Personal Services Income – John Elliot

Dear All,

From my reading of recent postings all appear to be fixated on the 80/20 rule and contractors. I tried to make it clear in my original posting that the 80/20 rule, according to the National Tax and Accountants’ Association (NTAA) seminar, amounts to less than a row of beans; ALL it entitles the the taxpayer to do is self-assess – that is all! My information is that if your company earns PSI income it does matters not one jot if you have 1 client or 1000, or if the maximum derived from any one client is 1 percent or 100 – you will be classed as PSI. Also, it does not matter if you are a contractor, tradesperson, or any other sort of professional – the critical question, as explained to me, is: are your company earnings PSI. OK, do your self-assessment under the 80/20 rule; big deal! What are you going to do when you are audited in 1, 2, 5 years time and the ATO determines your company income is PSI – plead insanity? Have you read the example of the radiologist I quoted in my original email? Please be aware that that is not some example dreamed up by the NTAA; it is taken from the ATO paper (the number of which I quoted) and as such must surely give a clear indication of ATO thinking and how they intend to administer the PSI provisions. As for the ATO taking a soft line and only really being interested in targeting IT professionals etc – in your dreams! In any case, tax law, ALL law, is supposed to operate even-handedly and I would be very surprised if the ATO can legally take a soft line with any group if the law is clearly defined.

Essentially, all the thinking on this problem that I have seen so far seems to revolve on getting the ATO to explain the provisions of PSI and hope they will be nice to geologists. That strategy seems to me to be not far removed from that tried by Little Red Riding Hood and will probably be just as successful. Why is everyone so reluctant to try and get the law changed through political lobbying? Change in the law is what we want to solve this problem not words of reassurance which are not binding and which might be changed tomorrow. The ATO can NOT change the law – they can only interpret it. The law has been made by the government, probably as part of the Ralph Report, and probably based on the views of someone who thinks small business has to do with infantile bodily functions.

The government right now is running scared; just look at the recent grants to pensioners, and changes in the plans to recover family benefits overpayments. The strategy, in my opinion, would be to lobby government and at the SAME time start making noises in marginal seats. There is a golden opportunity to do that NOW before the election campaign really gets under way. My understanding of the information from the NTAA tax seminar is that thousands of people are going to be caught by the implementation of the PSI rules; if correct, this suggests there will be a huge body of support for change to the law.

Go and talk to YOUR accountant now, ask if they have seen the information from the NTAA seminar or the ATO release TR 2001/D4 and what their interpretation is. I sincerely hope you can tell me that everything I have written is nonsense! Until then forget about fixations on the 80/20 rule or hoping that some junior apparatchik from the ATO will give you some soothing words of comfort.

Regards to all, John Elliot ———————————- John Elliot Anzeco Pty. Limited mineral exploration consulting services 26 Casey Circuit, Bathurst, NSW 2795, AUSTRALIA Telephone +61 2 6331 4925 Fax +61 2 6331 9111 Email:

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