Personal Services Income

One of the areas that individual taxpayers can fall foul of the ATO is in the area of Personal Services Income (PSI). Simply put, PSI is income that you earn primarily in return for your personal efforts or skills. The income has been earned from the application of services by you as a person and the skills and knowledge you provide.

Some examples of this are:

  • The skills provided by a professional football player
  • The provision of knowledge and guidance as a professional consultant
  • The provision of accounting or legal services as the sole practitioner in a business

Some examples of non-PSI income are:

  • Purchasing & selling of finished goods
  • Rental of assets to a customer
  • Royalties and license fees for IP you own

Even if you are providing your skills on a labour-only basis and they could be determined to be personal services income, there are some important distinctions to note that help you to determine whether you are an independent contractor or an employee:

  • An independent contractor is paid for results received while an employee is paid for work they perform
  • Independent contractors provide their own materials and equipment while an employee has this provided by the organisation
  • Independent contractors can delegate the work to others while an employee must undertake the work themselves
  • Independent contractors can provide services to other customers while this is generally prohibited of an employee
  • Independent contractors are free to refuse work while employees must undertake work that is within their JDF or as per any reasonable request
  • Independent contractors don’t get paid any forms of leave and must deal with their own tax affairs while employees will receive all statutory leave entitlements and be paid via the PAYG system

If you are unsure whether you are an employee or contractor under the above, get in touch with your tax accountant and get some clarification.