30 Personal services income

Does your income include an individual’s personal services income?

Personal services income (PSI) is income that is mainly a reward for an individual’s personal efforts or skills, or would mainly be such a reward if it was derived by the individual.

A trust may derive income which includes the PSI of one or more individuals. Examples of PSI include income:

• for the services of a professional practitioner in a sole practice
• derived under a contract which is wholly or principally for the labour or services of an individual
• for the exercise of professional skills by a professional sportsperson or entertainer
• for the exercise of personal expertise by a consultant.

PSI does not include income that is mainly:

• for supplying or selling goods, for example, from retailing, wholesaling or manufacturing
• generated by an income-producing asset, for example, from operating 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.

If the trust receives an individual’s PSI other than in the course of conducting a personal services business and does not promptly pay it to the individual as salary or wages:

• the net amount of PSI is attributed to the individual and is not assessable to the trustee, and
• certain related expenses are not deductible under the special rules.

Print X in the Yes box at N if the income of the trust includes an individual’s PSI. Otherwise, print X in the No box at N.

If you answered No at N, you do not need to answer any more questions.

If you answered Yes at N, read on and complete the remaining labels at item 30.

Total amount of PSI included at item 5 income labels

Write at A the total amount of income gained by you during the year that is PSI of one or more individuals that you have included at item 5 income labels. At this item, exclude any exempt or non-assessable non-exempt components of the PSI, for example, goods and services tax (GST).

Total amount of PSI included at item 5 income labels

Write at B the total amount of expenses against PSI included at item 5 expense labels.

Did you satisfy the results test in respect of any individual?

If you satisfy the results test in respect of any individual, print X in the Yes box at C. Otherwise, print X in the No box at C.

You will meet the results test in an income year if, for at least 75% of the PSI of the individual doing the personal services work, having regard to the custom or work practice when work of that kind is performed:

• the PSI is paid to achieve a result under your contract or agreement
• you provide the tools or equipment necessary (if any) to do the work, and
• you are liable for the cost of rectifying defects in the work performed.

The PSI is considered to be paid to achieve a result when the individual is required to produce a specified result or outcome, and payment is conditional upon that result or outcome being achieved. The essence of the contract or agreement has to be to achieve a result and not just to do the work as required.

Do you hold a personal services business (PSB) determination in respect of any individual?

If you hold a personal services business (PSB) determination in respect of any individual, print X in the Yes box at D, otherwise print X in the No box at D.

To apply for a personal services business determination, complete a Personal services business determination application.

Did you satisfy the unrelated clients test, employment test or business premises test in respect of any individual?

E1, E2 and E3 require information in relation to any individual for whom you did not satisfy the results test or hold a PSB determination, and where each source of their PSI income yielded less than 80% of their total PSI. If 80% or more of the PSI in the income year comes from one client (and their associates), you:

• cannot self-assess whether you meet the unrelated clients test, employment test or business premises test, and
• should not complete E1, E2 and E3.

When considering the 80% rule, do not take into account PSI received as an employee or income that is not PSI (for example, investment income or income from the sale of goods or the use of an income-producing asset).

If you are a commission agent your PSI will be treated as coming from each customer provided you meet all of the following conditions:

• You are an agent of the principal but not an employee.
• You receive income from your principal for services that you provide to customers on the principal’s behalf.
• At least 75% of that income is performance-based commissions or fees.
• You actively seek other customers to whom you could provide services on the principal’s behalf.
• You do not provide any services to the customers, on the principal’s behalf, using premises that the principal (or their associate) owns or has a leasehold interest in, unless you use the premises under an agreement entered into at arm’s length.

If you meet all of these conditions and, as a consequence, less than 80% of the PSI is treated as coming from each customer, you can self-assess against the unrelated clients test, the employment test and the business premises test. You do not need a determination from the Commissioner to be a personal services business although you may apply for a determination if you are unsure.

For any individual for whom you did not satisfy the results test or hold a PSB determination, and each source of their PSI income yielded less than 80% of their total PSI, indicate whether you satisfied any of the personal services business tests.

Unrelated clients test

If you satisfied the Unrelated clients test print X in the box at E1.

You will meet the unrelated clients test in the income year if the individual doing the personal services work generates PSI from two or more clients who are not associated with each other or with the individual or with you.

The personal services must also be provided as a direct result of making offers to the public, for example, by advertising. Do not count clients obtained as a result of registering your name with a labour-hire firm, placement agency or similar organisation.

Separate government departments are deemed not to be associates of each other for the purposes of this test.

If you are a commission agent who meets all of the conditions for the special rules, you will pass the unrelated clients test if your services are provided to at least two customers as a direct result of your making offers or invitations to the public on behalf of your principal.

Employment test

If you satisfied the Employment test print X in the box at E2.

Subject to certain exceptions below, you will meet the employment test in the income year if you:

• have employees, engage subcontractors or engage entities that perform at least 20% (by market value) of the principal work, or
• have apprentices for at least half the income year.

‘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 family member who does principal work, but not companies, partnerships or trusts associated with you.

You cannot count any individual whose PSI you receive.

Business premises test

If you satisfied the Business premises test print X in the box at E3.

You will meet the business premises test if, at all times during the income year, you maintain and use business premises that are:

• mainly used to conduct the work, that is, used for gaining or producing personal income for more than 50% of the time
• used exclusively by you
• physically separate from the private residence of  
  • the individual doing the personal services work
  • their associates
  • your associates, and
   
• physically separate from the business address of your clients or their associates.

The phrase at all times during the income year is taken to mean the whole period during which activities are conducted for the purposes of generating personal services income.

You do not need to maintain and use the same business premises throughout the year but you must satisfy all the above criteria.

Treatment of attributed PSI on your trust tax return

If PSI is attributed to an individual, the income is not assessable to the trust. Include the PSI on the trust tax return as follows:

Include the attributed amount in the amount shown at A Income reconciliation adjustments item 5 Reconciliation items, as calculated in Worksheet 1: Reconciliation statement. The attributed amounts are income subtraction amounts. If the income subtractions exceed the income add backs, the total is a negative amount. If a negative amount, print L in the box at the right of A on the tax return.

Treatment of net PSI loss on your trust tax return

If an individual can deduct the net PSI loss, the total amount of the deductions to which the trust is entitled is reduced by that amount. Include the PSI loss amounts on the trust tax return as follows:

Include the net PSI loss amounts in the amount shown at B Expense reconciliation adjustments item 5 Reconciliation items, as calculated in Worksheet 1: Reconciliation statement.