PSI - no pressure... an introduction to Personal Services Income

Personal Services Income - what does it mean, who does it apply to and what are the outcomes?

Personal Services Income is the ATO's way of preventing high earners from using company structures and paying family "salaries" to avoid their fair share of tax.

The catch is, these rules can catch out small businesses as well.

IF YOU -

• Are not structured as a sole trader

• Earn income primarily from your skills and efforts

• Receive 80% or more of your income from one main customer

• Don't have staff or contractors creating 20% of the output for your customers/clients

• Don't have an apprentice

• Bill based on time rather than an end result

• Don't have to use your own equipment or fix your own mistakes

• Don't have your own exclusive business premises, seperate from client premises and separate from your home

.... then we may need to talk.

Essentially, income that fails the PSI tests is treated like employment income, regardless of billing via a company, partnership or trust. Along with this, there are some limitations on the deductions allowed against this income. It's a little more complicated in entities with more than one individual, but this is best discussed directly based on your circumstances.

If any of the above sound like you, and you're not sure if PSI may create ATO pressure on you, reach out, we'll discuss how you are set up and how you find and charge clients, and go from there.