What is Personal Services Income?

Kathryn Hamilton • October 31, 2024

We have all heard of it but most likely ignore it!

Is more than 50% of your income generated from a contract due to your personal efforts or skills? If so, your income maybe considered Personal Services Income (PSI).

What is it?!?

Personal Services Income, also known as “PSI” is income when more than half of the income you receive from a contract as a reward for your personal efforts or skills, rather than being generated by the use of assets, the sale of goods, or from a business structure.

You can receive PSI in almost any industry, trade or profession.
Common examples include but are not limited to:

  • financial professionals
  • information technology consultants
  • engineers
  • construction workers
  • medical practitioners

As PSI is mainly a reward for an individual’s personal efforts or skills, only individuals can earn PSI. Individuals can earn PSI either directly as a sole trader , or through another entity such as a company, partnership or trust . When an individual earns PSI indirectly through another entity, that entity is referred to as a ‘personal services entity’ (PSE).

What income is not PSI?

Certain types of income are not PSI. There are four main attributes that determine this:

  • Salary & Wage Earners – PSI rules do not affect you as an employee – the income is automatically directed to you for your skills and services
  • Supplying or Selling Goods – Although your personal efforts or skills may be required to make or produce an item for sale, where income is produced mainly from supplying or selling goods then the income is not PSI.
  • Suppling/Using an Income-producing Asset – Income that is generated mainly by an asset rather than an individual’s “efforts or skills” is not PSI.
  • Business Structure Income – Income generated from a business structure of an entity, rather than from an individual’s personal services, is not PSI.
    Income is more likely to be generated from a business structure if the business has substantial income-producing assets, a higher number of employees, or both.

    The following factors help determine if income is generated by a business structure:
    • the extent to which the income depends on a particular individual’s own personal skills, efforts or expertise
    • the number of arm’s-length employees or others (for example, contractors) engaged to perform the work
    • any presence of goodwill
    • the extent to which income-producing assets are used to derive the income
    • the nature of the activities carried out
    • the size of the operation.

After considering these factors, if we can determine that the income is generated from a business structure, then that income is not PSI – and not a PSE.

What to do when the PSI rules apply to you

If you are earning PSI, then you need to report this as PSI in your tax return even if you are a personal services business (PSB) and the PSI rules don’t apply to you. How you report your PSI depends on whether the PSI rules apply to your income, and whether you operate as a sole trader, company, partnership or trust.

As there are many factors to consider, each individual’s circumstances are different. If you think the PSI rules may apply to you or you would like more information, please give us a call and discuss it with your accountant today.

More GTP Articles

Bookkeeping Tips

By Natasha Gardner • March 26, 2025
Effective bookkeeping is vital for the success of any business. By understanding and implementing various methods, leveraging the right software, avoiding common mistakes, and following practical tips, you can maintain accurate financial records and make informed business decisions. Common Mistakes Below are some pitfalls to watch out for: By being aware of these common mistakes [...] Read More The post Bookkeeping Tips appeared first on Green Taylor Partners.

Fringe Benefits Tax (FBT) Explained: What Employers Need to Know

By Regina Chia • March 19, 2025
Fringe Benefits Tax (FBT) is an important consideration for employers who provide additional perks to their employees. Whether it’s a company car, free gym memberships, or entertainment benefits, these perks may be subject to FBT. Understanding how FBT works can help businesses remain compliant and avoid unnecessary tax liabilities. In this article, we’ll break down [...] Read More The post Fringe Benefits Tax (FBT) Explained: What Employers Need to Know appeared first on Green Taylor Partners.

Building a Brand Identity to Standout in a Competitive Market

March 17, 2025
Some major businesses are able to ‘capitalise’ their brands. That means the brand has been valued and included as a balance sheet asset.  Most businesses don’t go to those lengths… but leaders who build valuable brands usually have a better chance of standing out and attracting customers and partners.  Let’s look into what makes a [...] Read More The post Building a Brand Identity to Standout in a Competitive Market appeared first on Green Taylor Partners.

Death & Taxes – What happens when I die?

By Matt Richardson • March 12, 2025
There are some general rules you need to be aware of when preparing your own Estate Planning or having some role in the affairs of a deceased estate. Inheritance There is no tax payable on assets which pass from an Estate to a beneficiary in accordance with the deceased’s Will. Final Tax Return The deceased [...] Read More The post Death & Taxes – What happens when I die? appeared first on Green Taylor Partners.

Tax Planning

By Kathryn Hamilton • February 26, 2025
As much as it sucks, tax is a part of life and I am sorry to say but it isn’t going anywhere! To reduce it, you could be doing some forward planning to make informed financial decisions. Everyone can benefit from tax planning from the biggest business to an individual. Why is tax planning important? [...] Read More The post Tax Planning appeared first on Green Taylor Partners.
More Posts