Attribution rule for personal services income

There are specific anti-avoidance tax rules which prevent higher income earners from diverting personal services income to other associated entities such as companies and trusts. The policy intention is to ensure that these taxpayers cannot avoid the highest personal tax rate of 33% through having their income taxed at the company tax rate of 28 cents per dollar.
Under the attribution rules, the amount of income that is derived by the associated entity of a taxpayer who provides personal services is attributed to that taxpayer, after the deduction of allowable expenses. The amount attributed is deductible to the associated entity in the income year in which the amount is attributed.

These rules apply purely for the purposes of income tax. The parties’ transactions remain unaffected in other legal or commercial contexts.

There is an exemption which provides that the Rules will not apply where less than 80% of the Service Entity's gross income from personal services is derived from the sale of services to the Purchasing Company or their associates.
If you think that your circumstances may breach the attribution rule then please contact us.