Company income deemed to be director’s income

In a recent decision, the Administrative Appeals Tribunal (AAT) found that the personal services income (PSI) provisions applied to a taxpayer who derived consultancy income through a company.

The taxpayer was the sole director, shareholder and employee of DK Consulting Pty Ltd, who entered into a contract to provide services to certain end users for a set period at an hourly rate.

Instead of declaring the full amount earned by the company as income, the taxpayer only declared salary and wages paid to him in his capacity as an employee and director of DK Consulting on his income tax return.

The Commissioner sought an amended assessment contending that the income arose solely from the provision of the taxpayer’s services.

The AAT rejected the arguments of the taxpayer, upholding the Commissioner’s decision, concluding that the PSI rules were designed to tax income in the hands of a person whose exertion caused its receipt even if the company was technically the contracting party.

It was held this this was exactly the type of arrangement that the Government has envisaged when it introduced the PSI laws. This was the first test of the new rules.

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