Personal services income (PSI)
Income that’s mainly from your skills, not a real business.
Personal services income is income earned mainly from your own skills, effort or expertise rather than from selling goods, using assets, or a team. If more than half of what a client pays you is for your labour, the PSI rules may limit which deductions you can claim and can attribute the income to you personally.
The rules exist to stop someone routing what is really salary through a company or trust to lower tax. If you pass one of the ATO’s tests — like the results test — you may be running a personal services business instead.
Worked example
A contract developer billing a single client for their time is almost certainly earning PSI. A developer selling a product they built, with staff and multiple clients, generally isn’t.
Common mistake
Setting up a company expecting a lower tax rate on contracting income. If it’s PSI, the income can be attributed straight back to you at your personal rates anyway.
Grounded in ATO guidance. Figures last checked . General information, not tax advice.
Related terms
Sole trader tax rate
There isn’t one — you’re taxed at personal marginal rates.
Sole trader
The simplest business structure — you and the business are one.
ABN (Australian Business Number)
The 11-digit number that identifies your business.
GST-Free vs BAS Excluded vs Input Taxed
Three ways a line can carry no GST — and three different BAS labels.
← Back to the full glossary.
Questions about this term
Personal services income (PSI): common questions
- Am I earning PSI if I contract to a single client?
- Almost certainly, if you are billing for your time. A contract developer invoicing one client for their labour is the textbook case. A developer selling a product they built, with staff and multiple clients, generally isn’t — the rules look at whether the money is mainly for your personal effort.
- What is the “more than half” test for PSI?
- If more than half of what a client pays you is for your labour, skills or expertise rather than for goods, assets or a team, the income is PSI. Once that is the case, the rules may limit which deductions you can claim and can attribute the income to you personally.
- Will running my contracting through a company lower the tax on PSI?
- Generally not. If the income is PSI, it can be attributed straight back to you and taxed at your personal rates anyway — the rules exist precisely to stop what is really salary being routed through a company or trust. Setting up a company expecting a lower rate is the usual disappointment.
- Can I get out of the PSI rules?
- Possibly — if you pass one of the ATO’s tests, such as the results test, you may be running a personal services business instead, and the PSI limits may not apply. Whether you pass depends on how the work is arranged, not on the structure you invoice through.
Let Fin handle the jargon for you
Connect your bank and Fin sorts your income, expenses and GST automatically — so terms like this just become numbers that are already worked out. Free to start, no card needed.
Get 2Fin free →