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Edited version of your written advice
Authorisation Number: 1012755658214
Ruling
Subject: Assessable income
Question 1
Is the total amount of your fees less GST included in your assessable income?
Answer
Yes.
Question 2
Are you entitled to a deduction in relation to your fees paid to entity A?
Answer
Yes.
Question 3
Is the GST amount included in your allowable deductions?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts
You are a professional.
You are registered for the goods and services tax (GST).
You pay fees to entity A for the services they provide.
Entity A deducts fees from your receipts and also pays amounts on your behalf such as telephone costs and subscriptions which include a GST component.
You are liable for GST respect of the payments you receive for your services.
You are entitled to an input tax credit for the GST payable on the fees you pay.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 8-1.
Income Tax Assessment Act 1997 Section 17-5.
Income Tax Assessment Act 1997 Section 27-5.
Reasons for decision
Assessable income
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year.
The income you receive from your work as a barrister is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.
Subsection 6-5(4) of the ITAA 1997 provides that in working out whether you have derived an amount of ordinary income and if so, when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.
In your case, your assessable income includes the total amount that you derive as a professional. The fact that fees may be deducted from this amount does not reduce your assessable income. This amount is applied or dealt with on your behalf and is assessable under subsection 6-5(4) of the ITAA 1997.
Under section 17-5 of the ITAA 1997, GST collected on taxable supplies is non-assessable non-exempt income.
An amount which is non-assessable non-exempt income is excluded from your assessable income.
Therefore, the amount of GST is not included in your assessable income.
Allowable deductions
Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.
Under section 27-5 of the ITAA 1997 you cannot deduct a loss or outgoing you incur, to the extent that the loss or outgoing includes an amount relating to an input tax credit to which you are entitled.
In your case you are entitled to a deduction for work related expenses such as fees, work telephone calls and work related subscriptions. However where you are entitled to an input tax credit, your allowable deduction does not include the amount of GST paid on your work related expenses.
In summary, as you are registered for GST, any GST collected on your services is not included in assessable income. GST paid on work related expenses is not included in your allowable deductions. That is, your assessable income and deductions must be net of GST when calculating your taxable income.
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