 |
        |
|
|
|
|
|
Alienation of Personal Services Income Introduction Under the New Tax System, if you provide personal services either directly or through a company, partnership, or trust (personal services entity) you need to consider whether you are carrying on a personal services business. If you are
conducting a personal services business your deductions will be limited. If a personal
services entity has income that that is your personal services income, but is
not carrying on a personal services business, the income will be treated as your
assessable income for taxation purposes. The deductions that can be claimed
against your personal services income by the entity are also limited. When do
these measures apply from? The new measures apply from July 1, 2000. Until the
2002 – 2003 income year, they do not affect payees under the Prescribed
Payments System, who made a payee declaration that is in force on or before 14
April 2000. Why are
these measures being introduced? They have being introduced by the ATO to ensure that personal services income paid directly to an individual or channelled through a company, partnership or trust will be treated in the same way. The
deductions that can be claimed by the individual or the entity against personal
services income are generally limited to those an employee can claim. What is
personal services income? This is income that is mainly a reward for an individuals personal efforts or skills. Income that
is mainly from producing a result from personal efforts or skills is also
personal services income. Only individuals can have personal services income. Who makes
an assessment? If 80% or more or more of the personal services income comes from one source, the individual or personal services entity will need to apply to the ATO for a determination that they are conducting a personal services business if the measures are not to apply. The ATO will
normally consider the employment and business tests in making a determination. In some cases
the ATO can also have regard to unusual circumstances that affect the taxpayers
ability to pass at least one of the three tests. The ATO can,
in certain circumstances, also make a determination based on further grounds
regardless of whether the taxpayer meets any of the three personal services
business tests. Can I make
a self-assessment? If less than 80% of an individual’s personal services income comes from one source, the individual or personal services entity can self assess whether they pass at least one of the three tests. However you can consider unusual circumstances or further grounds in assessing whether you satisfy any of the tests. Personal Services Business Division 87 of the legislation sets down the rules for personal services businesses. Section 87-15 provides:
(1) the unrelated clients test under section 87-20, subject to unusual circumstances, the business derives income from two or more unrelated clients (2) the employment test under section 87-25, at least 20% of the principal work of the business (as distinct from administration or ancillary work) is derived through the services of an employee rather than the main service provider (3) the business premises test under section 87-30, a separate business premise is involved. What Should I do? Where the new measures do apply, you will need to review your business structures by which personal services are provided, and review the future of investments held through a personal service entity or associated entity.
|
|
|
|
Send
this page to a client