Taxpayers should remember that, if over half their income is from a contract for their personal effort or skills, then their income is classified as personal services income ('PSI').

Taxpayers can receive PSI in almost any industry, trade or profession, e.g., 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.

Taxpayers who earn PSI while running a business (e.g., as a contractor) need to work out if they were a personal services business ('PSB') in the year that they received the PSI, as this will affect the deductions they can claim.

Taxpayers can self-assess as being a PSB if they:

• meet the 'results test' for at least 75% of their PSI, or
• meet one of the other PSB tests (i.e., the unrelated clients test, the employment test, or the business premises test), and less than 80% of their PSI is from the same entity and its associates.

Taxpayers who self-assess as a PSB still need to report their PSI in their income tax return and keep certain records. For more information, see the ATO personal services income guide here or contact us.

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Please also note that many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances. Should you have any further questions, please get in touch with us for assistance with your SMSF, business, bookkeeping and tax requirements. All rights reserved. Brought to you by RGA Business and Tax Accountants. Liability Limited by a scheme approved under Professional Standards Legislation.