The unrelated clients test is one of four tests for determining whether a personal services business is being conducted in an income year.
If you meet one or more of the tests, your personal services income is taken to be generated in the course of conducting a personal services business and the changes to the tax law will not affect your income.
This test is only available where, in an income year, each of your clients (a client and their associate count as one client) provides less than 80 per cent of the personal services income.
If the personal services income is paid to a company, partnership or trust rather than to you directly, the entity is your personal services entity.
You will meet the unrelated clients test in an income year if you can answer yes to the following question (if the personal services income is paid to a company, partnership or trust, the words you and your refer to that entity).
- Does the individual doing the personal services work have personal services income from two or more clients who are not associated with each other or with you (or the individual, if you are a personal services entity)?
Unrelated clients are clients who are not associates of each other. This means they are not related or controlled by the same individuals or entities. To work out if you pass this test, only count clients that are not related.
The personal services must also be provided as a direct result of making offers to the public. This means there must be a definite connection between the offer to the public and the engagement for the work. Making offers to the public includes advertising in a newspaper, magazine, or business directory, maintaining an internet web site, or word of mouth referrals.
Do not count clients obtained by putting your name with a labour hire firm, placement agency or similar organisation.
You can self-assess against the unrelated clients test if less than 80 per cent of your personal services income comes from each client (counting associated clients as one client). This means you can work out whether you meet the unrelated clients or one of the other personal services business tests without contacting the Tax office. You can also use our Personal services business self-assessment guide and checklist.
Do not send the guide and checklist to the Tax Office, simply complete it and keep it with your other business records. If you self-assess that you meet all the requirements of the unrelated clients test for the income year, the changes to the tax law will not apply to your personal services income for that year.
If 80 per cent or more of your personal services income for an income year comes from one client (including associates of the client), the only test you can self-assess against is the results test. You cannot self-assess in relation to the other three personal services business tests, including the unrelated clients test.
The changes to the law will affect you unless you get a determination from the Tax Office. More information on this is available in the fact sheet Alienation of personal services income – obtaining a personal services business determination.
A commission agent does not automatically meet the unrelated clients test. The agent must meet all parts of the test, including the requirement that the personal services are provided as a direct result of making offers to the public.
An agent may fail to satisfy this requirement if all of the agent’s commissions come directly from referrals by the principal. This applies even though the agent may have actively sought customers for the principal. For more information see Special rules for commission agents.
This is a notice from the Tax Office stating that you are conducting a personal services business and that the changes to the tax law do not apply to your income.
You can apply for a determination if:
- you are not sure whether you meet one or more of the personal services business tests, or
- you don’t meet the results test and 80 per cent or more of your personal services income comes from one client, or
- unusual circumstances prevent you from meeting one or more of the tests.
You can only consider the unrelated clients test where unusual circumstances prevent you from meeting it.
You must use the approved form and include any documents requested on the form. See the Guide and application for a personal services business determination
Unusual circumstances are circumstances that are completely out of the ordinary and that prevent you from meeting a test. The circumstances must only be temporary, with the normal circumstances due to resume in the short term. If you expect them to continue indefinitely, this suggests they are no longer unusual.
Unusual circumstances that prevent you from meeting the unrelated clients test might include having a single client during the income year where this is a departure from previous years and not likely to continue in future years.
Meg has provided computer consulting services to several clients each year for the last five years, through her company Meg Pty Ltd. This income year she accepts a 12-month contract with one client. After the contract she expects to return to having several clients each year.
Meg considers that she is conducting a personal services business and that the changes to the tax law do not apply to her. As Meg does not meet the results test and more than 80 % of her personal services income comes from one client she must seek a determination from the Tax Office. Meg applies on the grounds that unusual circumstances prevented her from meeting the unrelated clients test.
If you are not sure whether you meet any of the tests, you can apply to the Tax Office for a personal services business determination. See the Guide and application for a personal services business determination.
You can also seek a private binding ruling from the Tax Office on any issue of law, including:
- whether you receive personal services income
- whether you meet any of the tests for conducting a personal services business
- whether general anti-avoidance provisions of Part IVA apply to you.
Application forms for a request for private ruling are available from the Tax Office and the use of them, although not compulsory, will usually speed up the handling of an application. The forms detail the type of information required by the Commissioner when dealing with requests for rulings. See How to apply for a private ruling.
Last Modified: Tuesday, 9 May 2006
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