If you’re working for yourself, then it’s important you know whether ATO personal services income or PSI rules apply to the money you earn.
Since these rules affect the way you report your PSI and the business deductions you can claim, not following them when you should could lead to incorrect returns being filed and underpayments of tax, which could expose you to tax penalties.
To help you build knowledge and recognise when you might need expert advice, we’ll take you through a few key items including what qualifies as PSI and when these rules apply.
Are you earning PSI?
You’re earning PSI if you’re paid mainly for your skills, efforts or expertise. Common PSI examples include money received by contractors and consultants in finance, IT or medical professions – however PSI may be relevant to many other industries as well.
Of course, when you’re paid for the work you’ve done, the amount you receive might cover other things in addition to your labour or skill. But if more than 50% of the payment relates to your personal exertion, then entire income is classified as PSI.
On the other hand, if more than 50% of the income received relates to other things such as materials, supplies and/or equipment, then the entire amount received would not be treated as PSI.
To work out if your income includes any PSI, you’ll have to separately assess every contract or job you had during the tax year in the way described.
Income specifically excluded from PSI
ATO specifies three types of income that are not classified as PSI. These include gains from:
● supplying or selling goods and products
● an asset rather than your