I had an interesting conversation with a trusted and very knowledgeable Tax Agent yesterday about the treatment of income for one of the two “principals” of a client for whom I do some professional bookkeeping and management consulting. I use the word principal in inverted commas because, while he will be a shareholder and director, currently he only holds shares through his trust, and is not a director.
The discussion centered around how the ATO would view the income that is paid by the company to the shareholder in return for services provided. It is important to note that he performs work for a number of other companies as well.
I have read widely on the subject and I understand the rules. But, of course, not dealing with these questions every day, I have never had cause to seek a ruling in instances where there is some grey, nor have I had the benefit of access to interpretations of those rules.
And, there is the rub.
Seems the ATO doesn’t have a sense of humour in this area. Seems they see a darker shade of grey that most of us.
We have often complained about red tape and this looks to be a good example of it, and of how a lack of clarity can make it almost impossible to confidently run a business. Truth be known, the Tax Office would be happy if we just used employees rather than go down the track of engaging “consultants”.
You may have looked at this issue previously, but as the rules look to have been tightened, and the interpretations have become more conservative in favour of the Tax Office, my advice is to revisit your arrangements with a well qualified and experienced Tax Agent. And have the advice put in writing.
If you would like a referral to one of the most knowledgeable professionals, please get in touch with me at accross business.