ATO ID 2008/22
Income Tax
Entrepreneurs' tax
offset and personal services income: partnership
FOI status: may be released
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Issue
If the provision is otherwise satisfied, is a partner in a
partnership that is a personal services entity that is not
conducting a personal services business (PSB) entitled to
the entrepreneurs' tax offset (ETO) under section 61-510 of
the Income
Tax Assessment Act 1997 (ITAA
1997) in respect of personal services income (PSI) that is
attributed to the partner?
Decision
Yes. A partner in a partnership that is a personal services
entity that is not conducting a PSB, is entitled to the ETO
under section 61-510 of the ITAA 1997 in respect of PSI that
is attributed to the partner if the provision is otherwise
satisfied.
Facts
The partnership is not conducting a PSB.
The partnership's ordinary income is the PSI of the partner.
The partnership is a small business entity for the year and
its aggregated turnover for the year is less than $75,000.
The partnership has net small business income for the year.
Reasons for Decision
Subsection 61-510(1) of the ITAA 1997 states:
You are entitled to a *tax offset for an income year
if:
-
(a)
-
you are a partner in a
partnership during the year; and
-
(b)
-
the partnership is a
*small business entity for the year; and
-
(c)
-
the partnership's
*aggregated turnover for the year is less than
$75,000; and
-
(d)
-
the partnership has *net
small business income for the year; and
-
(e)
-
your assessable income for
the year includes a share (your
net small business income share) of
that net small business income.
-
·
-
denotes a term defined in
section 995-1 of the ITAA 1997
In the present circumstances the partner satisfies
paragraphs 61-510(1)(a) to 61-510(1)(d) of the ITAA 1997.
To satisfy paragraph 61-510(1)(e) of the ITAA 1997 the
partner's assessable income must include a share of the
partnership's net small business income.
Through the application of sections 86-15 and 86-20 of the
ITAA 1997, the assessable income of the partner who performs
the personal services includes the amount of ordinary income
of the partnership that is the PSI of the partner, reduced
by certain deductions to which the partnership is entitled.
Pursuant to section 86-30 of the ITAA 1997, this amount does
not form part of the assessable income of the partnership.
However, section 61-525 of the ITAA 1997, provides that an
entity's net small business income is the amount by which
the entity's small business entity turnover for the year
exceeds the entity's deductions attributable to that
turnover. Further, the small business entity turnover is the
total ordinary income that the entity derives in the
ordinary course of carrying on a business.
The provision of personal services by the partner for the
partnership results in ordinary income derived by the
partnership in the ordinary course of carrying on its
business and is included in the partnership's small business
entity turnover.
Therefore, while the PSI is not included in the assessable
income of the partnership, it still forms part of the
partnership's net small business income. As such, the amount
included in the partner's assessable income under section
86-15 of the ITAA 1997 is a share of the net small business
income of the partnership for the purposes of paragraph
61-510(1)(e) of the ITAA 1997.
Accordingly, the partner satisfies all the conditions under
subsection 61-510(1) of the ITAA 1997 and is therefore
entitled to the ETO.
Date of decision: 17
January 2008
|
Year of income: |
Year ended 30 June 2008 |
Legislative References:
Income Tax Assessment Act
1997
subsection 61-510(1)
paragraph 61-510(1)(a)
paragraph 61-510(1)(b)
paragraph 61-510(1)(c)
paragraph 61-510(1)(d)
paragraph 61-510(1)(e)
section 61-525
section 86-15
section 86-20
section 86-30
Keywords
Personal services income
PSI attribution
Partnerships
Rebates and offsets
Date of publication: 25
January 2008
ISSN: 1445-2782
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