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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1051285334691

Date of advice: 3 October 2017

Ruling

Subject: Director's fees

Question 1

Is your income received as director’s fees included in your assessable income?

Answer

Yes.

Question 2

Are you entitled to a deduction for the payment of your directors fees received from an independent company, payable to your employer, in the financial year which the obligation to your employer to make the payment arises?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2018

Year ended 30 June 2019

Year ended 30 June 2020

Year ended 30 June 2021

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You are an employee.

You have been invited to join the Board of a company as a director.

As part of your employment, you are prohibited to receive payment of the director’s fees.

You are required to remit all of the director’s fees received to your employer.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Director’s fees

Section 6-5 of the Income Tax Assessment Act of 1997 (ITAA 1997) provides that an amount is assessable income if it is income according to ordinary concepts.

Director’s fees which are paid for a taxpayer’s services are considered to be ordinary income.

In your case, you will receive remuneration for your services as a director. These payments are ordinary income and be included in your assessable income under section 6-5 of the ITAA 1997.

Deductibility of director’s fees paid over to an employer

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

As a term of maintaining your employment and subsequently taking up the role of board, you are required by your employer to pay onwards to them any amount of remuneration gained for your services as a board member.

In these circumstances, the amounts payable to the employer are outgoings that you necessarily incur in producing your assessable income being the director’s fees. Under subsection 8-1 of the ITAA 1997, you are entitled to claim a deduction for amounts payable to the employer to the extent of fulfilling the statement of terms that has been set out.

Timing of an expense

You incur an expense in an income year when:

The point at which you are liable to pay the director’s fees to the employer is the time you are entitled to the deduction.

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