Show download pdf controls
  • Deductions

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    Limited deductions against PSI

    The PSI rules affect the deductions you can claim against your PSI. They do not affect your legal, contractual or workplace arrangements; you won’t be treated as an employee as a result of the PSI rules.

    The information on this page is a guide only. You may need further information to determine whether a deduction is available in your circumstances; Taxation Ruling TR 2003/10 – Income tax: deductions that relate to personal services income explains the PSI deduction limitation rules.

    What deductions you may be able to claim

    Subject to specific exceptions, the general rule is that you may claim an amount that is incurred in gaining or producing your PSI if you could claim that amount if the income was payable to you as an employee.

    The following are examples of items you may be able to claim a deduction for:

    • premiums for workers compensation, public liability and professional indemnity insurance
    • financial institution and other account-keeping fees and charges
    • tax-related expenses, such as the cost of preparing and lodging a tax return or business activity statement (BAS)
    • registration or licensing fees
    • expenses for advertising, tendering and quoting for work
    • deduction for decline in value of depreciating assets
    • simplified depreciation (if you are a small business entity)
    • running expenses for your home office, such as heating and lighting for using a room in your house as a home office (not including rent, mortgage interest, rates or land taxes)
    • salary and wages for an arm’s length employee (not an associate)
    • contributions to a complying superannuation fund on behalf of an arm’s length employee (not an associate)
    • reasonable amounts paid to an associate for principal work
    • contributions to a complying superannuation fund or retirement savings account up to the superannuation guarantee amount for an associate doing solely principal work.

    Do not include any amount that was a superannuation contribution for yourself. Any deduction for your own superannuation contributions must be claimed at item D12 on your tax return (supplementary section). See question D12 in Individual tax return instructions supplement 2016.

    What you cannot claim

    You cannot claim an amount for the following if it related to gaining your PSI:

    • rent, mortgage interest, rates or land tax for your residence (or the residence of an associate)
    • amounts paid to an associate for non-principal work, for example, support such as secretarial work
    • contributions to a superannuation fund for an associate doing solely non-principal work.

    Deductions for payments to associates for principal work

    Do you have deductions for payments to associates for principal work?

    No

    Go to Total amount of other deductions against PSI.

    Yes

    Read on.

    Add up the total amount of payments made to associates for principal work.
    Write the total at K item P1.

    Total amount of other deductions against PSI

    Do you have other allowable deductions against your PSI?

    No

    Go to Net PSI.

    Yes

    Read on.

    You need to know

    In answering this question you include only non-commercial business losses deferred from a prior year if they relate to a business activity which is the same as, or similar to, one of your current year business activities. See P9 Business loss activity details for an explanation of how the non-commercial business loss rules work.

    Your non-commercial business loss deduction may be reduced if:

    • you earned net exempt income in this income year, or
    • you became bankrupt or were released from any debts by the operation of an Act relating to bankruptcy.

    For more information, phone 13 28 66.

    Completing this item

    Add up the total amount of all other expenses (including non-commercial
    business losses deferred from a prior year) that you can deduct from your PSI.
    Write the amount at L item P1.

    Do not include amounts already recorded at K item P1.

    If you are registered or required to be registered for GST, your deductions should not include the amount that relates to input tax credit entitlements.

    Net PSI

    Completing this item

    To work out your net PSI go through the following steps:

    Step 1  Add up the amounts shown at M, N, O and J item P1.

    Step 2  Add up the amounts shown at K and L item P1.

    Step 3  Take away the amount calculated at step 2 from the amount calculated at step 1. Write your answer at A item P1.

    Step 4  Transfer the amount at A item P1 to A item 14 on page 13 of your tax return (supplementary section).

    If the amount is a loss, you must:

    • print L in the Loss box at the right of A item P1
    • print L in the Loss box at the right of A item 14 on your tax return (supplementary section).

    Other business income

    Did you have any business income other than PSI?

    Yes

    Go to P2 Description of main business or professional activity

    No

    Read on

    Finishing your schedule

    If the only income you need to show on your schedule is personal services income, you need to complete only:

    Check that you have…

    • transferred your net PSI amount from A item P1 to A item 14 on your tax return (supplementary section). If this amount is a loss, check that you printed L in the Loss box at the right of A
    • completed and attached your Individual PAYG payment summary schedule 2016 to page 3 of your tax return (if you received PSI that was subject to withholding).

    P2 Description of main business or professional activity

    Completing this item

    Describe as accurately as possible the main business or professional activity where your gross income comes from, for example, beef cattle breeder, vegetable grower, clothing manufacturer, confectionery wholesaler, or electrical goods retailer. Do not use general descriptions, such as farmer, manufacturer or wholesaler.

    Print the description of your main business or professional activity at item P2 on page 2 of your schedule.

    P3 Number of business activities

    Completing this item

    Write at B the number of separate and distinct business activities you operated as a sole trader and in partnership during 2015–16. If you operated only one business activity, write 1. The number of business activities you show at B should not be less than the number you show at item P9 Business loss activity details.

    P4 Status of business

    Completing this item

    If you ceased your main business during 2015–16, enter X at C1 item P4 on page 2 of your schedule.

    If you commenced a new business during 2015–16, enter X at C2.

    If more than one option applies, select the first applicable option. If neither of them applies, leave the boxes blank.

    P5 Business name of main business and ABN

    The registered business name of the main business activity should be consistent from year to year, except in the year of a name change or when it is no longer the main business activity.

    If the business name is legally changed with the Australian Securities and Investments Commission (ASIC), advise us in writing at the time the change is made. The current business name should be shown on your tax return.

    Completing this item

    Print the registered business name and Australian business number (ABN) of your main business at item P5 on page 2 of your schedule.

    P6 Business address of main business

    Completing this item

    Print the street address of the place where most of your business operations are conducted at item P6 on page 2 of your schedule.

    Write the postcode of this address at D item P6.

    P7 Did you sell goods or services using the internet?

    You need to know

    You must answer yes at this item if, in deriving income, you used the internet for one or more of the following:

    • to receive orders for goods or services, for example, you received orders by email or a web page form (rather than by conventional post, phone or facsimile)
    • to receive payment for goods or services, for example, you received
      • credit card or charge card details by email or web page form (rather than by conventional post, phone or facsimile) or
      • digital cash
       
    • to deliver goods or services, for example, you
      • used email, the world wide web or file transfer protocol (FTP) to deliver digitised music, news articles or software (rather than using conventional post to deliver software on a disk)
      • used email in conjunction with a website to give advice and received a payment in connection with this advice
      • advertised on the internet goods or services of other businesses for a fee, or
      • hosted internet sites or provided access to the internet.
       

    You must answer no at this item if none of the above applied, for example, if you only used the internet to:

    • advertise your goods and services
    • give support to your customers
    • buy your stock
    • do your banking online.

    Completing this item

    If your answer is yes, enter X in the Yes box at Q item P7 on page 2 of your schedule.

    If your answer is no, enter X in the No box at Q.

    Last modified: 26 May 2016QC 48076