Attribution rule for income from personal services

GB 27 Attribution rule for income from personal services
Application of section GB 29

(1)

An amount of income in an income year of a person (the associated entity) is attributed to another person (the working person) under section GB 29 for the working person’s corresponding tax year if,—

(a)

during the income year, a third person (the buyer) acquires services from the associated entity, and the services are personally performed by the working person; and

(b)

the working person is associated with the associated entity; and

(c)

the threshold test in subsection (2) is met; and

(d)

none of the exemptions in subsection (3) applies.

Threshold for application of attribution rule

(2)

The attribution occurs only if—

(a)

80% or more of the associated entity’s total income from personal services during the income year is derived from the supply of services to the buyer, a person associated with the buyer, or a combination of them; and

(b)

80% or more of the associated entity’s income from personal services during the income year is derived through services personally performed by the working person, a relative of the working person, or a combination of them; and

(c)

the working person’s net income for the income year, assuming section GB 29 applies in relation to the associated entity and working person, is more than $70,000; and

(d)

substantial business assets are not a necessary part of the business structure that is used to derive the total income referred to in paragraph (a).

Exemptions

(3)

The attribution does not occur—

(a)

if both the associated entity and the working person are non-residents at all times during the associated entity’s income year:

(b)

if the associated entity is a natural person and is neither a partner of a partnership nor a trustee of a trust:

(c)

to the extent to which the services personally performed by the working person are essential support for a product supplied by the associated entity:

(d)

if the total amount to be attributed to the working person, for the associated entity and the income year, is less than $5,000, unless—

(i)

the application of this paragraph would prevent income being attributed to the working person for the income year in relation to another associated entity:

(ii)

the associated entity is a CFC and a person who holds an attributing interest in the CFC files, after the date (the Royal assent date) on which the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 receives the Royal assent, a return of income in which the amount of income attributed to the working person is determined under this section:

(e)

if the associated entity is a CFC and—

(i)

the amount gives rise to attributed CFC income under section CQ 2(2B) (When attributed CFC income arises) or attributed CFC loss under section DN 2(2) (When attributed CFC loss arises) for a person who holds an attributing interest in the CFC; and

(ii)

the person who holds the attributing interest in the CFC files, after the Royal assent date, a return of income in which the amount attributed to the working person is determined under section EX 20B (Attributable CFC amount).

Treatment of certain dividends

(4)

If a company that is required to attribute an amount to the working person under this section pays a dividend, sections HA 14 to HA 19 (which relate to qualifying companies) are treated as applying to the company and the dividend if the company—

(a)

has no net income for the tax year in which it pays the dividend other than income attributed under this section, ignoring interest income that is incidental to the company’s business; and

(b)

is not a qualifying company; and

(c)

chooses to have the dividend treated as if it were paid by a qualifying company.

Cancellation of notional imputation credits

(5)

For the purposes of subsection (4), to the extent to which the dividend paid by the company would have had an imputation credit attached that arose under section OB 16 (ICA attribution for personal services) in the absence of the election made under subsection (4)(c), the credit is treated as cancelled immediately before it would have been attached under sections HA 14 to HA 19 (which relate to dividends paid by qualifying companies).

Defined in this Act: amount, associated person, attributable CFC amount, attributed CFC income, attributed CFC loss, business, CFC, company, dividend, imputation credit, income, income year, net income, non-resident, pay, qualifying company, relative, tax year, trustee

Compare: 2004 No 35 ss GC 14B, GC 14E, GC 14EB

Section GB 27(1)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).

Section GB 27(2)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).

Section GB 27(2)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 238(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section GB 27(3)(d): replaced, on 24 February 2016, by section 184 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).

Section GB 27(3)(e): replaced, on 24 February 2016, by section 184 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).

Section GB 27(4) heading: added, on 1 April 2008, by section 407(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section GB 27(4): added, on 1 April 2008, by section 407(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section GB 27(5) heading: added (with effect on 1 April 2008), on 7 December 2009, by section 41(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section GB 27(5): added (with effect on 1 April 2008), on 7 December 2009, by section 41(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section GB 27 list of defined terms amount: inserted, on 1 April 2008, by section 407(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section GB 27 list of defined terms attributable CFC amount: inserted (with effect on 30 June 2009), on 6 October 2009, by section 238(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section GB 27 list of defined terms attributed CFC income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 238(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section GB 27 list of defined terms attributed CFC loss: inserted (with effect on 30 June 2009), on 6 October 2009, by section 238(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section GB 27 list of defined terms business: inserted, on 1 April 2008, by section 407(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section GB 27 list of defined terms CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 238(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section GB 27 list of defined terms company: inserted, on 1 April 2008, by section 407(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section GB 27 list of defined terms dividend: inserted, on 1 April 2008, by section 407(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section GB 27 list of defined terms imputation credit: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section GB 27 list of defined terms pay: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section GB 27 list of defined terms qualifying company: inserted, on 1 April 2008, by section 407(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section GB 27 compare note: amended, on 1 April 2008, by section 407(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).