PSI Tax Return & Personal Services Income
Unsure whether the PSI rules apply to you? Work through the results test, the 80% rule and the personal services business tests with ATO registered tax agents.
Quick Summary: What is PSI and do the PSI rules apply to me?
Personal services income (PSI) is income produced mainly (more than 50%) from your skills or efforts as an individual. The PSI rules apply to that income unless you can self-assess as a personal services business (PSB). To self-assess as a PSB you must either meet the results test in relation to at least 75% of your PSI, or meet one of the other PSB tests (unrelated clients, employment or business premises) while less than 80% of your PSI comes from one client and their associates.
If the PSI rules apply, you are broadly treated like an employee for deductions: you cannot claim rent, mortgage interest, rates and land tax, payments to associates for non-principal work, or super contributions for associates for non-principal work. Setting up a company or trust does not avoid the rules, which look through the entity to each individual earning PSI.
What is Personal Services Income?
The ATO defines personal services income (PSI) as income produced mainly (more than 50%) from your skills or efforts as an individual. In the ATO's words, it is income that is received by you, or another entity connected with you, that is mainly a reward for your personal effort or skill — for example, income you earn as an independent contractor.
Because PSI is mainly a reward for an individual's personal efforts or skills, only individuals can earn PSI. You can earn it directly as a sole trader, or indirectly through a company, partnership or trust. When you earn PSI through another entity, that entity is called a personal services entity (PSE). This is why using a company or trust does not, on its own, take you out of the PSI rules.
Not all income is PSI. Income that is mainly generated by an income-producing asset (such as a truck), by the sale or supply of goods, or by a genuine business structure is generally not PSI. The 50% test is applied contract by contract based on what the payment is mainly a reward for.
Even if you earn PSI, the PSI rules only apply if you cannot self-assess as a personal services business for that income year. Working out whether they apply is a separate step, covered below.
Who This Affects
The PSI rules commonly affect people who earn income mainly from their own personal skills, whether they invoice directly or through a one-person company or trust:
Do the PSI Rules Apply to You?
The ATO's self-assessment flow runs in a set order. Work through it each income year, because the answer can change from year to year.
- 1
Are you earning PSI at all?
If your income is mainly (more than 50%) a reward for your personal efforts or skills, it is PSI. If not (for example, it is mainly for goods sold or for the use of an income-producing asset), the PSI rules do not apply and you stop here.
- 2
Do you pass the results test? (check this first)
You pass if, for at least 75% of your PSI, you meet all three conditions: you are paid to produce a specific result; you provide the equipment or tools needed (where required); and you are liable for the cost of rectifying defective work. If you pass, you are a PSB and the PSI rules do not apply — you do not need the 80% rule.
- 3
Do you meet the 80% rule?
If you do not pass the results test, look at how much of your PSI comes from one client and their associates. If 80% or more comes from one client and their associates, you do not meet the 80% rule and the PSI rules apply (you cannot self-assess unless you hold a PSB determination). If less than 80% comes from one source, you meet the 80% rule and move to the next step.
- 4
Do you meet one of the other three PSB tests?
Having met the 80% rule, you can self-assess as a PSB if you also meet one of the unrelated clients test, the employment test, or the business premises test (detailed in the table below). Meet one and the PSI rules do not apply. Meet none and, unless you hold a PSB determination, the PSI rules apply.
If you operate through a company, partnership or trust with more than one individual generating PSI, each test and the 80% rule are applied to each individual separately — one individual can be a PSB while another is not.
The Four Personal Services Business (PSB) Tests
Pass the results test on its own, or pass any one of the other three tests while also meeting the 80% rule, to self-assess as a PSB.
| PSB test | What it asks | What you need to show |
|---|---|---|
Results test | Are you contracted to produce a result rather than to work by the hour? | For at least 75% of your PSI, all three: paid to produce a specific result; provide the equipment or tools needed (where required); liable for the cost of rectifying defective work. Passing this test alone makes you a PSB. |
Unrelated clients test | Do you serve multiple genuinely unrelated clients won through public offers? | PSI from two or more unrelated clients, and a direct connection between an offer to the public (advertising, a website, public tenders) and being engaged. Work obtained through a labour hire firm or recruitment site does not count. Requires the 80% rule. |
Employment test | Do others do a substantial share of your principal work? | Either at least 20% (by market value) of the principal work is performed by an arm's-length employee or contractor, or you employ one or more apprentices for at least 6 months of the income year. Requires the 80% rule. |
Business premises test | Do you maintain separate, exclusive business premises all year? | At all times in the income year you maintain and use premises that are used exclusively by you, physically separate from your private premises, and physically separate from your clients' premises. Requires the 80% rule. |
Criteria summarised from ATO guidance on the results, unrelated clients, employment and business premises tests. Your own facts each year determine the outcome.
Deductions Under the PSI Rules
When the PSI rules apply, you are broadly treated like an employee for deductions. Some expenses are still claimable; others are specifically denied.
Deductions you CAN claim | Deductions you CANNOT claim |
|---|---|
| Cost of gaining work — for example advertising, tendering and quoting for work | Rent, mortgage interest, rates and land tax on your residence relating to your PSI |
| Registration and licensing fees | Payments to associates for non-principal work |
| Salary, wages and other costs of an arm's-length employee or contractor (not an associate) | Super contributions for associates for non-principal work |
| Reasonable amounts paid to an associate for principal work | Anything you could not claim if you had received the PSI as an employee |
| Depreciation of income-producing assets (small business simplified depreciation may apply) | Entity-level costs beyond limited entity maintenance deductions for a PSE |
Summarised from ATO guidance on claiming deductions when receiving PSI. Non-principal work means incidental support work such as bookkeeping, issuing invoices and administration — not the main work clients pay for.
How Tax7 Helps With Your PSI Tax Return
PSI self-assessment
We work through the results test, the 80% rule and the three other PSB tests against your actual contracts, and document the position for each income year.
Correct attribution
Where the rules apply, we attribute PSI to the right individual and claim only the deductions the rules allow, so your return is compliant.
Structure advice
We explain honestly whether a company or trust helps in your circumstances — remembering the rules look through the entity to each individual earning PSI.
What Does a PSI Tax Return Cost?
PSI outcomes depend on your specific contracts, clients and structure, so we do not publish a single fixed price for this work. Instead we start with a free, no-obligation assessment of your situation: how you earn your income, how many clients you have and how your contracts are written.
After the assessment you receive a fixed-fee quote for your PSI determination and tax return, so you know exactly where you stand at no upfront cost. Our fees are a tax-deductible business expense.
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Bank statements and spreadsheets welcome — no accounting software required.
Learn More →Want to estimate your tax first? Try our free tax calculator or contact our team.
Your PSI position depends on your specific facts each year
Whether you earn PSI, and whether the PSI rules apply, is decided contract by contract and income year by income year. The same person can be a personal services business one year and caught by the rules the next. This page is general information only and is not personal tax advice or a determination of your PSI position.
Please book a consultation so we can review your actual contracts and give you a position for your circumstances.
Last updated: July 2026
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