• P1 Personal services income (PSI)

    Stop

    You do not have to complete item P1 if your PSI is gained as an employee. Item P1 concerns sole traders only.

    You also do not have to complete item P1 if your PSI was received through a company, partnership or trust.

    Did you receive personal services income?

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    No

    Print X in the No box at item P1 on your schedule. Go to item P2.

    Yes

    Print X in the Yes box at item P1 on your schedule. Read on.

    You need to know

    PSI is income that is mainly a reward for an individual's personal efforts or skills.

    Examples of PSI 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.

    PSI does not include income that is mainly:

    • for supplying or selling goods (for example, from retailing, wholesaling or manufacturing)
    • generated by a significant income-producing asset (such as a bulldozer)
    • for granting a right to use property (for example, the copyright to a computer program), or
    • generated by a business structure (for example, a large accounting firm).

    If you have earned PSI but not as an employee, you may not be able to claim certain deductions in relation to earning that income - for example, rent, mortgage interest, rates or land tax for your home, or payments to your spouse (or other associate) for support work such as secretarial duties. This depends on whether:

    • you have a personal services business determination from the Commissioner stating that your PSI was from conducting a personal services business for the whole of the period you earned PSI, or
    • you satisfied one of the four tests in Part A.

    If you earned PSI as a sole trader, you need to read on and answer one or more of the questions in Part A to determine whether deductions in relation to your PSI are affected by these rules.

    These rules do not affect your legal, contractual or workplace arrangements. You won't be treated as an employee as a result of the PSI measures.

    Part A

    Did you satisfy the results test?

    If you earn PSI, you will meet the results test in the income year if, in respect of at least 75% of this income, you can answer Yes to all of the following questions in relation to your work:

    • Under your contract or arrangement, was the PSI paid to achieve a specified result or outcome?
    • Did you have to provide the tools or equipment necessary (if any) to do your work? (If no tools or equipment were required, answer Yes.)
    • Were you liable for rectifying defects in your work?

    No

    Print X in the No box at P item P1 on your schedule. Read on.

    Yes

    Print X in the Yes box at P item P1 on your schedule. Go to item P2.

    Have you received a personal services business determination from the Commissioner that was in force for the whole of the period you earned PSI?

    This is a notice from the Commissioner stating that you are conducting a personal services business. If you have a personal services business determination from the Commissioner, the PSI rules do not apply to your PSI and deductions.

    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.

    Did you receive 80% or more of your PSI from one source?

    If you don't meet the results test and 80% or more of your PSI in the income year came from one client, you cannot self-assess whether you meet the other personal services business tests. The PSI rules apply to you unless you get a determination from the Commissioner.

    If you don't meet the results test, you can only self-assess against the other tests if less than 80% of your PSI came from each client.

    You should consider PSI obtained by merely putting your name with a labour hire firm, placement agency or similar organisation, as income from one client.

    Commission agents

    Special rules apply to commission agents. For more information, phone the Business Infoline (see More information).

    No

    Print X in the No box at Q item P1 on your schedule. Read on.

    Yes

    Print X in the Yes box at Q item P1 on your schedule. Go to Part B.

    Did you satisfy the unrelated clients test?

    You will meet the unrelated clients test in the income year if you can answer Yes to the following question:

    • Did you receive PSI from two or more clients who are not associated with each other or with you?

    You must also provide the personal services work as a direct result of making offers to the public (for example, by advertising or word of mouth). Do not count clients obtained by merely registering with a labour hire firm, placement agency or similar organisation.

    Commission agents

    Special rules apply to commission agents. For more information, phone the Business Infoline (see More information).

    No

    Read on.

    Yes

    Print X in the box at D1 item P1 on your schedule. Read on.

    Did you satisfy the employment test?

    You will meet the employment test in the income year if you can answer Yes to either of the following questions:

    • Did you have apprentices for at least half the income year?
    • Did you have employees or did you engage subcontractors or entities who performed at least 20% (by market value) of the principal work?

    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 who does principal work but not companies, partnerships or trusts associated with you.

    No

    Read on.

    Yes

    Print X in the box at E1 item P1 on your schedule. Read on.

    Did you satisfy the business premises test?

    You will meet the business premises test if you can answer Yes to all of the following questions:

    For the whole period during which you earned PSI, were your business premises:

    • owned or leased by you
    • mainly used by you for work earning your PSI (for example, more than 50% of the use)
    • used exclusively by you
    • physically separate from your private residence or the private residence of any of your associates
    • physically separate from the business address of your clients or their associates?

    No

    Read on.

    Yes

    Print X in the box at F1 item P1 on your schedule. Read on.

    If you printed X at D1, E1 or F1, go to item P2. Otherwise read on.

    Part B

    Stop

    Do not show at this question PSI amounts that were subject to foreign resident withholding. Show these at item P8.

    You need to know

    You must complete Part B of item P1 if you received PSI and you did not:

    • receive a personal services business determination in relation to your PSI
    • satisfy the results test, or
    • satisfy at least one of the other three personal services business tests (if less than 80% of your PSI came from each client).

    PSI is divided into:

    • income that was subject to a PAYG voluntary agreement to withhold
    • income from which tax has been withheld because you did not quote your Australian business number (ABN)
    • income received under a labour hire arrangement or from a specified payment
    • other PSI.

    Goods and services tax

    If you are registered or required to be registered for GST, do not include any GST amounts in your assessable income. Your deductions should not include any amounts that relate to input tax credit entitlements.

    STS Taxpayers

    If you have chosen to enter or continue in the STS at item S1, you must complete the income and deduction parts of item P1 using the STS rules. For information about these rules, read STS taxpayers at item P8. If you are claiming STS depreciation, you also need to complete item P10 on your schedule.

    You may need to complete a payment summary schedule

    If tax has been withheld from business income you should have received a payment summary.

    You will need to complete the Individual PAYG payment summary schedule 2004-05 before completing the rest of item P1 if you received any of the following payment summaries:

     

    A payer may issue a receipt, remittance advice or similar document in place of the Payment summary - withholding where ABN not quoted.

    If you received income from which tax was withheld and you did not receive or have lost your payment summary, contact your payer and ask for a copy.

    How to complete the Individual PAYG payment summary schedule 2005

    Step 1

    Write your tax file number (TFN) and name in the appropriate boxes at the top of the schedule.

    Step 2

    Nature of income - Print X in the Personal services income box.

    Step 3

    For each payment summary, transfer the following information to the schedule:

     
    • the type of withholding - look at your payment summary carefully to determine its type and complete the TYPE box, using the following key:

    V voluntary agreement

    N withholding where ABN not quoted

    S labour hire or other specified payments

     
    • the payer's ABN or withholding payer number (WPN) and the payer's name in the appropriate boxes
     
     
    • the total tax withheld at the Tax withheld box
     
     
    • the gross payment in the Gross payment box.
     

    Step 4

    Check that you have recorded details from all relevant payment summaries on your schedule then attached the schedule to page 3 of your tax return.

    Do not attach the payment summaries to your tax return. You are required to keep them for a period of five years.

    Payers are required to report to the Tax Office details of payments where amounts of tax have been withheld. This information will be cross-checked with that on your tax return to ensure that you have declared the correct amount of income and the correct amount of tax withheld.

    You may need two schedules

    If you have both PSI (item P1) and business income (item P8), you will need to complete an individual PAYG payment summary schedule for each type of income.

    Income

    PSI - voluntary agreement

    Did you receive any PSI that was subject to a PAYG voluntary agreement?

    No

    Go to PSI - Where Australian business number not quoted.

    Yes

    Read on.

    The amount you show at M is the total income you received that was subject to a PAYG voluntary agreement, including amounts of tax withheld. You will be able to calculate this amount from your completed Individual PAYG payment summary schedule 2005.

    Completing this question

    Add up all the Gross payment amounts on your completed payment summary schedule that have a V in the corresponding type box. Write this total at M item P1. Do not show cents.

    If you complete M item P1 you must also complete G item 13 on page 9 of your tax return (supplementary section).

    PSI - where Australian business number not quoted

    Did you have any amounts of tax withheld from your PSI for failure to quote an Australian business number (ABN)?

    No

    Go to PSI - Labour hire or other specified payments.

    Yes

    Read on.

    The amount you show at N is your total PSI from which an amount has been withheld because you did not quote your ABN, including the amounts of tax withheld. You will be able to calculate this amount from your completed Individual PAYG payment summary schedule 2005.

    Completing this question

    Add up all the Gross payment amounts on your completed payment summary schedule that have an N in the corresponding type box. Write this total at N item P1. Do not show cents.

    If you complete N item P1 you must also complete H item 13 on page 9 of your tax return (supplementary section).

    PSI - labour hire or other specified payments

    Did you receive any PSI under a labour hire arrangement or from a specified payment?

    No

    Go to PSI - Other.

    Yes

    Read on.

    Stop

    Do not include income received as an employee of a labour hire business. These amounts will appear on your PAYG withholding payment summary - individual non business and should be shown at item 1 of your tax return.

    The amount you show at O is the total income you received from labour hire or other specified payments, including amounts of tax withheld. You will be able to calculate this amount from your completed Individual PAYG payment summary schedule 2005.

    Completing this question

    Add up all the Gross payment amounts on your completed payment summary schedule that have an S in the corresponding type box. Write this amount at O item P1. Do not show cents.

    If you complete O item P1 you must also complete J item 13 on page 9 of your tax return (supplementary section).

    PSI - other

    Did you receive any other PSI?

    No

    Go to Deductions.

    Yes

    Read on.

    Work out the total amount of other PSI and write this amount at J item P1. Do not include any amounts of GST.

    Deductions

    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 deduction is available in your circumstances. Taxation Ruling TR 2003/10 - Deductions that relate to personal services income explains the PSI deduction limitation rules. This ruling is available on our website or, to find out how to get a printed copy, see More information.

    What deductions you may be able to claim

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

    The following are examples of items you may be able to claim a deduction for:

    • 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 2005 supplement.

    What you cannot claim

    You cannot claim an amount for the following if it related 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.

    Deductions for payments to associates for principal work

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

    No

    Go to Total amount of other deductions against PSI.

    Yes

    Read on.

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

    Total amount of other deductions against PSI

    Do you have other allowable deductions against your PSI?

    No

    Go to Net PSI.

    Yes

    Read on.

    You need to know

    In completing this question 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. See P9 Business loss activity details for an explanation of how the non-commercial business loss rules work.

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

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

    Phone the Business Infoline for more information (see More information). For an explanation of net exempt income, see question L1 in TaxPack 2005.

    Completing this question

    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.

    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.

    Net PSI

    Completing this question

    To work out your net PSI go through the following steps:

    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 1. Write your answer at A item P1.

    Step 4

    Transfer the amount at A item P1 to A item 13 on page 9 of your tax return (supplementary section).

     

    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 (supplementary section).
     
    Last modified: 15 Mar 2007QC 27592