Administration of the taxation of personal services income - Released 15 October 2013
Introduction to the audit
The objective of the audit was to assess the effectiveness of the administration of the personal services income (PSI) regime with a specific focus on whether the ATO’s:
- governance arrangements for the PSI regime are appropriate and effective
- systems and processes used to identify and assess compliance risks are adequate and effective, and
- strategies used to promote compliance and address non-compliance were appropriate and effective, and their impact was being measured.
PSI is defined by Part 2–42 of the Income Tax Assessment Act 1997 as income gained mainly as a reward for the personal efforts or skills of an individual. This excludes income:
- earned as salary by employees
- from supplying or selling goods
- from income‑producing assets
- generated by a business structure.
PSI is most typically earned by contractors, consultants and sole practitioners. In 2010–11, the majority (59 per cent) of these worked in administrative and support services; professional, scientific and technical services as well as the construction industry.
Overall, the Australian National Audit Office (ANAO) found that the ATO has effectively administered key elements of the PSI regime including the development of sound governance arrangements, appropriate business planning, risk management and reporting processes. The ANAO made one recommendation aimed at strengthening the assessment of the PSI compliance risk and the effectiveness of PSI compliance activities, by estimating the population of non-compliant taxpayers and the magnitude of revenue at risk.