Have you earned income for your personal efforts or skills

Find out if personal services income applies to you and how it works.

Is over half your income from a contract due to your personal efforts or skills, rather than earned from the use of assets, the sale of goods or from a business structure? If so, your income is classified as personal services income (PSI).

You can receive PSI in almost any industry, trade or profession. For example, as a financial professional, IT consultant, construction worker or medical practitioner.

Take David for example. He charges $250 for a plumbing job. For the tools he supplied, he charges $60 and the rest is for his labour. David earned more than half of his income for the job through his personal efforts or skills, so the income is considered PSI.

If you earn PSI, you’ll need to work out if you are a personal services business (PSB) in the year that you received the PSI. This will affect the deductions you can claim.

Self-assessing as a PSB

You can self-assess as a PSB if you:

• meet the results test for at least 75% of your PSI, or
• meet one of the other PSB tests, and less than 80% of your PSI is from the same entity and its associates.

If you self-assess as a PSB, you’ll still need to report your PSI in your income tax return and keep certain records. If you are unable to self-assess as a PSB for a particular income year, you may be able to apply for a PSB determination (PSBD) in some circumstances.

Other PSB tests you can use are:

• the unrelated clients test
• the employment test
• the business premises test.

It’s important to report PSI correctly in your tax return, as it can affect the deductions you can claim.

You can seek advice from our registered tax professional to discuss the circumstances of your business.

Source: ATO