Tax Strategy – Change PSI to personal services business (PSB) test

Personal services income (PSI) is income produced mainly from an individual’s skills or efforts. It’s income that has the characteristics of employment income. For PSI income, the only deductions allowed against that income are expenses an employee would be entitled to deduct.

If the personal services business (PSB) tests are passed, then taxpayers gain the following benefits:

• You are entitled to deduct a more extensive range of business expenses from the income.
• Can employ family members and pay them wages and superannuation.

To change PSI into PSB, one of the following two tests must be passed:

1. Results test – These three conditions must be met for at least 75% of the PSI:
   • Must be paid to produce a specific result (must not be paid an hourly or fixed rate), 
   • Required to provide the equipment or tools, 
   • You are required to fix mistakes.  
2. The 80% rule – Less than 80% of the PSI comes from one client plus one of the three remaining tests are passed:
   • Unrelated clients test – Minimum 2 separate clients and advertise to the general public.
   • Employment test – Have staff that complete a minimum of 20% of the principal work.
   • Business premises test – Operate from business premises.