Not sure if you’re earning personal services income or conducting a personal services business? Special rules apply to PSI. Talk to us and we’ll check the type of income and ensure you are claiming the maximum allowable deductions and not being overtaxed.
Personal services income (PSI) is income received as payment for individual personal efforts and skills. It applies to many contractors who provide services as their means of earning an income. PSI rules can apply to individual sole traders and other types of business entities, but not employees. If PSI rules apply, the entity is called a personal services entity (PSE).
The PSI rules ensure the income is attributed to the individual who performed the services and not apportioned across other entities.
There are several tests to work out if your income is PSI or if you are instead conducting a personal services business (PSB), which means the PSI rules don’t apply. If a personal services entity qualifies as a PSB, the ordinary tax rules apply for that financial year.
At least one of these four tests must be satisfied for an entity to be classified as a PSB.
If more than 80% of income in a financial year is derived from one customer, the PSE must satisfy the results test to be classified as a PSB.
If none of the four tests are met, the income is classified as personal services income, and the PSI taxation rules apply. PSI rules restrict the type of allowable tax deductions made in relation to personal services income-earning activities.
If you’d like to know more about PSI, talk to us to see if the services you provide meet the tests for conducting a personal services business. We’ll make sure you are claiming the maximum allowable deductions and being taxed correctly.