The recent decision in Cameron v. Commissioner of Taxation
 AATA 386 illustrates the importance of taxpayers
satisfying all relevant tests when claiming they operate a personal
services business for income tax purposes.
Mr Cameron supplied drafting services to a number of clients via
a company of which:
he and his wife were the sole directors and shareholders;
he was the sole employee who provided drafting services
(although the company also earned some income from shipping
Even though the company had a substantial number of clients, the
AAT held that it did not qualify as a personal services business
because it did not advertise its services widely enough.
The "unrelated clients test" requires that:
an entity must earn income from providing services to two or
more entities that are not associates; and
the services must be provided as a direct result of the entity
making offers or invitations to the public or a section of the
public (section 87-20 Income Tax Assessment Act
The company's business was generated by word of mouth
referrals, with Mr Cameron relying on a small number of his
personal contacts within the industry to generate work.
The company had not advertised its drafting services in any
publication (such as the Yellow Pages). In addition, although
the company had its own website for a period of time, none of the
income earned arose as a result of website inquiries.
The AAT did not accept Mr Cameron's word of mouth
referrals could be considered "offers or invitations to the
public at large or to any section of the public" and the
unrelated clients test was not satisfied.
This decision can be distinguished from that in FCT v Yalos
Engineering Pty Ltd where the tribunal held that a company
operating in a niche market where there was a very small pool of
potential clients did not have to advertise in public media such as
the Yellow Pages.
In light of this decision, clients who are claiming they carry
on a personal services business should seriously consider
advertising the business as extensively as possible (subject to
For example, most businesses should at least have a listing in
the Yellow Pages and a website. Depending on the nature of the
business it might also be prudent to advertise in selected
publications – for example free suburban newspapers.
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The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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