March 2012 Newsletter
Personal services income test failed
The Federal Court has recently confirmed an earlier Tribunal decision that the taxpayer had failed the “unrelated clients” test for the purposes of the personal services income (PSI) rules in the tax law in relation to a drafting business he carried on through his private company. However, the Court found the Tribunal had not properly applied the “business premises” test. This issue has been sent back to the Tribunal for re-determination.
TIP: Many consultants and contractors operate as a sole trader or through a company, partnership or trust. In many cases, the income received for the work they do may be classified as PSI if certain tests are not passed. However, the PSI rules do not apply to individuals or interposed entities carrying on a “personal services business”. It should be noted the ATO has recently advised that it will hold onto some income tax returns to check for PSI where appropriate. Please contact our office for any assistance