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 is 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.

Source: ato.gov.au March 2023
Reproduced with the permission of the Australian Tax Office. This article was originally published on https://www.ato.gov.au/Business/Small-business-newsroom/Employers/Does-personal-services-income-apply-to-you-/
This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. 
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Photo from Pexels by Tim Douglas