Robin Lamb | Published 9 January 2023 | Updated 15 September 2026
Personal services income, or PSI, is income mainly earned as a reward for an individual’s personal efforts or skills.
The concept can be relevant to contractors, consultants and service businesses, including those operating through companies, trusts or partnerships. An occupation label alone does not determine the treatment. What matters is what generates the income.
Identifying PSI is also not the end of the assessment. A separate question is whether the business qualifies as a personal services business, or PSB, for the relevant income year.
Understanding that distinction helps owners recognise when their arrangements deserve closer consideration.
What generates the income?
Income mainly rewarding personal work needs to be distinguished from income generated mainly through selling goods, using substantial income producing assets or an established business operation.
In this context, a “business structure” means more than the legal entity on an invoice. It concerns the operation that produces the income, including the contribution of people, assets and goodwill.
Owning equipment or engaging help does not automatically mean the income comes from that wider operation. The significance of those resources and the dependence on a particular individual need examination.
A business can also receive both PSI and other income. The nature of its contracts and activities matters more than a single description applied to all revenue.
PSI can still be business income in the ordinary commercial sense. Calling it PSI does not mean the business is not genuine or that its owner has done anything wrong.
Why the invoicing entity does not settle the question
A company, trust or partnership can receive income that is mainly a reward for an individual’s work.
The assessment therefore looks beyond who issues the invoice. It considers the contractual arrangement and whose efforts or skills generate the income.
Where several people contribute, their actual roles matter. Work central to delivering the service needs to be understood alongside administrative or supporting work.
An ABN, company registration or different entity name is not a substitute for that analysis. Nor does a PSI conclusion, by itself, determine whether someone is an employee or independent contractor. Employment status is a separate question.
Identifying PSI is different from assessing PSB status
The personal services business assessment determines whether the specific PSI rules apply to the relevant income for that year.
A business may earn PSI but qualify as a PSB, meaning the special attribution and deduction restrictions do not apply to that income. The income nevertheless retains its underlying character as PSI.
The assessment involves statutory requirements and supporting facts. It is not settled simply by having several clients, hiring someone or describing payments as being for a completed project.
If more than one individual generates PSI through an entity, the position may need to be considered separately for each person.
Ask your accountant to explain the conclusion, the period it covers and the facts on which it depends. That is more useful than retaining a label without understanding its basis.
Why the outcome matters
Where the PSI rules apply to income received through an entity, net PSI may need to be attributed to the individual who earned it.
In plain language, attribution means an amount is treated as that person’s taxable income even though the company, trust or partnership received it. The amount requires assessment under the relevant rules, including permitted deductions.
The rules can also restrict particular deductions. They do not deny every expense associated with earning the income.
Certain home occupancy costs and payments to associates are examples of expenses that may require specific consideration. The nature of the cost, who incurred it and what work was performed all matter.
For a sole trader, the income is already earned personally, but the deduction restrictions may still be relevant.
Bring the working arrangement into the discussion
Contracts are important, but your accountant also needs to understand how the work is actually performed.
Useful information includes:
- What you must deliver and how payment is earned.
- Responsibility for equipment, materials and correcting defective work.
- The identity of clients and any agencies or intermediaries.
- How engagements were obtained, including advertising, referrals and negotiations.
- The premises used and the activities performed there.
- Who else contributes, what they do and how they are paid.
These are facts for assessment, not a list of conditions that establishes an outcome.
Explain any difference between the written terms and actual practice. Also distinguish the work you perform personally from work delivered by employees or subcontractors.
Clear supporting records help connect the contracts, invoices and operational explanation. A summary prepared without that context may leave important questions unanswered.
Revisit the assessment when arrangements change
A previous conclusion should not be assumed to apply indefinitely.
A major new contract, increased dependence on one client, changed staffing or different working arrangements can warrant another discussion. Changes to premises, equipment use or the operating structure may also matter.
Raise a significant business change before committing, rather than waiting for the next return to reveal it.
The point is not to reshape ordinary commercial decisions around a tax test. It is to understand how the changed facts affect the assessment and what records or further advice are needed.
A PSB conclusion does not answer every tax question
Qualifying as a PSB is not blanket permission to split income with others or retain profits without further consideration.
Other tax rules remain relevant. These include the general provisions directed at tax avoidance, which can apply to arrangements involving the diversion of PSI or retention of profits even where the specific PSI rules do not apply.
That does not mean every payment or retained profit has the same treatment. The arrangement, its purpose and the surrounding facts require consideration.
What to bring to an initial discussion
Bring current contracts, representative invoices, income breakdowns and details of how engagements were obtained.
Include staffing and subcontracting arrangements, prior assessments and any proposed changes.
Speak with Jaha about the income and working arrangements that concern you. Agree on the scope needed to assess the position rather than assuming a brief description can resolve it.