Author: Noobblet(Initiate)Initiate 2 Dec 2023
Hi all,
I am confused with PSI rules and definition in here: https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/personal-services-income
In particular about this statement:
"PSI does not affect you if you are an employee receiving only salaries and wages. However, if you are operating through an entity, such as a company, partnership or trust, and are an employee of that entity, then the PSI rules may still apply."
if I am a full time salaried employee of the company, then I would also be operating through the company isn't it? what would be the difference?
Let's say I start an AI consulting company A. At the beginning I am the only employee and also the director. company A enters contract with company B to provide my consulting service at the rate of $500 per hour for a year, this would be PSI? and the full $500 minus deductions would have to be attributed to me?
Let's say the workload has grown and now company B requested an extra resource for a year at the same rate of $500 per hour. Now I need to hire another AI consultant, can I hire that person as a full time employee with $100 per hour salary and company A get to keep $400 per hour as profit? or does the PSI rule apply and I have to pay that person $500 minus deductions?
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6 replies
Author: Deb_ATO(Community Support)Community Support 8 Dec 2023
Hi @Noobblet
I can see how this can be confusing.
Let’s work this out.
Income is classified as PSI when more than 50% of the income you’ve received from a contract is a reward for your personal efforts or skills.
Only individuals can earn PSI.
Individuals can earn PSI through an entity such as a company.
If you've worked out that you’ll be earning PSI.
Then you’ll have to work out whether the PSI rules apply.
To do this you’ll need to work out if you’re Personal Services Business in the year that you received PSI.
If you can’t self-assess this, you can apply for a PSB determination.
Check out our further info on how to Work out if the PSI rules apply to you.
After you have worked all this out you can work out how to attribute the PSI.
Author: Noobblet(Initiate)Initiate 9 Dec 2023
hmmm, if that's the case, please consider the following scenario:
- I am employed as full time permanent IT Consultant to a company, named company A
- Company A contracts me for a year to Company B as a consultant whereby I use purely my skill and expertise
- I am the only employee of company A that is bringing income, there are 5 other employees and they have 0 contributions
Should this scenario pass the PSI test scenario and PSI would apply?
If yes, then shouldn't the company B pass on the entire contract reward (which is 3x of my salary) to me?
if no, why not? 100% of the contract reward is from my effort and skill and no one else in the company A is bringing in other source of incomes
Author: Deb_ATO(Community Support)Community Support 11 Dec 2023
Hi @Noobblet
It will depend.
To work out if the PSI rules apply to you.
You need to work out if you’re a personal services business (PSB) in the year you received the PSI.
There are tests to help you self-assess this. Each test has its own set of conditions.
If you self-assess as a PSB then the PSI rules will not apply.
If you self-assess you’re not a PSB then the PSI rules will apply.
If you can’t work out whether you’re a PSB you’ll need to apply for a determination.
Check out how to self-assess and the tests to make your determination.
Author: Noobblet(Initiate)Initiate 11 Dec 2023
@Deb_ATO
Thanks for the answer,
I can verify that:
- I did not pass the result test = (I am paid to produce result, but company B provides the laptop, and company B is responsible for any bugs in the software I make)
- 100% of the income is from the same client (company B)
Does this mean legally I should be entitled for the full contract reward (which is 3x of my current salary)? Appreciate any of your insights here, thanks!
My reason here is trying to ascertain if I should legally be entitled to the entire reward before I engage lawyers and sue Company A for it
