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  • Step 2: Results test

    If you've worked out that your income includes PSI, your next step is to work through the results test. This test is about the nature of your agreement to perform the work, including the basis on which you are paid.

    To pass the results test in an income year, you need to meet the following three conditions:

    If you pass the test, your business is a personal services business (PSB) for that income year and the PSI rules don't apply.

    Example: Joe passing the results test

    Joe offers his services to the public, installing air-conditioning ducts.

    The contract price is based on the installation of specific duct work according to a set of plans, and any changes are subject to the variation clauses in the contract.

    Joe assumes the risk of not being able to complete the work to specification or for defective work as he must fix defects at his own cost. He brings the tools he needs to do the work such as a hammer, tin-snips, dolly, hacksaw, electric drill, pop-rivet gun and ladder. He also incurs his own expenses for duct tape, glue, pop-rivets, nuts, bolts and drill bits.

    Joe satisfies the results test because he is contracted to produce a result (installation of ducts), he brings his own tools to do the work and he is liable for fixing defects.

    End of example

    You may find that some of your business contracts meet the three conditions of the test and some don't. To pass the results test, you need to meet all three conditions for at least 75% of the PSI for the income year.

    If you're a company, partnership or trust and you have more than one individual generating PSI, you will need to work out whether you pass the results test for each individual. It is possible to be a PSB for one individual but not another.

    Example: Consultant Co not passing the results test

    A government department enters into a contract with Consultant Co for the services of Louise, an individual who is nominated in the contract.

    The terms and conditions of the contract are that Louise:

    • is paid an hourly rate and works for a maximum of eight hours per day
    • has her work quality checked by departmental officers
    • is provided with an office, stationery and desktop computer, and uses the department's computer system, software and data for carrying out the required tasks (she also uses her personal laptop to assist her in tasks but isn't required by the department to use it).

    If the work performed by Louise is unsatisfactory, the department is entitled to terminate the contract, but the company isn't required under the contract to fix any defects in the work performed. Consultant Co is a personal services entity (PSE) because its income includes the PSI of Louise, the individual who does the work.

    Applying the conditions of the results test:

    • the income is for doing work and not producing a result as Consultant Co is entitled to payment for each hour Louise works for the department, with no risk of making a loss as a result of undertaking the work.
    • Consultant Co is not required to supply the plant, equipment or tools of trade needed to perform the work, even though Louise uses her personal laptop to assist her
    • the department is entitled to terminate Louise's contract for unsatisfactory work, but Consultant Co doesn't have any liability to fix any faulty work.

    All conditions must be satisfied for the results test to be met.

    None of the conditions are satisfied so Consultant Co doesn't pass the results test and the PSI rules apply.

    End of example

    Next steps:

    See also:

    Last modified: 16 Aug 2021QC 46006