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What is a Personal Services Income?

You earn PSI when more than 50% of the income you receive from a contract is for your skills, knowledge, expertise or efforts.

You don’t earn PSI if:

  • less than 50% of your income from a contract is for your skills, knowledge, expertise or efforts
  • you receive income from selling or supplying finished goods, even if you made these goods
  • you receive income from an income-producing asset, such as renting a vehicle or piece of machinery
  • your income comes from licencing your intellectual property, such as a patent.

Personal services income (PSI) is income produced mainly from your personal skills or efforts as an individual. You can receive PSI in almost any industry, trade or profession. … Income is classified as PSI when more than 50% of the amount you received for a contract was for your labour, skills or expertise.

The characteristics of PSI are:

  • PSI relates more to the supply of services rather than the supply of goods.
  • PSI tends to require greater dependence on skill and judgement.
  • PSI is more likely to arise if the business has minimal assets and few employees.

Examples of PSI include:

  • 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; and,
  • Income derived by consultants from the exercise of personal expertise.

When working out if the PSI rules apply, you need to look at each contract or job to determine if you have received PSI. If you have received PSI (including if you’ve received it as a company, partnership or trust), you then need to work out if the PSI rules apply to that income.

Where a business is caught by the PSI rules there are severe tax limitations placed on that business.

Where a business receives more than 50 per cent of its income from a contract purely for the supply of labour, which depends on the skills or expertise of the contractor performing the work, then all of the income under that contract is classified as PSI.

Who does it apply to?

Only individual taxpayers can have PSI.  If PSI is channelled through a company, partnership or trust (i.e. a personal services entity or PSE ), it is still the individual’s personal services income for income tax purposes.

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