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Edited version of your private ruling
Authorisation number: 1011946226978
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Ruling
Subject: Lump sum payment- personal services income
Question 1
Is a lump sum payment received by a personal services entity for signing a contract subject to the Personal Services Income (PSI) provisions?
Answer
No.
This ruling applies for the following period:
Year ending 30 June 2012
The scheme commences on:
1 July 2011
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
Your company (Company A) is personal services entity that conducts a personal services business and employs you to provide these services.
Company A is about to enter into a contract with Company B.
A lump sum will be paid to Company A for entering into the agreement with Company B.
The contract between Company A and Company B is for Company A to provide the premises and ancillary services necessary for Company B to operate a medical practice for a fee that is a percentage of the business income.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5,
Income Tax Assessment Act 1997 Section 84-5 and
Income Tax Assessment Act 1997 Subsection 86-15(2).
Reasons for decision
Detailed reasoning
Personal services income is mainly a reward for an individual's personal efforts or skills. If it is, then it is personal services income. If it is not, then that particular amount of income is not personal services and not within the alienation measures of the personal services income provisions. The income of a personal services entity is not limited to personal service income.
The signing of the contract and the receipt of the lump sum is not a reward for your personal efforts and skills, therefore the payment received by Company A will be considered ordinary income and not within the alienation measures of the personal services income provisions.