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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