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  • Allowable deductions when receiving PSI

    Deductions can only be claimed if an expense is paid or incurred in gaining or producing assessable income. The expense cannot be a capital, domestic or private expense.

    As a sole trader, you claim deductions directly against your PSI in your individual tax return.

    If the PSI is earned through a company, partnership or trust, the business reduces the amount of PSI that it attributes to an individual by the amount of the deductions. The deductions are for expenses that are incurred in gaining that individual’s PSI.

    Also, there are additional rules for entity maintenance deductions and car expenses.

    Examples of allowable deductions include:

    • gaining work – for example, advertising, tendering and quoting for work
    • registration and licensing fees
    • insuring against loss of income, earning capacity or liability for acts or omissions in the course of earning income
    • public liability and professional indemnity insurance
    • salary or wages and other expenses in engaging an arm's length employee or contractor (not an associate)
    • reasonable amounts paid to an associate for principal work
    • complying with workers' compensation law
    • super contributions for the benefit of the individual or an arm's length employee (not an associate)
    • running expenses for a home office – for example, heating and lighting (but not rent, mortgage interest, rates or land taxes)
    • depreciation of income-producing assets
    • bank and other account keeping fees and charges
    • tax-related expenses, such as the cost of preparing and lodging tax returns or activity statements.
    • meeting obligations under GST.

    Additionally, if the PSI is earned through a company, partnership or trust, the business is entitled to claim entity maintenance deductions. These are:

    • fees or charges associated with a bank, credit union or other financial institution account (but not including interest or interest-like amounts)
    • tax-related expenses (for example, preparing and lodging tax returns and activity statements)
    • any expense incurred for preparing or lodging a document under Corporations Law, except where the payment is made to an associate
    • statutory fees.

    This not a complete list, as what can be claimed depends on how the income is earned.

    Car expenses

    Companies and trusts can normally claim all their motor vehicle expenses, although private use of their vehicles is generally subject to fringe benefits tax (FBT).

    The PSI rules add a special rule for businesses with motor vehicle expenses, specifically for cars. If your personal services are contracted through a company, partnership or trust that is subject to the PSI rules, your business is only allowed to claim expenses (including FBT payments) for one car if the car is used for private purposes.

    If your business has more than one car in private use at the same time, you must choose only one car to claim deductions for. This choice remains in effect for as long as your business has that car.

    Where two or more individuals work through one company, partnership or trust, the business is able to provide one car to each individual for private use. This only applies if each of the individuals is conducting work that is not part of the other individual's work.

    Businesses are still entitled to a deduction for car expenses for one or more cars provided to an individual where there is no personal use of the car.

    See also:

      Last modified: 30 Jun 2021QC 46085