LinkedIn advertising changes for contractors

Tax Insights

Recent decisions reached by the Full Federal Court in FCT v Fortunatow [2020] FCAFC 139 have put a spotlight on the ‘unrelated clients test’ for contractors providing personal services.

LinkedIn advertisingA key take-away from the case is that promoting services to the public via LinkedIn may not comply with the rules outlined in the ‘unrelated clients test’, for the purpose of satisfying personal services income (PSI) rules.

Fortunatow was a business analyst operating as an independent contractor and actively advertised his company services on a LinkedIn profile which revealed his experience, skills and availability to undertake engagements. He also marketed his services by word of mouth at industry functions.

Of relevance in the case is that all Fortunatow’s end clients were referred by recruiters on LinkedIn or due to his relationship with a recruitment agency. None of the end clients were directly engaged by Fortunatow or could be proven to have engaged his services as a direct result of his LinkedIn profile.

The Court’s decision focused on whether Fortunatow could rely on the unrelated clients test to pass PSI rules and avoid the attribution of the services income in his personal income tax return.

LinkedIn advertisingThe unrelated clients test dictates a direct result between the services provided and the offer or invitation to the public. The provision of services through an intermediary, in this case recruitment agencies, is not enough to satisfy the test.

The Court denied that an offer to a recruitment agency can result in services being provided directly due to loss of the connection between the end client and the person providing services.

The Court ruled that factual evidence found that none of the clients made their decision to engage Fortunatow as a direct result of his LinkedIn profile, but instead due to intermediaries. This meant Fortunatow failed to meet the unrelated clients test, despite offers and invitations on LinkedIn being made to the public.

The decision in this case should prompt all independent contractors to review their client base, examine the direct source of their work and consider the involvement of intermediaries which could lead to inability to satisfy the unrelated clients test.

The impact on the taxpayer is that failure to meet the test may render them unable to reduce or defer income tax by diverting the PSI through companies, partnership or trusts. Should the ATO deny any diversion of income, the PSI will be attributed to the taxpayer’s personal income tax return.


If you have any questions regarding LinkedIn advertising for contactors contact your local RSM adviser.

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