Is Your Income PSI (Personal Service Income)?

What is ATO Personal Services Income?

Many contractors and consultants operate as a sole-trader or through a company, partnership or trust. In many cases, the income received for the work they do could be classified as personal service income.

To figure out whether your income is personal services income, first, you need to work out what percentage of the income you receive from each contract you complete is for:

• Labour – that is, the skills, knowledge, expertise or efforts of the person who performed the services
• The materials supplied and/or tools and equipment used to complete the job.a

If more than 50% of your income is for the skills, knowledge, expertise or efforts of the person who performed the services, this income will be classified as personal service income. If more than 50% of your income is for the materials, then this income is not personal service income.

No matter what industry or occupation you work in, it’s important to look at the income you receive from each contract and work out if it’s personal service income.

• Income that isn’t Personal Service Income
  The income you generate in the following ways is not personal service income:
• By selling or supplying goods. Income from selling or supplying goods, such as retailing, wholesaling or manufacturing, is generally not personal service income
• Using an income-producing asset. Income from an income-producing asset, such as a bulldozer or printing press, is generally not personal service income
• Granting a right to use property. Income from granting a right to use property, such as copyright  to a computer program, is generally not personal service income
• Through a business structure. Income from a business structure, such as a large firm, is generally not personal service income
• Through a contractor management company. Structured correctly working through a contractor management company will not attract personal service income.

If your income is Personal Service Income

If you receive personal service income, then certain rules (known as the personal services income rules) may apply that:

• Limit the deductions you can claim against this income
• Affect your reporting obligations, such as tax returns and pay-as-you-go (PAYG) withholding.

If your income isn’t Personal Service Income

If you don’t receive personal service income, then there are no changes to your tax obligations.

If you would like to know more about how Accelerate may be able to assist, please don’t hesitate to contact us, book an appointment or reach us at info@accelerateworkforce.com.au or 02 9407 8700 where one of our Australian team members will gladly help you.
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Information is sourced from the Australia Tax Office website.
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