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26 May 11 Decision Impact Statement - Yalos Engineering Pty Ltd

On 26 May 2011 the ATO released a Decision Impact Statement on the Federal Court decision in FCT v Yalos Engineering Pty Ltd; Yalos Engineering Pty Ltd v FCT [2009] FCA 1569; 2009 ATC 20-154; 77 ATR 542.

The case concerned whether the taxpayer was entitled to a Personal Services Business Determination (PSBD) under s 87-65 of the ITAA 1997 in relation to the personal services income of an employee. The Court allowed an appeal from the AAT, holding that the AAT had erred in law in failing to consider under s 87-65(3B) and (6) whether, but for unusual circumstances applying to the taxpayer in the 2004 and 2005 years, it had met paragraph (b) of the unrelated clients test in s 87-20(1). Accordingly, the Court allowed the appeal and remitted the matter back to the AAT for hearing and determination consistently with the reasons of the Court.

On remittal from the Federal Court, the AAT affirmed its first decision and directed the Commissioner to make a PSBD for the taxpayer in relation to the personal services income for the 2004 and 2005 years.

The ATO accepts the views of the Federal Court that “subsequent income years” in s 87-65(4) does not mean every subsequent income year, but such years generally, and that “a section of the public” in s 87-20(1)(b) can refer to the “limited number of players” that might operate within the narrow area of activity for which the offered individual’s skills and experience are suited.

These views are not inconsistent with TR 2001/8. Whether they are satisfied in a particular case depends on the facts and circumstances of each case. The ATO accepts that it was open to the AAT on the facts of this case to find in its decision on remittal from the Court that the small number of companies engaged in offshore petroleum exploration and mining constituted a relevant “section of the public” for which the skills and experience of the taxpayer were suited.

The ATO also notes that the Court made it clear that the relevant “offers or invitations” referred to in s 87-20(1)(b) could only be made by the taxpayer.