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Personal Service Income |
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Personal Services Income (PSI) is income that is mainly a reward for an individual's personal efforts or skills Examples of PSI include:
Under s.87-15 an individual or personal services entity (PSE) that satisfies the results test is considered to be conducting a personal services business and is exempt from the personal services regime The results test will be satisfied in an income year if, in respect of at least 75% of the PSI of the individual doing the personal services work, having regard to the custom or work practice when work of that kind is performed:
The 80% rule If the results test is not satisfied, it is necessary to consider the 80% rule – s.87-15 The 80% rule operates as follows:
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Definition |
PSI does not include income that is mainly:
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 Personal Services Business (PSB) Under s.87-15, a taxpayer’s business qualifies as a personal services business if:
Income derived by a Personal Service Business (PSB) is exempt from the personal services regime Personal services business determination This is a notice from the ATO stating that the taxpayer is conducting a personal services business Under s.87-60, a taxpayer can apply for a determination if:
Unrelated Clients test An individual or PSE will meet the unrelated clients test in the income year if: the service provider (individual or PSE) doing the personal services work generates PSI from two or more clients who are not associated with each other or with the service provider the personal services must also be provided as a direct result of the service provider making offers to the public (e.g. by advertising or word of mouth) – s.87-20 Employment test Subject to certain exceptions noted below, an individual service provider will meet the employment test in the income year if they:
Business Premises test An individual or PSE service provider will meet the business premises test if, at all times in the year of income, the service provider maintains and uses business premises that are:
If the PSI rules apply The main effects are: The PSI, reduced by certain deductions to which the personal services entity is entitled, is treated as the income of the individual who does the personal services work and must be included in their income tax return – s.86-15. This is called attribution The personal services entity must either: - pay the PSI promptly, as salary or wages, to the individual who does the personal services work, or - attribute the net PSI to the individual who does the personal services work and withhold and remit tax on that income |
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