The Federal Court has allowed a taxpayer’s appeal on a AATA decision and found that the ATO interpreted the unrelated clients test too narrowly in deciding the status of a taxpayer’s Personal Services Business.
The unrelated clients test is satisfied in an income year if:
- the individual or entity earns income from providing services to two or more unrelated clients; and
- the services are provided as a direct result of the individual or entity making offers or invitations to the public (for example, by advertising). This condition is not satisfied if the individual or entity is merely available to provide services through a labour hire or recruitment agency.
The Federal Court found that the second condition could be satisfied where services were advertised to the public through a forum such as LinkedIn, and also where work was obtained through the involvement of a labour hire or recruitment agency. The Court found that the second condition does not require an offer or invitation to be made, or relied on, by the end client and that it is sufficient that some of the labour hire or recruitment agencies approach the taxpayer due to their advertising on websites like LinkedIn and services were provided to end clients as a result.