Personal services income (PSI) is income produced mainly from an individual’s personal skills or efforts. Typically this is when more than 50% of the income from a contract is for an individual’s skills, knowledge, expertise, or efforts.
Basically it’s income that has the characteristics of employment income. PSI income that is generated through an entity (company or trust) will still be PSI income of the individual generating the income and they will basically be taxed on that income in their personal tax return.
But irrespective of that, receiving PSI income through an entity still has the following advantages:
- Reduced risk, as contracts are with an entity instead of directly with the individual, therefore the individual’s personal assets are protected.
- Normal business expenses will be deductible to the entity. This includes advertising, rent, accountant’s fees, telephone, wages to non-related parties, travel, and training.
- The entity can claim a deduction for operating several motor vehicles but only one vehicle can have private use.
- Superannuation is deductible for the principal up to the deductible contributions limit.
- Can provide the individual with concessionally taxed fringe benefits such as a living away from home allowance or relocation based benefits.
- Deduction for exempt benefits such as laptop computers, tools of trade and phones provided to the individual.
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.