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  • Personal services income

    Personal services income (PSI) is income that is mainly a reward for an individual's personal efforts or skills.

    There are special tax rules around PSI to improve the integrity and equity of the tax system. They prevent people from reducing or deferring their income tax by diverting income they've received from their personal services through companies, partnerships or trusts.

    You can receive PSI in almost any industry, trade or profession. However, some common examples include:

    • financial professionals
    • information technology consultants
    • engineers
    • construction workers
    • medical practitioners.

    PSI does not affect you if you're an employee receiving only salaries and wages. But, if you are operating through an entity, such as a company, partnership or trust, and are an employee of that entity then the PSI rules may still apply.

    Income is classified as PSI when more than 50% of the income you've received is a reward for your personal efforts and skills, rather than being generated by the use of assets, the sale of goods or by a business structure.

    The first thing you need to do is work out if any of your income is classified as PSI. If it is, you then need to work out if the PSI rules apply to that income. There's a series of steps to follow to help you do this.

    • If the PSI rules apply, they affect how you report your PSI to us and the deductions you can claim.
    • If the PSI rules don't apply, your business is a personal services business (PSB). When you're a PSB, there are no changes to your tax obligations, except that you need to declare any PSI on your tax return.
    • You can receive PSI even if you're not a sole trader. If you're producing PSI through a company, partnership or trust and the PSI rules apply, the income will be treated as your individual income for tax purposes.

    When we say 'you' or 'your business', we mean you as a sole trader or the entity you operate through (whether that is a company, partnership or trust).

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    Last modified: 16 Aug 2021QC 16906