P1 Personal services income

Instructions to complete P1 Personal services income.

What is personal services income?

Personal services income (PSI) is income that is mainly a reward for an individual’s personal efforts or skills. If more than 50% of the income you receive under a contract is for your personal efforts or skills, then all income from that contract is PSI. If 50% or less of the income you receive under a contract is for your personal efforts or skills, then none of the income for that contract is PSI.

Examples of PSI are:

• income you receive under a contract which is wholly or mainly for your labour or services
• income of a professional practitioner in a sole practice
• income of a professional sportsperson or entertainer for their professional skills
• income of a consultant from their personal expertise.

Your PSI does not include income that is mainly:

• for supplying or selling goods (for example, from retailing, wholesaling or manufacturing)
• generated by a significant income-producing asset (such as contracting to provide a bulldozer)
• for granting a right to use property (for example, the copyright to a computer program)
• generated by a business structure (for example, a large accounting firm).

For more information, see TR 2022/3 Income tax: personal services income and personal services businesses.

Question P1 concerns PSI earned as a sole trader only. Answer No to the question below if you gained all your PSI as an employee or through a company, partnership or trust.

Did you receive any PSI?

No	Print X in the No box at question P1 on your schedule. Go to P2 Description of main business or professional activity.
Yes	Print X in the Yes box at question P1 on your schedule. Read on.

If you have earned PSI, you may not be able to claim certain deductions in relation to earning that income (for example, rent, mortgage interest, rates or land tax for your home), or payments to your spouse (or other associate) for support work, such as secretarial duties. This depends on whether:

• you have a personal services business determination from the Commissioner of Taxation stating that your PSI was from conducting a personal services business for the whole of the period you earned PSI, or
• you satisfied one of the 4 personal services business tests in Part A.

If you earned PSI as a sole trader, you need to read on and answer one or more of the questions in Part A. The questions will determine whether deductions in relation to your PSI are affected by the PSI rules.

The PSI rules do not affect your legal, contractual or workplace arrangements and you won’t be treated as an employee as a result of the rules applying.

Part A

Did you satisfy the results test?

If you earnt PSI, you satisfy the results test for 2022–23 if, in respect of at least 75% of your PSI, you can answer yes to all of the following 3 questions:

• Under your contract or arrangement, was the PSI paid to achieve a contractually specified result or outcome?
• Did you have to provide the tools or equipment necessary to do your work? (If no tools or equipment were required for your work, answer yes.)
• Were you liable for the cost of rectifying defects in your work?

Your contract must require the production of a specified result or outcome. The contract must also state that payment is conditional upon the achievement of that outcome. The essence of the contract must be to achieve a result and not just do work as required.

Yes	Print X in the Yes box at question P1 – label P on your schedule. Go to P2 Description of main business or professional activity.
No	Print X in the No box at question P1 – label P on your schedule. Read on.

Have you received a personal services business determination from the Commissioner that was in force for the whole of the period you earned PSI?

This is a notice from the Commissioner stating that you are conducting a personal services business. If you have a personal services business determination from the Commissioner, the PSI rules do not apply to your PSI.

Yes	Print X in the Yes box at question P1 – label C on your schedule. Go to P2 Description of main business or professional activity.
No	Print X in the No box at question P1 – label C on your schedule. Read on.

Did you receive 80% or more of your PSI from one source?

If you don’t satisfy the results test and 80% or more of your PSI in 2022–23 came from one client and its associates (that is, from one source), you cannot self-assess whether you satisfy the other personal services business tests. The PSI rules apply to your PSI unless you get a determination from the Commissioner.

If you don’t satisfy the results test, you can self-assess against the other tests only if less than 80% of your PSI came from the one source.

If you enter a contract to provide your services with a labour hire firm or similar arrangement, the labour hire firm is the source of the income for the purposes of the 80% rule even if you gain more than one job through the labour hire firm.

Commission agents

Special rules apply to commission agents.

Yes	Print X in the Yes box at question P1 – label Q on your schedule. Go to Part B.
No	Print X in the No box at question P1 – label Q on your schedule. Read on.

Did you satisfy the unrelated clients test?

You satisfy the unrelated clients test for 2022–23 if you can answer yes to the following questions:

• Did you receive PSI from 2 or more clients who are not associated with each other or with you?
• Were those clients obtained as a direct result of making offers to the public, for example, by advertising? Do not count clients obtained by registering with a labour hire firm, placement agency or similar organisation.

No	Read on.
Yes	Print X in the box at question P1 – label D1 on your schedule. Read on.

Did you satisfy the employment test?

You satisfy the employment test in 2022–23 if you can answer yes to either of the following questions:

• Did you have one or more apprentices for at least half of 2022–23?
• Did you have employees, or did you engage subcontractors or entities, who performed at least 20% (by market value) of your principal work?

Principal work is the main work that generates the PSI and does not usually include support work, such as secretarial duties. You can count a spouse or a family member who does principal work, but not companies, partnerships or trusts associated with you.

No	Read on.
Yes	Print X in the box at question P1 – label E1 on your schedule. Read on.

Did you satisfy the business premises test?

You satisfy the business premises test if you can answer yes to all of the following questions. For the whole period during which you earned PSI, did you maintain and use business premises:

• that were mainly used by you for work in earning your PSI, that is, more than 50% of the activities conducted at the premises were directed at producing your PSI
• of which you have exclusive use
• that were physically separate from your private residence or the private residence of any of your associates
• that were physically separate from the business premises of your clients or their associates?

No	Read on.
Yes	Print X in the box at question P1 – label F1 on your schedule. Read on.

If you printed X at label D1, E1 or F1, go to P2 Description of main business or professional activity. Otherwise read on.

Part B

Do not show PSI amounts that were subject to foreign resident withholding in part B. Show these at question P8.

You need to know

You must complete part B of question P1 if you received PSI and you did not:

• receive a personal services business determination in relation to your PSI
• satisfy the results test, or
• satisfy at least one of the other 3 personal services business tests (if less than 80% of your PSI came from each client).

Your PSI is divided into:

• payments you received under a PAYG voluntary agreement to withhold tax
• payments you received from which tax has been withheld because you did not quote your Australian business number (ABN) to one of your payers
• payments you received for working under a labour-hire arrangement or from a specified payment
• other PSI.

Goods and services tax (GST)

If you are registered or required to be registered for GST, do not include any GST amounts in your assessable income. Your deductions should not include any amounts that relate to input tax credit entitlements.

Former STS taxpayers

If you are eligible and are continuing to use the simplified tax system (STS) accounting method, you must complete the income and deduction parts of question P1 using the STS accounting method.

You may need to complete an Individual PAYG payment summary schedule

If tax has been withheld from business income, you should have received a payment summary.

You will need to complete the Individual PAYG payment summary schedule 2023 before completing the rest of question P1 if you received one of the following payment summaries:

• PAYG payment summary – business and personal services income
• PAYG payment summary – withholding where ABN not quoted.

While the PAYG payment summary – business and personal services income allows reporting of different payment types (including labour hire or other specified payments and voluntary agreement) you must specify on the schedule the nature of the income and the payment type made to you.

For further information, see How to complete the Individual PAYG payment summary schedule 2023.

A payer may issue a receipt, remittance advice or similar document in place of the PAYG payment summary – withholding where ABN not quoted. This document must contain the same details as the payment summary and be signed by the payer.

If you received income from which tax was withheld and you did not receive or have lost your payment summary, contact your payer and ask for a copy.

How to complete the Individual PAYG payment summary schedule 2023

Step 1 Write your tax file number (TFN) and name in the appropriate boxes at the top of the schedule.

Step 2 Nature of income, print X in the Personal services income box.

Step 3 For each payment summary, transfer the following information to the schedule:

• the type of withholding (look at your payment summary to determine its type and complete the Type box, using the following key)
  • V voluntary agreement
  • N withholding where ABN not quoted
  • S labour hire or other specified payments
   
• the payer’s ABN or withholding payer number (WPN) and the payer’s name in the appropriate boxes
• the total tax withheld in the Tax withheld box
• the gross payment in the Gross payment box.

Step 4 Check that you have recorded details from all relevant payment summaries on your payment summary schedule. Attach the schedule to page 3 of your tax return.

Do not attach the payment summaries to your tax return. You must keep them for a period of 5 years.

Payers must report to us details of payments where amounts of tax have been withheld. This information will be cross-checked with that on your tax return to make sure that you have declared the correct amount of income and the correct amount of tax withheld.

You may need 2 payment summary schedules. If you have both PSI (question P1) and business income (question P8), you will need to complete an Individual PAYG payment summary schedule 2023 for each type of income.

Income

PSI – voluntary agreement

Did you receive any PSI that was subject to a PAYG voluntary agreement?

No	Go to PSI – where Australian business number not quoted.
Yes	Read on.

The amount you show at label M is the total income you received that was subject to a PAYG voluntary agreement, including amounts of tax withheld. You will be able to calculate this amount from your completed payment summary schedule.

Completing this question

Add up all the Gross payment amounts on your completed payment summary schedule that have a V in the corresponding Type box. Write the total at question P1 – label M. Do not show cents.

If you complete question P1 – label M, you must also complete question 14 – label G of your supplementary tax return.

PSI – where Australian business number not quoted

Did you have any amounts of tax withheld from your PSI for failure to quote your ABN?

No	Go to PSI – labour hire or other specified payments.
Yes	Read on.

The amount you show at label N is your total PSI from which an amount has been withheld because you did not quote your ABN, including the amounts of tax withheld. You will be able to calculate this amount from your completed payment summary schedule.

Completing this question

Add up all the Gross payment amounts on your completed payment summary schedule that have an N in the corresponding Type box. Write the total at question P1 – label N. Do not show cents.

If you complete question P1 – label N, you must also complete question 14 – label H of your supplementary tax return.

PSI – labour hire or other specified payments

Did you receive any PSI under a labour hire arrangement or from a specified payment?

Specified payments include:

• tutorial services you provided for the Indigenous Student Success Programme (formerly known as the Indigenous Tutorial Assistance Scheme) of the Department of the Prime Minister and Cabinet
• income from translation and interpretation services for the Translating and Interpreting Service National of the Department of Home Affairs
• income as a performing artist in a promotional activity.

No	Go to PSI – Other.
Yes	Read on.

The amount you show at label O is the total income you received from labour hire or other specified payments, including amounts of tax withheld. You will be able to calculate this amount from your completed payment summary schedule.

Do not include income received as an employee of a labour-hire business. These amounts will appear on your PAYG payment summary – individual non-business and you should show them at question 1 of your tax return.

Completing this question

Add up all the Gross payment amounts on your completed payment summary schedule that have an S in the corresponding Type box. Write the total at question P1 – label O. Do not show cents.

If you complete question P1 – label O, you must also complete question 14 – label J of your supplementary tax return.

PSI – other

Did you receive any other PSI?

No	Go to Deductions.
Yes	Read on.

Work out the total amount of other PSI and write this amount at question P1 – label J.

If you are registered or required to be registered for GST, do not include any GST amounts in your assessable income.

Deductions

Limited deductions against PSI

If the PSI rules apply, this affects the deductions you can claim against your PSI. They do not affect your legal, contractual or workplace arrangements and you won’t be treated as an employee as a result of the PSI rules.

The information on this page is a guide only. You may need further information to determine whether a deduction is available in your circumstances; TR 2003/10 Income tax: deductions that relate to personal services income explains the PSI deduction limitation rules.

What deductions you may be able to claim

Subject to exceptions, the general rule is that you may claim an amount used to gain or produce your PSI if you could claim that amount if the income was payable to you as an employee.

The following are examples of items you may be able to claim a deduction for:

• premiums for workers compensation, public liability and professional indemnity insurance
• financial institution and other account-keeping fees and charges
• tax-related expenses, such as the cost of preparing and lodging a tax return or business activity statement (BAS)
• registration or licensing fees
• expenses for advertising, tendering and quoting for work
• deduction for decline in value of depreciating assets
• simplified depreciation (if you are a small business entity)
• running expenses for your home office, such as heating and lighting for using a room in your house as a home office (not including rent, mortgage interest, rates or land taxes)
• salary and wages for an arm’s length employee (not an associate)
• contributions to a complying superannuation fund on behalf of an arm’s length employee (not an associate)
• reasonable amounts paid to an associate for principal work
• contributions to a complying superannuation fund or retirement savings account up to the superannuation guarantee amount for an associate doing solely principal work.

Do not include any amount that was a superannuation contribution for yourself. Any deduction for your own superannuation contributions must be claimed at question D12 in your supplementary tax return.

What you cannot claim

You cannot claim an amount for the following that relates to earning your PSI:

• rent, mortgage interest, rates or land tax for your residence (or the residence of an associate)
• amounts paid to an associate for non-principal work, for example, support such as secretarial work
• contributions to a superannuation fund for an associate doing solely non-principal work.

Deductions for payments to associates for principal work

Do you have deductions for payments to associates for principal work?

No	Go to Total amount of other deductions against PSI.
Yes	Read on.

Add up the total amount of payments made to associates for principal work. Write the total at question P1 – label K.

Total amount of other deductions against PSI

Do you have other allowable deductions against your PSI?

No	Go to Net PSI.
Yes	Read on.

You need to know

In answering this question, you include only non-commercial business losses deferred from a prior income year if they relate to a business activity which is the same as, or similar to, one of your 2022–23 business activities. If a sole trader has a PSI loss, and they are not a Personal Services Business, then that PSI loss sits with the individual who generated the income. See How to attribute PSI, and P9 Business loss activity details for an explanation of how the non-commercial business loss rules work.

Your non-commercial business loss deduction may be reduced if:

• you earned net exempt income in 2022–23, or
• you became bankrupt or were released from any debts by the operation of an Act relating to bankruptcy.

For more information, see How to defer your losses.

Completing this question

Add up the total amount of all other expenses (including non-commercial business losses deferred from a prior income year) that you can deduct from your PSI. Write the amount at question P1 – label L.

Do not include amounts already recorded at question P1 – label K.

If you are registered or required to be registered for GST, your deductions should not include the amount that relates to input tax credit entitlements.

Net PSI

Completing this question

To work out your net PSI go through the following steps:

Step 1 Add up the amounts shown at question P1 – labels M, N, O and J.

Step 2 Add up the amounts shown at question P1 – labels K and L.

Step 3 Take away the amount calculated at step 2 from the amount calculated at step 1. Write your answer at question P1 – label A.

Step 4 Transfer the amount at question P1 – label A to question 14 – label A of your supplementary tax return.

If the amount is a loss, you must:

• print L in the Loss box at the right of question P1 – label A
• print L in the Loss box at the right of question 14 – label A in your supplementary tax return.

Other business income

Did you have any business income other than PSI?

Yes	Go to P2 Description of main business or professional activity
No	Read on

Finishing your schedule

If the only income you need to show on your schedule is PSI, you need to complete only:

• question P2 Description of main business or professional activity
• question P3 Number of business activities
• question P9 Business loss activity details if you had a loss
• question P10 Small business entity simplified depreciation if you are a small business entity and have chosen to use the simplified depreciation rules.

Check that you have…

• transferred your net PSI amount from question P1 – label A to question 14 – label A in your supplementary tax return. If this amount is a loss, check that you printed L in the Loss box at the right of question P1 –label A.
• completed and attached your Individual PAYG payment summary schedule 2023 to page 3 of your tax return (if you received PSI that was subject to withholding).

Continue to: P2, P3, P4, P5 and P6 – Business and professional items