Step 2: The 80% rule
If your business has not passed the results test, the next step is to work through the 80% rule.
Step-by-step flowchart showing how to work out if the PSI rules apply
For the 80% rule you need to work out whether 80% or more of the PSI comes from one client (and their associates) in an income year.
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If more than one individual is generating the PSI, your business will need to work out whether each individual has 80% or more of their PSI from one client (and their associates).
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A client's associate includes the client's:
- relatives
- partner in a partnership and their spouses or children
- trustee of a trust they or an associate benefit from
- company which is under their control or their associate's control
- beneficiary or their associates, if the client is a trustee.
For a company, the individual or associate controlling the company is also an associate.
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If you receive PSI from one client and an associate of this client (for example, a company and a subsidiary of that company), you need to treat this PSI as if it comes from one client (that is, one source).
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Example - 80% or more of the PSI coming from one client
Sasha is an IT consultant who works through her company IT Consultant Pty Ltd. The income IT Consultant Pty Ltd receives is PSI as most of the income is a reward for Sasha's knowledge, skill and expertise.
In an income year Sasha - on behalf of IT Consultant Pty Ltd - designs software for two different clients which generates $100,000. The first client is charged $90,000 and the second client is charged $10,000 for Sasha's work.
IT Consultant Pty Ltd received more than 80% of its PSI from one client as the first client provided 90% of the business' PSI.
Example - each client providing less than 80% of the PSI
Xavier is an engineer who works through his company Xavier's Engineering Services Pty Ltd. The income Xavier's Engineering Services Pty Ltd is PSI as most of the income is a reward for Xavier's knowledge, skill and expertise.
In an income year Xavier - on behalf of Xavier's Engineering Services Pty Ltd - completes three contracts which generate $100,000. For Xavier's work, the company charges:
- ABC Pty Ltd $25,000
- ABC telecommunications Pty Ltd (a subsidiary company of ABC Pty Ltd) $35,000
- XYZ Pty Ltd (a company not related to either ABC Pty Ltd or ABC telecommunications Pty Ltd) $40,000.
The $25,000 from the first contact and the $35,000 from the second contract (totalling $60,000) are considered to come from one client as ABC telecommunications Pty Ltd is an associate of ABC Pty Ltd.
Each of Xavier's Engineering Services Pty Ltd clients provided less than 80% of the PSI as ABC Pty Ltd and ABC telecommunications Pty Ltd (considered one client) provided 60% of the PSI and the other client provided 40% of the PSI.
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If your business works as a commission agent there are special rules that affect your business in relation to the 80% rule. You need to read the special rules for commission agents section in Personal services income for financial planners (NAT 9802).
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Is 80% or more of your business' PSI from one client?
Yes, 80% or more of your business' PSI comes from one client
If 80% or more of your business' PSI comes from one client, your business will need to apply for a personal services business determination from us to work out if the PSI rules apply or not. After we receive your completed application, we will write to you and tell you whether the PSI rules do or don't apply to you.
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If you don't apply to us for a determination, the PSI rules will automatically apply.
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No, each of your clients provided less than 80% of your business' PSI
If each of your clients provided less than 80% of your business' PSI then your business can use the other tests (unrelated clients test, employment test and business premises test) to work out if the PSI rules apply.
Sections within Working out if the PSI rules apply
Last Modified: Friday, 2 December 2011