If you are able to self-assess as a PSB, the personal services income (PSI) rules will not apply to your PSI for that income year. You can self-assess as a PSB if you either:
- meet the results test in relation to at least 75% of your PSI, or
- meet one of the other PSB tests and less than 80% of your PSI is from the same entity and its associates.
The other PSB tests are:
If you're a company, partnership or trust and you have more than one individual generating PSI, the self-assessment rules and PSB tests need to be applied to each individual. It is possible for one individual to conduct a PSB but not another.
If you are unable to self-assess as a PSB for a particular income year, you may be able to apply for a PSB determination (PSBD) in some circumstances. If you are unable to self-assess as a PSB, and do not have a PSBD for the relevant income year, then the PSI rules will apply – refer to What to do when the PSI rules apply.
If you are self-assessing using the unrelated clients, business premises, or employment test, then you will also need to meet the 80% rule for that income year. The purpose of the 80% rule is to look at how much of your income comes from one client and their associates.
If 80% or more of your PSI comes from one client and their associates, you do not meet the 80% rule. The PSI rules will apply.
If less than 80% of your PSI comes from one client and their associates you do meet the 80% rule. If you also meet one of the unrelated clients, employment, or business premises tests, you can self-assess as a PSB.
You need to work out the amount of PSI that comes from each client and their associates in an income year.
If you're a company, partnership or trust and you have more than one individual generating PSI, the 80% rule applies to each individual separately. You need to look at the amount of PSI that you receive for each individual and how much of that amount comes from one source.
When you apply the 80% rule, you need to work out the amount of PSI that comes from each client, including their associates, in an income year.
A client's associates can include:
- the client's relatives
- the client's partner in a business partnership and their spouse or children
- a trustee of a trust that the client (or an associate) benefits from
- if the client is a trust, the beneficiary or their associates of that trust
- a company which is under the client's (or their associate's) control, or controlling entities where the client is a company.
If you receive PSI from a client or from an associate of that client, you need to treat the PSI as coming from one client. For example, if you received PSI in the same income year from a company and from a subsidiary of that company, then both amounts of PSI are treated as coming from the same source and count as just one client.
Example: client associates
Binglei is an IT consultant who designs software for 2 different clients in an income year.
The first client, ABC Pty Ltd, is charged $70,000.
The second client, ABC Telecommunications Pty Ltd (a company owned by the first client), is charged $30,000.
The income Binglei receives is classified as PSI, as it was mainly for their knowledge, skills and expertise.
As both clients are associates of one another, they are treated as one client. Binglei has received more than 80% of their PSI from one client, and does not meet the 80% rule.End of example
The PSI rules are modified for agents who act or represent others and bear an entrepreneurial risk in the way they provide their services. The special rule allows agents to treat the clients of a principal as their own clients for the purposes of passing the 80% rule.
If you are acting or representing others as an agent who bears an entrepreneurial risk, you can treat the clients of a principal as your own clients if you meet all of the following:
- you're an agent of the principal, but not the principal's employee
- you receive income from the principal for services that you provide to customers on the principal's behalf
- you receive at least 75% of that income from the principal as commissions or results-based payments (as opposed to a retainer or salary-like payments)
- you actively seek customers for the principal
- you do not provide services to clients from a premises owned or leased by the principal (or their associate) unless you have an arm's-length arrangement to use the premises.
You can use the principal's premises to negotiate, organise or administer arrangements solely between yourself and principal, such as:
- negotiating agency agreements
- receiving training
- attending strategy meetings.
Example: commission agents
Chris provides financial services as an agent for Big Finance Pty Ltd.
In the relevant income year, Chris receives a payment of $70,000, which represents an 80% commission on the services he provides to clients on behalf of Big Finance Pty Ltd.
Over the course of the year, Big Finance Pty Ltd also pays Chris a regular amount of $2,500 per month (totalling $30,000 for the year).
Even though Chris receives a commission payment of more than 75%, the retainer that he is paid is also taken into account in determining whether this requirement of the agents test is met.
Chris’s total income for the year from Big Finance Pty Ltd is $100,000. Only $70,000 out of the $100,000 (that is, 70%) is paid as a commission.
As less than 75% of Chris’s income is a performance-based payment, he does not bear the level of entrepreneurial risk required. Chris is therefore unable to use the modified rules for agents.End of example