Edited version of private advice

Authorisation Number: 1051528985105

Date of advice: 11 June 2019

Ruling

Subject: Personal services income, spouse wage and caravan expense deductions

Question 1

Do the personal services income rules apply to you?

Answer

No.

Question 2

Are you able to deduct a reasonable amount for the wages paid to your spouse for the administrative duties they perform?

Answer

Yes.

Question 3

Are the expenses you incurred in maintaining your caravan deductible?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You derived personal services income from more than two unrelated clients in the current financial year.

You received no more than 80% of your personal services income from one client.

You charge for your services on a daily rate basis.

You provide your services as a result of making offers or invitations to a section of the public and do not obtain work from a labour hire firm.

You sometimes contract out the services of your spouse to your clients. Your spouse carries out administrative duties.

You do not have a permanent residence and travel to wherever work is available.

You purchased a caravan and towing vehicle which enables you to work at various locations without incurring hotel or motel accommodation costs.

You generally work for only one client at a time. Once the project is completed you move onto the next client. It may take several months to complete a project at each work site.

While performing your duties for a particular client, the caravan is parked at the nearest caravan park.

You incur costs in relation to the caravan such as depreciation, insurance, repairs and maintenance.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 26-35

Income Tax Assessment Act 1997 Division 85

Income Tax Assessment Act 1997 Division 87

Reasons for decision

Personal services income rules and deductions for payments to your spouse

When the personal services income rules apply, an individual cannot claim payments to their spouse or associate for non-principal work performed, for example, secretarial duties (paragraph 14 of Taxation Ruling TR 2001/8).

The personal services income rules will not apply to an individual or a personal services entity if they pass any one of the four personal services income tests (paragraph 27 of TR 2001/8).

An individual or a personal services entity will meet the unrelated clients test in an income year if (paragraph 43 of TR 2001/8):

(a)  during the year, the individual or personal services entity gains or produces income from providing services to 2 or more entities that are not associates of each other, and are not associates of the individual or of the personal services entity; and

(b)  the services are provided as a direct result of the individual or the 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.

Based on the information provided, you meet the unrelated clients test in the current income year and the personal services income rules do not apply to you.

Section 26-35 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that when making a payment to a related entity, such as a spouse, you can only deduct so much of the amount as the Commissioner considers reasonable (paragraph 13 of Taxation Ruling IT 2330).

You are able to deduct a reasonable amount for the wages paid to your spouse for the administrative duties they perform, as long as the employment is bona fide.

Expenses incurred in maintaining your caravan

Section 8-1 of the ITAA 1997 allows a deduction for losses and outgoings to the extent that they are incurred in gaining or producing your assessable income. However, outgoings of a private or domestic nature are not deductible.

The Commissioner's view on when deductions are allowed for employee's travel expenses can be found in Taxation Ruling TR 2017/D6. Although the ruling relates to individuals who are classified as employees, the principles also generally applies to individuals who contract out their services.

Employee expenditure for accommodation, meal and incidentals is generally of a private or domestic nature. This includes the ordinary costs of maintaining a home. These costs are preliminary to work activities and are not incurred in the course of performing those activities

Accommodation, meal and incidental expenses are incurred by an employee in performing an employee's work activities, and are therefore deductible, only where:

(a) the employee's work activities require them to undertake the travel

(b) the work requires the employee to sleep away from home overnight

(c) the employee has a permanent home elsewhere, and

(d) the employee does not incur the expenses in the course of relocating or living away from home.

In relation to (c) above, paragraph 66 of TR 2017/D6 states that 'where an employee has a transient lifestyle with no fixed place of residence, such costs are of a private or domestic nature'.

In your case, you have a transient lifestyle and no fixed place of residence.

The expenses you incurred in maintaining your caravan are not deductible.

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