PSI- Personal Services Income
Do you earn money from your own personal skills and expertise, yet not receiving a salary or wage? Are you a contractor exercising those personal skills? If you are the Personal Services Income (PSI) rules may apply to you.
PSI rules have been introduced so as to prevent those who are essentially working in an employment role from accessing unfair tax savings by operating out of some more sophisticated business structure.
Here is an example of the situation where the PSI rules will be applied.
John Smith is an employee of ABC Electrics. His salary is $200,000 per annum. John is considering starting a company and working for ABC Electrics as a contractor so as to reduce his tax bill.
Consider the following two scenarios:
| John as an Employee | John as a Contractor | |
| Salary/Income | $200,000 | $200,000 |
| Works solely for ABC Electrics | Yes | Yes |
| Tax Rate | Marginal Tax Rates | Company Tax Rate of 30% |
| Tax Payable (on current rates) | $67,547 | $60,000 |
In this scenario PSI rules would apply to attribute the income to John personally and be taxed at marginal tax rates to prevent John from accessing this tax saving where he is essentially working as an employee of ABC Electrics.
There are many things to be considered when deciding whether PSI rules apply or not. So if you are in a position where you are not earning a salary or wage and you’re deriving an income from your own personal skills or expertise, please contact us so we can assist you in positioning your business in the most tax effective manner.
Submitted by: Matthew Muscat – Senior Accountant
Email Matthew