Alienation 11th hour win

ON the eve of the end of the 2000-01 financial year, financial planners have had a win over the dreaded Alienation of Personal Services Income provision.

The Alienation provision requires contractors who earn more than 80 per cent of their income to be treated as Pay As You Go employees for tax purposes.

People failing the 80 per cent test lose the business tax deductions they could have claimed. If their income exceeds $60,001 they are taxed at the highest marginal rate of 48.5 per cent rather than the company rate of 34 per cent.

For legal reasons, about 12,000 financial planners operate through licensed dealers, who provide them with access to financial services products.

This means 100 per cent of their income comes from the one source.

To avoid the alienation provision, those financial planners would have had to apply for a private Australian Tax Office ruling.

These small business financial planners will be allowed to self-assess if they can satisfy a four-point test. They have to show:

p their biggest client does not provide more than 80 per cent of their income;

p 75 per cent of their income comes from commission or fees;

p they are actively seeking new customers; and

p they are not operating out of their principal’s premises.

Financial Planning Association of Australia public policy manager Con Hristodoulidis said if affected financial planners could pass those tests, they would be deemed to have passed the 80 per cent test.

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