Private ruling: Unrelated clients test
Published: November 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Whether the Personal Services entity (PSE) passes the unrelated clients test? | A1: No.

Relevant facts and circumstances: An employee of the PSE, the test individual provides banking consulting services to clients on behalf of the PSE. During the 2012-13 income year the PSE contracted to three unrelated recruitment agencies (the Agencies): The PSE responded to advertisements placed by the Agencies on the recruitment website, seek.com. The test individual provided their resume and offers to the Agencies who agreed to forward the offers directly onto their clients. The Agencies' clients made contract offers back to the PSE through the Agencies. Contracts were approved and the PSE provided services to the Agencies' clients.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 87-20

Reasons for decision: Summary: A PSE meets the unrelated clients test if: · during the period, 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, to the public at large or to a section of the public, to provide the services. We consider the following activities conducted by a PSE to be 'making offers or invitations': · advertising · public tender · maintaining an Internet web site on which the availability of services are advertised · word of mouth referrals. However, a PSE is not treated as having made offers or invitations to the public merely by being available to provide the services through a labour hire firm or similar organisation. In this case, the PSE contracted to three unrelated recruitment agencies. These contracts were obtained by responding to online advertisements rather than the conduct of any of the above activities. As such, the PSE is merely being available to provide services through the Agencies. We consider this method of obtaining work does not demonstrate that the work was obtained as a direct result of making offers or invitations to the public at large or to a section of the public. Therefore, the PSE does not pass the unrelated clients test. As the PSE does not pass the unrelated clients test, they need to consider the other personal services business tests to determine whether the personal services income rules apply.