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Re: Query regarding PSI status

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Hi Tax Professionals,

I am a translator & writer/editor (Australia citizen & permanent tax resident) under exclusive contract to an overseas company. I translate & write/edit technical documents for the company (which I deliver over the internet), and am primarily paid by the number of source document words that I translate/write, and am occasionally paid an hourly consultation fee. My income fluctates from month-to-month and from year-to-year (within 1 tax threshold at most). Last year, I was advised by a (very disinterested) franchise accountant that my income is regarded as PSI so I am not eligible to claim rental occupancy deductions for my dedicated "home office". I find this very unfair because I cannot perform my work without this space, nor without technical software & equipment. I have registered as a sole proprietor and obtained an ABN. My questions are: 1) Should I be registered as a sole proprietor? 2) Is my income definitely PSI and; 3) Am I eligible for "income averaging" given my annual income fluctations? (My PAYG payments are quite steep...). Thank you very much in advance. Dave. 

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ATO Certified Response

Devotee Registered Tax Practitioner

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1) Should I be registered as a sole proprietor? 

As opposed to what alternative?  A company may allow you better car claims, and to have workers comp insurance, but would not allow a PSI taxpayer to access the company tax rate.

 

2) Is my income definitely PSI

From what you have said, most likely "Yes"   -   under exclusive contract to an overseas company.

 

PSI information from ATO:

https://www.ato.gov.au/Individuals/Tax-return/2019/Supplementary-tax-return/Income-questions-13-24/1...

https://www.ato.gov.au/business/personal-services-income/working-out-if-the-psi-rules-apply/

 

Am I eligible for "income averaging" given my annual income fluctations?

I think this requires that you have ownership of your work, but see

https://www.ato.gov.au/Forms/Income-averaging-for-special-professionals-2019/

 

so I am not eligible to claim rental occupancy deductions for my dedicated "home office"

From ATO:

Employees are generally not able to claim occupancy expenses. You can only claim the work-related proportion of your occupancy expenses in two very limited circumstances where:

  • the space in the home is a place of business, and not suitable for domestic use – for example, a doctor or dentist surgery or a hairdresser studio in the home
  • no other work location is provided to an employee by an employer and the employee is required to dedicate part of their home to their employer's business as an office – you can claim the portion of these costs that relate to a clearly identified place of business.

If you claim occupancy expenses, you don't qualify for the capital gains tax (CGT) main residence exemption for the part of your home that you use for work. If you use your home as a place of business there may be CGT implications when you sell it.

 

https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Home-office-expens...

 

 

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ATO Certified Response

Devotee Registered Tax Practitioner

Replies 1

1) Should I be registered as a sole proprietor? 

As opposed to what alternative?  A company may allow you better car claims, and to have workers comp insurance, but would not allow a PSI taxpayer to access the company tax rate.

 

2) Is my income definitely PSI

From what you have said, most likely "Yes"   -   under exclusive contract to an overseas company.

 

PSI information from ATO:

https://www.ato.gov.au/Individuals/Tax-return/2019/Supplementary-tax-return/Income-questions-13-24/1...

https://www.ato.gov.au/business/personal-services-income/working-out-if-the-psi-rules-apply/

 

Am I eligible for "income averaging" given my annual income fluctations?

I think this requires that you have ownership of your work, but see

https://www.ato.gov.au/Forms/Income-averaging-for-special-professionals-2019/

 

so I am not eligible to claim rental occupancy deductions for my dedicated "home office"

From ATO:

Employees are generally not able to claim occupancy expenses. You can only claim the work-related proportion of your occupancy expenses in two very limited circumstances where:

  • the space in the home is a place of business, and not suitable for domestic use – for example, a doctor or dentist surgery or a hairdresser studio in the home
  • no other work location is provided to an employee by an employer and the employee is required to dedicate part of their home to their employer's business as an office – you can claim the portion of these costs that relate to a clearly identified place of business.

If you claim occupancy expenses, you don't qualify for the capital gains tax (CGT) main residence exemption for the part of your home that you use for work. If you use your home as a place of business there may be CGT implications when you sell it.

 

https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Home-office-expens...

 

 

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Taxicorn

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@Bruce4Tax 

 

Great advice Bruce!

 

Deriving PSI income they would still be able to claim Home Office expenses e.g. 52 cents per hour, but not 'Occupancy expenses".

 

Special professional determination would need a private ruling from the ATO as it is not 100% clear.