Private ruling: Personal services income - results test
Date of advice: 7 April 2026
Published: 29 June 2026
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Was the income received by the Company in the year ended 30 June 2025 for the services provided by the Taxpayer personal services income (PSI)? | A1: Yes. | Q2: Did the Company meet the results test under section 87-18 of the Income Tax Assessment Act 1997 (ITAA 1997) in the income year ended 30 June 2025? | A2: No.

Relevant facts and circumstances: The Company commenced its activity in the 2020 income year. The Taxpayer is the sole director and shareholder who provides the consulting services on behalf of the Company. The Company had only X client in the 20YY income year. The Company began earning income from this client in the 20YY income year. The relevant terms of the contract between the Company and their client were as follows: • The Taxpayer provided their services on behalf of the Company. • For the services performed by the Taxpayer, the Company was paid by an hourly rate, for a total specified number of working days. • The Taxpayer's services were provided onsite and was also allowed to work remotely form home. • The client provided the Taxpayer with a laptop to work remotely from their office. The Taxpayer was responsible for supplying any additional equipment. • The Company was responsible for maintaining the following insurance policies: ­ Public liability insurance to the value of $X. ­ Professional indemnity insurance to the value of $X. ­ Workers compensation insurance as required. The Company earned income from the client totalling $X for the 20YY income year. The Company stated that: • it used their own equipment to perform the services. • it is required to rectify any errors or mistakes.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 84-5 | Income Tax Assessment Act 1997 section 86-15 | Income Tax Assessment Act 1997 subsection 86-15(2) | Income Tax Assessment Act 1997 section 87-15 | Income Tax Assessment Act 1997 subsection 87-15(2) | Income Tax Assessment Act 1997 section 87-18 | Income Tax Assessment Act 1997 subsection 87-18(3) | Income Tax Assessment Act 1997 section 87-65

Reasons for decision: Summary: Section 84-5 of the ITAA 1997 provides that the ordinary or statutory income of an individual or entity is an individual's PSI if the income 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). Subsection 86-15(2) provides that a personal services entity (PSE) is a partnership, company or trust that receives the PSI of one or more individuals and is interposed between the individual(s) providing the work or services and the service acquirer. The PSI rules contained in section 86-15 of the ITAA 1997 ensure that the PSI received by a PSE is attributed to the individual who performed the personal services. The phrase 'or would mainly be such a reward if it was the income of the individual' applies to situations where the income is legally derived by a PSE and not the individual. If the PSE fails to meet a personal services business test in respect of a test individual, the PSI is deemed to be the income of the individual who earns the PSI and is attributed to that individual. The use of the word 'mainly' means that the income referred to needs to be 'chiefly', 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 the taxpayer's circumstances: During the 20YY income year, the Company entered into an agreement with their client to provide consulting services. The Taxpayer provided the services on behalf of the Company. Based on the information provided, the income received by the Company in the 20YY income year is income derived mainly from the services performed by the Taxpayer and is a reward for their personal skills and expertise. Consequently, the income derived is PSI pursuant to section 84-5 of the ITAA 1997. | Summary: The Company does not satisfy the conditions of the results test under section 87-18 of the ITAA 1997. To satisfy the results test, at least 75% of the PSI received must meet all three requirements of the test. All conditions of the results test were not satisfied; hence the results test was not met. | Detailed Reasoning - Personal services business (PSB): Division 87 of the ITAA 1997 provides the conditions to determine whether a sole trader or PSE is conducting a PSB in an income year. Section 87-15 states that a PSE is considered to conduct a PSB in an income year if the PSE has received a personal services determination (PSBD) from the Commissioner or, if it meets at least one of the four PSB test in accordance with the eligibility rules relating to the use of the tests). The four personal services business tests are set out in subsection 87-15(2) are: • the results test • the unrelated clients test • the business premises test and • the employment test Taxation Ruling TR 2022/3 Income Tax: personal services income and personal services businesses (TR 2022/3), discusses the operation of PSI rules under Part 2-42 of the ITAA 1997. A PSE can self-assess that it conducts a PSB in relation to an individual's PSI in an income year if: • it meets the results test in relation to at least 75% of the PSI of that test individual's PSI or • less than 80% of the test individual's PSI is from the same entity and its associates and the test individual's PSI satisfies one or more of the other PSB tests. | Detailed Reasoning - The results test: Subsection 87-18(3) of the ITAA 1997 states that a PSE meets the results test in an income year if, in relation to at least 75% of the personal services income of one or more individuals that is included in the entity's ordinary or statutory income during the income year, the entity satisfies all of the three conditions listed 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 need 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: Where remuneration is payable on the contractual conditions being fulfilled, the remuneration is for producing a result. The essence of the contract must be to achieve a result and not to do work. The fact that a sole trader 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. 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. The substantive issue in the requirement for the contract to be producing a result is the payment conditions. If remuneration is payable when, and only when, the contractual conditions have been fulfilled, the remuneration is for production a given result. | 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 acquire 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. Where this is the 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 PSE 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 the taxpayer's circumstances: To meet the results test in an income year at least 75% of an individual's PSI in an income year must meet all the conditions of the results test. In the 20YY income year, the PSI received by the Company came from only one source. We have considered the contract between the Company and their client against the conditions of the results test and made the following observations: | Detailed Reasoning - Producing a result: The key consideration in determining whether the contract is for producing a result is the payment terms. Where remuneration is payable only upon fulfillment of contractual conditions, the payment is deemed to be for achieving a specified result. In this instance, the Company is paid for work done by the Taxpayer based on an hourly rate. Payment calculated on a time basis is inconsistent with a results-based contract and instead indicates a contract for work. Accordingly, the payment was not contingent upon achieving a specific result, rather a combination of duties and professional consulting services provided by the Taxpayer as outlined in the agreement. Consequently, the first condition of the results test was not met. | Detailed Reasoning - Required to supply the plant and equipment, or tools of trade, needed to perform the work: The agreement with the client indicated that they would provide the Taxpayer with a laptop to work remotely from their Office, and the Taxpayer was responsible for supply any additional equipment. The Company stated that it had used their own equipment to perform the services. Regardless of whether tools and equipment are required to do the work, the connection to 'producing a result' is not present. Therefore, this condition of the results test was not met. | Detailed Reasoning - Liable for the cost of rectifying any defect in the work performed: The agreement stated that the Company was responsible for maintaining insurance policies of public liability, professional indemnity insurance and workers' compensation insurance. Although the Company holds professional indemnity and public and products liability insurance policy, the Company is paid for work done by the Taxpayer based on an hourly rate. Rectification of any errors can occur whilst undertaking the task. Consequently, the Commissioner is not satisfied that third condition of the results test was not met. | Detailed Reasoning - Conclusion: The PSI earned in the relevant income year was for ongoing business consulting services provided, and not for producing a result. All conditions of the results test were not satisfied; hence the Company did not meet the results test as outlined in 87-18 of the ITAA 1997.

Does 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 . | The income received by the Company was mainly from the services provided by the Taxpayer that require their personal skills and expertise. Consequently, the income derived is PSI pursuant to section 84-5 of the ITAA 1997.