in relation to items covered by the allowance are not deductible under section 8-1.

The substantiation exception in section 900-50 does not apply to attendees. They are required to substantiate any claims for expenditure covered by the allowance.

A payment or other benefit received by a taxpayer is assessable income if it is: • income in the ordinary sense of the word (ordinary income); or • an amount or benefit that through the operation of the provisions of the tax law is included in assessable income (statutory income).

Subsection 6-5(1) provides that the assessable income of a taxpayer includes income according to ordinary concepts (ordinary income).

The legislation does not provide specific guidance on the meaning of income according to ordinary concepts. However, a substantial body of case law exists which identifies likely characteristics.

In GP International Pipecoaters Pty Ltd v. Federal Commissioner of Taxation , [2] the Full High Court stated: To determine whether a receipt is of an income or of a capital nature, various factors may be relevant. Sometimes the character of receipts will be revealed most clearly by their periodicity, regularity or recurrence; sometimes, by the character of a right or thing disposed of in exchange for the receipt; sometimes, by the scope of the transaction, venture or business in or by reason of which money is received and by the recipient's purpose in engaging in the transaction, venture or business.

Amounts that are periodical, regular or recurrent, relied upon by the recipient for their regular expenditure and paid to them for that purpose are likely to be ordinary income, as are amounts that are the product in a real sense of any employment of, or services rendered by, the recipient. [3] Amounts paid in substitution for salary or wages foregone or lost may also be ordinary income. [4]

Ultimately, whether or not a particular receipt is ordinary income depends on its character in the hands of the recipient. [5] The whole of the circumstances must be considered [6] and the motive of the payer may be relevant to this consideration. [7]

The employee representatives of peak bodies attend the reference group meetings in their capacity as employees of those peak bodies. As attendance is part of the person's duties as an employee, the allowance is assessable as ordinary income under section 6-5 as a product of that employment.

It does not matter that the allowance is paid by someone other than the person's employer. [8]

The volunteer attendees are not Centrelink employees and do not carry on a business of providing consultation services.

Only attendees who travel away from their ordinary residence overnight or for an extended period on the day of the meeting receive the allowance. Other attendees, who also provide the same service to Centrelink, do not receive an allowance. Centrelink expressly states that the allowance is not paid as consideration for services received and the quantum of the allowance is consistent with its express purpose of covering reasonable out-of-pocket expenses for meals consumed whilst travelling. The allowance as such is inconsistent with being paid as consideration for time spent or expertise offered. In these circumstances it is considered that the allowance is not a product of the services rendered.

The allowance is a one-off payment per attendance. The volunteer attendees who receive it do not depend on it for their ordinary expenditure. It is not something that they can expect to receive, as their attendance is dependent on Centrelink's invitation to participate and meetings are held on a needs basis.

In summary, the allowance is: • not a product of employment, a business or services rendered by the recipient; • not connected to the regular income-producing activities of the recipient; • not periodical, regular or recurrent; • not relied upon by the recipient for their regular maintenance; and • not paid by Centrelink as a reward for services but to cover the reasonable out-of-pocket expenses of the recipient.

In the circumstances it is considered that the allowance is not ordinary income of the volunteer attendees.

A list of the statutory income provisions can be found in section 10-5. That list includes a reference to section 15-2.

Subsection 15-2(1) provides that assessable income includes: ... the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you ... The subsection is the current equivalent of the now repealed paragraph 26(e) of the Income Tax Assessment Act (ITAA 1936), and for present purposes is not materially different from the former provision.

Section 15-2 can apply where services are rendered even though there is no employer-employee relationship. It may also apply where the allowance et cetera is paid voluntarily.

In considering the situation where services are rendered outside of an employment relationship, the Full Federal Court in Federal Commissioner of Taxation v. Holmes (1995) 58 FCR 151 stated (at 154-155): The words of the section are broad indeed, although not without limit, cf Federal Commissioner of Taxation v. Dixon (1952) 10 ATD 82; (1952) 86 CLR 540. They exclude, for example, a payment which is received by the recipient as a mere gift: Scott v. F C of T (1966) 117 CLR 514. To fall within s 26(e) there must be 'a real relation between the receipt and... services': Hayes v. Federal Commissioner of Taxation (1956) 11 ATD 68 at 72; (1956) 96 CLR 47 at 54. Or, as Fullagar J put it in F C of T v. Dixon (supra at ATD 90; CLR 564) the payment must have the 'character of a reward for services rendered or to be rendered'.

Smith v. Federal Commissioner of Taxation (1987) 164 CLR 513 concerned a payment within an ongoing employment relationship. However, members of the High Court commented on the more general application of paragraph 26(e) of the ITAA 1936. Wilson J, having referred to the judgments in Dixon [9] and Hayes , [10] stated that, in relation to services rendered apart from employment, paragraph 26(e) of the ITAA 1936 applied only where the payment was, directly or indirectly, a reward for services rendered or to be rendered. [11] Gaudron J, with whom Deane J agreed, expressed the same view. [12]

Where services are rendered outside an employment relationship, an amount will be assessable under section 15-2 if there is a 'real relation' between the payment and the services rendered in the sense of that the payment is a reward for those services. In order to determine if such a relationship exists so that subsection 15-2(1) makes an allowance et cetera assessable, 'the total situation of the taxpayer' has to be considered. [13] The reason why a payment is made is relevant to this consideration, and motive may be evidence of this. [14]

In the present circumstances the allowance paid to volunteer attendees: • is an incident of a personal pursuit of a non-commercial nature rather than an incident of an income-producing activity; and • for the reasons given in paragraph 38 of this Ruling, does not have the character of a reward or remuneration for the services the volunteer attendee provides to Centrelink by attending and contributing at the reference group meeting.

In these circumstances, for the purposes of section 15-2, there is no 'real relation' between the allowance and the services rendered by the attendee and the allowance is therefore not assessable under that provision.

As there is no other provision under which the voluntarily paid allowance is assessable as income, the allowance is not assessable as statutory income under section 6-10.

To be deductible under section 8-1, an outgoing or loss must be incurred in gaining or producing your assessable income and not be an outgoing or loss that is capital, of a capital nature, or of a private or domestic nature.

As a general rule, expenditure on meals is private and therefore not deductible. In Federal Commissioner of Taxation v. Cooper (1991) 29 FCR 177, Hill J stated (at 201): Food and drink are ordinarily private matters, and the essential character of expenditure on food and drink will ordinarily be private rather than having the character of a working or business expense. However, the occasion of the outgoing may operate to give to expenditure on food and drink the essential character of a working expense in cases such as those illustrated of work-related entertainment or expenditure incurred while away from home.

In the Commissioner's view, for meal expenses to have an employment-related character they have to be incurred in conjunction with travel away from home overnight. In Taxation Ruling TR 2004/6, the Commissioner defines 'travel away from the employee's ordinary residence' as requiring an overnight stay (paragraph 89). In the absence of an overnight stay, a meal expense lacks the characteristics of a working expense. [15]

Incidental work-related expenses incurred by the employee representative, such as car parking fees at the meeting venue, are deductible irrespective of whether the employee representative travels away from their ordinary residence overnight to attend the meeting.

Attendees who attend reference group meetings in their capacity as employees of a peak body are required to substantiate their claims for deductions in full, as the exception in section 900-50 will not apply to them. This is because the expenses they incur are not 'travel allowance expenses' as defined in subsection 900-30(2). A 'travel allowance expense' is defined in the subsection as 'a loss or outgoing you incur for travel that is covered by a *travel allowance'. A 'travel allowance' is defined in subsection 900-30(3) as 'an allowance your employer pays or is to pay to you ...'. As the attendees are not employees of the payer (Centrelink), the allowance is not a 'travel allowance' for Division 900 purposes and the expenses are not 'travel allowance expenses'.

Because the expenses incurred by attendees are not 'travel allowance expenses', the substantiation exception in section 900-50 cannot apply.

The volunteer attendees' attendance at the meetings is not something they do in the course of gaining or producing their assessable income. Therefore any expenses incurred personally by them are not incurred in gaining or producing their assessable income and are not deductible under section 8-1.

The following is a detailed contents list for this Ruling: Paragraph What this Ruling is about 1 Relevant provision(s) 2 Class of entities 3 Qualifications 5 Date of effect 9 Scheme 10 Ruling 23 Income 23 Deductions 25 Substantiation 28 Appendix 1 - Explanation 29 Ordinary income 30 Employee representatives of peak bodies 35 Volunteer attendees 37 Statutory income 42 Volunteer attendees 48 Deductibility of expenses 51 Representatives of peak bodies 51 Substantiation 55 Volunteer attendees 57 Appendix 2 - Detailed contents list 58