| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012556172439
Ruling
Subject: Personal Services Income - Results test
Question
Does the PSE pass the results test?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commenced on:
1 July 2011
Relevant facts and circumstances
The test individual provides civil engineering and consulting services to clients on behalf of the PSE.
The PSE entered into a three-year contract with Company A to assist with projects for a client of Company A.
The terms of the contract with Company A provide the following:
· Services means the work or services to be carried out in accordance with the specification and as described in any service order.
· Where the fee is a lump sum, the amount payable in relation to each payment claim will be calculated by applying the proportion of services completed during the payment period to the fee.
· The charge rate for professional services for project work is a set rate per hour.
· If the fee is a lump sum only, then the rates will only be used for valuing additional work and alterations to the fee.
· Errors and omissions in the services must be rectified by the consultant at their cost.
The PSE provides a verbal quote to Company A for each project.
The projects specify the scope of the works and the results required.
If the price is acceptable, Company A issues a service order to their client and the project is commenced.
The PSE issues an invoice to Company A once the project is completed or will issue an invoice for a progress payment based on the work completed.
The PSE is required to provide its own vehicles and testing equipment.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Section 84-5
Income Tax Assessment Act 1997 - Section 87-18
Reason for decision
We have determined that the PSE passes the results test for the period as for greater than 75% of their PSI they satisfy the requirements of the results test. When making our decision we considered the following:
· The PSE's income is income for producing a result;
o The PSE provides a verbal quote to Company A for each project.
o The projects specify the scope of the works and the results required.
o Company A issues a service order to their client.
o The PSE issues an invoice once the project is completed or will issue an invoice for a progress payment based on the work completed.
Given the specific nature of the work and that full payment only occurs when the project is completed; the essence of the contract is to produce a specific result. Although hourly rates are used to calculate the invoice amount, there is a sufficient connection between the completion of an outcome and the payment received. Therefore, this condition is satisfied.
· The PSE is required to supply the plant and equipment, or the tools of trade (if any) needed to perform the work from which you produce the result; and
o The PSE is required to provide its own vehicles and testing equipment. Therefore, this condition is satisfied.
· The PSE is, or would be, liable for the cost of rectifying any defect in the work performed.
o Errors and omissions in the services must be rectified by the PSE at their cost. Therefore, this condition is satisfied.
As all three requirements are satisfied, the PSE passes the results test for the period.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
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).
