Personal services income - companies, partnerships and trusts

When the PSI rules don't apply

The Personal services income (PSI) rules don't apply if you pass one of the tests, or hold a determination from us.

The only change to your tax obligations is you need to complete:

• specific questions on your business' tax return (that is, company, partnership or trust tax return) for the PSI your business received
• several questions in the Personal services income schedule (NAT 3421).

There are no other changes to your tax obligations, for example: there are no changes to the deductions your business can claim there are no additional pay as you go (PAYG) withholding obligations the PSI doesn't need to be attributed (treated as belonging) to each individual who performed the services - the profits from PSI can be retained within the business.

For more information about what tax return and schedule items your business needs to complete, refer to Personal services income - completing your tax return (NAT 8526).

Arrangements that mainly avoid tax

Although the PSI rules don't apply, if you have entered into an arrangement where the main purpose is to obtain a tax benefit, the anti-avoidance rules may apply to your PSI that restricts these activities.

What we consider to be an arrangement where the main purpose is to obtain a tax benefit depends on the individual circumstances of each case.

Two examples of obtaining a tax benefit where the anti-avoidance rules apply is where:

• your personal services are contracted through your business (company, partnership or trust) and taxed at a lower rate than if you had received the income yourself, particularly where your remuneration is less than the value of your services
• you split PSI with an associate, particularly through use of a family trust or company - an associate can be a person or business.

Even if you have to provide your personal services through your business to get a contract, the general anti-avoidance law may still apply if you use that business to split your income or retain profits.

If the PSI rules don't apply, you do not break the general anti-avoidance law if you pay an associate, for example your spouse, a reasonable amount for work they actually do, even if it is non-principal work.

For more information, refer to General anti-avoidance rules and how they may apply to a personal services business (NAT 8028).