Private ruling: Results test and special rules for agents
Published: September 2013
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2011

Ruling: Q1: Whether Company A passes the results test? | A1: Yes. | Q2: Whether Company A can apply the special rules for agents? | A2: Yes.

Relevant facts and circumstances: Company A is the trustee of Trust A. Company A entered into an Agency Agreement with Company B. The terms of the contract with Company B provide that Company A: · is paid a commission based on the amount of sales on behalf of Company B or Company B's clients · may delegate its duties and functions · is required to actively canvass and service clients and prospective clients on behalf of Company B · is not entitled to receive its commission if a sale is cancelled or Company B does not receive the full proceeds of the sale. Company A also derives personal services income (PSI) from Company B for managing its office. The commission received for agency services accounts for, on average greater than 75% of the total income received by Company A. Office management services account for remaining income. Company A is required to provide its own vehicle, mobile phone, computer, phone and fax. Company B's premises were made available for use by Company A. This was taken into account when negotiating the level of commission paid to Company A under the agreements.

Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 84-5 | Income Tax Assessment Act 1997 - Section 87-18 | Income Tax Assessment Act 1997 - Section 87-20 | Income Tax Assessment Act 1997 - Section 87-40

Reasons for decision: Summary: We have determined that Company A passes the results test for the period as for greater than 75% of their PSI they satisfy the requirements of the results test. When making our decision we considered the following: · Company A's PSI is income for producing a result; o Company A is paid a commission based on the amount of sales on behalf of Company B or Company B's clients o Company A may delegate its duties and functions o Company A is not entitled to receive its commission if a sale is cancelled or Company B does not receive the full proceeds of the sale. Given the specific nature of the work, the level of discretion involved and that payment only occurs when Company B receives full proceeds; the essence of the contract is to produce a specific result. Therefore, this condition is satisfied. · Company A is required to supply the plant and equipment, or the tools of trade (if any) needed to perform the work from which you produce the result; and o Company A is required to provide its own vehicle, mobile phone, computer, phone and fax. Therefore, this condition is satisfied. · Company A is, or would be, liable for the cost of rectifying any defect in the work performed. o Company A are exposed to the commercial risks associated with their services. Therefore, this condition is satisfied. A Personal Services Entity (PSE) will meet the unrelated clients test during an income year if: · during the year, the PSE gains or produces income from providing services to two or more entities that are not associates of each other, and are not associates of the individual or of the PSE; and · the services are provided as a direct result of the individual or personal services entity making offers or invitations (for example, by advertising), to the public at large or to a section of the public, to provide the services. Section 87-40 of the Income Tax Assessment Act 1997 (ITAA 1997) modifies the operation of the 80% rule and unrelated clients test for certain agents. Company A satisfies the requirements of subsection 87-40(2) given that: · they are an agent of Company B but not an employee; · they will receive income from Company B resulting from providing services to Company B's customers; · at least 75% of their income will be commissions based on providing services to Company B's customers; · they will actively seek customers on behalf of Company B; · no customer will represent more than 80% of the PSI; and · they will provide some services at premises owned by Company B; however, the use of those premises is obtained as part of an arrangement entered into at arms length with Company B. As Company A meets all the requirements under subsection 87-40(2), the special rules for agents will apply to ensure the following: · for the purposes of the 80% rule the income is treated as if it were PSI from the customer, and not PSI from Company B. · for the purposes of the unrelated clients test any services are treated as if the agent, and not Company B, provided them to the customer. Therefore, Company A can apply the special rules for agents to determine whether they pass the unrelated clients test and meet the 80% rule for the relevant income years.