ato logo
Search Suggestion:

Personal services income deductions

Last updated 17 February 2020

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

What you may be able to deduct

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

The following are examples of items you may be able to deduct:

  • premiums for workers' compensation, public liability and professional indemnity insurance
  • bank 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
  • STS depreciation
  • 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) up to the age based deduction limit
  • 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 D13 on your tax return. See question D13 in TaxPack 2004 supplement.

You cannot deduct

You cannot deduct an amount for the following where it relates 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
  • contributions to a superannuation fund for an associate doing solely non-principal work.

Note

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

Label K: deductions for payments to associates for principal work

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

No

Go to label L.

Yes

Read on.

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

Label L: total amount of other deductions against PSI

Do you have other allowable deductions against your PSI?

No

Go to label A.

Yes

Read on.

You need to know

In completing this label you only include non-commercial business losses deferred from a prior year if they relate to an activity which is the same as, or similar to, your current year activity. Question 15 in TaxPack 2004 supplement explains how the non-commercial business loss rules work.

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

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

Phone the Small business infoline on 13 28 66 for more information. For an explanation of net exempt income, see question L1 in TaxPack 2004.

Completing this label

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.

Label A: working out your net PSI

Completing this label

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

Subtract the amount calculated at Step 2 from the amount calculated at Step 4 Write this amount at A item P1.

Step 4

Transfer the amount at A item P1 to A item 13 on your tax return.

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 13 on your tax return
  • complete items P3 and P9 on your 2004 business and professional items schedule for individuals.
 

For information on how to complete item P9, see P9 Business loss activity details.

Did you have any other business income?

No

Go to check that you have…

Yes

Go to item P2.

Check that you have…

  • written your tax file number and your full name on page 1 of your 2004 business and professional items schedule for individuals
  • provided the correct information on your schedules
  • completed items P2 and P3
  • completed item P9 on your schedule if you have a loss at A item P1
  • completed item P1 0 on your schedule if you have claimed STS depreciation, and are eligible to enter or continue in the STS and you have chosen to do so at item S1
  • signed and dated your 2004 business and professional items schedule for individuals and attached it to page 3 of your tax return
  • completed and attached the Individual PAYG payment summary schedule 2004 to page 3 of your tax return, if you received PSI that was subject to withholding
  • transferred your net PSI amount from A item P1 to A item 13 on your tax return. If this amount is a loss, print L in the LOSS box at the right of A.

You do not need to complete any remaining items on your schedule.

QC27547