The taxpayer has appealed to the Federal Court against the decision in Douglass v CofT [2008] AATA 3729. The AAT had ruled that income received for engineering services was subject to the personal services income (PSI) rules, as the partnership business did not pass the “results test” in s87-18 of the ITAA97 (ie principally that at least 75% of the income is for “producing a result”).

I described the original AAT decision and the way the PSI law works in my earlier Tax Technical article. Broadly the taxpayer sought work, as an engineer, through a labour hire firm, in WA, with his services being provided by partnership between the taxpayer and his wife. The Court held that he was properly on all of the partnership income (so it was not split with his wife). This was under Div 86, because at least 80% of the income came from the one source (the labour hire firm) and the Partnership was NOT carrying on a ‘personal services business’. Critical to this last conclusion was that the Partnership was not paid for ‘producing a result’. The AAT said that:

  • It said that taxpayer confused “working [as part of a team] for an overall result” with the requirement in s 87-18, ie that of “income…for producing a result”.
  • The AAT considered the former to be so general that it would mean that all engineers engaged to work by contract would be excluded from the PSI rules.
  • Accordingly, the income received in the dispute years was not for producing a result – but rather was for the work performed by the taxpayer – which meant that the business did NOT qualify as a ‘personal services business’.

FJM 29.11.18

[LTN 219, 13/11/18; Tax Month – November 2018]


CPD questions (answers available)

  1. Had the taxpayer tried to split the remuneration, from his work, with his wife (by providing his services through a partnership with his wife?
  2. Was he successful in the AAT?
  3. Why?
  4. Is he now appealing that decision?

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