Show download pdf controls
  • Income from a business structure

    This information will help you decide whether your income is personal services income (PSI) or if it is income generated by a business structure.

    If your business has substantial income-producing assets, many employees, or both, it is more likely your income is being generated by the structure of your business rather than from an individual's personal services. This income is not affected by the PSI rules.

    Factors to consider

    While you should consider your particular circumstances, the following factors will help you determine whether your income is generated by a business structure:

    • the extent to which the income is not dependent on a particular individual's personal skills, efforts or expertise
    • the number of arm's length employees or others, for example contractors, engaged to perform the work
    • any presence of goodwill
    • the extent to which income-producing assets are used to derive the income
    • nature of the activities carried out
    • the size of the operation.

    After considering these factors, if you determine that your income is generated from a business structure, then that income is not PSI.

    If you're still unsure whether you generate income through a business structure, you can apply for a private ruling.

    Example 1: Income generated by a business structure

    Bob owns an earthmoving company, Bob's Earthworks Pty Ltd, with assets including two trucks, a backhoe tractor and small grader. The company has six employees, five of whom are plant operators. Bob is employed by Bob's Earthworks Pty Ltd as the managing director and he also performs some of the principal work that generates the income of his company.

    The assets that are operated by the other employees are how the company generates its income, even though the plant operators are using their personal skills and efforts to operate the machinery. The income is not dependent on the skills of any one individual; the company can generate income as long as it owns or has access to the necessary equipment.

    Therefore the income is not PSI and is generated by the business structure.

    Example 2: Income from a business structure

    John is a partner in a large accounting firm which has 20 partners and 200 employees. As a partner, John's income from the partnership comes from his interest in the partnership. That interest is an interest in the profit generated by the partnership as a whole. This involves:

    • profits generated by other partners and employees
    • clients attracted to the firm by the partnership's goodwill
    • the use of the partnership's assets.

    Therefore, John's income is income of a business structure and not PSI.

    End of example
      Last modified: 30 Mar 2017QC 17521