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personal service income

Discussion in 'Accounting, Tax & Legal' started by chris_qld, 12th Jan, 2010.

  1. chris_qld

    chris_qld Active Member

    Joined:
    21st Jan, 2008
    Posts:
    44
    Location:
    brisbane
    I had a chat with my account regarding personal service income. He said whether you are subject to personal service or not depends on how many clients you have. He gave me some interesting examples. There are two GPs, Dr A and Dr B. Dr A is a subcontractor and he is paid by his clinic owner for his work at the clinic. So his income is personal service income. In contrast, Dr B hires a space from a clinic owner and pays che clinic owner adminstration fees and GST. Dr B bills his patients. So Dr B's income is not personal service income, just like many individual tradies.

    I would like to hear your guys' opinions.

    Cheers.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
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    4,623
    Location:
    Sydney, Australia
    I'd agree with those examples.

    PSI was originally brought in as a result of the dot.com boom with IT contractors quitting their jobs and then setting up a company to contract back to their original employer - and then claiming lots of extra expenses against their company.

    If the original employer was an IT consulting company with many clients, and my personal company was contracted to that company for all my work, paid only by that company, and had no real personal liability to the clients for the work that was being done ... then this is clearly PSI.

    If, however, I ran my personal company in a business-like manner, negotiated my own contracts directly with the end clients, did work with multiple clients directly, billed them directly, and was personally liable for faulty work ... then I would be happy to consider myself as running a genuine business that is not subject to the PSI rules.

    Substitute IT with doctors, and clients with patients, and I would think it amounts to the same thing.
     
  3. Rob G.

    Rob G. Well-Known Member

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    6th Jun, 2007
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    Location:
    Melbourne, VIC
    You are missing important details.

    Like whether the doctor advertises for clients in his own name and merely uses shared facilities, or whether the "surgery" is advertised and any doctor available gets the patient who rings up ... i.e. the surgery acts like an agency and solicits the business.

    Cheers,

    Rob
     
  4. Superman

    Superman Well-Known Member

    Joined:
    6th Nov, 2007
    Posts:
    343
    Location:
    Gold Coast, QLD
    Yeah - PSI is fun.

    Basically works via 4 tests:

    1. Results test
    2. Unrelated client test
    3. Business premises test
    4. Employment test

    Primarily you need to look at the results test. This is basically where you are paid to obtain a specified outcome - rather than receiving an hourly rate / time-based remuneration.

    If you don't pass the results test, then you need to go through and look at the other tests.

    And if you are still unsure you can always apply for a determination from the ATO.

    SM
     
  5. danrts

    danrts Member

    Joined:
    26th Jul, 2009
    Posts:
    14
    Location:
    Qld
    I'm wondering if I'd be my income would be consider PSI:

    I'm an anaesthetist. I have an ABN only. I anaesthetise around 30-40 different patients per week. The group practice (which is acting more rather like a billing agency) sends my patients their accounts (with my ABN), the patients pay my accounts to this practice and each week the practice deposits these payments into my bank account. At the end of each month the practice charges me $3000 per month inc GST to do my billing.

    Is this PSI? If so how is the best way for me to reduce my tax bill?
     
  6. Superman

    Superman Well-Known Member

    Joined:
    6th Nov, 2007
    Posts:
    343
    Location:
    Gold Coast, QLD
    Danrts - do you get paid per patient or per hour worked (i.e. do you charge yourself out at $X00/hour etc)

    Even if it is PSI or not as you are a sole trader (ABN in your own name) it probably won't matter as you the income will always only flow through to you anyway. Just means you can't pay your wife to be secretary etc and split your income.

    Check the ATO here for the rules for sole traders:
    Working out if the PSI rules apply - sole traders

    SM