Question:

Personal services business and the results test

Answer:

Recent changes are outlined below:

July 1, 2022

Loss carry back for eligible companies extended to cover 2023 income year.
Professional firm profits diverted to the professional's spouse or other associates to be reviewed under new Tax Office guidance.
Corporate collective investment vehicle legislative regime introduced.
Temporary full expensing of depreciating assets extended to include 2023 income year.
Depreciable assets of a company joining a tax consolidation group have tax costs setting rules modified for assets depreciated under temporary full expensing rules.

December 9, 2021

Reduced Pandemic leave disaster payment of $750 per week made available through to 30 June 2022.

August 5, 2021

COVID-19 Disaster Payments are non-assessable non-exempt income in 2021 income year and later. Payments phasing out as vaccination rates increase.

July 1, 2021

New Investment Engagement Service launched for businesses planning significant new investments in Australia.
Tax Office small business independent review service made permanent for businesses with turnover < $10m, for income tax, GST, exercise, luxury car tax, wine equalisation tax and fuel tax credits. Requested before amended assessment issued.
Small business income tax offset for individuals increased to provide a reduction of 16% for a tax payable up to $1,000.
Self-managed superannuation funds can now have six members, increased from four members previously.

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July 1, 2021

Some COVID -19 state and territory business grants received by small and medium enterprises are non-assessable, non-exempt income for 2021 and 2022 income years.
Certain state, territory and local government financial support for individuals and businesses suffering COVID-19 impacts made exempt where businesses have turnover less than $50 million and only in eligible programs.

March 31, 2021

JobKeeper payments scheme ended.

October 5, 2020

Boosting apprenticeship commencements subsidy (up to 50% of apprentice's wages) is assessable income.

June 4, 2020

Homebuilder grant for new home or substantial renovation construction is not subject to income tax.

April 1, 2020

COVID-19 cash flow boost payments are not subject to income tax

You will avoid attributed personal services income and be operating a personal services business if you can satisfy the results test. This is set out in Section 87-18 of the Income Tax Assessment Act 1997.

In a recent case (Prasad Business Centres Pty Ltd v FC of T AAT (2015) AATA 411) the Administrative Appeals Tribunal confirmed the Tax Office’s decision not to provide a personal services business determination as requested.

The Tribunal held that the results test was not satisfied because:

The relevant contract remunerated the principal only for time he spent working on certain projects;
Whilst the contract required the producing of a result, the income under the contract was not dependent on that result;
Under the contract, the income entitlement was based on the number of days worked; and
If the contract was terminated early, the principal was still entitled for payment to work done.

To pass the results test, under Section 87-18, the contract must specify entitlement to payment for producing a result along with two other conditions relating to the provision of plant and equipment and also the rectification of defects.

Andrew and Tony Lovett

11 August 2015

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