14 Personal services income

N – Does your income include an individual’s personal services income?

Personal services income (PSI) is income that is mainly a reward for an individual’s personal efforts or skills (or would mainly be such a reward if it was derived by the individual). If more than 50% of the income received under a contract is for an individual's personal efforts or skills, then all income from that contract will be PSI. If 50% or less of the income received under a contract is for an individual's personal efforts or skills, then none of the income for that contract is PSI.

A company may derive income which includes the PSI of one or more individuals.

Use the PSI decision tool to work out whether your income included PSI of one or more individuals, and if the PSI rules apply to that income.

Alternatively, see Personal services income and How to attribute PSI.

Examples of PSI include:

• income for the services of a professional practitioner in a sole practice
• income derived under a contract which is wholly or mainly for the labour or services of an individual
• income for the exercise of professional skills by a professional sportsperson or entertainer
• income for the exercise of personal expertise by a consultant.

PSI does not include income that is mainly:

• for supplying or selling goods – for example, from retailing, wholesaling or manufacturing
• generated by an income-producing asset – for example, from contracting to provide a bulldozer
• for granting a right to use property – for example, the copyright to a computer program
• generated by a business structure – for example, a large accounting firm.

If the company receives an individual’s PSI other than in the course of conducting a personal services business (PSB), and don't promptly pay it to the individual as salary or wages:

• the net amount of PSI is attributed to the individual and is not assessable to the company, and
• certain related expenses are not deductible under the special rules.

For more information, see Appendix 8: Personal services income.

Print X in the Yes box at item 14 – label N if the company’s income includes an individual’s PSI. Otherwise print X in the No box.

If you answered No at label N, you don't need to complete the remaining labels at item 14.

If you answered Yes at label N, read on and complete the remaining labels at item 14. For more information, see Taxation Ruling TR 2022/3 Income tax: personal services income and personal services businesses.

A – Total amount of PSI included at item 6 income

Write at item 14 – label A the total amount of income gained by you during the year that is PSI of one or more individuals that you have included at item 6 Income (including income earned in the course of conducting a PSB).

Don't include at label A any exempt or non-assessable non-exempt components of the PSI – for example, goods and services tax (GST).

B – Total amount of deductions against PSI included at item 6 expense

Write at item 14 – label B the total amount of deductions against PSI included at item 6 Expenses.

C – Did you satisfy the results test in respect of any individual?

If you satisfy the results test for any individual, print X in the Yes box at item 14 – label C; otherwise, print X in the No box at label C.

You will meet the results test in an income year if:

• having regard to the custom or work practice when work of that kind is performed, at least 75% of the PSI of the individual doing the personal services work is paid to achieve a contractually specified result under your contract or agreement
• you provide the tools or equipment necessary (if any) to do the work, and
• you are liable for the cost of rectifying defects in the work performed.

PSI is considered to be paid to achieve a result when the individual is required to produce a specified result or outcome, and payment is conditional upon that result or outcome being achieved. The essence of the contract or agreement has to be to achieve a result and not just to do the work as required.

D – Do you hold a personal services business (PSB) determination in respect of any individual?

If you hold a personal services business (PSB) determination for any individual, print X in the Yes box at item 14 – label D; otherwise, print X in the No box at label D.

To apply, see Personal services business determination application. If your income is the PSI of more than one individual, you can apply for a determination for each of those individuals.

E – Personal services business tests

Complete in this section, labels E1, E2, E3.

Labels E1, E2 and E3 require information for any individual for whom you did not satisfy the results test or hold a PSB determination, and where each source of their PSI income yielded less than 80% of their total PSI.

If 80% or more of the PSI in the income year comes from one client (and their associates):

• you can't self-assess whether you meet the unrelated clients test, employment test or business premises test, and
• don't complete labels E1, E2 and E3.

When considering the 80% rule, don't take into account income that is not PSI (for example, investment income or income from the sale of goods or the use of an income-producing asset or income an individual received as an employee).

If you are a commission agent your PSI will be treated as coming from each customer provided you meet all of the following conditions:

• You are an agent of the principal but not an employee.
• You receive income from your principal for services that you provide to customers on the principal’s behalf.
• At least 75% of that income is performance-based commissions or fees.
• You actively seek other customers to whom you could provide services on the principal’s behalf.
• You don't provide any services to the customers, on the principal’s behalf, using premises that the principal (or their associate) owns or has a leasehold interest in, unless you use the premises under an agreement entered into at arm’s length.

If you meet all of these conditions and, as a consequence, less than 80% of the PSI is treated as coming from each source, you can self-assess against the unrelated clients test, the employment test and the business premises test. You don't need a determination from the Commissioner to be a PSB although you may apply for a determination if you are unsure.

For any individual for whom you did not satisfy the results test or hold a PSB determination, and each source of their PSI income yielded less than 80% of their total PSI, indicate whether you satisfied any of the PSB tests.

E1 Unrelated clients test

If you satisfied the unrelated clients test, print X in the box at label E1.

You meet the unrelated clients test, in the income year:

• if you generate PSI from 2 or more clients who are not associated with each other, or with the individual, or with you, and
• those clients were obtained as a direct result of making offers to the public – for example, by advertising.

Don't count clients obtained as a result of registering your name with a labour-hire firm, placement agency or similar organisation.

Separate government departments are deemed not to be associates of each other for the purposes of this test.

If you are a commission agent who meets all of the conditions for the special rules, you will pass the unrelated clients test if your services are provided to at least 2 customers as a direct result of your making offers or invitations to the public on behalf of your principal.

E2 Employment test

If you satisfied the employment test, print X in the box at label E2.

Subject to certain exceptions noted below, you will meet the employment test in the income year if you:

• have employees, engage subcontractors, or engage entities that perform at least 20% (by market value) of the principal work, or
• have one or more apprentices for at least half the income year.

‘Principal’ work is the main work that generates the PSI and does not usually include support work such as secretarial duties.

You can count a spouse or family member of an individual whose PSI you receive and who you engaged to do principal work. You can also count companies, partnerships or trusts that you engage to do principal work unless they are associated with you or an individual whose PSI you receive.

Don't count any individual whose PSI you receive.

E3 Business premises test

If you satisfied the business premises test, print X in the box at label E3.

You meet the business premises test if, at all times during the income year, you maintain and use business premises:

• that are mainly used by you for work in earning PSI (that is, more than 50% of the activities conducted at the premises are directed at producing an individual's PSI) of which you have exclusive use
• that are physically separate from premises used for a private purpose by
  • the individual doing the personal services work
  • their associates
  • your associates
• that are physically separate from the business premises of your clients or their associates.

The phrase ‘at all times during the income year’ is taken to mean the whole period during which activities are conducted for the purposes of generating PSI.

You don't need to maintain and use the same business premises throughout the year, but you must satisfy all the above criteria.

Treatment of net PSI on your company tax return

Include item 7 adjustments relating to:

• non-deductible expenses at label W Non-deductible expenses
• attributed PSI at label Q Other income not included in assessable income.

For information on how to complete item 7 for PSI attributed to an individual, see Appendix 8, Worksheet 2 and Note 4.

Continue to: Information statement – items 15 to 25

Return to: Instructions to complete the Company tax return 2024