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  • PSI – obtaining work through an agency

    This information is relevant to you if your business receives personal services income (PSI) and obtains work through an agency (for example, a labour hire firm, group training organisation or employment agency).

    If you're contracting through an agency, where the agency provides your services to a client, the agency will ultimately be responsible for the payment of your services.

    There are many factors you need to consider when working out if the PSI rules apply. Obtaining your contracts through an agency may prevent you from passing some of the personal services business (PSB) tests.

    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

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    PSI Results test

    To pass the results test, you need to meet all of the following conditions for 75% of your PSI for the income year:

    • paid to produce a specific result
    • required to provide the equipment or tools needed to produce the result
    • required to fix mistakes at your own expense.

    If you operate through a company, partnership or trust and you have more than one individual generating PSI, you will need to work out whether you pass the results test for each individual. It is possible to be a PSB for one individual but not another.

    If you obtain work through an agency, you most likely won't pass the results test. This is because you are generally hired by an agency to provide your services on an ongoing basis for an hourly or daily rate, not to produce a specific result. If you earn more than 25% of your PSI in this way, then you will not pass the results test.

    Example 1: Erica – one agency, three end users

    Erica's company, Erica's Consulting Pty Ltd, contracts with Agency 1 to deliver Erica's services. Erica is required to perform work for and at the direction of the agency's clients. Agency 1 has three contracts that Erica works on. Erica's company receives 100% of its income from Agency 1.

    Income flow – example 1

    Income flow for 1 agency, 3 end users

    Example 2: Alan - two agencies, one end user

    Alan's company, Alan's Architectural Services Pty Ltd, contracts with two agencies, Agency 1 and Agency 2, to deliver Alan's services. Under both contracts, Alan is required to perform work for and at the direction of the agencies' clients. Agency 1 and Agency 2 provide Alan's services to the same client, Big Corp. Alan's company receives 50% of its income from Agency 1 and 50% from Agency 2.

    Income flow – example 2

    Income flow for 2 agencies, 1 end user

    Example 3: Simon - two agencies, two end users

    Simon's company, Simon's Trade Services Pty Ltd, contracts with Agency 1 and Agency 2 to deliver Simon's services. Under both contracts, Simon is required to perform work for and at the direction of the agencies' clients. Each agency has a different client. Simon's company receives 50% of its income from Agency 1 and 50% from Agency 2.

    Income flow – example 3

    Income flow for 2 agencies, 2 end users

    In these examples, Erica, Alan and Simon's companies are not engaged by the end users. Their companies are contracted by the agencies to provide services to the end users. They do not contract with the agencies to complete a specific result or outcome for them. They are contracted by the agencies to provide labour on an on- going basis in accordance with direction from the agencies' clients or end users.

    This means that the companies are not being paid to produce a specific result. As 100% of their PSI is earnt through these agency contracts, these companies don't pass the results test in relation to Erica, Alan or Simon. The PSI rules will apply unless they pass one of the other PSB tests.

    End of example

    PSI 80% rule

    To meet the 80% rule, you need to work out the amount of PSI that comes from each client (including the client's associates) in an income year.

    If you obtain work through an agency, the source of the PSI you receive is the agency, not the end clients.

    If you obtain work through one agency only (even if you work for multiple clients of that agency), you will not meet the 80% rule. You cannot self-assess for any of the other tests. If you obtain work through more than one agency, you need to work out what percentage of PSI comes from each agency.

    If you operate through a company, partnership or trust and you have more than one individual generating PSI, the 80% rule applies to each individual. You need to look at the amount of PSI that you receive for each individual and how much of that amount comes from one client (including associates of the client).

    Example 1: Erica - one agency

    Erica's Consulting Pty Ltd receives 100% of the PSI from one source – Agency 1.

    Since the business receives 80% or more of its PSI from one client, she cannot self-assess for any of the other tests. The PSI rules apply in the relevant income year unless the business holds a PSB determination.

    Example 2: Alan – more than one agency

    Alan's Architectural Services Pty Ltd receives 50% of its PSI from Agency 1 and Agency 2 equally. Less than 80% of its PSI comes from each source, so Alan can self-assess on the remaining PSB tests.

    End of example

    Unrelated clients test

    To pass the unrelated clients test your income must be produced from two or more clients who are not related or connected. The work must be obtained by making offers to the public or a section of the public.

    If your business obtains work by registering with an agency, it is not making offers to the public under the unrelated clients test.

    Making offers to the public can include:

    • advertising in a newspaper, industry magazine, or business directory
    • maintaining a website
    • public tender.

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      Last modified: 07 Aug 2019QC 46087