ATO Interpretative Decision

ATO ID 2002/803

Income Tax

Alienation of Personal Services Income - Results test
FOI status: may be released

This version is no longer current. Please follow this link to view the current version.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Status of this decision: Decision Current

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Does the taxpayer satisfy the results test contained in section 87-18 of the Income Tax Assessment Act 1997 ('ITAA 1997')?

Decision

No. The taxpayer does not satisfy the results test in section 87-18 of the ITAA 1997.

Facts

The taxpayer is a company with two shareholders. Both shareholders and an unrelated third party are employees of the taxpayer. The taxpayer pays each employee an annual salary in monthly instalments.

The taxpayer has contracted to supply the three employees to a licensed dealer in securities ('the Dealer'). In turn the individuals have been appointed as proper authority holders ('PAH') under subsection 94(2) of the Corporations Act 1989. Under the contract the taxpayer receives commissions determined by referenced to corporate advisory transactions as well as equity and derivatives business written by the individuals for the Dealer.

The three individuals perform the usual functions of a PAH for the Dealer. Contractually, the functions are performed in each individual's personal capacity for the Dealer and not as an employee of the taxpayer. The individuals are not entitled to any remuneration from the Dealer.

The taxpayer is not itself involved in advising clients or dealing in securities.

Reasons for Decision

The results test is set down in section 87-18 of the ITAA 1997. Subsection (3) deals with personal services entities and provides as follows:

(3) A *personal services entity meets the result test in an income year if, in relation to at least 75% of the *personal services income of one or more individuals that is included in the personal services entity's *ordinary income or *statutory income during the income year:

(a)
the income is for producing a result; and

(b)
the personal services entity is required to supply the *plant and equipment, or tools of trade, needed to perform the work from which the personal services entity produces the result; and

(c)
the personal services entity is, or would be, liable for the cost of rectifying any defect in the work performed.

The taxpayer merely supplies the individuals to the Dealer and does nothing else. That is, the arrangement is for the hire of the individuals to the Dealer.

The first condition of the results test requires the personal services income be from producing a result. The meaning of 'producing a result' is explained in Taxation Ruling TR 2001/8 to be inter alia, a contract to achieve a specified outcome. In essence, for a contract to be for producing a result, there must be some task required where it is left to the performing party to determine who and by how the task is to be performed. Entitlement to payment in turn must be tied to completing the task.

The contract between the taxpayer and the Dealer merely contemplates the supply (or hire) of the individuals. A contract for hire is not a contract for producing a result within the case law meaning or the meaning explained in TR 2001/8. Under a contract for hire, there is nothing created or produced by the supplying party. There is simply the provision of a pre-existing asset (in this case human capital).

As the first condition of the results test is not satisfied it is unnecessary to consider the other conditions. All three conditions must be satisfied to meet the results test.

(* an asterisked term is defined in the Dictionary starting at section 995-1 of the ITAA 1997)

Date of decision: 21 February 2002

Year of income: Year ending 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
section 87-18
subsection 87-18(3)

Corporations Act 1989
subsection 94(2)

Related Public Rulings (including Determinations)
Taxation Ruling TR 2001/7
Taxation Ruling TR 2001/8

Related ATO Interpretative Decisions
ATO ID 2002/802
ATO ID 2002/804
ATO ID 2002/805

Keywords
Alienation of personal services income
Assessable income of a personal services entity
Personal services income
PSBD results test

Siebel/TDMS Reference Number: DW222212

Business Line: Small Business/Individual Taxpayers

Date of publication: 22 August 2002

ISSN: 1445-2782

history

	Date:	Version:
You are here →	21 February 2002	Original statement
	15 April 2015	Updated statement

Copyright notice

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).