Private ruling: Personal Services Income (PSI)
Published: March 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the income personal services income? | A1: Yes.

Relevant facts and circumstances: The PSE provides injury assessment reports to insurers and lawyers for the purpose of assessing workers compensation claims. The Doctor is the sole practitioner performing the injury assessments. The PSE provides the Doctor with office premises, office equipment and support staff. The PSE operates mainly in their head office but also works in two other locations where they hire a consulting room in a general practice. The PSE pays a service fee which includes rent for the rooms, telephone and fax use and other minor administrative services. The Doctor's duties include: • Review case files • Perform the injury assessment by interviewing the claimant, observing their behaviour and undertaking visual examination. • Record the case report • Review and approve the final case report The support staff duties include: • Practice Manager (full-time, related party) • Book incoming cases • Report to the Doctor on pending cases • Manage the main office in Newtown • Case File Officer (part-time) • Prepare case files • Typist/Secretary (part-time) • Prepare case reports • On-call Typist/Secretary (casual) • Prepare case reports • Office Clerk (full-time) • Dispatching case reports and invoices • Bookkeeping • Managing debtors and creditors • Mail • Stationery • Office administration • Assist with preparing case reports The head office is fitted out with office furniture and equipment and reception area with amenities.

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

Reasons for decision: Summary: A PSE receives personal services income (PSI) when they have income that is mainly a reward for an individual's personal efforts or skills and not mainly a reward from the use of income producing assets, the sale of goods or a business structure. | Detailed Reasoning - Income from a business structure: The distinction between income that is mainly a reward for personal efforts or skills and income from a business structure will need to be made having regard to the following factors: 1. The number of arm's length employees or others engaged to perform work. The Doctor is the sole practitioner engaged to perform the injury assessments. The PSE engages employees to manage the office and administration of the reports. The number of employees involved in the administration of the reports does not indicate the presence of a business structure. 2. The presence of goodwill The PSE's goodwill is generated by the reputation and experience provided by the Doctor. Accurate reports are also important to maintaining professionalism and goodwill but to a lesser extent to that of the reliability of Doctor's professional opinion. 3. The extent to which income-producing assets are used to derive the income. There are no substantial income-producing assets used to derive the income. The head office, consulting rooms and office equipment are not substantial income-producing assets. The use of the premises and equipment is common to that professional environment, but, nevertheless, the income is being generated mainly as a result of the Doctor's personal skill. 4. The nature of the activities carried out. The Doctor is the specialist who provides his professional opinion in the case assessment report. The activities conducted by the Doctor are at his/her own direction and do not resemble employee-like activities. 5. The size of the operation We consider the size of the business is relatively small. As there is only one practitioner the business is restricted to the number of clients the Doctor can physically assess on his/her own. Also given the number of employees and only two working full-time, it would appear the business is not performing a large number of assessments. 6. The extent to which the income is dependent upon a particular individual's own personal skills, efforts or expertise. The PSE's income is significantly dependent on the Doctor's personal skills, efforts and expertise. Although the Doctor requires the support staff to assist him/her with preparing the reports, the equipment and resources used would be regarded as ancillary to the provision of the Doctor's personal efforts and skills. The activities involve a high level of the Doctor's own skill and judgment. Clients engage the PSE for the Doctor's professional opinion; an accurate report would be expected as part of normal business standards. As there is only one practitioner performing the assessments, the income is significantly dependent upon their personal efforts or skills. The example provided in paragraph 91 of TR 2001/7 determined the income of an entity performing earthworks services was earning income through a business structure. The entity had substantial income producing assets, six employees, five of which were plant operators. This meant the entity could generate income without relying on the skills of any one individual. In contrast to this example, the Doctor is the only practitioner and the PSE cannot derive income without the Doctor's services. The example provided in paragraph 118 of TR 2001/7 more closely resembles the PSE's arrangement where it was determined that the medical practitioner's fees were PSI. After weighing up the factors above we have determined the income is not from a business structure. Therefore, as the income is mainly a reward for an individual's personal efforts or skills, the income is PSI.