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Personal services income – P1

Instructions to complete P1 Personal services income.

Last updated 1 July 2024

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 doesn't 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 Taxation Ruling TR 2022/3 Income tax: personal services income and personal services businesses.

P1 Personal services income (PSI) 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 P1 Personal services income (PSI) in your schedule.
    Go to P2 Description of main business or professional activity.
  • Yes – Print X in the Yes box at P1 Personal services income (PSI) in 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 don't 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

Answer the following questions to complete Part A.

Did you satisfy the results test?

If you earnt PSI, you satisfy the results test for 2023–24 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.

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 don't apply to your PSI.

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

  • Yes – Print X in the Yes box at P1 Personal services income (PSI) – label Q in your schedule.
    Go to Part B.
  • No – Print X in the No box at P1 Personal services income (PSI) – label Q in your schedule. Read on.

If you don’t satisfy the results test and 80% or more of your PSI in 2023–24 came from one client and its associates (that is, from one source), you can't 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 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.

Did you satisfy the unrelated clients test?

  • No – Read on.
  • Yes – Print X in the box at P1 Personal services income (PSI) – label D1 in your schedule. Read on.

You satisfy the unrelated clients test for 2023–24 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?
    Don't count clients obtained by registering with a labour hire firm, placement agency or similar organisation.

Did you satisfy the employment test?

  • No – Read on.
  • Yes – Print X in the box at P1 Personal services income (PSI) – label E1 in your schedule. Read on

You satisfy the employment test in 2023–24 if you can answer yes to either of the following questions:

  • Did you have one or more apprentices for at least half of 2023–24?
  • 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 doesn't 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.

Did you satisfy the business premises test?

  • No – Read on.
  • Yes – Print X in the box at P1 Personal services income (PSI) – label F1 in your schedule. Read on.

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?

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

Don't show PSI amounts that were subject to foreign resident withholding in part B. Show these at P8 Business income and expenses.

You need to know

You must complete Part B of P1 Personal services income (PSI) if you received PSI and you didn't:

  • 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, don't 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 P1 Personal services income (PSI) 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 2024 before completing the rest of P1 Personal services income (PSI) if you received one of the following payment summaries:

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 2024.

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 2024

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.

Don't 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 in 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 (at P1 Personal services income (PSI)) and business income (P8 Income), you will need to complete an Individual PAYG payment summary schedule 2024 for each type of income.

Income

This section deals with:

PSI – voluntary agreement

Follow the instructions below to complete this label.

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

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 P1 Personal services income (PSI) – label M. Don't show cents.

If you complete P1 Personal services income (PSI) – label M, you must also complete question 14 – label G in your supplementary tax return.

PSI – where Australian business number not quoted

Follow the instructions below to complete this label.

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

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 P1 Personal services income (PSI) – label N. Don't show cents.

If you complete P1 Personal services income (PSI) – label N, you must also complete question 14 – label H in your supplementary tax return.

PSI – labour hire or other specified payments

Follow the instructions below to complete this label.

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.

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.

Don't 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 in 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 P1 Personal services income (PSI) – label O. Don't show cents.

If you complete P1 Personal services income (PSI) – label O, you must also complete question 14 – label J in your supplementary tax return.

PSI – other

Follow the instructions below to complete this label.

Did you receive any other PSI?

Work out the total amount of other PSI and write this amount at P1 Personal services income (PSI) – label J.

If you are registered or required to be registered for GST, don't include any GST amounts in your assessable income.

Deductions

If the PSI rules apply, this affects the deductions you can claim against your PSI. They don't 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, Taxation Ruling 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.

Don't 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 can't claim

You can't 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

Answer this question to complete label K.

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

Add up the total amount of payments made to associates for principal work. Write the total at P1 Personal services income (PSI) – label K.

Total amount of other deductions against PSI

Answer this question to complete label L.

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 2023–24 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 either:

  • earned net exempt income in 2023–24
  • 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 P1 Personal services income (PSI) – label L.

Don't include amounts already recorded at P1 Personal services income (PSI) – 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

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

Step 1 Add up the amounts shown at P1 Personal services income (PSI) – labels M, N, O and J.

Step 2 Add up the amounts shown at P1 Personal services income (PSI) – labels K and L.

Step 3 Subtract the amount calculated at step 2 from the amount calculated at step 1. Write your answer at P1 Personal services income (PSI) – label A.

Step 4 Transfer the amount at P1 Personal services income (PSI) – 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 P1 Personal services income (PSI) – label A
  • print L in the Loss box at the right of question 14 – label A in your supplementary tax return.

Other business income

Answer the below question to complete this item.

Did you have any business income other than PSI?

Finishing your schedule

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

Check that you have:

  • Transferred your net PSI amount from P1 Personal services income (PSI) – 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 P1 Personal services income (PSI) – label A.
  • Completed and attached your Individual PAYG payment summary schedule 2024 to your tax return (if you received PSI that was subject to withholding).

Continue to: Business information – P2 to P6

Return to: Instructions to complete the BPI schedule 2024

 

 

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