Private ruling: Personal services income
Date of advice: 15 April 2026
Published: 29 June 2026
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Will the Company satisfy the unrelated clients test pursuant to section 87-20 of the Income Tax Assessment Act 1997 (ITAA 1997) through the application of the special rules for agents under section 87-40 of the ITAA 1997? | A1: Yes.

Relevant facts and circumstances: Background The Company is an Australian incorporated company. The Company's sole director, Individual A, provides services relating to writing home loans and residential investment property loans. The Company entered into an independent contractor agreement (the Agreement) with a broker (the Broker). Individual A is an Authorised Credit Representative operating under the Australian Credit Licence (ACL) held by the Broker. Under the licensing requirements of the Australian Securities and Investment Commission (ASIC), all commissions payable by financial institutions in respect of loans written must be paid to the relevant licence holder, being the Broker. The Agreement The Agreement provides that neither the Company or Individual A are employees of the Broker. The Company is required to maintain all necessary requirements and is free to engage in other business activities at any time. The Agreement states the Company may outsource work and undertake other work. The Company bears commercial and entrepreneurial risk. This includes responsibility for rectifying defective work at its own cost and risk of non-payment if services are not performed satisfactorily. Where defects arise, the Company must remedy or re-perform the services at no additional cost within an agreed timeframe. If it fails to do so the Broker may arrange for remedial work and recover the associated costs. Payment of services During the income year, the Broker remitted an agreed percentage of commission it received to the Company in respect of services performed by Individual A. The Broker issued recipient-created tax invoices, recorded commission amounts, and made monthly payments to the Company. Commission structure The Broker invoices end customers and pay the Company: • X% of the upfront and trailing commissions received by the Broker in respect of loans originated by Individual A. • Y% of the total upfront commission received by the Broker for loans written by Individual A from in-house referrals. The Broker also pays the Company for other services provided by Individual A to people engaged by the Broker. Advertising All advertising and branding are conducted under the Broker's name and website. The Company does not operate its own independent website. Business cards display the Broker's name and Individual A's name. The Company operates as a mobile business and does not lease or own business premises. It occasionally uses the Broker's office solely for administrative purposes, such as document execution. No amount is paid for this use. The Company sources business through multiple advertising avenues and various professional networks and events. The Company does not provide client-facing services at premises owned or leased by the Broker. The premises are used only for administrative tasks. Clients During the income year, the Company entered into agreements, on behalf of the Broker, with more than XX customers. Some customers used the services repeatedly. None are known associates of each other or of the Company.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 318 | Income Tax Assessment Act 1997 section 84-5 | Income Tax Assessment Act 1997 section 86-15 | Income Tax Assessment Act 1997 section 87-15 | Income Tax Assessment Act 1997 section 87-20 | Income Tax Assessment Act 1997 section 87-30 | Income Tax Assessment Act 1997 section 87-40 Question 1 | Will the Company satisfy the unrelated clients test pursuant to section 87-20 of the Income Tax Assessment Act 1997 (ITAA 1997) through the application of the special rules for agents under section 87-40 of the ITAA 1997? Summary | On the basis of the information provided, the Commissioner is satisfied that the Company met all the requirements in section 87-40 of the ITAA 1997 and that the special rules for agents apply. As a result, the end customers to whom the Company provides services on the Broker's behalf are treated as the Company's clients for the purposes of applying the 80% rule in subsection 87-15(3) of the ITAA 1997 and the unrelated clients test in section 87-20 of the ITAA 1997. Accordingly, the Company satisfies the unrelated client test for the relevant income year. | Detailed reasoning | Personal services income (PSI) | Subsection 84-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that personal services income (PSI) is income that is mainly a reward for an individual's personal efforts or skills and includes income that would mainly be such a reward if derived directly by the individual rather than through a personal services entity. | Income is PSI when more than 50% of the income from a contract is a reward for personal efforts or skills, rather than the use of assets, the sale of goods, or a business structure. | When determining PSI, each contract is considered separately. If 50% or less of the income for a contract is for personal efforts or skills, then none of that income is PSI. | The PSI regime does not determine whether an entity is carrying on a business; rather, it determines how income is taxed when it is mainly a reward for personal efforts. In Spriggs v FC of T; Riddle v FC of T [2009] HCA 22, the High Court held that activities resembling employment may still occur within the context of a broader business. | Personal services entity (PSE) | To determine who earns PSI, it is necessary to consider the contractual arrangements and the substance of the working relationship. Under subsection 84-5(2) ITAA 1997, PSI may be earned directly or through another entity. | Under section 86-15 of the ITAA 1997, a personal services entity (PSE) is a company, partnership or trust whose income includes PSI of one or more individuals. | Personal services business (PSB) | Section 86-15 of the ITAA 1997 provides that the PSI rules do not apply where a PSE is conducting a PSB. | Section 87-15 of the ITAA 1997 provides that a PSE is conducting a PSB if it satisfies any of the PSB tests or holds a PSB determination. | Taxation Ruling TR 2022/3: Income tax: personal services income and personal services businesses (TR 2022/3) explains the operation of these tests. | The 80% rule | An individual or a PSE meets the 80% rule where less than 80% of their personal services income is derived from one source (being one client together with its associates).The 80% rule determines whether the entity may self-assess against the PSB tests. | Under subsection 87-15(3) of the ITAA 1997, an entity may self-assess against the results test irrespective of how much PSI is derived from one source. If less than 80% of the entity's PSI is from one source, the entity may also self-assess against the other PSB tests. However, if 80% or more of the PSI is from one source and the results test is not satisfied, the entity must hold a Personal Services Business Determination (PSBD) from the Commissioner for the PSI rules not to apply to that income. | Unrelated clients test | A PSE will meet the unrelated clients test under section 87-20 of the ITAA 1997 during an income year if the PSE earn PSI from two or more entities that are not associates of each other or of the PSE, and the work is obtained as a direct result of making offers or invitations to the public. TR 2022/3 clarifies that a direct causal link is required between the offers or invitations and the work obtained, and that mere availability or listing on a principal's website is insufficient. | Agent rules | Section 87-40 of the ITAA 1997 modifies the operation of the 80% rule and the unrelated clients test for certain agents who bear entrepreneurial risk in the way they provide services. | Section 87-40 of the ITAA 1997 applies if the following criteria in subsection 87-40(2) is satisfied: | (a) the individual or personal services entity is an agent of another entity (the principal) but not the principal's employee; and | (b) the agent receives income from the principal that is for services that the agent provides to other entities (customers) on the principal's behalf; and | (c) at least 75% of that income is commissions, or fees, based on the agent's performance in providing services to the customer on the principal's behalf; and | (d) the agent actively seeks other entities to whom the agent could provide services on the principal's behalf; and | (e) the agent does not provide any services to the customers, on the principal's behalf, using premises: | (i) that the principal or an assessable of the principal owns; and | (ii) in which the principal or an associate of the principal has a leasehold interest; | unless the agent uses the premises under an arrangement entered into at arm's length. | If the above conditions are satisfied: | • For the purposes of the 80% rule, the PSI of the agent during an income year is treated as income from the customers, and not from the principal (subsections 87-40(3) and 87-40(4) of the ITAA 1997). | • For the purposes of the unrelated clients test, any services provided by the agent to a customer on the principal's behalf are treated as having been provided by the agent, and not the principal (subsection 87-40(5) of the ITAA 1997). | Application to your circumstances | For the relevant income year, the Company derived income in the form of commissions (upfront and trailing commissions) from loan-writing activities, and income from other services performed by Individual A. The income was mainly rewards for Individual A's personal efforts and skills and therefore constitute PSI under section 84-5 of the ITAA 1997. | Before applying the unrelated clients test in section 87-20 of the ITAA 1997, the operation of the 80% rule in section 87-15(3) of the ITAA 1997 must be considered. Although the Company derived PSI through a single contractual agreement with the Broker, the special agent rule in section 87-40 of the ITAA 1997 is relevant in determining who the Company's clients are for PSI purposes. | Each requirement in subsection 87-40(2) of the ITAA 1997 is considered below: | Paragraph 87-40(2)(a) | The Agreement between the Company and the Broker expressly provides that the Company and Individual A are not employees of the Broker. The Company operates under an independent arrangement, is free to undertake other work, may outsource services, and is responsible for rectifying defective work at its own cost. The Company also bears the risk of non-payment where services are not performed satisfactorily. These factors are consistent with the Company acting as an agent of the Broker, rather than as an employee. | Paragraph 87-40(2)(b) | The Company receives income from the Broker for services performed by Individual A for the Broker's end customers. Due to ASIC licensing requirements, commissions must be paid to the licence holder, being the Broker. Under the contractual arrangement with the Company, the Broker remits an agreed percentage of those commissions to the Company. Having regard to the substance of the arrangement, the Company provides services to customers on the Broker's behalf and is remunerated based on an agreed percentage of the commissions received by the Broker. | Paragraph 87-40(2)(c) | The condition in paragraph 87-40(2)(c) requires that at least 75% of the agent's income from providing services to customers on the principal's behalf is commissions or fees that are based on the agent's performance in providing those services on the principal's behalf. | The Company's income from the Broker during the income year comprised upfront and trailing commissions on loans written by Individual A, and income for other services performed by Individual A. | The upfront commissions and trailing commissions were contingent on the services being successfully completed by Individual A and in the case of trailing commissions, the activities remaining in place, and therefore were based on Individual A's performance in providing services to end customers on the Broker's behalf. | Based on the information provided, at least 75% of the income received by the Company from the Broker in the income year were commissions based on the Company's performance in providing services to customers on the Broker's behalf. Accordingly, the requirement in paragraph 87-40(2)(c) is satisfied. | Paragraph 87-40(2)(d) | The Company actively seeks customers through various means, including advertising, community, professional networking, cold calls, and referral networks. During the income year, some engagements were obtained directly as a result of these advertising and promotional activities. This demonstrates that the Company actively seeks entities to whom it could provide services on the Broker's behalf. | Paragraph 87-40(2)(e) | The Company does not provide client-facing services from premises owned or leased by the Broker. While the Broker's office is occasionally used for administrative purposes, no client-facing services are provided from those premises and no amount is paid for their use. Accordingly, the requirement in paragraph 87-40(2)(e) is satisfied. | As all the requirements in subsection 87-40(2) of the ITAA 1997 are satisfied, the special rules for agents apply. Therefore, the end customers of the Broker are treated as the Company's clients for the purposes of the 80% rule in subsection 87-15(3) and the unrelated clients test in section 87-20 of the ITAA 1997. | The Company derived PSI from more than two unrelated customers during the 20YY income year, and some of that work was obtained as a direct result of making offers to the public. Accordingly, the Company satisfies the unrelated clients test for the 20YY income year.