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Edited version of private ruling
Authorisation Number: 1011824607366
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Ruling
Subject: Exempt Income
Question
Will the distributions from a trust to the extent that they represented personal services income of an individual be non assessable non exempt income in your hands whether the income is distributed or accumulated?
Answer
Will the distributions from a trust to the extent that they represented personal services income of an individual be non assessable non exempt income in your hands whether the income is distributed or accumulated?
Yes
This ruling applies for the following periods:
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commences on:
1 July 2011
Relevant facts
1) The trustee of a trust (you) has applied for a Private Binding Ruling for the 2011-12, 2012-13 and 2013-14 financial years.
2) You have applied in relation to whether distributions of income from a trust, to the extent that they represent attributed personal services income of an individual are non assessable non exempt income.
3) The scheme or arrangement is as follows:
· You will receive distributions of income from the trust.
· Income from the trust will contain the personal services income of an individual.
· To the extent that the income contains the personal services income of the individual, that income would be attributed to the individual on the basis that the trust is not a personal services business.
Relevant legislative provisions
Income Tax Assessment Act 1997 6-15(3)
Income Tax Assessment Act 1997 86-15
Income Tax Assessment Act 1997 86-30
Income Tax Assessment Act 1997 86-35
Reasons for decision
Detailed reasoning
You are seeking a ruling on whether distributions of income from a trust would be non assessable non exempt income in your hands on the basis that the income is attributed to an associated individual under the personal services income provisions.
You state that you will be receiving distributions of income from the trust and that these amounts would represent amounts that are exempt under section 86-30 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that the income has been attributed to the individual.
Section 86-30 of the ITAA 1997 is as follows:
Ordinary income or statutory income of the personal services entity is neither assessable income nor exempt income of the entity to the extent that it is personals services income included in your assessable income under section 86-15.
Where there are later payments of personal services income, section 86-35 of the ITAA 1997 applies to those payments.
Section 86-35 of the ITAA 1997 is as follows:
(1) To the extent that a payment by the personal services entity, or by your associate, is a payment to you or any of your associates of:
(a) personal services income included in your assessable income under section 86-15; or
(b) any other amount that is attributable to that income;
the payment:
(c) is neither assessable income nor exempt income of the entity receiving it; and
(d) is not an amount that the entity making it can deduct.
(2) To the extent that you are entitled, or any of your associates are entitled, to a share of the net income of the personal services entity, or of any of your associates, and that income is:
(a) personal services income included in your assessable income under section 86-15; or
(b) any other amount that is attributable to that income;
(c) that share is neither assessable income nor exempt income of the entity receiving it or entitled to receive it.
Your situation is covered by subsection 86-35(2) of the ITAA 1997. As you will be entitled to a share of the net income of the trust, your share will include amounts of the personal services income of the individual. To the extent that the amount is personal services income attributed under section 86-15 of the ITAA 1997 the amount would be non assessable income non exempt income under subsection 86-35(2) of the ITAA 1997.
Non assessable non exempt income is not assessable income as defined in subsection 6-15(3) of the ITAA 1997
Subsection 6-15(3) of the ITAA 1997 is as follows
If an amount is non assessable non exempt income it is not assessable income
As the distribution from the trust contains amounts that are non assessable non exempt income under subsection 86-35(2) of the ITAA 1997 those amounts would not form part of your assessable income. This is the case whether the amounts are distributed or accumulated.