Personal services income (PSI) is income mainly produced from your personal skills or efforts. There are special tax rules that apply if your income is classified as PSI.
Almost any trade, industry or profession can receive PSI. The most common are financial professionals, IT consultants, engineers, construction workers and medical practitioners. PSI does not affect employees receiving only salaries and wages.
When more than 50 per cent of the amount you received for a contract was for your labour, skills or expertise, then the income is classified as PSI.
If you have received PSI (including if you have received it as a company, partnership or trust), you will need to work out if the PSI rules apply to that income. You can use the ATO’s Personal services income decision tool to do this.
Where the rules do apply, they affect how you report your PSI to the ATO and the deductions you can claim.
In the circumstances where the PSI rules do not apply, you are still required to declare any PSI amounts at the relevant labels on your tax return. Where you receive PSI but the rules do not apply, there are no changes to the deductions you can claim.
It is important to note that PSI is not only applicable to sole traders. Those who produce PSI through a company, trust or partnership and the PSI rules apply, the income will be treated as your individual income for tax purposes.