Private ruling: PSI - results test
Date of advice: 25 March 2026
Published: 25 May 2026
Ruling period: Financial year ended 30 June 20
Date scheme commenced: 1 July 20XX

Ruling: Q1: Was the income received by you as a sole trader in the relevant financial year personal services income (PSI)? | A1: Yes. | Q2: Are you conducting a personal services business (PSB) on the basis that you have met the results test under section 87-18 of the Income Tax Assessment Act 1997 (ITAA 1997) in the relevant income year? | A2: Yes. | Q3: Are you able to deduct a reasonable amount for the wages paid to an associated person for the administrative duties they perform? | A3: Yes.

Relevant facts and circumstances: You are a consulting professional. You provided your consulting services through a number of different entities in the relevant financial year. None of these entities are associates of one another. Under the terms of your agreement with Entity A you provided consulting services at Entity A premises. Entity A paid you the gross amount collected for your services less a percentage withheld as a management fee. You were required to maintain professional indemnity insurance and indemnify Entity A in relation to any loss, costs, liabilities, expenses or damages arising from your consulting services. You were licensed to use Entity A premises and support services and are responsible for your own tools and equipment. You also provided consulting services under your agreement with Entity B. Entity B collected your fees and then issued you with invoices for management fees that were calculated as a percentage of the fees paid for your services. You were required under this agreement to have adequate professional indemnity insurance coverage and indemnify Entity B against all claims, demands, actions, proceedings, costs, expenses, and liabilities arising from the consulting services you provide. Under the terms of this agreement Entity B may provide you with equipment and materials for use in providing your services. Under the terms of your agreement with Entity C you were licensed to use their facilities and services to provide your services. You were to advise Entity C of the fees for your services, and they were to invoice you for their management fee calculated as a percentage of your fees. You were required to keep professional indemnity insurance current and indemnify Entity C against damage, loss, cost, liability, and expenses arising from your provision of consulting services. While Entity C may have maintained their facilities and stocks of basic necessities for your consulting activity you were responsible for providing the tools and equipment necessary for your consulting activity. Under each of these arrangements you provided a variety of services depending on the client's needs and your fees were determined by the services you provided for each client. You maintained professional indemnity insurance as required under each of these agreements while you were providing services under the agreements. Over 75% of your professional consulting income was derived from services provided to Entities A, B, and C. You provided your own tools and equipment for use in your consulting services. Your associate assisted you with the administrative aspects of your work.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 84-5 | Income Tax Assessment Act 1997 section 87-15 | Income Tax Assessment Act 1997 subsection 87-15(1) | Income Tax Assessment Act 1997 section 87-18 | Income Tax Assessment Act 1997 sub-section 87-18(4) | Income Tax Assessment Act 1997 section 87-20 | Income Tax Assessment Act 1997 section 87-25 | Income Tax Assessment Act 1997 section 87-30

Reasons for decision: Detailed Reasoning - Detailed reasoning: PSI is defined in section 84-5 of the ITAA 1997 as income that is mainly a reward for an individual's personal efforts or skills (or would mainly be such a reward if it was the income of the individual). By definition, income earned by an employee is PSI. However, the PSI rules do not apply to income received as an employee unless they are an employee of an interposed entity. Income that is mainly generated from: • the sale or supply of goods; • the supply and use of income-producing assets; or • a business structure is not PSI. Only individuals can have PSI. PSI can be earned directly by an individual or indirectly through a company, partnership or trust (personal services entity or PSE). The use of the word 'mainly' means that the income referred to needs to be 'chiefly', 'principally' or 'primarily' a reward for the provision of the personal efforts of, or for the exercise of the skills of, an individual. That is, more than half (50%) of the ordinary or statutory income received is required to be a reward for the personal efforts and skills of an individual rather than being generated by the use of assets, the sale of goods or by a business structure. | Detailed Reasoning - Application to your circumstances: During the 20XX-XX financial year you provided services to a number of different entities. The income you received from these entities for your services was mainly a reward for your personal efforts and skills, and therefore your PSI. | Detailed Reasoning - Question 2: Are you conducting a personal services business (PSB) on the basis that you have met the results test under section 87-18 of the ITAA 1997 in the 20XX-XX income year? | Detailed Reasoning - Detailed reasoning: Under subsection 87-15(1) of the ITAA 1997, an individual or personal services entity, conducts a PSB if a personal services business determination is in force from the Commissioner or, in any case, the individual or entity meets at least one of the four personal services business tests. The four PSB tests are: • the results test (section 87-18 of the ITAA 1997) • the unrelated clients test (section 87-20 of the ITAA 1997) • the business premises test (section 87-30 of the ITAA 1997), and • the employment test (section 87-25 of the ITAA 1997). If one of the tests is met in an income year, the PSI rules will not apply. For this ruling we will consider whether you meet the results test. | Detailed Reasoning - The results test: Under section 87-18 of the ITAA 1997, the results test is met in an income year if at least 75% of an individual's PSI in an income year satisfy all three conditions below: • the income is for producing a result; and • the individual or PSE is required to supply the plant and equipment and tools of trade needed to perform the work which produces the result; and • the individual or PSE is liable for the cost of rectifying defects. | 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. A requirement to complete identifiable tasks is not the same as achieving a contractually specified result if those tasks merely form part of the work being paid for on an ongoing basis A contract price for achieving a specified result may be calculated by reference to an estimated number of hours applied to an hourly rate. If that estimate changes, a new contract or a variation to the original contract may be agreed between parties, allowing for a change to the negotiated contract for producing the result. What needs to be determined is whether the contract price is for achieving a specified result and not merely payment for the hours worked. When applying the results test it is necessary to consider the contractual arrangement. 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. This was confirmed in IRG Technical Services and Anor v Federal Commissioner of Taxation [2007] FCA 1867 (IRG Technical)where Allsop J held that the income was not for producing a result and stated at 110: ...it [the income] was for the performance of work as a skilled engineer in the business of the [the services acquirer] as part of a co-ordinated team of engineers and remunerated on an hourly rate for such work. This work involved [the taxpayer] producing, from time to time, documents, schedules and data sheets, and involved him in identifiable tasks and responsibilities. It would not be a reflection of substantial reality, however, to say that his income was for the results he produced. It was for his work as a skilled engineer, which work produced those results or outcomes, as a necessary professional consequence of the work of a skilled lead instrument engineer on such a project When determining whether an individual or PSE meets the 3 conditions of the results test the custom or practice in the particular industry may need to be considered. | Detailed Reasoning - Required to supply the plant and equipment, or tools of trade, needed to perform the work: 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. If the work completed is not for 'producing a result,' then this condition of the results test cannot be satisfied. 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. In this 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. The existence of a term in an agreement that the individual or personal services entity is liable for the cost of rectifying any defect in the work performed would support the conclusion that liability to make good any faulty workmanship exists, particularly where the individual or PSE and the service acquirer are dealing with each other at arm's length. However, the term in the agreement should not be merely 'window dressing', and regard may be had to all the circumstances of the case in determining whether the relevant liability really exists. A requirement to have indemnity insurance is an indicator that an individual or PSE is liable for rectification where the indemnity insurance is part of the contractual arrangements between the parties. | Detailed Reasoning - Application to your situation: During the 20XX-XX financial year you have entered into agreements with a number of different entities to provide services. To determine whether the results test has been met, we examined the agreements against the conditions under section 87-18 of the ITAA 1997. | Detailed Reasoning - Producing a result: Under your agreements with the entities you provided services to, the fees for your services were collected by the entity and then paid to you. Several of these entities deducted management fees on a percentage basis from these payments. Another agency invoiced you for management fees on this basis. Under your agreements with these entities, you are paid for each consultation with a client and the fees ae collected by the entity. You are paid by the consultation and the fees charged for each consultation depend on the type of service provided. You are not being paid for your time as you are paid for each consultation and the consultations you are providing are not considered tasks that form part of the overall work. Accordingly, the first condition of the results test was met. | Detailed Reasoning - Required to supply the plant and equipment, or tools of trade, needed to perform the work: Under your agreements with the other entities you are providing services to, you are responsible for your own professional equipment. Each of the agreements entered into provides for your use of the entities' premises and support services. In your work with each of these entities you are providing the professional tools and equipment required for your work as is the custom in this line of work. The tools and equipment you are providing are pivotal in the services you provide and directly connected to the results you are being paid for. Your use of the entities' premises and services are effectively being purchased through the management fees you are paying. The second condition of the results test is met as you are supplying the tools and equipment necessary to perform the work. | Detailed Reasoning - Liable for the cost of rectifying any defect in the work performed: You hold professional indemnity insurance as required under your contracts with these entities. Your contracts with these entities specifically state that you will indemnify your clients against any damage, loss, cost, liability and expenses suffered or incurred, arising from your provision of services. You were required under your agreements with each of these entities to have adequate professional and indemnity insurance in relation to the services you provide. Consequently, the third condition of the results test was met. As all three conditions of the results test have been met, you are conducting a PSB in accordance with section 87-15 of the ITAA 1997 in the 20XX-XX financial year. | Detailed Reasoning - Question 3: Are you able to deduct a reasonable amount for the wages paid to an associated person for the administrative duties they perform? | Detailed Reasoning - Answer: Yes. As you are conducting a PSB, the PSI rules in Part 2-42 of the ITAA 1997 do not apply to you. Consequently, you can claim deduction for payments to your associate for the administrative work performed pursuant to section 8-1 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: The general rule in Pt 2-42 of the ITAA 1997 is that PSI arising from personal services performed by an individual is attributed to the individual and included in that individual's assessable income. Division 85 of the ITAA 1997 sets out the deductions that an individual cannot claim against their PSI. This means that if the PSI rules apply, an individual will be entitled to claim only those deductions that would be available to them as an employee. Section 85-30 of the ITAA 1997 provides that restrictions to deductions an individual or entity may claim under the personal services income rules do not apply to the individual or entity if the individual or entity are conducting a PSB. Pursuant to subsection 87-15(1) of the ITAA 1997, an individual or personal services entity, conducts a PSB, and the PSI rules don't apply, if a personal services business determination is in force from the Commissioner or, in any case, the individual or entity meets at least one of the four personal services business tests. A deduction is allowed under Section 8-1 of the ITAA 1997 for any loss or outgoing that is incurred in gaining or producing assessable income to the extent that it is not of a private, capital or domestic nature. The deductibility of an outgoing is determined by its essential character. | Detailed Reasoning - Application to your circumstances: You stated that your associate is assisted you by performing administrative duties. As previously discussed, you have met all the conditions of the results test, hence you are conducting a PSB pursuant to section 87-15 of the ITAA 1997. Therefore, the PSI rules outlined in Part 2-42 of the ITAA 1997 do not apply to you and do not restrict your ability to claim a deduction for payments to your associate for administrative tasks performed, provided that such payments are commensurate with the services provided. Normal business deduction rules apply to your expenditure, including those provided for by section 8-1 of the ITAA 1997 where the outgoing must be incurred in the course of gaining or producing your income.

Does Part IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar | Question 1: Was the income received by you as a sole trader in the 20XX-XX financial year personal services income (PSI)?