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Personal Services Income

Discussion in 'Accounting, Tax & Legal' started by jrc77, 12th Sep, 2009.

  1. jrc77

    jrc77 Well-Known Member

    Joined:
    26th May, 2008
    Posts:
    147
    I am looking at becoming a contractor, rather than a permanent employee and am trying to get my head around the PSI rules and if they will apply to me.

    My situation would be that:

    I would be getting paid primarily for my skills/knowledge/experience - which I take to mean that I would be receiving PSI - and then need to do the PSI tests.

    Results test - pay would be primarily on a time basis, not results. So fail this test.

    80% rule - I would expect that no more than 80% would come from one client (expect to maintain 4-5 clients with income split between them). So I would pass this test.

    Unrelated clients test -
    This seems to be split in to two questions.
    My clients would be unrelated, so would expect to pass this.
    I would expect that a lot of my work would come from word of mouth referrals and from networking, as well as applying for roles through recruiters - however could easily put an advertisement for services on my web page.

    The flowchart on the ATO site is:

    Personal services income - basic information you need to know

    My reading of the ATO website and the flowchart leads me to think that the PSI rules wouldn't apply to me. Anyone with experience on this have any comments? Agree/disagree?

    Regards,

    Jason
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    Are you actually running a business - or do you have just a few clients that you have long term contracts with?

    PSI tests are generally designed to differentiate between those people genuinely running a business (with the associated risks) and those who are just trying to dodge a bit of tax. They were brought in primarily as a result of the dot.com boom where all the IT people quit their jobs and contracted back to their original employer to get some tax benefits.

    I tend to think the "duck" test applies well in most cases - if it walks like a duck, quacks like a duck, looks like a duck, is quite possibly is indeed a duck. Similarly with a business - if you have a genuine business being operated in a business-like manner with appropriate structures and procedures in place, then you can consider yourself to be in business and not earning PSI.

    I think if there is some room for doubt in your circumstances, perhaps it is better to over-compensate and go out of your way to act like a business (get a Pty Ltd, separate bank accounts, etc) ?? Just a thought.

    (I am not an accountant - so this is just my interpretation of things)
     
  3. Rob G.

    Rob G. Well-Known Member

    Joined:
    6th Jun, 2007
    Posts:
    717
    Location:
    Melbourne, VIC
    You really need to talk to an Advisor about your specific details.

    This area is complex and the penalties severe ... even if you take reasonable care but turn out to be wrong !!!

    Cheers,

    Rob
     
  4. jrc77

    jrc77 Well-Known Member

    Joined:
    26th May, 2008
    Posts:
    147
    As always, I will get advice from my financial adviser and accountant before implementing anything - however am trying to gather as much information before I go and see them. I'd rather be well informed!

    Regards,

    Jason