Service Entity markups , New ATO Guideline, 10 %

[see_change]

While this doesn't apply to many people , for those who have their business set up involving a Service Trust , the level of markups on the services provided has been a controversial issue over the last years.

My Accountant has had a watch this space approach , while I've heard some people recommending markups of as low as 2 %.
Some have recommended a varying % ( eg 50 % ) on wages and no mark up on goods purchased on behalf etc.

Finally the ATO have put out a guid on what they consider reasonable. 10 % is their recommended guideline, though obviously one needs to look their specific situation.

My Accountant told me it's coming in force ? 1/7/07 ( couldn't see a date on the actually guide , but I didn't read it all )

http://www.ato.gov.au/businesses/content.asp?doc=/content/71903.htm

See Change

 

[Terryw]

Hello Sea Change

Here is the recent tax ruling:
TR 2006/2
Income tax: deductibility of service fees paid to associated service entities: Phillips arrangements
http://law.ato.gov.au/atolaw/view.htm?Docid=TXR/TR20062/NAT/ATO/00001

And did you get the free service trust kit from Macquarie Group Services?

Terryw

 

[DaleGG]

Hey SC!

Behind all the fuss is the basics.....

The original court cases that approved the service entity concepts was approved/founded on the principles that the service entity would charge commercial rates for the services that it provided to the main business entity.

The problem was....at that time, there were certain mark ups that were used which were reasonably commercial for the time.

Those mark ups noted in the court case then became "standard mark ups" and this is what the tax office are cranky about.

Times have changed. The mark ups have changed too with more efficient and economical ways of doing things and with the new world.

What is important is that the mark ups that you (or anyone else use) must be commercial in nature and what another business would charge if they were unrelated to you. If you can do that and prove it if necessary, then regardless of what rates the tax office considers appropriate you should be fine.

Here is what the tax office considers are indicative rates though:

http://www.ato.gov.au/businesses/content.asp?doc=/content/71903.htm&page=6#P364_43833

I am sorry if you knew this already. I never quite know how much to include...or leave out.

Have fun

Dale