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Why the ATO might think you are not in business

There are some businesses that the ATO do not really think should be taxed like a businesses. Unfortunately, just having a company or other structure set up does not protect you.

If you earn income mostly from your own personal skill or effort, like many contractors – then you are in danger of the ATO preventing you from accessing the 30% company tax rate and deducting some business expenses.

So, how do you know if you are caught? If you are the person responsible for the income produced by your business, and it’s from your personal efforts – not the use of machinery or trucks, the sale of goods, etc., – then you might be earning personal services income (PSI). The ATO then applies a series of tests to work out if you should be taxed like a business or more like an employee – like whether you work to achieve a specific result or are paid an hourly rate, whether you have multiple clients or just one, if you have an apprentice, where you operate from, etc.

If you earn PSI and you pass all the tests to be taxed like a business, there are still a few catches. For example, the ATO believes that when PSI is derived through a company or a trust, all of this income should generally be paid to the individual who performs the services as salary or as a distribution of profits.

PPT can assist you with business planning and financial analysis. To discuss your planning requirements speak with your PPT representative or call our office on (03) 5331 3711.

DISCLAIMER: The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

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