IR has issued GA 21/01 which is titled “Tax on any fees paid to a member of a board, committee, panel, review group or task force.”
While the commentary is targeted towards board members, I would suggest that it’s potential application equally to a person who accepts a directorship position either with the company they work for or as an independent, makes it a useful read in any event – and it’s only eight pages!
The first step is to determine who is actually receiving the income – the person in their individual capacity or on behalf of an entity that the person has a connection with – for example, a company which has been contracted to provide a board member and the person is an employee of that company.
If the person is contracting in their own capacity, then the payment will be a schedular payment subject to a withholding tax deduction of 33%, unless the person has either an exemption certificate, a special tax rate certificate or the person has elected their own rate – which can be as low as 10%. From a GST perspective, usually section 6(3)(c)(iii) will exclude the activities of the person from the taxable activity definition and consequently the payments they receive will not be subject to GST (note the section 6(5) proviso of course).
If the person is already providing employment related services to the payer, then any fees paid to the person for their directorship duties and the like, will simply be defined as a payment of salary, wages or an extra pay, and be subject to PAYE deductions accordingly.
However, if the person is required to account for the payments received to another entity, such as their employer or a partnership of which they are a partner for example, then the income is likely to belong to the entity (note IR’s “Connection” commentary) and not the person. Under this scenario, both the withholding tax and GST implications will be determined by the status of the entity. For example, if the income belongs to a partnership, then likely that withholding tax deductions are required unless the partnership has either an exemption certificate or a special tax rate certificate, which it can provide to the payer. If the entity is a company however, then the payments are exempt from withholding tax deductions.
You can locate GA 21/01 within IR’s Tax Technical section of their website.
