Does personal services income apply to you?

Ryan Troe • July 16, 2023

If over half the income you’ve received from a contract is a reward for your personal efforts or skills (rather than from the use of assets, the sale of goods, or from a business structure), then your income could be classified as personal services income (PSI).

You can receive PSI in almost any industry, trade or profession. For example, as a financial professional, IT consultant, construction worker or medical practitioner.

PSI rules help keep a level playing field among individuals. They do this by preventing PSI from being diverted or split with other individuals or entities in an attempt to pay less tax.

If you earn PSI, it’s important to check whether these rules apply to you. If you’re a personal services business (PSB) for a particular income year, then the PSI rules won’t apply for that year, although you’ll still need to report your PSI in your income tax return and keep certain records.

You can self-assess as a PSB if you either:
• meet the results test for at least 75% of your PSI, or
• meet one of the other PSB tests and less than 80% of your PSI is from the same entity and its associates.

The other PSB tests are the Unrelated clients test, the Employment test, and the Business premises test.

If you can’t self-assess as a PSB, then the PSI rules will apply.

The PSI rules can affect the deductions you claim and how you report your PSI in your tax return.

Remember, registered tax agents and BAS agents can help you with your tax.

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