(1) The amount of your * personal services income included in your assessable income under section 86-15 may be reduced (but not below nil) by the amount of certain deductions to which the * personal services entity is entitled.
Note 1: Subdivision 86-B limits a personal services entity's entitlement to deductions.
Note 2: If the amount of the deductions exceeds the amount of the personal services income, a deduction for the excess is available to you under section 86-27. The personal services entity cannot deduct the amount of the excess: see section 86-87.
(2) Use this method statement to work out whether, and by how much, the amount is reduced:
Example 1: Continuing example 1 in section 84-5: Assume these additional facts:
• $120,000 of NewIT's income is Ron's personal services income;
• NewIT has deductions (including superannuation contributions) of $50,000 relating to Ron's personal services income (step 1);
• NewIT has entity maintenance deductions of $8,000 (step 2);
• NewIT has investments that produce income. NewIT's assessable income, disregarding Ron's or anyone else's personal services income, is $20,000 (step 3).
Because the step 4 amount is less than zero (-$12,000), step 5 does not apply and, under step 6, the amount of the reduction is $50,000. Therefore the amount included in Ron's assessable income is:
Example 2: Assume, as an alternative set of facts, that NewIT's assessable income under step 3 was only $2,000.
The step 4 amount would have been $6,000, and, under step 5, the amount of the reduction would have been $56,000 (adding the amounts under steps 1 and 4). The amount included in Ron's assessable income would then have been:
Note: The personal services entity's deductions that do not relate to your personal services income and that are not entity maintenance deductions cannot reduce the amount included in your assessable income under section 86-15.