Private ruling: Personal services income - results test
Date of advice: 13 October 2025
Published: 1 December 2025
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Did you pass the results test under section 87-18 of the Income Tax Assessment Act 1997 (ITAA 1997) in the 20XX income year? | A1: Yes. | Q2: Will the provision of your services through a company structure under your new proposal affect whether the results test is passed? | A2: No, other than the testing then relates to the company.

Relevant facts and circumstances: The Taxpayer is a medical practitioner who operates as a sole trader. They consult to various clinics (X facility agreements provided) and recently commercial property was acquired via the Taxpayer's Self-Managed Superannuation Fund (SMSF). The Taxpayer provides services via a number of Services and Facilities Agreements with un-related medical clinics and is continuing to diversify their business interests with the potential operation of health clinics and the importation of medical equipment. The Taxpayer would like to restructure their operating structure to that of a private company to ensure their personal assets are protected. Up until XX XXX 20XX, the Taxpayer operated their practice as follows: • Patient fees relating to the practice were charged via their personal ABN; • A service trust was established ('XXX Trust' arrangement). The Trust charges the Taxpayer for services associated with the practice. • The Trust distributes the services income to Holdings Pty Ltd. Holdings has not paid a dividend to its shareholders and retains cash at bank. The Taxpayer provided information as to income received from a number of medical practices as a sole medical practitioner for the 20XX and 20XX income years. The Taxpayer proposes that from XX XXX 20XX, the practice operate via a newly established or presently existing company in the ownership of the Taxpayer. The arrangement with the service trust would continue. The Taxpayer has entered into Services and Facilities Agreements with a number of practices and X were provided. Under the various Services and Facilities Agreements: • The Taxpayer is a registered medical practitioner, and the agreements are for medical services in agreed consultation periods. • Under the agreements, the services entity is to provide various facilities and services such as administrative services, clerical staff, space on location within their clinic, plant, equipment, and instruments which are necessary for you to conduct your medical practice from their clinic. • They charge, and the Taxpayer agreed to pay the service fee. The service fee is calculated by reference to a percentage of one of more categories of billing related to medical services provided by the Taxpayer during the billing period. • The services entities remit to the Taxpayer an amount equal to the billings less the services fees for that billing period. • The Taxpayer is liable for any claim, damage, loss, liability or cost of a third party arising from rendering medical services. • The Service Agreement has no fixed term and can be terminated voluntarily by either party giving written notice to the other part without cause. • The Taxpayer is required to have medical indemnity insurance for liability of up to $X million. The Taxpayer's work as a medical practitioner involves client consultations and reports of a clinical and non-clinical nature. The Taxpayer holds professional indemnity insurance and is contractually obliged to indemnify any of the service entities under the agreements from all liability which may arise. A Practitioner Indemnity Insurance renewal summary covering the period XX XXX 20XX to XX XXX 20XX was provided. The Taxpayer will incorporate a company from XX XXX 20XX and will interpose this company between the various service entities. The company will provide the services to the various service entities. The Services and Facilities Agreements will be on substantially the same terms and conditions as the current contract and will be entered into by the company. The company will receive all the income from the Service Agreements.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 84-5 | Income Tax Assessment Act 1997 division 87 | Income Tax Assessment Act 1997 section 86-15 | Income Tax Assessment Act 1997 subsection 87-15(2) | Income Tax Assessment Act 1997 subsection 87-18(1) | Income Tax Assessment Act 1997 subsection 87-18(3)

Reasons for decision: Summary: Based on the information you have provided to the Commissioner you satisfied the three conditions of the results test in relation to your personal services income. | Detailed Reasoning - Personal services income (PSI): Section 84-5 of the Income Tax Assessment Act 1997 (ITAA 1997) defines PSI as income that is mainly a reward for the personal efforts or skills of an individual. Taxation Ruling TR 2022/3 Income Tax: personal services income and personal services business goes on to say that PSI income does not include income that is generated by the use of assets, the supply or sale of goods, or by a business structure. Only individuals can have personal services income. PSI can be earned directly by an individual or indirectly through a company, partnership or trust. A personal services entity (PSE) is a partnership, company or trust that receives the PSI of one or more individuals and is interposed between the individual(s) providing the work or services and the service acquirer. The services provided by you as a medical practitioner, either directly through you as a sole trader or via an interposed entity are services that require your personal skills and expertise as a medical practitioner. The income so derived will be PSI. | Detailed Reasoning - Personal services business (PSB): Division 87 of the ITAA 1997 provides guidance on what a personal services business is and how to determine if an individual or PSE is conducting a personal services business. The object of Division 87 of the ITAA 1997 is to define personal services businesses in a way that ensures that it covers genuine businesses but not situations that are merely arrangements for dealing with the personal services income of individuals. Subsection 87-15(2) of the ITAA 1997 provides four personal services business tests, namely: • The results test; • The unrelated clients test; • The employment test; and • The business premises test. Only one test is required to be met for the PSI rules not to apply. | Detailed Reasoning - The results test: The results test is provided in section 87-18 of the ITAA 1997. Subsection 87-18(1) of the ITAA 1997 states that an individual meets the results test in an income year if, in relation to at least 75% of the individual's personal services income for the income year, the individual satisfies all of the three conditions: • the income is for producing a result; • the individual is required to supply the plant and equipment, or tools of trade, needed to perform the work from which the individual produces the result; and • the individual is, or would be, liable for the cost of rectifying any defect in the work performed. All three conditions must be satisfied in relation to 75% of the PSI received in the income year. TR 2022/3 explains these requirements further, as follows. | Detailed Reasoning - Producing a result: In results-based contracts, payment is usually made for a negotiated contract price, as opposed to an hourly or daily rate, and is paid only when the contractual conditions have been fulfilled. Where remuneration is payable on the contractual conditions being fulfilled, the remuneration is for producing a result. The remuneration is often a fixed sum on completion of a particular job as opposed to an amount paid by reference to hours worked. The essence of the contract must be to achieve a result and not to do work. The fact that an individual or PSE is required to complete identifiable tasks is not the same as achieving a result if those tasks merely form part of the work being paid for on an ongoing basis. A contract to 'produce a result' is one to produce a specified outcome or result and payment is based on performance of the contract (i.e. for producing the outcome or result). | Detailed Reasoning - Required to supply the plant and equipment, or tools of trade, needed to perform the work that produces the result: To satisfy the second condition, the individual or PSE must supply any plant and equipment, or tools of trade needed to do the actual work which produces the result and which a service acquirer would expect the individual or PSE to provide or which the individual or PSE is contractually required to provide. There are situations where, having regard to the nature of the work, no plant or equipment or tools of trade are needed to perform the work. Where this is the case, this condition will be met. | Detailed Reasoning - Liable for the cost of rectifying any defect in the work performed: To satisfy the third condition, the individual or PSE must be liable for the cost of rectifying any defects in the work. There is no requirement that they actually perform the work which rectifies the defect so long as they pay for it. The main consideration is whether they are exposed to commercial risk. Where physical rectification is not possible, the purpose of the provision would be satisfied where a right to claim for damages exists in respect of faulty or negligent performance of contractual obligations and the individual or PSE is, or would be, liable for the relevant component of damages awarded for the faulty or defective work. | Detailed Reasoning - Producing a result: You have advised that you are paid per consultation with patients and in some cases produce reports. Therefore, payments you received for providing your medical services at the unrelated medical clinics are for producing a result. Accordingly, the first condition of the results test is met. | Detailed Reasoning - Required to supply the plant and equipment, or tools of trade, needed to perform the work that produces the result: You are charged service fees under the various agreements for administrative services, clerical staff, space on location within their clinic, plant, equipment, and instruments which are necessary for you to conduct your medical practice from their clinic. As there is a cost to you for the equipment or tools of the trade needed to do the work, the Commissioner considers that these items are being provided by you and therefore the second condition of the results test is met. | Detailed Reasoning - Liable for the cost of rectifying any defect in the work performed: The appropriate medical indemnity insurance is required under the agreements and is maintained which evidences liability for rectification of defects in the services performed by you. You have provided a copy of the Certificate of Currency which shows that you are covered by the professional indemnity insurance policy. | Detailed Reasoning - '75% requirement': The results test requires at least 75% of the PSI meets all three conditions listed above. Based on the information provided, at least 75% of the PSI received in the 20XX income year from the various agreements were from services that met all three conditions of the results test. You have met the three conditions under the results test. Therefore, you have passed the results test under section 87-18 of the ITAA 1997 for the 20XX income year. | Summary: The provision of your services through a company structure under your new proposal does not affect whether the results test is met under section 87-18 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Subsection 87-18(3) of the ITAA 1997 states that a personal services entity meets the results test in an income year if, in relation to at least 75% of the personal services income of one or more individuals that is included in the entity's ordinary or statutory income during the income year, the entity satisfies all of the 3 conditions listed below: • the income is for producing a result; • the personal services entity is required to supply the plant and equipment, or tools of trade, needed to perform the work from which the personal services entity produces the result; and • the personal services entity is, or would be, liable for the cost of rectifying any defect in the work performed. Subsection 87-18(3) of the ITAA 1997 expresses a similar test to subsection 87-18(1) of the ITAA 1997 discussed under question 1, albeit adapted to the situation where a personal services entity includes an individual's PSI in its ordinary income or statutory income. TR 2022/3 provides further information and the Commissioner's view on the results test for an individual and for a personal services entity. The three conditions in the tests are similar. | Detailed Reasoning - Applying the law to your circumstances: The conditions of the results test for an individual under subsection 87-18(1) of the ITAA 1997 are the same as the conditions for results test for a personal services entity in subsection 87-18(3) of the ITAA 1997. The difference is that those tests are applied to the personal services entity rather than to you as an individual. If the relevant facts and circumstances are the same except for who it is that contracts with the Medical Centres, the outcome will be the same for the interposed company as it was previously for the individual. That is, incorporation of a company between you and the service acquirers does not stop the company from being able to satisfy the results test We have concluded in Question 1 that you passed the results test under subsection 87-18(1) of ITAA 1997 in the 2024 income year. The same outcome will arise (and for the same reasons) to an entity that is interposed between you and service acquirers under subsection 87-18(3) of ITAA 1997. However, you should note that Part IVA can still apply even where an interposed company is a Personal Services Business (for example, by reason of passing the results test) under the PSI regime in Part 2-42 of the ITAA 1997. In particular, you should note Income Tax Ruling IT 2503 Income tax: Incorporation of medical and other professional practices and Practical Compliance Guideline PCG 2024/D2 Personal services businesses and Part IVA of the Income Tax Assessment Act 1936 . You can get further information by going to https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/personal-services-income/what-to-do-if-the-psi-rules-don-t-apply/general-anti-avoidance-rules-and-psi.