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Edited version of private ruling
Authorisation Number: 1011772543124
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Ruling
Subject: Assessable professional income
Question
Are the dividends received from your private company regarded as assessable professional income?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
The scheme commenced on
1 July 2009
Relevant facts
You are an author.
Several years ago you assigned your writing and publishing income to a private company of which you are the sole director and sole shareholder. You are also an employee of the company.
The company owns the copyright and receives the income from your works.
In return for the assignment, you state that you have the right to receive income and dividends from the company.
The company derives this writing and publishing income. The company also derives some interest income.
The company pays you a dividend.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 405-20.
Income Tax Assessment Act 1997 Section 405-25.
Income Tax Assessment Act 1997 Section 405-30.
Reasons for decision
Summary
The dividends you receive from your private company are paid to you because you are a shareholder and not because you are an author. The dividends are not regarded as assessable professional income.
Detailed reasoning
Division 405 of the Income Tax Assessment Act 1997 (ITAA 1997) allows special tax rates to apply to certain above-average special professional income.
Division 405 of the ITAA 1997 only applies to assessable professional income derived by an individual Australian resident who is a special professional. That is, Division 405 has no application to a company.
Subsection 405-25(1) of the ITAA 1997 states that you are a special professional if you are an author of a literary, dramatic, musical or artistic work. Therefore as an author you are considered to be a special professional for Division 405 of the ITAA 1997 purposes.
Although you are a special professional, it does not follow that all your income would necessarily qualify as assessable professional income.
Subsection 405-20(2) of the ITAA 1997 states that your assessable professional income includes any assessable income that you derive as a reward for providing services relating to your activities as a special professional. Subsection 405-20(5) of the ITAA 1997 states that your assessable professional income also includes any assessable income you derive as consideration for assigning the copyright in a literary work of which you are the author.
You contend that you receive dividends from the company because you assigned the copyright for your works to the company. Although there is a connection between the dividends and the copyright assigned to the company, it is considered that this is not sufficient for the dividends to meet the definition of assessable professional income. You receive dividends from the company because you are a shareholder and not because you are an author. The company can choose how much if any dividends to pay you as a shareholder each year. As the company also derives interest income, the dividend payment is not funded solely from writing or copyright income. Accordingly, your dividend income does not qualify for the special professional tax rates and Division 405 of the ITAA 1997 does not apply.
The position would not be affected if you were paid income as an employee of the company. Section 405-30 of the ITAA 1997 specifically excludes from assessable professional income any assessable income derived under a scheme to provide services to another person by engaging in activities as the author of an artistic work (unless it was for specified works) and there is substantial continuity of service.