Getting it right
The application of the GAAP requires a conclusion that the dominant purpose of the arrangement was to obtain a tax benefit. Take the following steps to prevent the GAAP potentially applying to your situation.
If you operate through a company and there is no income splitting and no retention of profits in the company (for example, if the only advantage for income tax purposes is access to greater superannuation benefits) then the GAAP will not apply.
If a genuine attempt is made to break even, a relatively small amount of taxable income may be paid by the company provided that income is distributed to you by way of a franked dividend in the following year.
An arrangement where you are in business with your spouse through a genuine partnership will be accepted for income tax purposes. However, where the partnership income results from the personal services of one or more of the partners and there is splitting of that income which reduces the amount of income tax which might otherwise be payable, then the GAAP may apply.
If you operate through a trust with a corporate trustee, the conditions are the same as for companies.
You should receive income from the trust in relation to the PSI that is commensurate with your services, or be the sole beneficiary of the trust in relation to that income.
If you are unsure if the anti-avoidance provisions will apply to your business, you can apply for a private binding ruling to obtain certainty for your individual circumstances.
End of attention
Information on how the general anti-avoidance provisions in the income tax act may apply to personal services businesses.
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