Decision impact statement
Horner v Commissioner of Taxation
Venue: Administrative Appeals Tribunal
Venue Reference No: 2008/3558-3559
Judge Name: Deputy President G.L. McDonald
Judgment date: 20 July 2009
Appeals on foot:
No.
Impacted Advice
Relevant Rulings/Determinations:
Subject References:
Personal services income
Personal services entity
Medicare levy
Précis
Outlines the Tax Office's response to this case which concerned whether the income of a company, which was attributable to the personal services of the applicant, was assessable to the applicant under section 86-15 of the Income Tax Assessment Act 1997 ("ITAA 97")
Decision Outcome:
Partially unfavourable. Decision under review varied to the extent of the Commissioner's concessions.
Summary of Facts
The applicant was the sole director, shareholder and employee of Torville Pty Ltd during the 2004 and 2005 income years. Torville provided computer consultancy services to its clients and derived all of its income in the relevant years as a result of the services provided by the applicant.
The applicant was originally assessed, based on his returns, on amounts of salary, director's fees, interest, franked dividends and other income. The Commissioner amended those assessments by excluding the dividends and attributing income of Torville to the applicant as personal services income.
The Commissioner conceded before the hearing in the AAT that certain motor vehicle expenses of Torville could be offset under section 86-20 against the applicant's personal services income.
The applicant argued before the AAT that his personal services income could not be assessed to him under section 86-15 because section 86-10 imposed a threshold test that required there to be an overall reduction in income tax payable when the income was assessed to Torville, as compared to when it was assessable to him.
In written submissions provided to the AAT after the hearing, the Commissioner conceded that the income for the 2004 year was not attributable to the applicant because Torville conducted a personal services business in that year (Torville met the unrelated clients test under section 87-20 in that year). The Commissioner also accepted that the Medicare levy surcharge had not been included for the 2005 year.
Issues decided by the tribunal
Division 86 of the ITAA 97 does not contain a 'threshold test' requiring a demonstrated deferral or reduction of income tax under an arrangement before the provisions can apply. Once it had been determined that the applicant was providing personal services, then section 86-15 applies, and, subject to any offset claimable under section 86-20, the amount of personal services income is attributable to the applicant (paragraph 40).
The Tribunal agreed with the applicant that the Medicare Levy surcharge had been omitted for the 2005 year and that an adjustment to include that amount should be made (paragraph 44).
Tax Office view of Decision
The decision affirmed the Commissioner's interpretation of Division 86 and confirmed that no 'threshold test' is contained in section 86-10 as contended by the applicant. The decision was adverse only to the extent of the Commissioner's concessions which were made by the Commissioner as soon as errors not in dispute before the Tribunal were identified.
Administrative Treatment
Implications on current Public Rulings & Determinations
None.
Implications on Law Administration Practice Statements
None
Court citation:
[2009] AATA 537
2009 ATC 10-097
76 ATR 102
Legislative References:
Income Tax Assessment Act 1997
84-5
Division 86
86-10
86-15
86-20
86-35
86-75
Division 87
87-5
87-15
87-18
87-20