Income Tax Assessment Act 1997
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Hide history noteThe amount of your *personal services income included in your assessable income under section 86-15 may be reduced (but not below nil) by the amount of certain deductions to which the *personal services entity is entitled.
Note 1:
Subdivision 86-B limits a personal services entity ' s entitlement to deductions.
Note 2:
If the amount of the deductions exceeds the amount of the personal services income, a deduction for the excess is available to you under section 86-27 . The personal services entity cannot deduct the amount of the excess: see section 86-87 .
86-20(2)
Use this method statement to work out whether, and by how much, the amount is reduced: Method statement
Step 1.
Work out, for the income year, the amount of any deductions (other than *entity maintenance deductions or deductions for amounts of salary or wages paid to you) to which the *personal services entity is entitled that are deductions relating to your *personal services income.
Step 2.
Work out, for the income year, the amount of any *entity maintenance deductions to which the *personal services entity is entitled.
Step 3.
Work out the *personal services entity ' s assessable income for that income year, disregarding any income it receives that is your *personal services income or the personal services income of anyone else.
Step 4.
Subtract the amount under step 3 from the amount under step 2.
Note 1:
Step 4 ensures that, before entity maintenance deductions can contribute to the reduction, they are first exhausted against any income of the entity that is not personal services income.
Note 2:
If the personal services entity receives another individual ' s personal services income, see section 86-25 .
Step 5.
If the amount under step 4 is greater than zero, the amount of the reduction under subsection (1) is the sum of the amounts under steps 1 and 4.
Step 6.
If the amount under step 4 is not greater than zero, the amount of the reduction under subsection (1) is the amount under step 1.
Example 1:
Continuing example 1 in section 84-5 : Assume these additional facts:
• $120,000 of NewIT ' s income is Ron ' s personal services income; • NewIT has deductions (including superannuation contributions) of $50,000 relating to Ron ' s personal services income (step 1); • NewIT has entity maintenance deductions of $8,000 (step 2); • NewIT has investments that produce income. NewIT ' s assessable income, disregarding Ron ' s or anyone else ' s personal services income, is $20,000 (step 3). Because the step 4 amount is less than zero ( − $12,000), step 5 does not apply and, under step 6, the amount of the reduction is $50,000. Therefore the amount included in Ron ' s assessable income is:
$120,000 − $50,000 = $70,000
Example 2:
Assume, as an alternative set of facts, that NewIT ' s assessable income under step 3 was only $2,000.
The step 4 amount would have been $6,000, and, under step 5, the amount of the reduction would have been $56,000 (adding the amounts under steps 1 and 4). The amount included in Ron ' s assessable income would then have been:
$120,000 − $56,000 = $64,000
Note:
The personal services entity ' s deductions that do not relate to your personal services income and that are not entity maintenance deductions cannot reduce the amount included in your assessable income under section 86-15 .
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