What Personal services income (PSI) includes

Personal services income (PSI) is income produced, mainly from your personal skills or efforts as an individual. When working out if your income is PSI, you need to look at the income received from each separate contract or invoice.

If more than 50% of the income received for a contract/invoice was for your labour, skills or expertise, then all income received is PSI.

If 50% or less of the income received for a contract/invoice was for your labour, skills or expertise, then none of the income received is PSI.

Salary and wages as an employee and some other types of income will not be affected by the PSI rules.

You don’t earn PSI if your income is:

  • from selling or supplying finished goods, even if you made them
  • from an income-producing asset, such as renting a vehicle or machinery
  • from licencing your intellectual property, such as a patent

Examples of PSI and non-PSI income

Susan is a management consultant operating as a sole trader. She recently completed contracts for 2 of her clients.

Contract 1: Susan provided a 1 hour training course for a client. She charged $1,000 for her course. This included training materials that cost $100. Since $900 (90% of the contract) is for her skills and expertise, this is PSI. Susan is able to report $1,000 as PSI.

Contract 2: Susan provided management software for a client. She charged $10,000 in total. This included $8,000 to cover the cost of the software licence. Since $2,000 (20% of the contract) is for her skills and expertise, this is not PSI. Susan cannot report PSI for this contract.

Like Susan’s examples above, your taxable income can be a mix of PSI and other income.

Find out if you’ve earned PSI

Use the Australian Taxation Office (ATO) PSI decision tool to work out if you’ve earned PSI.

Check for PSI

What to do if you’ve earned PSI

Decide for each contract or job if your income is PSI. If it is, you then need to work out if the PSI rules apply to that income.

When PSI rules apply

If the rules apply, it will affect:

  • the tax deductions you can claim for PS
  • how you report PSI.

All other income you earn follows normal tax rules.

Deductions you can claim

You can claim deductions against your PSI if an expense occurred earning this income.

For example, you could claim:

  • the cost of gaining work, such as advertising, tenders and quotes
  • registration and licencing fees
  • account-keeping fees, including bank fees
  • some insurance costs, including public liability and professional indemnity insurance fees
  • salary or wages and super contributions for an employee engaged at arm’s length (not an associate)
  • reasonable amounts payed to an associate for principal work
  • a portion of home office expenses, such as heating, lighting, phone and internet. Do not claim rent, mortgage interest, rates or land taxes.

You may be eligible for other deductions depending on what your business is and your contracts.

Visit the ATO website for examples of:

Completing your tax return

You’ll need to answer some extra questions in your income tax return and Business and professional items schedule for individuals.

These questions help make sure you’re claiming your PSI correctly.

When PSI rules do not apply

If the PSI rules don’t apply to you, you have fewer obligations. But you will still need to answer a few extra questions in your income tax return. There are no changes to the deductions you can claim.

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