Announcements
Looking for answers? Search our popular topics or ask a new question.

ATO Community

PSI through company - Individual Tax Return question

Highlighted

Newbie

Views 499

Replies 3

Context:

I have a company that handles my IT contracting business. All income is Personal Services Income (PSI). Just started a few months ago, so this is my first time going through the tax forms required.

 

PSI rules require that all PSI income earnt via the company, is paid out or attributed to the individual, after eligible deductions.

I've done that via PAYG. I.E. Every month, on a cash basis, I calculate the income earnt, less eligible deductions, and pay out to myself (as employee) the salary, less PAYG withholding and Superannuation.

 

Tax Return:

For FY20, this means that:

- I (as the individual) have a payment summary amount to fill in question 1 of the individual tax return.

- The company has ended up with a PSI net loss of $22 as an eligible expense came through after I paid out the last salary for the year

- In the individual tax return, question 14, deals with PSI. The answers to this being that I did have PSI income, and did not satisfy any of the exempting tests. Going through question 14 details, results in the net loss of $22 at "P1" of the Business and Professional Items Schedule.

The instructions (https://www.ato.gov.au/Forms/Business-and-professional-items-2020/?page=3#Net_PSI) then talk about going through the rest of question 14 - but these questions appear to be for the sole trader, not PSI earnt via a company route. The text is below:

 

"If the only income you need to show on your schedule is PSI, you need to complete only:

 

Questions:

1) Have I filled it correctly? - i.e. Individual tax return question 1 - Salary includes what the company has paid me as an official employee and recorded in the payment salary, and Question 14 / "The Business and Professional Items Schedule for individuals" net PSI of $22 Loss.

2) I can't see any reference for what kind of documentation/form the company needs to provide me (the individual) about the PSI loss of $22. I've trawled through the PSI instructions for company and cannot find anything - is there a form/link for reporting PSI losses?

3) What should be put in for "Business and Professional Items Schedule for individuals" - P2/P3 which appear to be asking more about a business operated under a sole trader. My default view would be that P2 would be "IT Contracting" and P3 would be 0 (as my business is a company, and not a sole trader).

 

Thank you in advance. I know this is a long question!

 

1 ACCEPTED SOLUTION

Accepted Solutions
Highlighted

Most helpful response

Community Support

Replies 2

Hi @smallcompany ,

 

Great questions. I'll start with your myTax 2020 individual tax return for how you should be completing (or not completing sections) based on the information you've provided. I'll then move on to your 2020 Company return.

 

Your individual tax return

 

myTax 2020 Attributed personal services income

If your personal services income is paid to a personal services entity (i.e. your company), the income (less certain deductions relating to gaining or producing that income) is attributed to you unless the personal services entity:

 

> gained the income in the course of conducting a personal services business, or

> promptly paid you the income as salary (applies based on your situation)

 

> if the personal services entity has a net loss (your circumstance) relating to your personal services income, then no amount is attributable to you. To claim a deduction for this loss, go to Other deductions.

 

myTax 2020 Other deductions

> Report the loss at Net personal services income loss of a personal services entity that related to your personal servic...

 

Your Company return

 

14. Personal services income

If the company receives an individual’s PSI other than in the course of conducting a personal services business, and does not promptly pay it to the individual as salary or wages:
> the net amount of PSI is attributed to the individual and is not assessable to the company (does not apply as you were paid salary)

 

A – Total amount of PSI included at item 6 income labels

Write at A the total amount of income gained by you during the year that is PSI of one or more individuals that you have included at item 6 income labels (including income earned in the course of conducting a personal services business). Do not include at A any exempt or non-assessable non-exempt components of the PSI, for example, GST.


B – Total amount of deductions against PSI included at item 6 expense labels

Write at B the total amount of deductions against PSI included at item 6 expense labels.

 

C – Did you satisfy the results test for any individual?


D – Do you hold a personal services business (PSB) determination for any individual?

 

E – Personal services business tests

 

Treatment of net PSI on your company tax return

Include adjustments relating to non-deductible expenses at W Non-deductible expenses item 7 and adjustments relating to attributed PSI at Q Other income not included in assessable income item 7. For information on how to complete item 7 for PSI attributed to an individual, see Appendix 9, Worksheet 2 and Note 4.

 

Given the complexity of circumstances our forum may not be the best place to receive the tailored advice I believe is required. You can seek professional advice from us or a registered tax professional to assist you further.

 

Thanks for posting and I hope you find this information useful,

JasonT

3 REPLIES 3
Highlighted

Most helpful response

Community Support

Replies 2

Hi @smallcompany ,

 

Great questions. I'll start with your myTax 2020 individual tax return for how you should be completing (or not completing sections) based on the information you've provided. I'll then move on to your 2020 Company return.

 

Your individual tax return

 

myTax 2020 Attributed personal services income

If your personal services income is paid to a personal services entity (i.e. your company), the income (less certain deductions relating to gaining or producing that income) is attributed to you unless the personal services entity:

 

> gained the income in the course of conducting a personal services business, or

> promptly paid you the income as salary (applies based on your situation)

 

> if the personal services entity has a net loss (your circumstance) relating to your personal services income, then no amount is attributable to you. To claim a deduction for this loss, go to Other deductions.

 

myTax 2020 Other deductions

> Report the loss at Net personal services income loss of a personal services entity that related to your personal servic...

 

Your Company return

 

14. Personal services income

If the company receives an individual’s PSI other than in the course of conducting a personal services business, and does not promptly pay it to the individual as salary or wages:
> the net amount of PSI is attributed to the individual and is not assessable to the company (does not apply as you were paid salary)

 

A – Total amount of PSI included at item 6 income labels

Write at A the total amount of income gained by you during the year that is PSI of one or more individuals that you have included at item 6 income labels (including income earned in the course of conducting a personal services business). Do not include at A any exempt or non-assessable non-exempt components of the PSI, for example, GST.


B – Total amount of deductions against PSI included at item 6 expense labels

Write at B the total amount of deductions against PSI included at item 6 expense labels.

 

C – Did you satisfy the results test for any individual?


D – Do you hold a personal services business (PSB) determination for any individual?

 

E – Personal services business tests

 

Treatment of net PSI on your company tax return

Include adjustments relating to non-deductible expenses at W Non-deductible expenses item 7 and adjustments relating to attributed PSI at Q Other income not included in assessable income item 7. For information on how to complete item 7 for PSI attributed to an individual, see Appendix 9, Worksheet 2 and Note 4.

 

Given the complexity of circumstances our forum may not be the best place to receive the tailored advice I believe is required. You can seek professional advice from us or a registered tax professional to assist you further.

 

Thanks for posting and I hope you find this information useful,

JasonT

Highlighted

Newbie

Replies 1

JasonT,

Thank you for the detailed walkthrough reply to my question. It's a lot clearer in my head now on what to do.

One question related to this though:

Context:

The company is operating on a cash basis in financial accounts and in GST.

PSI effort/work is in June, invoiced 30 June, and paid (to the company) in mid July, which then pays out the $ as salary.

There is an ATO text which is as follows:

"PAYMENT OF SALARY OR WAGES TO AN
INDIVIDUAL IN THE FOLLOWING INCOME YEAR
If your business makes payments of salary or wages to you
between 1 and 14 July (after the end of the income year) and is
affected by the PSI rules then, for the purpose of the PSI rules,
the payments are treated as having been received on 30 June
of the previous income year.
These payments must be included in your:
- business’ activity statement covering the month of July
- payment summary for the previous income year, and
- business’ annual PAYG report for the previous year. "

 

Question:

How does this actually work in practice for a company operating on a cash basis?

The PSI $, paid out in whole as salary, is paid in mid July, which is reported via STP - it's recorded in the July financial year (i.e. FY21). The text implies that the salary has to be counted as part of FY20, as if it's paid in June.

If that is the case - the Payment Summaries for both years won't match what is entered in the individual tax return. Any direction or  clarity on this would be helpful. Thanks.

Highlighted

Community Support

Replies 0

Hi @smallcompany

 

The due date to finalise STP data is 14th July depending on how many employees you have and generally payment summaries need to be issued by the same date. So an entity can ensure the PSI received by 14th July has been attributed to the correct financial year before finalising the data. The STP software provider should be able to assist with allocating the payment to the prior financial year as well. If the reports are already finalised there are methods to amend these.

 

Hope this helps.

Thanks, Ari