Personal services income (PSI)
Income that’s mainly from your skills, not a real business.
Personal services income is income earned mainly from your own skills, effort or expertise rather than from selling goods, using assets, or a team. If more than half of what a client pays you is for your labour, the PSI rules may limit which deductions you can claim and can attribute the income to you personally.
The rules exist to stop someone routing what is really salary through a company or trust to lower tax. If you pass one of the ATO’s tests — like the results test — you may be running a personal services business instead.
Worked example
A contract developer billing a single client for their time is almost certainly earning PSI. A developer selling a product they built, with staff and multiple clients, generally isn’t.
Common mistake
Setting up a company expecting a lower tax rate on contracting income. If it’s PSI, the income can be attributed straight back to you at your personal rates anyway.
Grounded in ATO guidance. Figures last checked . General information, not tax advice.
Related terms
Sole trader tax rate
There isn’t one — you’re taxed at personal marginal rates.
Sole trader
The simplest business structure — you and the business are one.
ABN (Australian Business Number)
The 11-digit number that identifies your business.
Tax deduction vs tax offset
A deduction lowers income taxed; an offset lowers tax owed.
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