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The attribution rule is aimed at ensuring people do not avoid the higher income tax rates by diverting employment income to an associated entity (such as a company, trust or partnership).

Attribution rules

The attribution rule applies when all of the following apply.

  • A person (the working person) provides personal services.
  • They are associated with an entity (the associated entity).
  • The associated entity provides services to a third person (the buyer), and the services are personally performed by the working person, and the working person earns net income of more than $70,000 including income of the associated entity if the attribution rule applies.
  • At least 80% of the associated entity’s income from personal services comes from the buyer and/or a person associated with them.
  • At least 80% of the associated entity’s income from personal services is earned by the working person and/or a relative of the working person.


The attribution rule does not apply when any of the following apply.

  • Both the associated entity and the working person are non-residents for the full income year.
  • The associated entity is a natural person acting in that capacity (and is not a partner of a partnership or a trustee).
  • The services being provided are essential support for a product supplied by the associated entity.
  • The associated entity has substantial business assets (discussed below).
  • The associated entity is a CFC and the CFC rules (discussed below) apply.
  • The total amount to be attributed for the income year is less than $5,000. However, this exception can only be relied on once - it does not apply if the working person has more than 1 associated entity and the other associated entity has not had income attributed because of this exception.

Substantial business assets

The attribution rule is not applied when the associated entity has substantial business assets that are a necessary part of the business structure used to derive the entity’s assessable income.

Substantial business assets are depreciable property that both:

  • are not for private use, or if they are then no more than 20% is for private use
  • have a total cost of more than $75,000, or 25% or more of the associated entity’s income from services for the year.

Controlled foreign companies (CFC)

The attribution rule is not applied when all of the following apply.

  • The associated entity is a CFC.
  • The amount that would be attributed to the working person under the income attribution rules would also be attributed CFC income or a loss (under the rules for when attributed CFC income or losses arise).
  • The working person files a return of income in which they return the amount as attributed CFC income.

The $5,000 exemption will not apply if the associated entity is a CFC.

Related links

IS 19/02: Income tax - attribution rule for income from personal services

Controlled foreign companies

Example: Diverting income to a company

An individual earns a salary of $190,000 from their employer. Without the attribution rule they could establish a company which would be contracted to the employer whereby the individual performs the same employment services. Tax on income to the company would be at the company rate of 28%, rather than the applicable personal rate of up to 33% (or up to 39% from the 2021-2022 year onwards) if the employee was receiving the income directly. The individual could then choose to receive $70,000 in salary (taxed at up to 30%), and either leave the remainder in the company, or distribute it to an associated person such as a spouse. Without the attribution rule in both cases the top tax rate applied would be either 30% or lower.

Last updated: 18 Mar 2021
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