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Edited version of your private ruling
Authorisation Number: 1012522514274
Ruling
Subject: Personal Services Income - Special rules for certain agents
Question
Whether you can apply the special rules for certain agents?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commenced on:
1 July 2013
Relevant facts and circumstances
You will operate your business through a company.
You entered into a Facilities Agreement (the Agreement) with Trust A.
Under the Agreement you provide chiropractor services to Trust A's customers at Trust A's business premises using their facilities.
The terms of the Agreement with Trust A provide that:
· Trust A are to provide facilities
· you are required to pay the facilities fee to Trust A
· the facilities fee is an agreed percentage of professional fees collected by Trust A depending on the number treatments per week
· the net amount of fees collected for each week (less the facilities fee) is banked directly into your nominated bank account
You advertise your services in the local paper.
Your use of Trust A's facilities is taken into account when negotiating the level of commission paid to you under the Agreement.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Section 84-5
Income Tax Assessment Act 1997 - Section 87-20
Income Tax Assessment Act 1997 - Section 87-40
Reasons for decision
A Personal Services Entity (PSE) will meet the unrelated clients test during an income year if:
· during the year, the PSE gains or produces income from providing services to two or more entities that are not associates of each other, and are not associates of the individual or of the PSE; and
· the services are provided as a direct result of the individual or personal services entity making offers or invitations (for example, by advertising), to the public at large or to a section of the public, to provide the services.
Section 87-40 of the Income Tax Assessment Act 1997 (ITAA 1997) modifies the operation of the 80% rule and unrelated clients test for certain agents. You satisfy the requirements of subsection 87-40(2) given that:
· you are an agent of Trust A but not an employee;
· you will receive income from Trust A resulting from providing services to Trust A's customers;
· at least 75% of your income will be commissions based on providing services to Trust A's customers;
· you will actively seek customers on behalf of Trust A;
· no customer will represent more than 80% of the PSI; and
· you will provide your services at premises owned by Trust A; however, the use of those premises is obtained as part of the Agreement entered into at arms length with Trust A.
As you meet all the requirements under subsection 87-40(2), the special rules for agents will apply to ensure the following:
· for the purposes of the 80% rule the income is treated as if it were PSI from the customer, and not PSI from Trust A.
· for the purposes of the unrelated clients test any services are treated as if you, and not Trust A, provided them to the customer.
Therefore, when you operate your business through a company you can apply the special rules for certain agents to determine whether your company passes the unrelated clients test and meets the 80% rule for the relevant income year.
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