Fortunatow and Commissioner of Taxation (Taxation)

The case of *Fortunatow and Commissioner of Taxation* concerned an appeal regarding the applicant's classification of his business income. The dispute centred on whether the applicant's personal services income (PSI) should be treated as arising from a personal services business (PSB), specifically focusing on the application of the results test and the unrelated clients test under Part 2-42 of the *Income Tax Assessment Act 1997*. The matter was heard by Deputy President Britten-Jones.

The court was required to determine three primary issues: first, whether the applicant satisfied the results test, which involves criteria such as the client being able to direct the individual, the individual needing to rectify defects, and the work being carried out by the individual for unrelated clients; second, whether the applicant satisfied the unrelated clients test, which requires that the services be provided to two or more unrelated entities and that these services are not a direct result of offers or invitations made by the individual to the public; and third, what penalties, if any, should be imposed by the Commissioner of Taxation, considering the applicant's conduct and awareness of the PSI regime.

In relation to the results test, the court found that the applicant failed to demonstrate that his company was liable for the cost of rectifying defective work, as there was no contractual term imposing such an obligation and the practical reality was that the company would not bear this cost. Regarding the unrelated clients test, while it was not disputed that the applicant provided services to multiple unrelated clients, the crucial issue was whether these services were provided as a direct result of the applicant making offers or invitations to the public. The court considered that the applicant's LinkedIn profile, which advertised his availability for assignments, did not constitute an offer or invitation to the public in the context of section 87-20(2) of the Act, as the work was primarily secured through recruitment companies.

The court affirmed the decision under review, finding that the applicant did not satisfy the requirements for a personal services business. Furthermore, the court determined that a reasonable person in the applicant's position would have been aware of a real risk of non-compliance with taxation laws, particularly given his knowledge of the PSI regime. Consequently, the administrative penalty imposed by the Commissioner for recklessness under section 284-90(1) of the *Taxation Administration Act 1953* was deemed appropriate.