Author: musically(Initiate)Initiate 6 Oct 2024
I'm a music teacher who is unsure whether my income is classified as personal services income or business income.
Some of my income comes from a music studio. I travel to the studio to give weekly individual lessons to students. All administrative work (finding students, scheduling lessons, invoicing students, maintaining the studio) is handled by the studio's manager. Aside from being tasked to provide lessons to students, I have no other business relationship with the studio or manager. I have supplied my ABN number to the studio, as requested by the manager.
Some of my income also comes from private teaching. Students come to my own residence for weekly individual lessons. I am solely responsible for the administrative work, and no one else is involved in my private teaching.
My questions are:
1. In the "Personalise return" > "Business/Sole trader income or loss" section, should I pick "Personal services income" or "Business income or loss"?
2. In the "Prepare return" > "Business/sole trader and partnership income" > "Business and professional items" section, there is a question that asks "Did you receive any personal services income?" (This question appears regardless of the option picked above when personalising my return.) Should I pick yes or no?
Any clarification would be much appreciated, thanks!
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4 replies
Author: Taxduck(Taxicorn)Taxicorn 7 Oct 2024
Personal services income (PSI) is one of the most confusing areas for ordinary taxpayers. The income you are earning is PSI. The question is whether it would be ordinary PSI or a PSB (personal services business).
To determine this, you need to look at the PSI tests. If you pass the first test (results test) then you are a PSB. If you don't pass this test but pass one of the other tests plus the 80% rule then you are a PSB. Link here is to the tests
Working out if the PSI rules apply | Australian Taxation Office (ato.gov.au)
For the studio work if you are paid an hourly rate you won't pass the results test. I would also suggest you won't pass the unrelated client's test as it is the studio that is your client rather than the students (the studio bills the students, not you). None of the other tests would apply either.
Your private teaching is a different matter. This would probably pass the unrelated client's test and the 80% rule. May even pass the results test.
So you have 2 sources. PSI (not a business) and PSB (business)
Hope that's clearer than mud.
Author: musically(Initiate)Initiate 10 Oct 2024
This is very helpful, thanks Taxduck!
My studio work and private teaching is indeed paid simply by the hour, so they'd fail the results test. I also agree that the studio work alone would be PSI (since it fails the unrelated clients test). And that the private teaching alone would be PSB (since it passes the unrelated clients test and 80% rule).
I hope it's okay to ask a few follow-ups:
1/ Would that mean my studio work (PSI) gets filed under the "Personal Services Income" section, and my private teaching (PSB) under the "Business income or loss" section?
2/ How should I answer the "Business and professional items" section? Specifically, it asks the question "Did you satisfy the unrelated clients test?" (yes/no). (The answer would be "no" for my studio work and "yes" for my private teaching, but I can't pick both!)
Finally (and this may affect the answers to the above questions): would it be possible to treat the studio as one "big" client, and each of my private students as another ("small") client?
Thanks so much for your time and help!
