Personal Services Income Australia: What PSI Means for Your Tax Return
Personal services income (PSI) is income earned mainly from your skills or effort as an individual, common for contractors, consultants and tradies invoicing through an ABN. If the PSI rules apply to you, several business deductions are limited, so it pays to check which tests you meet before you lodge.
What Is Personal Services Income?
Personal services income is income produced mainly, more than 50 percent, from your skills or efforts as an individual, according to the ATO.
This typically applies to sole traders who invoice for their own labour or expertise, such as IT contractors, consultants, tradespeople and creatives, rather than income from selling goods, using a significant income producing asset, or running a business with staff. Even if you operate through a company, partnership or trust, income can still be classed as PSI if it is really being generated by your personal effort. You must declare personal services income on your tax return every year it applies, even when the separate PSI rules themselves do not end up restricting your deductions.
How Do You Know If the PSI Rules Apply to You?
The PSI rules apply to you unless you can self-assess as a personal services business, which means passing the results test on its own, or passing one of three other tests together with the 80 percent rule.
PSI Test | What It Checks |
Results test | Whether you are paid for a specific result, you supply your own tools or equipment, and you are responsible for fixing your own mistakes |
Unrelated clients test | Whether you have at least two clients who are not associates, found through genuine advertising or referral |
Employment test | Whether you engage others to perform at least 20 percent of the work by market value, or have an apprentice for at least half the year |
Business premises test | Whether you maintain and use business premises separate from your home or a client's premises, with exclusive use |
The ATO states that to self-assess as a personal services business you must either meet the results test on its own, or meet one of the other three tests and also pass the 80 percent rule, which looks at whether 80 percent or more of your personal services income comes from one client. If you cannot pass any of these on self-assessment, you can apply to the ATO for a personal services business determination instead.
What Can You Still Claim If the PSI Rules Apply?
If the PSI rules apply to you, you lose some deductions available to other sole traders, mainly around home occupancy costs and payments to associates, though most ordinary running costs stay deductible.
Still Deductible | Not Deductible While PSI Rules Apply |
Costs of gaining work, registration and licensing fees, insurance | Rent, mortgage interest, rates and land tax for your home |
Arm's length wages, contractor payments and workers compensation | Payments to an associate for non-principal work such as bookkeeping or invoicing |
Super for yourself or arm's length employees, depreciation, bank fees | Super contributions for an associate's non-principal work |
Home office running costs such as heating and lighting | Running expenses for more than one car where a company, partnership or trust has more than one car in private use |
Reasonable payments to an associate for principal work, meaning the same type of work you are contracted to do, generally remain deductible. Super for an associate's principal work is deductible only up to the minimum superannuation guarantee percentage you would otherwise have to pay them for that work, according to the ATO's guidance on claiming deductions when receiving PSI.
What Happens If You Pass the PSI Tests?
Passing the results test, or another personal services business test plus the 80 percent rule, lets you self-assess as a personal services business, so the PSI deduction limits above do not apply to you.
You still need to declare any personal services income as PSI on your tax return, but you can generally claim the same range of business deductions available to other sole traders, including home occupancy costs where they are genuinely incurred for running the business.
How Do You Report Personal Services Income on Your Tax Return?
Sole traders report personal services income through the dedicated PSI section in myTax, or a registered tax agent completes it for you, and the amount must always be declared as PSI regardless of whether the PSI rules themselves apply.
If your return also requires the business and professional items schedule, it cannot be lodged on paper, so most people earning PSI lodge online through myTax or through an agent's software.
How Does Tax Falcon Help With Personal Services Income?
If you invoice clients as a tradie, consultant, creative or rideshare driver through an ABN, Tax Falcon's Sole Trader Tax Return service is built around exactly this kind of income.
For a flat fee from $229, it includes a certified tax agent review, direct ATO pre-fill, and deduction checks at no extra charge, which matters when PSI rules limit what you can claim and a missed test either way can cost you a refund. Rather than working out your PSI position alone, lodging through Tax Falcon means a registered agent checks it as part of preparing your return.
Frequently Asked Questions
What is personal services income (PSI)?
Personal services income is income produced mainly, more than 50 percent, from your skills or effort as an individual, rather than from selling goods or a business asset, and it commonly applies to contractors, consultants and tradies who invoice through an ABN.
Do I have to declare PSI if the PSI rules don't apply to me?
Yes. The ATO requires you to declare personal services income on your tax return every year it applies, even if you qualify as a personal services business and the PSI deduction-limiting rules themselves do not restrict you.
What happens if I pass the results test?
Passing the results test on its own lets you self-assess as a personal services business, which means the PSI rules do not limit your deductions and you can generally claim the same range of business expenses as any other sole trader.
Can I claim rent or my mortgage if the PSI rules apply?
No. The ATO is explicit that you cannot claim rent, mortgage interest, rates or land tax for your home while the PSI rules apply, even if you run your business from a room in that home.
How do I report personal services income on my tax return?
Sole traders report personal services income through the PSI section in myTax or via a registered tax agent, and it must always be declared as PSI regardless of whether the PSI rules themselves end up applying.
