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  • Step 4: The remaining tests

    If your result at Step 3 is 'less than 80%', there are three remaining tests to work through:

    If you've worked through steps 1, 2 and 3, and you pass the results test or one of the remaining tests above, your business is a personal services business (PSB) and the PSI rules do not apply to the PSI you received.

    Example: Kevin passing the unrelated clients test

    Kevin is an engineer who provides his services as a sole trader.

    Kevin produces income from providing services to his brother's company Lost Exploration Pty Ltd. Lost Exploration Pty Ltd is considered an associate of Kevin, as the contract is a result of Kevin's relationship with his brother.

    In addition, Kevin advertises his services on a website he has set up. Pebbles Pty Ltd and GemCo Pty Ltd contact Kevin after viewing his website. He provides services to Pebbles Pty Ltd and GemCo Pty Ltd, neither of which is an associate of Kevin, each other or of Lost Exploration Pty Ltd.

    None of these sources provide Kevin with more than 80% of his PSI this income year so he is able to self-assess as to whether he meets the unrelated clients test.

    Although one of his clients doesn't qualify as an unrelated client because it's an associate of Kevin's, Kevin still meets the requirements of the unrelated clients test. This is because Pebbles Pty Ltd and GemCo Pty Ltd are two unrelated clients obtained as a direct result of Kevin making offers to the public at large (through his website). The PSI rules do not apply to Kevin.

    End of example

     

    Example: Ian not passing the unrelated clients test

    Ian is a sole trader geologist. 70% of his PSI comes from Rock Pty Ltd, which entered into a contract with Ian after seeing his advertisement in an industry publication.

    His remaining income comes from the work he does through being registered with a labour hire firm. During the course of the income year, Ian performs services for five service acquirers through the labour hire firm. His registration with the labour hire firm is not treated as making an offer or invitation to provide services, as the work came about through the labour hire firm.

    Ian doesn't meet the requirements of the unrelated clients test because he has only one entity (Rock Pty Ltd) to whom he is providing personal services as a direct result of making offers or invitations to the public at large.

    End of example

     

    Example: Palatial Pty Ltd passing the employment test

    Kate and Lawrence have established a company, Palatial Pty Ltd, through which Kate provides her personal services as a drafter.

    Palatial Pty Ltd has entered into a contract to provide Kate's drafting services, where she drafts plans for residential dwellings as set out in the contract.

    Palatial Pty Ltd engages Lawrence, who is also a qualified drafter, to prepare all the variations required and check all of Kate's work against the client specifications and make any corrections if needed. He also performs administrative duties such as banking and bookkeeping.

    Lawrence's work in preparing variations, checking Kate's work and making corrections forms part of the principal work that produces the PSI under this agreement. Lawrence's banking and bookkeeping work does not form part of the principal work that produces the PSI.

    The principal work performed by Lawrence counts towards the 20% (by market value) threshold required for Palatial Pty Ltd to pass the employment test. If the 20% threshold is met, Palatial Pty Ltd will pass the employment test in relation to Kate's PSI.

    End of example

     

    Example: Glenn not passing the employment test

    Glenn is a house builder, who provides building services as a sole trader, and contracts with a major company to build houses.

    While Glenn does the physical building work, he pays his wife, Nan, to perform the tasks of contract administration, paying subcontractors, keeping track of costs, recording times worked, recording agreed or automatic variations, and making progress payment claims on clients.

    These administrative activities are not part of Glenn's principal work, as they are not integral to and part of the principal work.

    The work associated with building a brick wall includes mixing sand and cement, laying bricks and cleaning brickwork. It would not include administrative activities.

    As Glenn does not engage Nan to perform any principal work, he does not meet that element of the employment test.

    End of example

     

    Example: Robbo Enterprises Pty Ltd passing the business premises test

    Robert is an architect who contracts through his company, Robbo Enterprises Pty Ltd.

    Robert owns two adjoining duplexes. He lives in one duplex and rents the adjoining duplex to his company to use as its business premises. The duplexes are on separate titles and have a dividing wall that prevents internal access between premises. Each duplex has its own front and back entrance and a fence separating the two properties. The duplex used by Robbo Enterprises Pty Ltd for its business premises displays the business' signage.

    The only activities undertaken at the business premises generate Robert's PSI. The business premises are physically separate from Robert's private premises and those of his clients. The business premises test is met.

    End of example

     

    Example: Byte Pty Ltd not passing the business premises test

    Byte Pty Ltd contracts with Net Pty Ltd to provide IT services to Net Pty Ltd. The contract requires Byte Pty Ltd to engage Ralph to provide the services.

    Byte Pty Ltd leases business premises at the local shopping mall, but 90% of the time it uses the premises for retail sale of computing hardware and software.

    While the business activities are all IT-related, Byte Pty Ltd doesn't use the premises to 'mainly' conduct activities that gain or produce Ralph's PSI.

    Byte Pty Ltd wouldn't pass the business premises test as the premises are mainly used for the purposes of the retail sale activities.

    End of example

    Next steps:

    See also:

    Last modified: 16 Aug 2021QC 46018