Example
Jo and Jim are engineers who work through their company – Jo and Jim's Engineering Services Pty Ltd.
Jo and Jim complete 2 separate contracts on behalf of Joe and Jim's Engineering Services, generating $100,000. Specifically:
- Jo's contract with Mega Mine Ltd generates $60,000
- Jim's contract with Mine Field Pty Ltd generates $40,000.
Both of these contracts are PSI, and Jo and Jim's Engineering Services has worked out that the PSI rules apply to both individuals.
Jo and Jim's Engineering Services Pty Ltd:
- promptly paid wages of $30,000 to Jo
- incurred $9,000 in allowable deductions in respect of Jo's PSI and $11,000 in respect of Jim's PSI
- did not incur any entity maintenance deductions.
Therefore, the attributed amount is worked out as follows:
| Attributed amount calculation for Jo | Attributed amount calculation for Jim |
|---|---|
| $60,000 PSI | $40,000 PSI |
| −$9,000 deductions | −$11,000 deductions |
| −$30,000 salary or wages promptly paid to Jo | |
| $21,000 net PSI for Jo | $29,000 net PSI for Jim |
Jo and Jim's Engineering Services Pty Ltd will need to:
- attribute $21,000 to Jo
- attribute $29,000 to Jim
- report this $50,000 as a reconciliation item, under Other income not included in assessable income in the company tax return.
Reporting the $50,000 as a reconciliation item does not mean the company pays tax on this income. It is simply a reporting method that shows income has been allocated to Jo and Jim. The company's taxable income is reduced accordingly.
Jo would declare the $21,000 attributed income and $30,000 salary or wages on his individual tax return and pay the relevant amount of tax on this income.
Jim would declare the $29,000 attributed income on his individual tax return and pay the relevant amount of tax on this income.
