Taxation Ruling IT 2639 - Income tax : personal services income

What this ruling is about: 1. This Ruling: 2. The Ruling will assist tax officers and practitioners in applying the following Taxation Rulings:


Ruling: Income from personal services defined: 3. "Income from personal services" is income that an individual taxpayer earns predominantly as a direct reward for his or her personal efforts by, for example, the provision of services, exercise of skills or the application of labour. The inclusion of predominantly in this definition allows for the situation where personal services involve the use of some equipment, for example the drawing board of an architect. 4. Some examples of income from personal services included in Taxation Rulings IT 2121 (para 17) and IT 2330 (para 36) are: 5. The concept of income from personal services is to be contrasted with the term "income from personal exertion" as defined in subsection 6(1). That definition includes income consisting of earnings, salaries, wages, commissions, fees, bonuses, pensions, superannuation allowances, retiring allowances and retiring gratuities, allowances and gratuities received in the capacity of employee or in relation to any services rendered, the proceeds of any business carried on by the taxpayer either alone or as a partner with any other person, ... and so on. As can be seen, the concepts of income from personal services and income from personal exertion may overlap but are not coextensive. 6. For a more detailed consideration of the views expressed in paragraphs 3 to 5, see Tupicoff v. F.C. OF T. 84 ATC 4851; 15 ATR 1262 and F.C. OF T. v. Gulland, Watson v. F.C. OF T. and Pincus v. C. of T. 85 ATC 4765; 17 ATR 1. See also IT 25, IT 2121, IT 2330 and IT 2503 for a full discussion of the interactions between personal services income, income splitting, section 260 and Part IVA of the Act. | Income from the business structure defined: 7. In this Ruling "income from the business structure" refers to income other than "income from personal services". Income derived by a firm or practice which has substantial income producing assets, or many employees, or both, is more likely to be generated from the income yielding structure of the business rather than from the rendering of personal services. | B. Factors for Identifying Income from Personal Services: 8. Whether a taxpayer derives income from rendering personal services is a question of fact and degree to be determined in the circumstances of each case. The crucial issue is the extent of the connection between the income concerned and the services rendered by the particular taxpayer involved. The following factors need to be considered in determining whether a taxpayer derives income from personal services, though no one factor is determinative. | Income from several sources: 9. In some situations, a taxpayer may derive both personal service income and other income. For example, as explained in Taxation Ruling IT 2408 (Income splitting: insurance commissions), an insurance agent may derive income from initial commissions (personal service income) and from renewal commissions (other income). Similarly, a sole medical practitioner may also derive investment income. In these cases the two types of income should be apportioned and treated independently. | Income of a practice company or trust: 10. For the purpose of determining whether a practice company or trust falls within the scope of IT 2503 (and only for that purpose), this Office will apply the following guidelines as a general rule of thumb: 11. In paragraph 10: 12. The paragraph 10 rule of thumb applies to income derived in the income year commencing 1 July 1991 and later years of income. COMMISSIONER OF TAXATION 20 June 1991 EDR Ref.: 14




Date of effect: Immediate


Related rulings: IT 25, IT 135, IT 2121 IT 2330 IT 2403 IT 2408 IT 2503
Legislative references: 6(1) 25
Case references: Tupicoff v. F.C. OF T 84 ATC 4851 15 ATR 1262
Subject references: INCOME - FROM PERSONAL SERVICES PERSONAL SERVICES INCOME