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  • Income that is not PSI

    If you're an employee earning only salary and wages, you are not affected by the personal services income (PSI) rules. 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

    There are a number of factors that determine whether you're working as a contractor or as an employee.

    PSI does not include income produced mainly (more than 50%) from:

    Supplying or selling goods

    Income that is produced mainly from supplying or selling goods (for example, retailing, wholesaling or manufacturing) is not PSI.

    Where materials are only a minor part of the services provided, this is not regarded as supplying or selling goods. Materials would only be a minor part of services provided in the following examples:

    • the use of art supplies by a graphic designer in doing design work for a client
    • the use of wiring by an electrician when installing wiring into a building.

    Supplying or using an income-producing asset

    Income that is generated mainly by an asset rather than an individual's efforts or skills (for example, using a truck to move cargo) is not PSI. It's more likely that income is being generated by an asset if the asset is:

    • large-scale or high value
    • essential to performing the work
    • specified in the contract.

    In such cases, using the asset is likely to represent substantially more than 50% of the contract price, and the services of the person operating the equipment will be substantially less than 50% of the contract price.

    Income produced mainly from granting a right to use intellectual property (for example, copyright to a computer program or book), is not PSI.

    Where the income is mainly for your personal efforts or skills in developing intellectual property, ownership of which belongs to your client at the end of the process, it will be PSI.

    Businesses with substantial assets or employees

    Your business is less likely to be generating PSI if you have:

    • arm's length employees or others engaged to perform principal work
    • a business with substantial goodwill
    • substantial income-producing assets that are used to derive the income
    • large-scale operations.

    People who are not connected through family or business relationships and therefore cannot influence or control each other are arm's length employees.

    See also:

    Last modified: 07 Aug 2019QC 46005