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Your service entity arrangements

Check your business is claiming only deductible service fees and charges for your service entity arrangements.

Last updated 14 May 2013

About this guide

This guide can be downloaded in Portable Document Format (PDF): Your service entity arrangements (PDF 188KB)This link will download a file.

The role of this guide is to help you decide whether the payments you make under your service arrangements are deductible under income tax law. It does this by providing you with information to help you decide whether the service arrangement is relevant to the conduct of your business and the charges are correctly calculated. By 'correctly calculated', we mean that the payments are not disproportionate or grossly excessive in relation to the benefits conferred by the service arrangement. This guide will assist you in identifying the market price of those services for the purpose of calculating these claims, or you may choose to use the indicative rates provided to position your arrangement into a low risk audit category.

This guide explains how service arrangements can be conducted to minimise the risk of audit. You will be at a low risk of audit if the level of your service fees are less than or equal to the indicative rates for the services described and you keep documents that explain how those services are relevant to the conduct of your business.

Tax laws exist that deal with arrangements that have a tax-avoidance purpose. This guide does not deal with these rules.

For more information about how these rules may apply to service arrangements see Taxation Ruling TR 2006/2 Income tax: deductibility of service fees paid to associated service entities: Phillips arrangements.

If, after reading this guide, you do decide to review your service arrangement, you will need to ask yourself:

  • how the benefits passing under the service arrangement help you to run your business, and
  • whether the service fees and charges you have agreed to pay under the service arrangement are correctly calculated in the light of the benefits passing to your business under the arrangement.

The information in this guide is part of our compliance response to some practices being adopted in claiming deductions. The guide includes: