Private ruling: Business structures - personal services income
Published: September 2011
Ruling period: Year ending 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Will the business structure you intend to put in place for Trust be subject to the Personal Services Income (PSI) provisions? | A1: No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The Trust is used by a Doctor to run a medical practice. The main income from the practice is from a State . The trust plans to hire additional Doctors as contractors which should provide approximately two thirds of the income for the trust. The trust also intends to employ a manager and receptionists for administration purposes and a nurse. The entity intends to rent a commercial premise for commercial purposes and will provide it's own equipment.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 84-5

Reasons for decision: Summary: The business structure you have put in place will not be subject to the Personal Services Income provisions. Income which is mainly a reward for an individual's personal efforts or skills is the individual's personal services income (PSI) regardless of whether it is income of another entity (eg. a company, trust, partnership of other individual), whether it is for doing work or producing a result or whether it is payable under a contract. Only individuals can have PSI. Personal services income does not include income that is mainly generated by the use of assets, the sale of goods or a business structure. Income derived by a firm or practice which has substantial income producing assets, or many employees or both, is more likely to be generated from the business structure rather than from the rendering of personal services. The following factors can be considered in determining whether a taxpayer derives income from rendering personal services, no one factor is determinative. · the nature of the taxpayer's business, · the extent to which the income depends upon the taxpayer's own skill and judgment, · the extent of the income producing assets used to derive the income · the number of employees and others engaged. Other guidelines that may also be used for a practice company or trust also include whether the company or trust has at least as many non-principal practitioners as principal practitioners. If this is the case, then income will considered to be derived from the business structure. In your case, you propose to lease commercial premises solely for use by the medical practice and you also propose to use one principal practitioner and a number of other non-principal practitioners. You also propose to employ a number of administrative staff and a nurse. All of these factors indicate that any income derived under the proposed structure would be considered to be derived as a result of the business structure, and therefore would not be considered personal services income.

Please check this edited version to be sure that there are no details remaining that yo think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.