ATO Interpretative Decision
ATO ID 2002/1099 (Withdrawn)
Income Tax
Reasonable benefit limits: determination of an arm's length salary - partnerFOI status: may be released
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This ATO ID is withdrawn from the database because it contains a view in respect of Division 14 of Part III of the Income Tax Assessment Act 1936 and Part 5A of the Income Tax Regulations 1936 (the RBL provisions). The RBL provisions do not apply for the 2007-08 income year and later income years. This ATO ID continues to be a precedential view in respect of decisions for income years up to, and including, the 2006-07 income years.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 a partner in a partnership entitled to the determination of an arm's length salary (ALS)?
Decision
No, a partner is not entitled to the determination of an ALS.
Facts
The applicant applied for the determination of an arm's length salary.
The applicant is solely engaged as a partner in a partnership.
Reasons for Decision
Subregulations 47(3) and (4) of the Income Tax Regulation 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, 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 RBL purposes defines 'associate' to have the same meaning as in section 26AAB of the ITAA 1936.
It was determined in Ellis v Joseph Ellis & Co [1905] 1 KB 324 that a partner cannot be an employee of the partnership as the same person cannot occupy the position of employee and employer. Payment of a 'salary' to a partner is just a distribution of partnership income.
A partner of a partnership cannot be an employee of that partnership. A person who is only engaged as a partner of a partnership is not entitled to the determination of an ALS.
Date of decision: 26 October 2002Year of income: Year ended 30 June 1994
Legislative References:
Income Tax Assessment Act 1936
subsection 26AAB(14)
section 140C
subparagraph 47(3)(c)
subregulation 47(4)
Case References:
Ellis v Joseph Ellis & Co
[1905] 1 KB 324
Keywords
Reasonable benefit limits
Transitional RBLs
Arms length salary
ISSN: 1445-2782
| Date: | Version: | |
| 26 October 2002 | Original statement | |
| You are here | 23 November 2007 | Archived |