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Alienation of Personal Services Income Rulings: The Road Not Taken

Publication date: 31 Aug 01 | Source: THE TAX INSTITUTE

These 112 pages of rulings are highly concessionary and, combined with the law changes introduced into Parliament yesterday, will mean only 166,000 people are likely to be affected. Presumably, these will be principally knowledge workers who are unable to satisfy the so-called results (rectification) test. The rulings fail to address how these knowledge workers such as trainers, mentors, and management advisors will produce a measurable result let alone rectify a poor result in order to meet the results test.

Despite the great advances made, Ms McCleary points out that there is still a way to go down the road to ensure that the law works well.

'An issue in need of urgent clarification is how persons earning personal services income are supposed to fill in the tax returns due by 31 October,' said Ms McCleary. 'The information requested in the returns is based upon the 'old law', not the law as it will be amended or the law outlined in these rulings. For example, the information in tax pack about alienation is different to the position outlined today.'

Other issues that are not dealt with in the rulings are:

  • Double taxation in respect to superannuation payments, car parking and meals.
  • Financial Planners can still fall within the measures if they carry out any incidental client work on a principal's premises.

    Finally, there is a clear warning in both the rulings and the explanatory materials to the new law that any contractor who earns personal service income, whether caught by these measures or not, will still be unable to income split or store low-tax profits in companies. The ATO has made it clear that all contractors will be subject to the operation of the general anti avoidance provisions. Using the Government's own figures, more than 1.2 million Australians will need to examine and understand Australia's complex anti avoidance rules in Part IVA of the tax laws.

    As the failure of Part IVA was touted as being the major reason for introducing this legislation the fact that it is still needed to stop this behavior vindicates the Taxation Institute's view that the new alienation legislation was the law we never needed to have.

    'The road to certainty again has been bypassed,' said Ms McCleary.