BRMJCQ PTY LTD v FC of T

Members:
J Block DP
S Frost SM
J Redfern SM

Tribunal:
Administrative Appeals Tribunal, Sydney

MEDIA NEUTRAL CITATION: [2010] AATA 311

Decision date: 29 April 2010

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J Block, S Frost and J Redfern (Deputy President and Senior Member)

Part A - Background and preliminary

1. The objection decision that is under review is the decision by the Respondent (who is sometimes in these reasons also referred to as "the Commissioner") dated 29 September 2008 disallowing an objection by the Applicant against a refusal by the Commissioner to make a Personal Services Business Determination (PSBD) pursuant to s 87-65(1) of the Income Tax Assessment Act 1997 ("the Tax Act") in respect of the years ending 30 June 2004, 30 June 2005 and 30 June 2006. Those years are collectively referred to as "the relevant years"; each individual relevant year is referred to by reference to its actual year.

2. The Applicant was represented by Mr J Cilmi, an accountant; the Respondent was represented by Mr B Kasep of counsel, instructed by Ms Catherine Egan of the ATO Legal Services Branch.

3. The Tribunal had before it the T documents and also supplementary T documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975. The supplementary T documents are not numbered sequentially after the T documents but in any event, any reference to the T documents is indicated by the prefix "T".

4. Oral evidence was given on behalf of the Applicant by Mr Brendan Martin ("Mr Martin") (referred to in the Respondent's written submissions as its sole director and shareholder).

5. Each of the parties furnished the Tribunal with Statements of Facts and Contentions ("SoFaC"). The Commissioner's SoFaC is helpful in that it deals with relevant facts and in particular relevant contracts. The Applicant's SoFaC contains in the main a summary of what "the Respondent does not accept".

6. The Commissioner furnished a helpful outline of submissions and on which the Tribunal has drawn for the purposes of these reasons. It is helpful at this stage to include its content under the head of "Facts" and contained in clauses 2 to 19 as follows:

" Facts

• 2. The facts that give rise to the proceedings are set out in the Respondent's Statement of Facts, Issues and Contentions ('Commissioner's Statement') and can be shortly stated.
• 3. BRMJCQ was incorporated in New South Wales on 4 December 2000. Its sole director and shareholder is Brendan Martin who is an IT consultant.
• (1) The Icon Recruitment Pty Ltd Contract
• 4. On or about 23 April 2003, BRMJCQ entered into a contract with Icon Recruitment Pty Ltd ('Icon') (T9 f 153-155) (the 'Icon Contract')-a labour hire company which provides IT consultancy services to clients within the public and private sector.
• 5. Under the terms of the Icon Contract, BRMJCQ was to engage Mr Martin to provide 'consulting services' to the Department of Veteran Affairs (the 'DVA'). The duration of the Icon Contract was expressed to be 19 May 2003 to 18 November 2003-subject however to the possibility of an extension under clause 3. Clauses 1 and 2 of the Icon Contract identified the following remuneration arrangements:
  • [1] Consulting Fees
  • For the provision of the consulting services, BRMJCQ … will be paid by Icon at the Hourly rate of $78.00 plus GST, if applicable. …
  • [2] Invoicing
  • The hours worked by [Brendan Martin] are to be recorded on an Icon, or Client-approved timesheet, and signed by an appropriate Client official. This timesheet should then be forwarded in accordance with the payment schedule supplied. Upon receipt of invoice, [BRMJCQ] will be paid by direct credit to its nominated Australia company bank account as per payment schedule.
• 6. On 25 November 2003, the Icon Contract was extended from 19 November 2003 to 19 December 2003 (T12 f329). Two subsequent extensions to the Icon Contract were agreed: (1) on 28 April 2004 the Icon Contract was extended from 1 May 2004 to 30 June 2004 (T12 f330); and (2) on 22 June 2004 the Icon Contract was extended from 1 July 2004 to 31 January 2005 (T12 f331).
• 7. Some illumination as to the consulting services Mr Martin was contracted by Icon to provide to the DVA, at least from 1 May 2004, is provided by a document styled Services Agreement between the DVA and Icon (T9 f109-151). The purpose of the Services Agreement, identified in the Schedule, Part A (T9 f 113), is expressed to be 'for the provision of a Metaframe Deployment Manager oversighting the work for Transition project.' Mr Martin is identified in the Service Agreement as 'specified personnel'. The 'nature of work to be performed' by Mr Martin is identified in the same manner as the purpose of the Service Agreement (T9 f115).
• 8. The 'deliverables' required of Icon under the Service Agreement are relevantly identified in the Schedule, Part D(b) in the following manner (T9 f116-117):

  [Icon] will provide DVA with the following:

  • • [Icon] will deliver the Services in accordance with the Workplan (to be negotiated with the Delegate as set out at Attachment A - Project Plan and as directed by the Delegate. It is possible that [Icon] will be called upon to work on multiple projects in this time. …
  • • As a member of the project team, [Icon] will produce the deliverables, including where requested, reports, for the relevant phases set out in D(a) [identified as provision of a Meta Frame Deployment Manager oversighting the work for the Transition project]. The deliverables will be produced as per the attached Attachment A - Project Plan or as agreed with the Delegate. …
  • • Deliverables will be subject to acceptable by the Delegate [sic].

• 9. Attachment A - Project Plan (T9 f144) identifies, in essence, the content of the 'deliverables' Icon was obligated to provide the DVA under the Service Agreement. The Project Plan is prefaced as being 'a most important part of the contract' that must 'provide a complete description of the obligations and the work to be performed in furnishing the Contract for Services' (T9 f144). Mr Martin is identified in the Project Plan as the 'Contractor' holding the title 'Metaframe Deployment Manager'.
• 10. Section A of the Project Plan, contains a 'Statement of Work' Mr Martin was obligated to perform. Of note, Mr Martin was not required to 'devise and maintain a Detailed Work Plan that has been approved by a Supervisor' or 'Report against Detail Work Plan to Supervisor on a regular basis as agreed.' Under the heading 'Other tasks not described above' Mr Martin's responsibilities were outlined in the following manner (T9 f144-145):
  • • Lead a team of IT professionals in the development [of] high level plans to manage Metaframe Standard Operating Environment (SOE) in the transition project.
  • • Manage the workload of the team, monitor progress, and report to management.
  • • Carry out technical investigations and provide advice.
  • • Provide technical and programming assistance to users.
  • • Provide guidance to programmers.
  • • Provide LAN desktop support to users.

  These tasks are ongoing through the term of the contract.

• 11. In addition to having provided services in relation to the 'Metaframe' deployment, BRMJCQ maintains that Mr Martin during the same period covered by the Icon Contract (and its extensions) undertook work for the DVA in relation to 'rectifying the primary defect of [a] failed BAU handover' (T12 f213). The personal services income Mr Martin received under the Icon Contract is set out in Commissioner's Statement, [13].
• (2) The Paxus Australia Pty Limited Contracts
• 12. On or about 8 June 2004 (T12 f240), or 9 November 2004 (see ST f23), Paxus Australia Pty Limited ('Paxus') notified Mr Martin that the position of 'Project Manager' with the Australian Taxation Office for a contracted period of 6 months was on offer: see T12 f240-245 and ST2 f13-15.
• 13. On or about 5 January 2005, BRMJCQ entered into a contract with Paxus (T12 f389) ('the Paxus Contract'). Under the Paxus Contract, Mr Martin was identified as the 'consultant'. BRMJCQ was obligated to ensure that Mr Martin performed 'the services' to the client indentified [sic] in the Paxus Contract which was the Australian Taxation Office ('ATO').
• 14. The duration of the Paxus Contract was identified as being from 31 January 2005 to 30 June 2005 or 'when the maximum number of hours are reached'. The maximum number of hours was identified as 1000. Clauses 5.2 to 5.3 of the Paxus Contract contain the following provisions in relation to remuneration:
  • 5.2 Each week [Mr Martin] shall accurately fill out and sign a timesheet showing hours of service performed, (in a format previously approved by PAXUS), have it signed by [the ATO] and send it to PAXUS.
  • 5.3 Subject to the rest of clause 5, within seven days of receiving a timesheet as required by clause 5.2, in return for [Mr Martin] providing the Services described in that timesheet, PAXUS will pay [BRMJCQ] at the Contract Rate set out in the Contract Details.
• 15. In accordance with the Paxus Contract, Mr Martin provided IT consultancy services to the ATO. The services provided by Mr Martin are said by BRMJCQ to have been 'to plan and conduct an end of life migration path for aged infrastructure' (T12 f213).
• 16. In addition to providing services to the ATO, Mr Martin provided services again to the DVA via Paxus in 2006: see ST2 f16-22. BRMJCQ has not produced a copy of a contract with Paxus under which IT services were provided to the DVA. The Commissioner has assumed that the contract under which those services were provided is in similar terms to the Paxus Contract outlined above. The services provided by Mr Martin to the DVA are said by BRMJCQ to have been the delivery of 'key infrastructure initiatives' (T12 f213).
• (3) The Application for a PSBD and Application for Review
• 17. On 3 August 2007, BRMJCQ applied for a PSBD in relation to the personal services income of Mr Martin (T9 f84-87) for the financial years ending 2004, 2005 and 2006. The basis on which BRMJCQ applied was that it satisfied the 'results test' in s 87-18(3) of the ITAA 1997 (Cth). On or about 10 January 2008, BRMJCQ also made representations that a PSBD ought to be made on the grounds that the 'unrelated clients test' in s 87-20 of the ITAA 1997 (Cth) was satisfied or that but for unusual circumstances the 'unrelated clients test' would have been satisfied: see T12 f219-225.
• 18. On 22 April 2008, the Commissioner notified BRMJCQ of his refusal to make a PSBD for the years in issue: T13 f393-415. On 20 June 2008, BRMJCQ objected to the Commissioner's refusal to make a PSBD: T14 f416.
• 19. On 29 September 2008, the Commissioner disallowed BRMJCQ's objection in full: T2 f36-57; T17 f429-437. By Application for Review of Decision dated 24 November 2008 (T1 f1-4) BRMJCQ now seeks a review of the Commissioner's decision."

7. In clause 11 of his written submissions, the Commissioner referred to clause 13 of his SoFaC dated 19 February 2010; that clause reads as follows:

• 13. The source and amount of Applicant's PSI in each year:
  

  2004 year
  Source	Amount	Client	Percentage
  Icon	$215 046	DVA	100%
  2005 Year
  Source	Amount	Client	Percentage
  Icon	$138 862	DVA	61%
  Paxus	$ 90 021	ATO	39%
  2006 Year
  Source	Amount	Client	Percentage
  Paxus	$175 810	ATO	65%
  Paxus	$ 94 863	DVA	35%

8. Words, phrases and terms defined in the Commissioner's submissions and quoted previously in these reasons have the same meanings where used in these reasons.

9. It is relevant to note that the Applicant conducted its case almost entirely by reference to the results test; it made virtually no mention of the 80 percent test or of "unusual circumstances". However, there are references to "unusual circumstances" albeit in brief terms only, in the Applicant's SoFaC and the Tribunal considers that it is desirable that it deal with this aspect in these reasons. Similarly and although the Applicant did not argue the applicability of the 80 percent test in respect of any of the relevant years, it does appear to be relevant, at least in relation to the 2005 year and so that this aspect too will be dealt with in these reasons.

Part B - The contracts

10. Contracts in respect of Icon and Paxus, and certain other contracts and contractual documents, proved to be of such importance that it is convenient in this Part B to deal with them in greater detail.

11. The Icon Contract appears at Tpp153-155 and its provisions are included in full at Schedule A to these reasons. [Schedule A omitted by publisher]

12. It will be noted that Mr Martin executed the Icon Contract in order to acknowledge that he would provide the services needed and in order to record that he was bound by its terms. It is relevant to note that the Icon Contract can aptly be described as an agreement for the provision of Mr Martin's services on behalf of the Applicant to Icon in consideration of the payment of a specified hourly rate. It contains no reference to results or milestones and it also contains no references to rectification of defects. It does not require the Applicant to carry insurance cover (other than workers compensation cover). It does include provisions as regards termination and in particular provides that if the DVA (referred to therein as the "Client") was dissatisfied with the services provided Icon reserved the right to terminate the contract.

13. The services agreement between the DVA and Icon is document T9 and it (inclusive of annexures) appears at Tpp109-146. As regards the services agreement:

• (a) Part D is headed "What is the Contractor required to Do?" These provisions appear at Tpp116-117 as follows:
  • D(a) What Services are needed - and when?
  • Relates to clauses 1.3(a) [Contractor's primary tasks].
  • The Contractor will perform the following tasks:
    • • Provision of a Metaframe Deployment Manager oversighting the work for Transition, project.
  • D(b) What deliverables are required*?
  • Relates to clauses 1.3(b) [Contractor's primary tasks] and 18.1 [Definitions: "Contract Material"].
  • The Contractor will provide DVA with the following:
    • • The Contractor will deliver the Services in accordance with the Workplan to be negotiated with the Delegate as set out at Attachment A - Project Plan and as directed by the Delegate. It is possible that the Contractor will be called upon the work on multiple projects in this time. All projects will be performed according to l-Case International's RDM and the DVA IMU Quality Management System.
    • • As a member of a project team, the Contractor will produce the deliverables, including where requested, reports, for the relevant phases set out in D(a). The deliverables will be produced as per the attached Attachment A - Project Plan or as agreed with the Delegate. Deliverables outlined in the RDM phases can be viewed using RDM online.
    • • Deliverables will be subject to acceptable by the Delegate [sic].
    • • Location where services are to be provided:
      • Francis Chambers BREAK46 Corinna Street BREAKWoden ACT 2606 BREAKOr BREAKas other DVA premises as directed by the delegate.
  • D(c) How is performance monitored and communication maintained?
  • Relates to clause 1.3(c) [Contractor's primary tasks].
    • (1) DVA shall monitor the performance of the Contractor under this Agreement (particularly in relation to the tasks described, in Part D(a) [The services] and the deliverables required under Part D(b) [The deliverables] and determine in its absolute discretion whether such performance has been satisfactory, If DVA decides that the Contractor's performance is unsatisfactory, then the Commonwealth may terminate this Agreement in accordance with clause 15.4 [Specified Default].
    • (2) The parties will meet on a regular basis to discuss the progress of the Agreement including ways to improve delivery of the services.
• (b) Attachment A to the services agreement is the Project Plan and it appears at Tpp144-145, as follows:
• PROJECT PLAN
• (This schedule must provide a complete description of the obligations accepted and work to be performed in furnishing the Contract Services. This schedule sets out the nature of the work the Contractor is to perform and so is a most important part of the Contract. Its terms must be precise and specific and cover all actions that are required of the Contractor.
• Section: Transition
• Contract Services Title: Metaframe Deployment Manager
• Contractor's Name: Brendan Martin
• Section A: STATEMENT OF WORK
• (The following section must be completed to provide a detailed statement of the work to be. undertaken. If particular tasks are not relevant to this contract, indicate "Not Applicable". This may also be achieved by annexing or, where this is not practicable, by incorporating by reference [with adequate and precise description) correspondence between the Parties including any proposal from the Contractor.
  • A1: Interruption of Customer Requirements: Not Applicable
  • A2: System Analysis & Design: Where appropriate
  • A3: Data Analysis: Where appropriate
  • A4: Writing Detailed Specifications: Where appropriate
  • A5: Coding and Testing Programs: Yes
  • A6: Assist Junior Staff: Yes
  • A7: Liaise with Customers: Yes
  • A8: System Maintenance: Where appropriate
  • A9: Writing Procedures and other Documentation: The Contractor will be expected to write procedures and other documentation
  • A10: Provide Training: As required and where appropriate
  • A11: Specific Technical Expertise:
  • A12: Devise and Maintain a Detailed Work Plan that has been approved by Supervisor:
  • A13: Report against Detailed Work Plan to Supervisor on a regular basis as agreed;
    • □ weekly
    • □ fortnightly
    • □ monthly
    • □ other
  • A14: Comply with DVA QMS Procedures and Standards: The Contractor will have to conform to the DVA QMS Procedures and Standards
  • A15: Other tasks not described above:
    • • Lead a team of IT professionals in the development high level plans to manage the Metaframe Standard Operative Environment (SOE) in the transition project.
    • • Manage the workload of the team, monitor progress, and report to management.
    • • Carry out technical investigations and provide advice.
    • • Provide technical and programming assistance to users.
    • • Provide guidance to programmers.
    • • Provide LAN desktop support to users.
• These tasks are ongoing through the term of the contract.
• Section B: - Contract Material Requirement
  • B1: Contract Material to be produced: Not Applicable
  • B2: Format of Contract Material: Not Applicable
  • B3: Other not described above:
• Section C - Time Frame:
• Service Timeframe: Two (2) Months,
• Section D - Subclause agreements:
  • 8.4:
  • 8.5:
  • 8.6:
  • 8.7:
  • 8.8:
  • 8.9:
• (c) It will be noted that in the Project Plan the Contractor is described as "Martin". The "Statement of Work" contained in Attachment A sets out a list of relevant tasks or obligations; those tasks or obligations are in some cases noted "not applicable", "yes", or in other terms, and in other cases, are not noted at all. Clause A.15 is perhaps one of the more relevant provisions and which makes it clear that under the Project Plan services were required, rather than any specified result.

14. The Paxus Contract appears at Tpp389-390 and it appears at Schedule B to these reasons. [Schedule B omitted by publisher]

15. It will be noted in particular as regards the Paxus Contract that:

• (a) Under the head of Insurance Details, the words "professional negligence or errors and omissions cover for at least $1,000,000" were deleted;
• (b) It also provided for an hourly rate;
• (c) It named the Consultant as "Martin".

16. As set out in clause 16 of the Respondent's submissions, quoted earlier in these reasons, services were again provided to the DVA in 2006, but on this occasion in respect of a different project and through Paxus and not Icon. The T documents do not include any contract between Paxus and the Applicant in respect of the services provided to the DVA in the 2006 year. In evidence, Mr Martin said that he thought that a contract was provided but that if not the terms would have been similar to those contained in the Paxus Contract.

17. The documents provided to the Tribunal do not include any contract between Paxus and the ATO or Paxus and the DVA. However and in respect of Paxus and the ATO, Mr Martin in his evidence considered that Tpp243-244 were relevant; their content is for this reason included as follows:

Paxus

AUSTRALIAN TAXATION OFFICE BREAKRFT 018-2004 - PROJECT MANAGER BREAKCONTRACT SIX MONTHS

PROJECT OVERVIEW

The IT Service Management Improvement Program (ISMIP) is responsible for the design and implementation of common processes and procedures based on the ITIL framework. The ATO has recently purchased a service management tool to support a number of core ITIL processes, including incident and problem management, change and release management, configuration management and service level management.

As the Project Manager of the Service Management Tool Project you will be responsible for working closely with other members of the ISMIP team, the product vendor and our customers to implement key components of the tool in a phased approach, to support the rollout of service management processes across the ATO. In particular you will be responsible for:

• • Detailed scoping of the implementation and preparation of project documentation;
• • Aligning tool implementation strategy with ATO's ITIL process deployment schedules;
• • Ensuring that infrastructure components are available and processes in place;
• • Ensure that acceptance testing and related assurance activities are completed;
• • Being the liaison point between ATO stakeholders and the software vendor As part of regular project management activities you will also be required to:
• • Prepare, monitor and report on project plans;
• • Lead a team in the implementation of the solution;
• • Liaise with internal and external stakeholders to resolve issues in a timely manner;
• • Transfer skills to permanent ATO staff and other tasks as directed within the overall scope of this Contract

Selection Criteria

Essential

• 1. Experience in managing complex software implementation projects (including business change and IT deliverables);
• 2. Exceptional project management skills - including experience in preparing, monitoring and reporting on and experience in risk management;
• 3. Demonstrated sound understanding of technical infrastructure issues
• 4. Results driven - a demonstrated ability to deliver large projects in restricted timeframes;
• 5. Excellent interpersonal skills;
• 6. A sound understanding of ITIL principles.

Highly Desirable

• 7. Experience in the implementation of IT service management tools.
• 8. Two referees together with, their contact telephone numbers.

Please Note: Proposals that do not address all the selection criteria, or have provided answers which are not considered adequate may be evaluated to have not met the criteria.

18. T9 (Tpp171-204) is a services agreement between the DVA and Continuum Services Pty Limited. Like the services agreement between Icon and the DVA, it is in its terms referable to the Metaframe Project; the Tribunal is not clear as to its relevance except that its terms appear similar to those contained in the DVA/Icon service agreement.

Part C - The evidence of Mr Martin

19. No witness statement was provided in respect of Mr Martin. However, Mr Kasep agreed to accept that T16 (Tpp425-428), which are the pages of a letter dated 1 July 2008, addressed by the Applicant to the Respondent, could be accepted as if it were a witness statement. A consideration of T16 indicates that that concession on the part of Mr Kasep was generous; T16 is a letter (almost certainly prepared by a lawyer) and which, while it contains some evidence, also contains legal submissions. T16 was confirmed by Mr Martin as correct and its content is attached as Schedule C to these reasons. [Schedule C omitted by publisher]

20. The examination-in-chief of Mr Martin went far beyond T16 and indeed took nearly the whole of the morning of the hearing day. Questions by Mr Cilmi were frequently leading and equally frequently conjectural in that they dealt with what might have been rather than what actually was.

21. Mr Martin said that work was obtained by the Applicant predominantly through requests from employment agencies such as Paxus and Icon. However, in the 2006 year work was obtained through a "word of mouth" offer from a client with whom he had had a previous engagement (this was presumably a reference to the DVA).

22. Mr Martin explained that work for the DVA could be obtained only through a member of its panel. He said at first that the start date occurred in 2006 but that reference was plainly erroneous. He went on to say he worked for the DVA in the 2003 and 2004 years through Icon and after answering a website advertisement. He said that his engagement involving the DVA commenced in May 2003 and lasted until January 2005 (the Icon Contract was in fact dated April 2003).

23. Mr Martin said that the labour hire firms had little knowledge of the technology involved. A meeting was set up with the DVA, which in respect of new technology, required someone to carry out the technological work referable to the metaframe project, which is Windows-based technology. The meeting led to the Icon Contract and in terms of which remuneration was paid in accordance with the hourly rate specified.

24. Mr Martin was asked whether in respect of the Icon Contract he had been obliged to report to a Mr McCaulay; he said that he reported to another senior person and that there was no clear line of senior management.

25. Mr Martin said that at the end of each month he sent in an invoice. T9-162 sets out a typical invoice by the Applicant to Icon; it appears in full at Schedule D to these reasons. [Schedule D omitted by publisher]

26. T9-163 sets out a typical relevant tax invoice and is attached as Schedule E to these reasons. [Schedule E omitted by publisher]

27. T9pp164-168 are timesheets but which need not be included in these reasons.

28. Mr Martin said the he understood that the DVA wanted an end outcome. Some of the DVA's managers were aware of the technology requirements but he had to direct them as to "my risk management strategy". He then went on to say that his function involved delegation to persons suitably qualified but that he held the responsible position.

29. Mr Martin was then asked what would occur in case of error. He said that this would depend on the nature of the error. He proceeded to say that if there was error, that error would need to be addressed and this is why a specialist was needed in the first place.

30. Mr Martin was asked whether he was ever directed to do remedial work. He said that while there were defects in the software and also in the hardware, the DVA never asked him to rectify defects in his own work, because there were none.

31. Mr Martin said that he sometimes worked offsite and also at home where he did have remote access. He also said that he often worked long hours. As he put it, he has a family and wanted to see them, but might work from home for an hour or so in the late evening and where those hours would be charged for in the normal manner.

32. Mr Martin made it clear that it was largely up to him as to when and where he worked; he said that he was the project manager and he directed how the project was to be done. He went on to say that a small percentage only of his work was performed at home.

33. Mr Martin said that the original Icon Contract was for six months and that it was extended through to January 2005.

34. In the 2005 year, the Applicant performed work for each of Paxus and Icon and in the 2006 year, he performed work for Paxus in respect of the DVA and also for Paxus in respect of the ATO. During the 2006 year, the DVA work related to a different project (that is different from the metaframe project) and that he got back to the DVA through his contact with colleagues.

35. Mr Martin said that in respect of the 2004 year, he could have done work for others but his sole focus was on the work for the DVA, which required his full-time attention.

36. In the 2005 year, the DVA project was completed and he performed work through Paxus for the ATO. In respect of the ATO, a new technology platform was required. He was asked whether there were any contractual milestones; that question resulted in a lengthy answer, which did not address the question that had been asked. During the course of that answer he at first said that he sometimes worked from home but then corrected himself in order to say that he did not recall whether he had remote access at home in respect of the ATO project.

37. Mr Martin was referred to the Paxus Contract and the fact that he was paid in accordance with timesheets. He said that Paxus sought permission to create recipient-generated invoices.

38. Mr Martin said that he had both public liability cover and professional indemnity cover.

39. In respect of the 2006 year, Mr Martin said that in relation to the DVA project, he had to go through a panel member, which on this occasion was Paxus.

40. Mr Martin said that there was never an occasion when he received a payment from Paxus where Paxus did not receive payment from the government department concerned.

41. The remainder of this Part C relates in the main, but not entirely, to the cross-examination of Mr Martin.

42. Referred to the Icon Contract, it was put to Mr Martin that it contained no provision whereby payment was conditional on the achievement of a result. He answered that "I don't believe it is listed" and went on to say that "these labour hire firms have very little understanding of what is needed".

43. Mr Kasep then asked Mr Martin whether it was fair to say that if he worked for a number of hours, he would be paid the specified rate for all of them. His answer was "yes, provided I am producing results". When asked where the contract specified such a provision, he answered, "It probably doesn't".

44. Mr Martin was asked whether it was fair to say that his work was for the Metaframe Project and answered that it was for the deployment of technology to the user base community.

45. Mr Martin was then asked whether the Icon Contract contained a rectification obligation. His answer was "In the document, no". He agreed also that there was no statement in the contract as to any obligation to pay any cost of rectification. He went on to say, "I don't believe that it is implied in the legislation that the cost of rectification is to be borne by the contractor". He then explained that in referring to the legislation, he intended to refer to the PSI legislation and that his reference to the contractor was a reference to his company that is the Applicant.

46. Mr Martin then said that there could be agreement between the parties as to rectification and that if the DVA agreed to bear the cost of rectification this would have the effect that the statutory test was met.

47. Referred to T9-109 (the service agreement between the DVA and Icon), Mr Martin was asked to note that it referred to October 2003 as the date of that version; he was then asked whether he had seen an earlier version. His answer was "I don't believe I have".

48. It was in this context that reference was made to Continuum (T9-171) which is another member of the panel.

49. Referred to T9-109, Mr Martin agreed that it related to the provision by Icon of services for the metaframe technology.

50. Referred to T9-113 as to the purpose of the agreement, Mr Martin was asked whether it matched the services to be provided by him and his answer was, "At a higher level, yes".

51. Mr Martin agreed in relation to T9-115 that he was the person identified as "specified personnel".

52. Referred to T9-116 and asked as to the deliverables referred to, Mr Martin agreed that the Contractor was Icon and that attachment A related to the project plan.

53. Mr Martin agreed in relation to T9-144 that it identified him as the contractor. He agreed also in relation to section A that the work was to be performed by him.

54. Referred to clauses A1 to A14 in T9-144, Mr Martin was asked whether it defined any particular results. He answered by referring to clause A15 in T9-144.

55. Mr Martin was again asked to consider clauses A1 to A14 and his answer was that no result was implied.

56. It was put to Mr Martin that he had said that he was obliged to devise a detailed work plan but that clause A12 in T9-144 was left blank. It was at this stage that Mr Martin said that there might be something in the T documents to this effect and also that there might be something in the T documents to this effect in relation to the ATO. It was at this time that the lunch adjournment was taken to give Mr Martin an hour within which to look through the T documents for the document to which he referred.

57. After lunch Mr Martin's attention was drawn to T9-106 and which is a letter by the DVA to a Mr Ning and which refers to a project plan as an attachment, but where that plan was not in fact attached. Mr Martin was asked whether he would have prepared that project plan and he answered, "I believe it would have been drafted by me".

58. When asked whether that project plan would be the project plan at T9-144, his answer was that it would be "along the lines of T9-144". He went on to say that "I can't be sure that I was actually involved".

59. Mr Martin was again referred to clause A15 in T9-144 and which provided inter alia that he would lead a team of professionals and asked whether that provision identified a result. It was put to him that he had not contracted to provide a result but that rather he had contracted to provide services, his answer was "correct statement I suppose".

60. Mr Martin was then referred again to clause A15 in T9-144 and in particular its reference to managing the work load. It was put to him that it did not imply a result. His answer was that it did imply a result, and he gave the same answer in respect of other dot points in clause A15. (The Tribunal here notes that as a matter of plain English, in respect of clause A15 in T9-144, it is not possible to imply a result.)

61. Referred again to clause A15 in T9-145 as to "provide guidance" and asked whether this implied a result, his answer was "They all relate to the outcome desired".

62. Mr Martin was asked to agree that all of clause A15 related to services and could not be construed so as to imply a result. He said that he did not agree.

63. Mr Martin was then referred to T9-122, which refers to the insurances required under the services agreement of the contractor (Icon); it was put to Mr Martin that his own contract (the Icon Contract) did not oblige him to have professional indemnity cover and that he had agreed that this was so. His answer was: "The reason is that I had to have professional indemnity insurance; this may have been the case in this particular instance". He went on to say, "This is a very immature industry". Mr Martin was then asked whether he did not need professional indemnity cover because Icon was required to have it and his answer was that he carried the risk. He went on to say that in his experience, there was very little risk.

64. Mr Martin was then asked (by the Tribunal) whether if there had been any defective work by him and for which he had been paid, he would have been obliged to refund the amount paid. His answer was "I would have a chain of evidence that I had been through the steering committee". He said also that he would not have to refund because the work had been cleared by the steering committee.

65. Mr Martin was referred to T9-137 and in particular clause 15 entitled "default and termination procedure"; it was put to Mr Martin that if there was a rectification cost, it would have fallen on Icon. His answer was "I have never been asked to rectify a defect". When pressed for an answer, Mr Martin agreed that having regard to the strict terms of the contract "this was probably a fair statement".

66. Mr Martin was then referred to T9-163; he agreed that it was a tax invoice. It was put to him that there was nothing in the tax invoice to suggest that payment was contingent on the production of a result and that it was simply a billing mechanism to Icon. Mr Martin was then referred to T12-389 and the provision that payment was to be made $110 per hour for a maximum of 1,000 hours and asked whether there was any provision for a contingency as to a result. Mr Martin answered that there is very little understanding of what is involved and that to insert a result provision would be in breach of clauses 3 and 8 dealing with secrecy and confidentiality. He went on to say he had to sign a secrecy agreement with the ATO. When pressed he agreed that he could not point to any specific result provision. It was at that time that Mr Martin referred to Tpp243-244 but the relevance of these provisions is unclear.

67. It was put to Mr Martin that there was no dot point provision that would indicate that he had contracted to produce a result but rather that he had contracted to provide services. It was put to him in respect of the Paxus Contract that the fee of $110 per hour was not in any way contingent on a result. His answer was "Yes, but if I didn't produce a result I would have been removed".

68. It was put to Mr Martin in relation to T12-390 that if his services had been terminated, he would have been paid up to termination. He agreed that this was correct.

69. Similar answers as to the fact that there was no provision as to a result were given in respect of T12-391 and T12-389.

70. Mr Martin was then asked whether it would be fair to say that the same answer would be applicable in respect of T12-390. His answer was that the variances would be reflected in the head contract.

71. The remainder of this Part C relates to the re-examination of Mr Martin. In this context, many of the questions were in general terms irrelevant in as much as they related to what might have been the case if the relevant contracts were different.

72. Mr Martin was asked whether in addition to the contracts proper, there were other and perhaps verbal contracts. His answer was, "It is hard to define what constitutes a verbal contract". He went on to suggest that the planning process might give rise to a view that a result was required and if so, this would constitute a verbal contract. He said also that all of these elements went into documents approved by the planning committee.

73. Mr Martin agreed that the position might have been different if he had not been obliged to contract through labour hire firms. He went on to say that once the contracts were signed, the labour hire firms stepped into the background.

74. Mr Martin was then asked whether, when the contracts were signed, he knew and understood what was involved. He said in reply that he did not understand everything but he knew that without the contracts he would not have gotten the work.

75. Mr Martin was then asked what attempts he had made during the relevant years to advertise to the market. He answered that he had a website that offered a software program under license. He said that the program was his own copyright and that it advertised his expertise to the market. He went on to say that the website is owned by him and not by the Applicant. As regards the website, Mr Martin said that there had been some 4,000 downloads but that this had not resulted in any work. Mr Martin said that very large organisations only would have been interested in what was offered.

76. Apart from that website, which was in existence during the relevant years, there was another website; that offered a range of consultancy services. This website was owned either by him or by the Applicant (and he was not sure which was correct), but this latter website commenced after the expiry of the relevant years.

Part D - Legislation and case law generally and in particular the results test

77. The Tribunal's decision in
Re Cooper and Commissioner of Taxation 2010 ATC ¶10-130; [2010] AATA 215 was handed down on 29 March 2010; it was concerned with much the same issues as have arisen in this case in relation to the results test. The facts in Cooper are similar in many respects to the facts in this case. Accordingly, the Tribunal's decision in Cooper in respect of the legislation and case law generally, and in particular in relation to the results test is of such relevance that it is convenient for us to commence by quoting the whole of Part G of Cooper as follows:

" Part G - Legislation and case law

• 61. The Tribunal notes that it was furnished with helpful written submissions by the Respondent on which it has drawn to some considerable extent for the purposes of this Part G.
• 62. Part 2-42 of the Income Tax Assessment Act 1997 (Cth) contains the personal services income regime. The background and purpose behind the statutory provisions which comprise the regime were extensively considered by Senior Member Sweidan in
  Re Skiba and Federal Commissioner of Taxation (2007) 67 ATR 682 at [35] - [51]. They were also considered by Lindgren J in
  Federal Commissioner of Taxation v Metaskills Pty Ltd (2003) 130 FCR 248.
• 63. The starting point of the regime is s 84-5(1) which defines 'personal services income' in the following manner:

  • '84-5 Meaning of personal services income
    • (1) Your *ordinary income or *statutory income, or the ordinary income or statutory income of any other entity, is your personal services income if the income is mainly a reward for your personal efforts or skills (or would mainly be such a reward if it was your income).'

• 64. The parties agreed that the remuneration received by Coopers Consulting from Ajilon during the relevant years is personal services income for the purpose of s 84-5(1) because it was received as a reward for the 'personal efforts or skills' of Mr Cooper. That agreement readily accords with the conclusions reached in
  Re Dibarr Pty Ltd v Federal Commissioner of Taxation (2004) 57 ATR 1183 at [22] (Senior Member Beddoe and Member Fisher) and
  Fowler v Federal Commissioner of Taxation (2008) 167 FCR 425 at [24] (Lindgren J).
• 65. In accordance with s 86-15(1), the personal services income received by Coopers Consulting is treated as the assessable income of Mr Cooper unless the exception contained in s 86-15(3) can be relied on:

  'Exception: personal services businesses

  • (3) This section does not apply if that amount is income from the *personal services entity conducting a *personal services business.'

• 66. On the basis that Coopers Consulting is a 'personal services entity' as defined by s 86-15(2), the issue to be determined is whether Coopers Consulting was conducting a personal services business.
• 67. Coopers Consulting did not ever apply for a personal services business determination for either of the relevant years: see s 87-15(1)(b). Accordingly, Coopers Consulting will only have conducted a personal services business if the 'results test' is satisfied: s 87-15(2)(a). (It is unnecessary in this context to consider the 80% income test because it was not relevant for the relevant years.)
• 68. In accordance with s 87-18(3):
  • '(3) A *personal services entity meets the results test in an income year if, in relation to at least 75% of the *personal services income of one or more individuals that is included in the personal services entity's *ordinary income or *statutory income during the income year:
    • (a) the income is for producing a result; and
    • (b) the personal services entity is required to supply the *plant and equipment, or tools of trade, needed to perform the work from which the personal services entity produces the result; and
    • (c) the personal services entity is, or would be, liable for the cost of rectifying any defect in the work performed.'
• 69. The results test in s 87-18(3) has been said to embrace the defining characteristics of an 'independent contractor' at common law: see
  Metaskills 130 FCR 248 at [28]. While such common law principles are useful in interpreting s 87-18(3), it is the text of the section itself which controls the outcome: see
  IRG Technical Services Pty Ltd v Federal Commissioner of Taxation (2007) 165 FCR 57 at [37] and [47] (Allsop J);
  Re Taneja and Commissioner of Taxation 2009 ATC ¶10-078 at [27] (Deputy President Professor Walker and Member Frost).
• 70 Having regard to the observations of Sheller JA in
  World Book (Australia) Pty Ltd v Federal Commissioner of Taxation (1992) 27 NSWLR 377 at 386, the Commissioner in TR 2001/8: Income tax: what is a personal services business, at [114] defines the phrase 'producing a result' in s 87-18(3)(a) to mean:

  '[T]he performance of a service by one party for another where the first-mentioned party is free to employ his/her own means (i.e., third party labour, plant and equipment etc) to achieve the contractually specified outcome. As the cases show, the essence of the contract has to be to achieve a result and not to do work.' [Footnote omitted]

• 71. Similarly, in Skiba 67 ATR 682 at [62] - [64] Senior Member Sweidan said:
  • ' [62] The phrase "for producing a result" in s 87-18(3)(a) is not defined. However case law makes it clear that the essence of producing a result is performing a service that achieves a specified outcome and not doing work: "An independent contractor undertakes to produce a given result, but is not, in the actual execution of the work, under the order or control of the person for whom he does it":
    Queensland Stations Pty Ltd v FCT (1945) 70 CLR 539 at 545, [1945] ALR 273 at 274. What is involved in the concept is "the performance of a service by one party to another who is to employ men and plant for the purpose and is to be paid according to the result":
    Queensland Stations Pty Ltd v FCT (1945) 70 CLR 539 at 551, [1945] ALR 273 at 277; also see
    World Book (Aust) Pty Ltd v FCT (1992) 27 NSWLR 377 at 381-382, 23 ATR 412 at 416, 92 ATC 4327 at 4331, 108 ALR 510 at 514-515;
    Zuijs v Wirth Brothers Pty Ltd (1955) 93 CLR 561 at 571-573, [1956] ALR 123 at 127-129;
    Neale v Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419, [1955] ALR 426.
  • [63] A result based contract usually has a negotiated contract price for the result achieved and not merely an hourly rate for hours worked: see
    Hollis v Vabu Pty Ltd (2001) 207 CLR 21, 47 ATR 559, 75 ALJR 1356, 2001 ATC 4508, 181 ALR 263;
    Vabu Pty Ltd v FCT (1996) 33 ATR 537, 96 ATC 4898 (courier paid on successful courier deliveries made);
    Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16, 60 ALJR 194, 63 ALR 513 (trucker paid on volume of timber delivered);
    Queensland Stations Pty Ltd v FCT (1945) 70 CLR 539, [1945] ALR 273 (drover paid per head of cattle delivered);
    Humberstone v Northern Timber Mills (1949) 79 CLR 389, [1950] VLR 44, [1949] ALR 985 (carrier paid on weight mileage).
  • [64] The words "producing a result" require something more than obtaining a payment reward for providing ongoing personal skills and efforts to enable another party (the CESPs [Contract Engineering Service Providers]) to produce a contracted for result to their clients. Consistent with the recognised indicia of the independent contractor, the words "for producing a result" require that the personal services income of the individual (Mr Skiba) was paid to him as the contract quid pro quo for producing a result and was not paid until and unless the result was produced.'
• 72. In considering whether income is 'for producing a result' courts and tribunals have had regard to aspects of the nature of the work and the contracts under which that work has been undertaken such as:
  • (a) the effect of early termination of the agreement. See for example, Skiba 67 ATR 682 at [79]:
    • ' [79] Under the contracts, upon termination, Marketcroft was entitled to payment for work performed prior to termination, whether or not the service period under the contracts had been completed. That is the applicant could walk away from the contract without the completion of any specified contractual result and still be paid.'
  • (b) when payment is made and for what, particularly, whether it is on the achievement of a 'milestone'. See for example,
    Re Metaskills Pty Ltd and Federal Commissioner of Taxation (2005) 60 ATR 1055 where this Tribunal stated:
    • ' [33] AB 23 and the other engagement letters make it clear that each engagement had a start date and an end date and provided for a daily rate of remuneration ($800 per day in the case of AB 23). Mr Strong in evidence and submissions said (repeatedly) that payment would not have been made if certain "milestones" had not been achieved. The overarching agreement and the engagement letters do not contain any suggestion that this was so and indeed make it clear that payment was being made for services and not for results. (There is no mention in any of them of "milestones".)'
  • (c) whether the work can be delegated and who bears the risk of costs arising from defective work. See for example,
    IRG Technical Services Pty Ltd 165 FCR 57 at [44]:
    • ' [44] The capacity of work to be delegated or subcontracted, if present, is a significant factor weighing in favour of a conclusion of an independent contractor. So is the question of risk of costs for defective work.'
• 73. Having regard to the authorities the remuneration Coopers Consulting received from Ajilon during the relevant years was not for producing a result within the meaning of s 87-18(3)(a) because:
  • (a) the relevant agreement does not identify any result; Coopers Consulting was simply contracted to provide 'professional business services' for the duration of the agreements;
  • (b) Coopers Consulting was not remunerated for producing any result; it was simply remunerated for the days that the Applicant provided professional business services: clause 4.1 of the relevant agreement;
  • (c) The remuneration Coopers Consulting received under the terms of the relevant agreement was not in any way dependent on producing a result;
  • (d) On early termination of the relevant agreement, Coopers Consulting was entitled to 'payments … for all worked performed by the Applicant up to the date of termination' (clause 7.2 of the relevant agreement) - which supports the contention that Coopers Consulting was simply being remunerated for the provision of professional business services by the Applicant;
  • (e) The relevant agreement did not confer any freedom on Coopers Consulting to delegate or subcontract the 'professional business services', it was obligated to engage the Applicant: clauses 1.1 and 2.1 of the relevant agreement.
• 74. Having regard to the preceding provisions, Coopers Consulting cannot be said to have conducted a personal services business because the remuneration it received was not for producing a result within the meaning of s 87-18(3)(a). The conclusions reached in:
  IRG Technical Services Pty Ltd 165 FCR 57 at [110];
  Dibarr Pty Ltd 57 ATR 1183 at [43] - [44];
  Re Nguyen and Commissioner of Taxation [2005] AATA 876; 2005 ATC 2304 at [38] - [41] (Member Webb) and Taneja 2009 ATC ¶10-078 at [35] - [41] are entirely apposite to the circumstances in these proceedings. In particular, the conclusion in
  Skiba 67 ATR 682 at [65] - [66] is particularly apt:
  • ' [65] Here, the evidence shows that the personal services income derived by the applicant was not paid upon producing a result but was a fortnightly or monthly payment based on the number of hours logged onto a weekly timesheet while working under the ultimate control of the CESPs and applying skill and effort to assist the CESPs complete the projects for their clients.
  • [66] The ongoing skilled work provided by the applicant to the CESPs is not converted into "producing a result" within the meaning of s 87-18(3) by applying the label "deliverables" where the actuality of what occurred was the performance of ongoing work by the applicant (a skilled professional selected by the CESPs and/or their clients as suitable for their needs) under the ultimate control of the CESPs during the term of the contracts.'
• 75. The failure on the part of Coopers Consulting to satisfy the requirements of 'producing a result' under s 87-18(3)(a) is fatal in relation to the results test overall. It is not necessary for the Tribunal to consider the elements in s 87-18(3)(b) and (c) because the three elements in s 87-18(3) which comprise the results test are conjunctive: see
  IRG Services Pty Ltd 165 FCR 57 at [111];
  Dibarr Pty Ltd 57 ATR 1183 at [45] and;
  Nguyen 2005 ATC 2304 at [45]. Nevertheless, for the reasons set out in RSFIC [53] - [57], the Tribunal notes that Coopers Consulting has not satisfied the requirements of s 87-18(3)(c), but there is evidence (of academic relevance only) which would suggest that the requirements of s 87-18(b) may have been satisfied; as set out previously the Tribunal was referred in this context to a tax return by the Company; (see also
  Re Dibarr Pty Ltd and Federal Commissioner of Taxation 57 ATR 1183 at [46]).
• 76. Since all of the Applicant's personal services income which Coopers Consulting received in the relevant years came from one source, Ajilon, Coopers Consulting was not entitled to self assess the 'unrelated clients test' (s 87-20); the 'employment test' (s 87-25) or the 'business premises test' (s 87-30): see s 87-15(3);
  Metaskills Pty Ltd 130 FCR 248 at [26]. Accordingly, these tests do not call for consideration and Coopers Consulting cannot be said to have conducted a personal services business during the relevant years or either of them."

78. In Cooper, the parties were agreed that the remuneration received by Cooper's Consulting during the relevant years (in that case), was personal services income. In this matter also the parties were agreed that the remuneration received from Icon and Paxus during the relevant years was personal services income because it was received as a reward for the personal efforts and skills of Mr Martin. The Applicant's agreement in this regard can be inferred from the first paragraph of its Statement of Facts and Contentions.

79. Having regard in particular to the decision in
Re Skiba and Federal Commissioner of Taxation [2007] AATA 1705; 2007 ATC 2467, 2474[35]-2477[51], the remuneration received by the Applicant from Icon and Paxus during the relevant years was not for producing a result within the meaning of s 87-18(3)(a) because:

• (a) Neither the Icon Contract nor the Paxus Contract identify any result - the Applicant was simply contracted to provide "consultancy services" for the duration of the agreements. The so-called "deliverables" identified in the service agreement by reference to the project plan in relation to the work performed for the DVA do not identify any result. The "deliverables" on closer scrutiny simply make provision for services;
• (b) The Applicant was not remunerated for producing any result - it was simply remunerated for the hours that Mr Martin provided consultancy services: clause 1 of the Icon Contract; clause 5.3 of the Paxus Contract;
• (c) The remuneration the Applicant received under the terms of the Icon Contract and the Paxus Contract was not in any way dependent on producing a result; and
• (d) On early termination of the Paxus Contract, the Applicant was entitled to be paid for all work provided "up to the termination date" (Clause 9.3 of the Paxus Contract), which supports the contention that the Applicant was simply being remunerated for the provision of professional business services by Mr Martin.

80. Having regard to the above, the Applicant cannot be said to have conducted a personal services business because the remuneration it received was not for producing a result within the meaning of s 87-18(3)(a). The conclusions reached in Cooper at [74];
Re Dibarr Pty Ltd and Federal Commissioner of Taxation [2004] AATA 1030; 2004 ATC 2277, 2282-2283[22], 2288[43]-2289[44] (Senior Member Beddoe and Member Fisher);
Re Nguyen and Federal Commissioner of Taxation [2005] AATA 15; 2005 ATC 2304, 2310[38] - 2311[41] (Member Webb) and
Re Taneja and Federal Commissioner of Taxation [2009] AATA 87; 2009 ATC ¶10-078, [27], [35]-[41] (Deputy President Professor Walker and Member Frost) are entirely apposite to the circumstances in these proceedings. In particular, the conclusion in Skiba, 2480[65]-[66] is poignant:

"Here, the evidence shows that the personal services income derived by the applicant was not paid upon producing a result but was a fortnightly or monthly payment based on the number of hours logged onto a weekly timesheet while working under the ultimate control of the CESPs and applying skill and effort to assist the CESPs complete the projects for their clients.

The ongoing skilled work provided by the applicant to the CESPs is not converted into'producing a result' within the meaning of section 87-18(3) by applying the label 'deliverables' where the actuality of what occurred was the performance of ongoing work by the applicant (a skilled professional selected by the CESPs and/or their clients as suitable for their needs) under the ultimate control of the CESPs during the term of the Contracts."

81. So too what Allsop J said in
IRG Technical Services Pty Ltd v Federal Commissioner of Taxation 2007 ATC 5326; [2007] FCA 1867; 165 FCR 57, 70[37], 71-72[47], 83-84[110] (Allsop J):

"[I]n my view, the income of Mr Green (the personal services income of the relevant individual included in IRG's income) was not for producing a result. Without restricting what I have already said, it was for the performance of work as a skilled engineer in the business of the KJV as part of a co-ordinated team of engineers and remunerated on an hourly rate for such work. This work involved Mr Green producing, from time to time, documents, schedules and data sheets, and involved him in identifiable tasks and responsibilities. It would not be a reflection of substantial reality, however, to say that his income was for the results he produced. It was for his work as a skilled engineer, which work produced those results or outcomes, as a necessary professional consequence of the work of a skilled lead instrument engineer on such a project."

82. The failure on the part of the Applicant to satisfy the requirements of 'producing a result' under s 87-18(3)(a) is fatal in relation to the results test overall. The Tribunal need not consider the elements in s 87-18(3)(b) and (c) because the three elements in s 87-18(3) that comprise the results test are conjunctive: see IRG Services, 84[111] (Allsop J); Dibarr, 2289[45]; Nguyen, 2311[45]. Nevertheless and for the sake of completeness, we deal with paras (b) and (c) of s 87-18(3). In respect of paragraph (b), it is possible that equipment was provided but it is not clear whether the equipment was provided by Mr Martin or by the Applicant. As to paragraph (c), it is quite clear that there was no relevant rectification obligation.

83. Note that in this context we do not accept the evidence of Mr Martin as to the fact that the services were provided in order to reach a result. In many cases, the answers given by Mr Martin were clearly coloured and exaggerated in order to enable him to contend that the services were rendered in order to achieve a result. During the course of the hearing, Mr Cilmi made reference to collateral contracts, presumably in order to demonstrate that the Icon Contract and the Paxus Contract should be treated as qualified by some other contract or contracts. Since there was no evidence whatever as to any other contracts, this contention must fail.

84. In summary, the Applicant cannot succeed in respect of the results test.

Part E - Unusual circumstances

85. It its Statement of Facts and Contentions, the Applicant made reference to a contention that there were unusual circumstances. No mention of this contention was made during the hearing and it is doubtful whether we need to deal with it. However, we can state that there was no evidence of any kind as to unusual circumstances. On the contrary, all of the evidence before the Tribunal was as to the manner in which this type of service was usually provided. Mr Martin made it clear that he did not like the usual manner in which business of this kind was conducted, and in particular, the fact that he had to engage a panel member in order to obtain work since without a contract with a panel member, he would not have obtained the work sought. It is not necessary for us to deal with the legislative change that occurred during the relevant years in respect of unusual circumstances, or the fact that in any event, the test is qualified by the concept of "but for unusual circumstances".

Part F - The 80 percent rule and the unrelated clients test

86. Section 87-15(3) of the Tax Act provides that where 80 percent or more of an individual's personal services income is from one entity in an income year, and the results test is not met, the personal services income is not from conducting a personal services business unless a Personal Services Business Determination ("PSBD") is in force.

87. The 80 percent rule requires consideration of the source of the personal services income. That is, the entity that has made (or is obliged to make) the payments to the Applicant: Skiba, 2483[83].

88. For the year ending 2004, 100 percent of the personal services income of Mr Martin was derived from Icon. Similarly, in 2006 100 percent of the personal services of income of Mr Martin was derived from Paxus. Accordingly, in 2004 and 2006 the 80 percent rule is not met.

89. Only in the 2005 year was less than 80 percent of Mr Martin's personal services income derived from each entity. Accordingly, the 'unrelated clients test' may be considered for that year.

90. There are two limbs to the 'unrelated clients test' in s 87-20 of the Tax Act:

• (a) Firstly, the personal services income must be the product of providing services to "two or more entities that are not associates of each other": s 87-20(1(a);
• (b) Secondly, the services are provided as a "direct result" of the making of "offers or invitations (for example, by advertising), to the public …": s 87-20(1)(b).

91. Unlike the 80 percent rule, the unrelated clients test considers the entity to which the services were provided rather than the entity which made the payments: Skiba, 2438[87]. For example, in the 2006 year the source of the income was Paxus but the services were provided to the ATO and DVA.

92. Even if it could be considered, the Applicant did not satisfy the unrelated clients test in the 2004 year because the services were provided to only one entity, the DVA. Accordingly, the first limb of s 87-20 was not satisfied.

93. While s 87-20(1)(a) was satisfied by the Applicant in the 2005 and 2006 years (if it could be considered) because the services were provided to both the DVA and ATO, in neither of those years could it be said that the services provided to the DVA or ATO were the 'direct result' of making offers or invitations 'to the public at large or to a section of the public'

94. The Applicant obtained the contract with Paxus to provide services to the ATO by responding to a vacancy advertised by Paxus. The Commissioner has been advised that the contract with Icon to provide services to the DVA was obtained through a similar process. These contracts were not obtained by competitive tender as asserted by the Applicant. Rather, the contracts were obtained as a result of responding to advertised vacancies (T12-240-245). This is the manner in which employees often obtain their work. The purpose of the provision is to distinguish between genuine businesses actively promoting their services to the public from businesses and those which are simply arrangements for dealing with personal services income. Obtaining work by applying to fill advertised vacancies does not satisfy the requirement that the services are provided as a direct result of offers or invitations to the public, or a section of the public: see generally
Re Engineering Co and Federal Commissioner of Taxation [2008] AATA 934; 74 ATR 272, 281[50]-[56] (Member Frost).

95. The contract to provide services to the DVA through Paxus, which commenced in 2006, arose not from offers or invitations to the public (or a section of the public), but as a result of the prior relationship when the services were provided through Icon. Alternatively, if the Applicant is considered to have offered its services to the DVA then it was an offer made to a single entity and not to a section of the public as required by the provision.

96. The evidence as regards websites does not assist the Applicant. During the relevant years, there was a website, but it was the property of Mr Martin and not the property of the Applicant. The other website, which was possibly the property of the Applicant, was established after the expiry of the relevant years. In any event, the evidence before the Tribunal does not even begin to suggest that the Icon and Paxus Contracts were obtained as a result of offers or invitations to the public at large or to a section of the public.

Part G - Conclusion

97. The objection decision under review must accordingly be affirmed.

•