Private ruling: personal services income - carried forward losses
Published: February 2013
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012
Date scheme commenced: 1 July 2010

Ruling: Q1: Can a personal service entity retain and carry forward losses from non personal services income (PSI). | A1: Yes.

Relevant facts and circumstances: The company was set up by the owner with public liability insurance, as a requirement of working as an IT contractor. The company has a contract and the owner earns all of their PSI from one source. All the PSI was paid to the company and once the company bank account received the payments the owner transferred them to their personal account as salary. During a year the company was used for professional services along with the IT contract. The income derived from the professional service is substantially lower when compared to the company's total income. Both the owner and the company incurred no expenses for the IT contract. The owner did incur expenses for equipment, printing and stationery. At the moment they are focussed on the IT contract requirements and does not perform any of the other services. Expenses for the year consist of those related to the IT contract. None of the expenses were related to the other services. The company does not have a personal services business determination.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 84-5 | Income Tax Assessment Act 1997 Section 36-17.

Reasons for decision: Summary: PSI is included in the assessable income of the individual whose personal efforts or skills generated the income. PSI is income which is mainly a reward for an individual's personal efforts or skills regardless of whether it is income of another entity (such as a trust, company, partnership or other individual), whether it is for doing work or producing a result or whether it is it is payable under a contract. Only individuals can have PSI. A company, like any other taxpayer, is entitled to carry forward losses incurred in one income year for deduction against its assessable income in subsequent years subject to certain limitations. As the company is considered to be a separate entity from the owner, it can carry forward the losses incurred from the non PSI activities conducted in the relevant years.

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