ATO reaffirms personal services income strategy

4 September 2015

The Australian Taxation Office (ATO) has reaffirmed its ruling that the anti-avoidance rule for income tax did not apply to the Ryan v. Commissioner of Taxation (2004) case through a private binding ruling.

Ryan's case involved a personal services business operating through a trust that was paying super contributions to the spouse of the principal in excess of the market value.

However, the ATO ruled the dominant purpose of the trust was to increase the superannuation balance, and the spouse did not receive any other benefits.

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The ATO therefore ruled that Part IVA of the Income Tax Assessment Act 1936 — the general anti-avoidance rule for income tax — did not apply to the case.

It was also irrelevant that the spouse intended to pay the assessed tax on the excess concessional contributions from sources outside of super.

Speaking to Money Management, Townsends Business and Corporate Lawyers special counsel for superannuation, Michael Hallinan, said the case had been brought up again confirm the ATO’s ruling validity after the 2007 contribution change.

“The Ryan’s case pre-dates 2007 so that’s when we had the change over from the old contributions system to the new caps,” he said.

“There was probably concern that the change-over might had undermined the reasoning of the case.”

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