What you may need to know
Your personal services income is your income that is mainly a reward for your personal efforts or skills. Whether this is so depends on the facts in each case.
Examples of personal services income are:
- income of a professional practitioner in a sole practice
- income payable under a contract which is wholly or principally for the labour or services of a person
- income derived by a professional sportsperson or entertainer from the exercise of professional skills
- income derived by consultants from the exercise of personal expertise.
Personal services income does not include income which is mainly for the:
- sale or supply of goods or granting a right to use property, or
- use of an asset.
If you have earned personal services income, but not as an employee, there may be limitations on the deductions that relate to the gaining or producing of that income that you can claim. This depends on whether:
- you are excluded from the measure for the 2000-01 and 2001-02 years because you had a payee declaration under the prescribed payments system (PPS) that was in force on 13 April 2000 and received by the Commissioner of Taxation on or before that date.
- a personal services business determination, that your personal services income was from a personal services business, made by the Commissioner of Taxation was in force for the income year, or
- you have satisfied one of the 3 personal services business tests.
Part A
Did you receive personal services income?
No-Go to item P2.
Yes-Read on.
You do not have to complete item P1 if your personal services income is gained as an employee. Nor do you complete item P1 if your PSI was derived through a company, partnership or trust. Item P1 concerns sole traders only.
If you earned PSI as a sole trader you need to answer one or more of the questions in part A to determine whether your deductions in relation to your PSI are affected by the PSI measure. The questions concern the conditions stated under the heading What you may need to know.
Whether your PSI was covered by a valid PPS payee declaration
A PPS payee declaration in force and received at the specified date is only considered valid if the payer has acted in accordance with the declaration.
Have you made a valid PPS payee declaration that was in force and received by the Commissioner as at 13 April 2000?
No-Print X in the No box at B item P1 on your schedule. Read on.
Yes-Print X in the Yes box at B item P1 on your schedule. Go to item P2.
Whether a personal services business determination was obtained from the Commissioner for the whole of the period you earned the PSI
This can only occur where you received 80 per cent or more of your PSI from one source.
Did you receive 80 per cent or more of your personal services income from one source and hold a personal services business determination from the Commissioner?
No-Print X in the No box at C item P1 on your schedule. Read on.
Yes-Print X in the Yes box at C item P1 on your schedule. Go to item P2.
Whether personal services business tests apply
If less than 80 per cent of your personal services income was from each source then you need to self-assess whether your personal services income is from your conducting a personal services business.
Did you receive less than 80 per cent of your personal services income from each source?
No-Go to part B.
Yes-Read on.
During the year of income you must have satisfied one of the 3 personal services business tests if your personal services income is to be excluded from the PSI measure.
The tests are:
- the unrelated clients test
- the employment test
- the business premises test.
Did you satisfy the unrelated clients test?
To satisfy the unrelated clients test you must gain income from providing services to 2 or more clients who are unrelated to you or to each other. Separate government departments are deemed not to be related for the purposes of this test. Your services must be provided as a direct result of your making offers or invitations to the public or a section of the public to provide your services. This could be, for example, by advertising, word of mouth referrals or by public tender. Simply registering with a labour hire firm or placement agency is not sufficient for this purpose.
Print X in the box at D1 item P1 on your schedule if you satisfy this test, and read on.
Did you satisfy the employment test?
To satisfy the employment test you must engage one or more persons who together perform at least 20 per cent by market value of your principal work. You must work out the market value of the work that they actually do for you in applying the 20 per cent threshold. The work that you engage others to do must be part of the work that you are contracted to do for your clients.
For the purposes of this test you can take into account individuals performing the principal work whether they be associates or not, and companies, partnerships or trusts performing the same functions but only if they are not your associates.
As a general rule, your principal work is the work which is essential in generating your personal services income. Ancillary activities such as banking or bookkeeping would not be part of the principal work.
You will also satisfy the employment test if you have one or more apprentices for at least half the year. This means someone in a genuine apprenticeship. Research and other assistants do not qualify. You can have one or more apprentices working for you at different non-consecutive periods.
Print X in the box at E1 item P1 on your schedule if you satisfy this test, and read on.
Did you satisfy the business premises test?
You will satisfy the business premises test if at all times during the income year you have maintained and used business premises:
- at which you mainly conducted the activities producing your personal services income
- which you use exclusively
- which are physically separate from any premises used by you or an associate for private purposes (premises includes the land on which any buildings used for business purposes are located)
- which are physically separate from any premises used by the entity or an associate to which you are providing personal services.
You do not have to maintain and use the same business premises for the whole year; that is, you can change business premises but you must use business premises that satisfy the above requirements at all times during the year.
Print X in the box at F1 item P1 on your schedule if you satisfy this test.
If you satisfied one or more of the personal services business tests, go to item P2. Otherwise read on.