What is PSI?
Personal Services Income (PSI) is income that is received by you, or another entity that is mainly a reward for your personal effort or skill. For example, income you earn as an independent contractor or income received by a company or trust that you provide your personal services through. The PSI rules are integrity rules that improve fairness, by preventing those not carrying on a personal services business, from:
- diverting their PSI that is an entity or person associated with them who will pay less tax on it, and
- stopping them, or the entity receiving it, from claiming deductions for some expenses they couldn't claim if they had received the PSI as an employee.
Who can earn PSI?
You can receive PSI in almost any industry, trade or profession. Common examples include but are not limited to:
- financial professionals
- information technology consultants
- engineers
- construction workers
- medical practitioners.
As PSI is mainly a reward for an individual's personal efforts or skills, only individuals can earn PSI. Individuals can earn PSI either directly as a sole trader, or through another entity such as a company, partnership or trust. When an individual earns PSI indirectly through another entity, that entity is referred to as a 'personal services entity' (PSE).
Example 1: sole trader earning PSI
Andre is a plumber who operates as a sole trader. He receives a contract to fix a blocked toilet and repair 3 leaking taps. He charges $25 for materials and $225 for his labour. The total of the invoice is $250. This income ($250) is PSI as it is mainly a reward for Andre’s personal efforts and skills.
End of example
Example 2: individual earning PSI through another entity
Sandy is an information technology consultant who provides systems analysis services through her company, SP Consulting. SP Consulting enters into a contract with Richie's Computer Co to provide Sandy’s consultancy services. The contract and invoice for this work both indicate that more than 50% of the payment for these consultancy services are a reward for Sandy's labour. So the income is mainly a reward for Sandy's personal efforts or skills and is PSI.
End of exampleFor more information about PSI and its rules and obligations, see:
- Income that is not PSI
- What to do if the PSI rules apply
- What to do if the PSI rules don't apply
- Taxation Ruling TR 2022/3 Income tax: personal services income and personal services businesses