Edited version of your written advice

Authorisation Number: 1012721026706

Ruling

Subject: Personal services income and car expenses

Questions and answers

1. Are you subject to the Personal Services Income rules?

Yes.

2. Can you claim a deduction for wages paid to your spouse for administrative work done in relation to your income earning activities?

No.

3. Are you entitled to claim car expenses for travel between your home and your employer's home and back to your home again?

No.

This ruling applies for the following periods:

Year ended 30 June 2014

Year ending 30 June 2015

The scheme commences on:

1 July 2013

Relevant facts and circumstances

You work with an independent contractor undertaking work at various sites.

You work two or three days per week and travel between various work sites with the contractor in his vehicle.

The contractor pays you a daily fixed rate on the days you work and tax is not withheld from the payments.

You have an Australian Business Number (ABN).

You have to supply your own tools and equipment to do the work.

You are not liable for the cost of rectifying any defects in the work you perform.

The contractor usually collects you from your home in his vehicle and takes you to the installation sites and then back to your home afterwards.

Sometimes your spouse will take you to the contractor's home in your vehicle then she/he will take you to the installation sites.

You have a travel log book for the days you drive to the contractor's home.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 84-5

Income Tax Assessment Act 1997 Section 85-20

Income Tax Assessment Act 1997 Section 87-15

Income Tax Assessment Act 1997 Section 87-18

Reasons for decision

Personal services income

Section 84-5 of the Income Tax Assessment Act 1997 (ITAA 1997) defines the personal services income (PSI) of an individual as being income which is mainly a reward for that person's personal efforts or skills.

If the majority (more than 50%) of an individual's income is for their skills, knowledge, expertise or efforts in performing the services, this income will be classified as PSI.

If your income is PSI, then special rules known as the PSI rules will apply that limit the deductions you can claim against this income.

Under the PSI rules, you cannot deduct payments you make to an associate (for example, spouse or other relative) for performing non-principal work (section 85-20 of the ITAA 1997).

Principal work is the work that must be done under the work contract and generates your PSI. Non-principal work is incidental or subsidiary work which is not the main work for which you get paid. Examples of non-principal work include bookkeeping, issuing invoices and secretarial duties.

In your case, you work solely with one subcontractor. Consequently, 100% of your work income is for your personal skills, knowledge, expertise and efforts.

Therefore, the PSI rules apply to you.

However, the PSI rules will not apply where the income you receive relates to you conducting a 'personal services business'.

An individual conducts a personal services business if they meet at least one of the four personal services business tests or if they have obtained a personal services business determination.

An individual can apply for a personal services business determination if they are uncertain if they satisfy any of the tests or if they have unusual circumstances that prevent them from passing one of the tests.

The personal services business tests are the results test, unrelated clients test, employment test and business premises test (section 87-15 of the ITAA 1997).

The first test to be applied is the results test. Should you not pass the results test and should 80% or more of your PSI income come from one client or payer, the PSI rules will apply to you.

Section 87-18 of the ITAA 1997 provides that you meet the results test in the relevant income year if, in relation to at least 75% of your PSI for the year:

• the income is for producing a result, and

• you are required to provide the equipment or tools necessary to do the work, and

• you are liable for the cost of rectifying any defects in the work performed.

The meaning of the phrase 'producing a result' means the performance of a service by one party for another where the first-mentioned party is free to employ his or her own means (for example, using others) to achieve the contractually specified outcome, and is paid for that outcome. Payment is usually a fixed sum on completion of a particular job as opposed to an amount paid on an hourly basis or at a daily rate.

In your case, you:

• obtain over 80% of your PSI income from one payer;

• are paid a daily fixed rate;

• have to supply your own tools and equipment to do the work; and

• are not liable for the cost of rectifying any defects in the work performed.

Therefore, you do not pass the results test as the income you receive is not for producing a result and you are not liable for the cost of rectifying any defects in the work performed.

Consequently, the PSI rules apply to you and you cannot deduct payments you make to your spouse for performing administrative work in relation to your income earning activities.

Car expenses

In certain circumstances you can claim deductions for travel in your own vehicle for work purposes.

Normal trips between home and work are considered to be private travel and deductions are unable to be claimed.

You can generally claim the cost of travelling in your own vehicle:

• directly between two separate workplaces - for example, when you have a second job;

• from your normal workplace to an alternative workplace - for example, a client's premises - while still on duty, and back to your normal workplace or directly home;

• if your home was a base of employment - that is, you started your work at home and travelled to a workplace to continue your work for the same employer;

• if you had shifting places of employment - that is, you regularly worked at more than one site each day before returning home;

• from your home to an alternative workplace for work purposes, and then to your normal workplace or directly home; or

• if you need to carry bulky tools or equipment that you use for work and can't leave at your workplace.

In your case, the contractor usually collects you from your home in her/his vehicle and takes you to the installation sites and then back to your home afterwards. On other occasions your spouse will take you to the contractor's home in your vehicle.

Based on the information provided, you are only using your vehicle for private travel between your home and the contractor's home.

Therefore, you are unable to claim a deduction for car travel expenses.