Reasonable benefit limits: determination of an arm's length salary - sole trader

Is the applicant who is a sole trader entitled to the determination of an arm's length salary (ALS)?

No, the applicant who is a sole trader, is not entitled to the determination of an ALS.

The applicant applied for the determination of an ALS.

The applicant is self-employed and operates a business as a sole trader.

Subregulations 47(3) and (4) of the Income Tax Regulations 1936 (ITR 1936) provide for the determination of an appropriate ALS for a person who is an 'associate' of the person's employer. The Commissioner may approve an ALS after considering relevant factors in accordance with subregulation 47(4) of the ITR 1936.

However for an ALS to be determined under paragraph 47(3)(c) of the ITR 1936, a person must be an 'associate' of the person's 'employer'.

Section 140C of the Income Tax Assessment Act 1936 (ITAA 1936) in relation to the definition of 'associate' for reasonable benefit limits purposes defines 'associate' to have the same meaning as in section 26AAB of the ITAA 1936.

The definition of 'associate' in subsection 26AAB(14) of the ITAA 1936 can never deem a self-employed person to be an associate of himself or herself.

Consequently, a self-employed person is ineligible for the determination of an ALS.