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ATO Interpretative Decision

ATO ID 2002/1072

Income Tax

Reasonable benefit limits: determination of an arm's length salary - sole trader
FOI status: may be released

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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the applicant who is a sole trader entitled to the determination of an arm's length salary (ALS)?

Decision

No, the applicant who is a sole trader, is not entitled to the determination of an ALS.

Facts

The applicant applied for the determination of an ALS.

The applicant is self-employed and operates a business as a sole trader.

Reasons for Decision

Subregulations 47(3) and (4) of the Income Tax Regulations 1936 (ITR 1936) provide for the determination of an appropriate ALS for a person who is an 'associate' of the person's employer. The Commissioner may approve an ALS after considering relevant factors in accordance with subregulation 47(4) of the ITR 1936.

However for an ALS to be determined under paragraph 47(3)(c) of the ITR 1936, a person must be an 'associate' of the person's 'employer'.

Section 140C of the Income Tax Assessment Act 1936 (ITAA 1936) in relation to the definition of 'associate' for reasonable benefit limits purposes defines 'associate' to have the same meaning as in section 26AAB of the ITAA 1936.

The definition of 'associate' in subsection 26AAB(14) of the ITAA 1936 can never deem a self-employed person to be an associate of himself or herself.

Consequently, a self-employed person is ineligible for the determination of an ALS.

Date of decision:  14 August 2002

Year of income:  Year ended 30 June 1994

Legislative References:
Income Tax Assessment Act 1936
   section 26AAB
   section 140C

Income Tax Regulations 1936
   subregulation 47(1)
   subregulation 47(3)
   subregulation 47(4)

Keywords
Associated persons
Reasonable benefit limits
Transitional RBLs
Salary
Arms length salary

Business Line:  Superannuation

Date of publication:  28 November 2002

ISSN: 1445-2782

history
  Date: Version:
You are here 14 August 2002 Original statement
  23 November 2007 Archived

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