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  TAX - A to HBusinessPersonal Services Income (PSI)      Saturday, 24 August 2019  



Personal Services Income (PSI)

PSI - Overview
Personal services income (PSI) is income produced mainly from your personal skills or efforts as an individual.

You can receive PSI in almost any industry, trade or profession. However, some common examples include financial professionals, information technology consultants, engineers, construction workers and medical practitioners. PSI does not affect you if you're an employee receiving only salaries and wages.

Income is classified as PSI when more than 50% of the amount you received for a contract was for your labour, skills or expertise.

The first thing you need to do is work out if any of your income is classified as PSI. If it is, you then need to work out if special tax rules (the PSI rules) apply to that income. There's a series of steps to follow to help you do this. (See table below)

If the PSI rules apply, they affect how you report your PSI to the ATO and the deductions you can claim and you will not be eligible for the Small Business Income Tax Offset on this income.

If the PSI rules don't apply, your business is a personal services business (PSB). When you're a PSB, there are no changes to your tax obligations, except that you need to declare any PSI on your tax return.

You can receive PSI even if you're not a sole trader. If you're producing PSI through a company, partnership or trust and the PSI rules apply, the income will be treated as your individual income for tax purposes.

When we say 'you' or 'your business', we mean you as a sole trader or the entity you operate through (whether that is a company, partnership or trust).

What to do when the PSI rules apply

When the rules apply to the PSI you received, they affect how you report that PSI and the deductions you can claim.

If you received PSI and the rules apply:

• there are fewer deductions you can claim against this income, and
• you will need to report this income as your own individual income.

The way the PSI rules apply is different for:
• sole traders
• companies, partnerships and trusts

Note: The PSI rules will not affect:

• the contractual relationships between you and your clients or customers – for example, you do not become an employee or stop being a contractor
• your entitlement to an Australian business number (ABN) or registration for goods and services tax (GST)
• whether you are still considered to be running a business.

• What to do if the PSI rules don't apply

• Even when the PSI rules don't apply, you still need to declare any PSI amounts at the relevant labels on your tax return.
• If you received PSI but found that the rules do not apply, there are no changes to the deductions you can claim against the income.

The PSI Tests
Refer to the links below for more details

Step 1:  Personal services income
Do you receive income that is mainly a reward for personal efforts or skills? no  
Step 2:  Results test
Do you meet the results tests for at least 75% of your PSI? yes
Step 3:  The 80% Rule
yes Does 80% or more of your personal services income come from one client?
Step 4:  The other tests
Do you meet one or more of the following tests?> Unrelated clients> Employment, or> Business premises. yes→
no not sure        ↓
PSI tax legislation does apply to you and this may effect your tax obligations unless you get a determination from the ATO.   If you are not sure or if unusual circumstances prevent you from meeting one or more of the tests or the 80% rule you can apply to the ATO for a determination that the changes to the tax law do not apply to you.                         PSI tax legislation does not apply to you and will not effect your tax obligations. You  have a personal services business (PSB). You do not need to contact the ATO.


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This page was last edited on 20 April 2018

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