Earning income for personal effort 

Taxpayers should remember that, if over half their income is from a contract for their personal effort or skills, then their income is classified as personal services income (‘PSI’). 

Taxpayers can receive PSI in almost any industry, trade or profession, e.g., as a financial professional, IT consultant, construction worker or medical practitioner. 

Taxpayers who earn PSI while running a business (e.g., as a contractor) need to work out if they were a personal services business (‘PSB’) in the year that they received the PSI, as this will affect the deductions they can claim. 

Taxpayers can self-assess as being a PSB if they: 

  • meet the ‘results test’ for at least 75% of their PSI, or 
  • meet one of the other PSB tests (i.e., the unrelated clients test, the employment test, or the business premises test), and less than 80% of their PSI is from the same entity and its associates. 

Taxpayers who self-assess as a PSB still need to report their PSI in their income tax return and keep certain records. 

Please note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.