Contractors are a fundamental part of how the mining and resources sector operates. From technical specialists and project managers to consultants and advisory professionals, contractor engagement allows businesses to remain flexible while accessing highly specialised expertise.
Most contractor arrangements look clean at the start. A contract is signed, work commences, invoices are paid and the project moves forward. The risk tends to appear later, sometimes years later, when the relationship has evolved or the Australian Taxation Office begins asking questions.
This is where the ATO’s personal services income framework becomes relevant, including the “80% rule”. Personal services income (PSI) is income produced mainly from an individual’s skills or efforts. Whether PSI rules apply is not determined by labels alone. It is influenced by legal structure, contract terms, who provides the work and how work is performed.
This is not really about tax
One of the most common misconceptions around the 80/20 rule is that it is primarily a tax issue. A contractor arrangement can be commercially sensible and operationally sound yet still give rise to unintended exposure if its legal foundation does not align with reality.
Under current ATO guidance, if you are self‑assessing as a personal services business (PSB) using the unrelated clients, employment or business premises tests, you must also satisfy the 80% rule. Where 80% or more of a person’s PSI comes from one client and its associates, the PSI rules apply unless the results test is met or a PSB determination applies.
This is ultimately a defensibility question. When arrangements are reviewed, the focus is on substance over description, assessed against contractual rights, practical reality and contemporaneous records.
Who should be paying attention to this?
From a legal standpoint, 80/20 and PSI issues and the PSB tests most commonly affect:
- Business owners and directors who approve contractor engagement models and carry governance and compliance responsibility
- Senior professionals and consultants operating through companies or trusts, particularly where work is sourced primarily from one client or one agency
- Executives transitioning into consulting roles, often following redundancy or career change
In each case, decisions made at the outset may be reviewed long after an arrangement began, with documentation and assumptions tested against what actually occurred.
Why legal risk builds quietly
From a legal perspective, the main problem is not intent. It is that arrangements evolve while documents remain static. Scope changes, reporting lines tighten, internal systems access expands, different people instruct the contractor, and a contractor becomes operationally embedded.
For businesses, this evolution often occurs gradually and without a conscious decision to change the original engagement model, until it is examined later in a very different context.
Where a contract no longer reflects how work is performed, it offers limited protection. The ATO, regulators and courts are entitled to consider the totality of the relationship, not just the written agreement.
Three patterns are common in mining engagements:
- Single‑client reliance developing over time, particularly via one agency.
- Control and integration increasing, especially where the role is managed like an internal position.
- Risk allocation not matching a genuine contractor model, such as unclear responsibility for defects, rework, deliverables and commercial risk.
This is particularly important when the PSB tests are to be applied to the PSI. Broadly speaking those tests are:
- The Contractor must be paid to produce a specific result (not an hourly or daily rate)
- The Contractor is required to provide equipment or tools (if required or if not minor)
- The Contractor is required to fix mistakes at their own cost.
What “solving it” looks like (without over‑engineering it)
Accountants determine how PSI is taxed and reported. A lawyer’s role is different. Legal advice focuses on whether the structure, contracts and working arrangements are defensible if reviewed later.
In practical terms, legal work adds value in four places:
1) Choosing a defensible engagement model early
If an arrangement is likely to trigger PSI issues over time, it is usually easier to adjust the engagement model early than to rebuild the narrative later. Under current ATO guidance, PSB self‑assessment generally hinges on meeting the results test or meeting another PSB test and satisfying the 80% rule.
2) Drafting contracts that match how the work will be performed
Well‑drafted agreements make deliverables, responsibility, independence and risk allocation explicit, and reduce ambiguity if questions arise.
3) Mapping layered arrangements properly
Where contractors sit inside labour hire or agency structures, legal review should identify the true contracting party, where responsibility for performance sits, and how risk flows through the chain.
4) Knowing when a PSB determination should be considered
If you cannot self‑assess as a PSB for an income year, the ATO notes that a PSB determination may be available in some circumstances¹. This is fact‑specific and should be considered alongside alternatives such as clarifying or restructuring the engagement.
The new risk many contractors miss: Part IVA, even if you qualify as a PSB
A common assumption is that once a contractor qualifies as a personal services business, the PSI issue is resolved. Recent ATO guidance makes clear that this is not always the case.
Even where the PSI rules do not apply because a person is operating as a PSB, the general anti‑avoidance rules (known as Part IVA) may still be relevant². This occurs where income is retained or diverted in a way that does not reflect genuine commercial reality.
To clarify its approach, the ATO has released PCG 2025/5³, which explains when it is more likely to review arrangements it sees as higher risk. These include situations where personal services income is split to related parties or retained in a company or trust without a clear commercial justification.
The ATO has also signalled an increased compliance focus in this area and has encouraged taxpayers to review existing arrangements. Where genuine steps are taken to move an arrangement to a low‑risk position by 30 June 2027, the ATO has indicated it will generally not pursue Part IVA in certain review periods.
For high‑income contractors using companies or trusts, this is now part of the legal risk conversation. It is not a technical footnote and it should be considered alongside PSI and PSB status when assessing overall exposure.
If you do nothing, what are the implications
The most difficult matters are rarely identified early. They tend to surface during audits, reviews or disputes, when time and options are limited. By then, key people may have moved on and records may not reflect how the engagement actually operated. Defending positions retrospectively is more complex than addressing issues at the outset.
For businesses, this can become a governance issue as much as an operational one. For individual contractors, it can narrow options quickly if the engagement has become entrenched.
What should you do next
If you are a business owner, director or senior professional in mining and resources, contractor arrangements should be treated with the same care as any other material legal commitment.
Legal advice is particularly relevant where engagements are long‑term or exclusive, structured through companies or trusts, sourced mainly through one agency, or evolving without formal review.
If you would like advice tailored to your situation, contact Robert Lamb, Lawyer at Resources Unearthed, on +61 (0)7 3007 2000 or via contact@resourcesunearthed.com.au.
This information is general in nature and does not consider your circumstances. Legal and tax advice should be obtained for your specific position.
[1] Apply for a PSB determination | Australian Taxation Office
[2] General anti-avoidance rules and PSI | Australian Taxation Office
[3] PCG 2025/5 | Legal database
