Private ruling: Personal services business - unrelated clients test
Date of advice: 7 May 2026
Published: 20 July 2026
Ruling period: Year ending 30 June 20XX
Date scheme commenced: XX XXX 20XX

Ruling: Q2: Can you claim a deduction under section 8-1 of the ITAA 1997 for wages paid to your partner for administrative tasks they undertake during the relevant income year? Summary Yes. You can claim a deduction under section 8-1 of the ITAA 1997 for wages paid to your partner for undertaking administrative tasks in your personal services business, provided the employment is bona fide, the remuneration is reasonable, and the expenditure is incurred in the course of gaining or producing your assessable income.

Relevant facts and circumstances: Background You are a medical practitioner. You provide specialist services under your sole trader ABN. You entered into an administrative services agreement with Company C during the 20XX income year. Under the agreement, you operate as an independent specialist medical practitioner providing specialist services to patients. Company C supplies a range of administrative support services. In consideration for these services, you are required to pay Company C a monthly fee. Company C operates a public website (CC website) , which provides general information about the medical service, patient fee information, specialist profiles, and contact options via online forms, email, phone, or post. The website functions as both a public-facing information and enquiry channel and an administrative platform for issuing fee estimates. Your professional profile with a personal photo, which outlines your qualifications, experience, skills, and areas of specialty, is published on the website alongside those of other specialists in the group. You have obtained your patients through a combination of channels, including referrals and enquiries submitted via CC website estimate pathway. 1. Referral sources Referrals for your specialist services may be facilitated by other medical practitioners; however, your engagement is finalised through the practice's informed financial consent process following the patient's acceptance of the quoted out-of-pocket fee (if any). 2. CC website estimate pathway Patients (or their carers) may submit an online request through the website estimate pathway. From your profile page, they may submit direct online enquiries requesting your services. Alternatively, patients may submit an enquiry to Company C's administrative team by nominating you as their preferred specialist. Where no name is nominated, the patient (or their carer) is contacted to nominate or confirm their preferred specialist before a fee estimate is issued. Where an enquiry is submitted, the patient is provided with a fee structure and retains full discretion to accept or reject the quoted fee. Prior to acceptance, the patient may negotiate the fee, decline the quote, request an alternative specialist within the group, or engage a different service provider entirely. An estimate request does not bind the patient unless and until the quote is accepted. During a period of the 20XX-XX income year, you provided your specialist services to XX patients. Of these patients, you have supplied sample enquiries from X unrelated patients who submitted requests through the website estimate pathway. After providing your specialist services, a final tax invoice or receipt is issued to the patient. This document displays your name, Provider Number, and your ABN, together with Company C's logo and contact details. Any patient enquiries relating to final fees or refund requests are directed to you. Proposed employment of your partner Payments are deposited into your sole trader bank account from multiple sources. Income from these sources must be reconciled, and you currently perform this reconciliation personally, as Company C does not provide any reconciliation support services. To strengthen internal financial controls and allow you to focus more fully on health care delivery and patient welfare, you propose to employ your partner as an administrative employee of your practice. Your partner has prior administrative and bookkeeping experience. The role will be part-time, with an expected workload of less than X hours each week. The engagement will be on arm's-length terms and remunerated at a market hourly rate. It will be supported by a written position description, timesheets, and workpapers. Remuneration will be paid through payroll, with appropriate PAYG withholding and superannuation contributions. Detailed reasoning Personal services income (PSI) Under section 84-5 of the ITAA 1997, personal services income (PSI) is income that is mainly a reward for an individual's personal efforts or skills. It is considered that the income you derive from providing specialist services constitutes PSI, as it is mainly a reward for your personal efforts or skills as a medical specialist. Personal services business (PSB) Under section 87-15 of the ITAA 1997, an individual or a personal services entity (PSE) conducts a personal services business (PSB) in an income year if they you meet any one of the four PSB tests or hold a PSB determination for that year. The four PSB tests are the results test, unrelated clients test, employment test and business premises test. For the purposes of this ruling, consideration is given to whether you satisfy the unrelated clients test. Unrelated clients test An individual or a personal services entity (PSE) meets the unrelated clients test under section 87-20 of the ITAA 1997 in an income year if the individual or PSE earns PSI from two or more entities that are not associates of each other, and are not associates of the individual or of the PSE, and the work is obtained as a direct result of making offers or invitations to the public at large or to a section of the public. Taxation Ruling TR 2022/3 Income Tax: personal services income and personal services businesses (TR 2022/3) explains at paragraph 99 that the offer or invitation must be the reason the sole trader or PSE obtained the work and there must be a direct causal effect between the offer or invitation and obtaining the work. Paragraph 100 further states that a wide variety of activities can constitute making offers or invitations, such as advertising, public tenders, websites and online advertisements, but all require the involvement of making public announcements. Application to your circumstances Although you do not own or operate a personal public website, your professional profile, which includes a direct contact link, is publicly accessible on Company C's website, with whom you have an administrative services agreement. Through the website estimate pathway, patients may contact you directly to request your services, or enquiries may be conveyed to you by Company C's administrative team. Apart from patients referred by other medical practitioners, the specialist services you provide to patients who initially enquire through the website estimate pathway are considered to arise as a direct result of your offers or invitations made to the public or a section of the public. During a period of the 20XX-XX income year, you provided specialist services to XX patients. You have provided information to indicate that, of these, X unrelated patients were obtained through enquiries and requests submitted via CC website estimate pathway. We accept that you satisfy the unrelated clients test in section 87-20 of the ITAA 1997 for the 20XX-XX income year and are therefore taken to be conducting a personal services business under section 87-15 for that year. Deductibility of wage payment Subsection 8-1(1) of the ITAA 1997 provides as follows: 1) You can deduct from your assessable income any loss or outgoing to the extent that: a) it is incurred in gaining or producing your assessable income; or b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, paragraph 8-1(2)(d) of the ITAA 1997 limits the operation of subsection 8-1(1) of the ITAA 1997 as follows: 2) However, you cannot deduct a loss or outgoing under this section to the extent that: ... d) a provision of this Act prevents you from deducting it. Payments to associates Part 2-42 of the ITAA 1997 contains the special rules for the tax treatment of personal services income (PSI) earned by sole traders including contractors and consultants. In particular, Division 85 specifies limits on an individual's entitlements to deductions relating to the individual's personal services income. Section 85-20 of the ITAA 1997 prevents an individual earning personal services income from deducting any payment made to an associate or any amount arising from an obligation to such associate to the extent it relates to gaining or producing the individual's personal services income unless the payment is for principal work. The term principal work is not defined in the ITAA 1997, but its meaning is discussed in TR 2022/3at paragraph 26 as: 'Principal work' is work carried out by an individual or a personal services entity that is central to meeting obligations under an agreement with the service acquirer. Principal work does not include associated clerical or administrative work (such as bookkeeping and answering phones), unless the principal work is administrative in nature. The term associate has the same meaning as in section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). For an individual, an associate includes their partner. However, section 85-30 of the ITAA 1997 provides that Division 85 does not apply to an amount, payment or contribution to the extent that the amount, payment or contribution relates to income from conducting a personal service business. Deductions for amounts paid to related entities (section 26-35) Section 26-35 of the ITAA 1997 provides that if a taxpayer is allowed a deduction for a payment made, or a liability incurred, to a related entity, such as a spouse, the taxpayer can only deduct so much of the amount as the Commissioner considers reasonable. Any amount that is paid in excess of the reasonable amount is not deductible to the taxpayer. Section 26-35 only applies if the taxpayer is allowed a deduction under another provision of the ITAA 1997 or ITAA 1936 for a payment or liability incurred. In determining what is a reasonable payment for the purposes of section 26-35, the Commissioner has regard to commercial rates of pay for comparable services. Application to your circumstances Your personal services income is derived from the provision of specialist services to patients. You propose to employ your partner to undertake related administrative and bookkeeping tasks within your practice. Accordingly, your partner will not be engaged in the performance of principal work. However, as stated in Question 1, you are taken to be conducting a personal services business for the 2025-26 income year under section 87-15 of the ITAA 1997 because you satisfy the unrelated clients test in section 87-20 for that year. As a result, Division 85 of the ITAA 1997, which would otherwise restrict deductions for remuneration paid to associates, does not apply to deny a deduction for wages paid to your partner for performing administrative duties. Conclusion Based on the information provided, we accept that you meet the unrelated clients test in section 87-20 of the ITAA 1997 for the 20XX-XX income year and are conducting a personal services business for that year. The ordinary business deduction rules apply to expenditure incurred in carrying on your personal services business. Accordingly, under sections 8-1 and 26-35 of the ITAA 1997, you can claim a deduction for wages paid to your partner for the work they perform, provided the employment arrangement is bona fide, the remuneration is reasonable, and the expenditure is incurred in the course of gaining or producing your assessable income.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 318 | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 26-35 | Income Tax Assessment Act 1997 section 84-5 | Income Tax Assessment Act 1997 section 85-20 | Income Tax Assessment Act 1997 section 85-30 | Income Tax Assessment Act 1997 section 87-15 | Income Tax Assessment Act 1997 section 87-20


Do you satisfy the unrelated clients test in section 87-20 of the Income Tax Assessment Act 1997 (ITAA 1997) for the 20XX-XX income year, such that you are taken to be conducting a personal services business for that year? | Yes. You are taken to be conducting a personal services business under section 87-15 of the ITAA 1997 in the 20XX-XX income year because you satisfy the unrelated clients test in section 87-20 for that year.