BASIC CHAPTER 13 Q2 BUSINESS SECTION

The taxpayer is a common law employee, rather than being genuinely in business. Therefore he does not qualify for the STS.

STS elections
Are you eligible for the STS?	YES
Are you electing to enter the STS?	YES
Are you continuing in the STS?
Is your business grouped with another business?	NO

Personal services income (PSI)
Did you receive any personal services income?	YES	Read on.
Part A
Did you satisfy the results test?	YES	Go to item P2
Have you received a PSI business determination?
Did you receive > 80% of your PSI from one source?

What is personal services income (PSI)?

PSI is when it is the person’s skills and abilities which are being contracted. The following are NOT PSI:

Sale of stock – the customer wants the used car or frying pan, rather than the salesman;
Main asset businesses (e.g. an articulated truck) – the customer wants the use of the main asset, rather than specifically wanting the person who owns the main asset;
An employee for a large company – the customer is doing business with the company, rather than with that specific employee.

The results test

For at least 75% of their income:

Under their contract or arrangement, the taxpayer was paid to achieve a specified result or outcome. This means that the taxpayer was not just doing ongoing work as an employee would do, but was hired to do a specific job, which is how a genuine business operates.

AND

· The taxpayer had to provide his own tools and equipment. Again, this is how a genuine business operates. An employee uses the tools and equipment of the employer.

AND

The taxpayer was liable for rectifying defects in their work. This too is characteristic of a business contract.

Thus the results test is designed to separate the genuine businesses from the common law employees. If ALL the three questions of the results test are passed, then the income and expenses go at item 14.

Business loss activity details
Type of loss	8
Deferred non-commercial bus. loss from a prior year	1235
Net loss	1916

P10

STS depreciating assets
Deduction for low cost assets	918
Deduction for general pool assets	306
Deduction for long life pool assets

Because he has entered the STS he would be eligible for an entrepreneurs’ tax offset if he had a tax liability for his business. His business this year made a loss, and so there is no tax payable on that income, and so no offset would apply for 2007.