Personal services income (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
- generated by a business structure, for example, a large accounting firm.
This section concerns PSI earned as a sole trader only. If you gained all your PSI as an employee or through a company, partnership or trust you did not receive any PSI.
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 of Taxation 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 Personal services income conditions.
If you earned PSI as a sole trader, you need to read Personal services income conditions to determine whether deductions in relation to your PSI are affected by the PSI rules.
The PSI rules do not affect your legal, contractual or workplace arrangements; you won’t be treated as an employee as a result of the rules.