Private ruling: Personal services income
Date of advice: 21 January 2020
Published: March 2020
Ruling period: Year ending 30 June 2020
Date scheme commenced: 1 July 2019

Ruling: Q1: Are you liable for the costs of rectifying any defect in work in performance of your contract under paragraph 87-18(1)(c) of the Income Tax Assessment Act 1997 ? | A1: Yes. Based on the information you have provided to the Commissioner you satisfy the third limb of the results test as you are required to rectify any defects at your own expense.

Relevant facts and circumstances: You are a resident of Australia for taxation purposes. You are a sole trader with a contract to complete legal reviews of decisions for a Country X agency. You have a lawyer on contract to provide legal research and assist writing Case Management Minutes and decisions. You are paid per result; that is a set rate for every case reviewed irrespective of the hours. You are required to rectify those at your own cost - there's no additional payment received. The contract states that upon termination payment is made for services completed prior to termination less the costs of any rework required. You hold professional indemnity insurance and are contractually obliged to indemnify the other party 'from all liability of any kind which may arise. If the Key Performance Indicators are not met then your contract is terminated.

Relevant legislative provisions: Income Tax Assessment Act 1997 Paragraph 87-18(1)(c)