After reading the rulings on service arrangements and following the steps outlined in this guide and in the decision matrix, you should be in a better position to review whether your service arrangement has an objective commercial connection with your business activities.
In short, if you can identify how the benefits passing to your business under the service arrangement assist you to conduct your business and you are confident that the service fees and charges are correctly calculated then they are probably deductible.
If, however, you cannot identify any commercial benefits from the service arrangement and/or you are not satisfied that the service fees and charges are correctly calculated then you cannot assume that they will be deductible.
In that case, the deductibility of the service fees and charges may depend on a range of other factors, including:
- the nature of your relationship with the service entity
- the reasons your business had for entering into the service arrangement, and
- the reasonableness of the fees relative to the benefits provided.
If you need any further assistance to resolve the deductibility of your service fees and charges you can contact the Tax Office or apply for a private binding ruling.
Last modified: 15 May 2013QC 18677