What is Personal Services Income?

(updated 15/05/2014)

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If you received income for personal services as a sole trader, you need to be aware of special rules applying to this income. Introduced in 2001, Personal Services Income (PSI) rules applies to prevent individuals from "alienating" their PSI to either a partnership, company or trust and can operate to restrict "business" deductions.

Personal services income is income that is mainly a reward for an individual’s personal efforts or skills and can include:
  • personal services income under a pay as you go (PAYG) voluntary agreement
  • personal services income from which an amount was withheld because you did not quote your Australian business number (ABN)
  • personal services income of an independent contractor working under a labour hire arrangement
  • personal services income from the following specified payments:
    • payment for tutorial services provided for the Indigenous Tutorial Assistance Scheme of the Department of Education, Employment and Workplace Relations
    • payment for translation and interpretation services for the Translating and Interpreting Service of the Department of Immigration and Citizenship
    • income as a performing artist in a promotional activity.
Examples of personal services income 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

Where it applies, the PSI rules can affect the tax treatment of income in different ways:
  • PSI is included in the assessable income of the individual who's personal efforts or skills generated the income, regardless of any interposed entity (eg partnership, company or trust).
  • Deductions can be restricted to the types of expenses that would normally apply to an employee.
There are a complicated set of rules to establish whether income from personal exertion is PSI or not. If you think PSI rules may apply to you we recommend consulting with your accountant/tax agent.

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