Jason Biggins, Director, Tax

The updated fees framework for payments to members of statutory and other Crown bodies (Cabinet Office Circular CO (09) 05) provides further guidance from the Inland Revenue Department on the tax treatment of these payments. A link to the circulars page is attached below.

• http://www.dpmc.govt.nz/cabinet/circulars/index.html

In general, fee payments derived by board members are subject to withholding tax at the rate of 33%, unless Inland Revenue has issued an exemption certificate or special rate certificate.

The circular mentions that for tax purposes, fee payments are derived by the appointed member, unless the member is performing the service as an agent or representative of another entity that has agreed to perform the services, and the fees are paid to that entity. Arguably, the exception regarding agents or representatives could apply if the board member was a partner in a law firm or accountancy firm or was an employee of another public entity. In this case, the income is treated as being derived by the other entity, rather than the board member. However, in general, the income should be treated as being derived by the person specified on the letter of appointment.

It is interesting to note that the circular states that fees derived by the board member should only be paid to another entity (such as a company) if withholding tax has already been deducted. Fees derived by companies are not subject to withholding tax, but if the fees have been derived by the board member, they should be taxed as the board member's income. Simply asking for the fees to be paid to a company does not make the fees exempt from withholding tax.

The circular states that fees derived by board members are not subject to GST. The circular makes no mention of the GST treatment of fees derived by other entities, but arguably GST could apply in this situation.

Page last updated: 18 November 2010