Personal services income (PSI) refers to money you earn as a sole trader (which primarily depends on your personal skills and labour.)
Understanding personal services income is important when determining your tax deductions.
Personal services income definition
Personal services income refers to work you’ve done as a sole trader. It comprises your fees (for your skills or labour) as opposed to goods or materials.
As a sole trader, each job or contract you undertake is classed as PSI or not, based on whether your fees comprised more of your labour/skills than other charges.
Does personal services income apply to you?
If you need to work out whether you are earning PSI, consider the following.
When personal services income applies
Personal services income rules apply when an invoice for a job completed includes fees of more than 50% of the value of the invoice for your personal efforts, skills, and labour.
If so, the value of the entire job is personal services income.
When personal services income doesn’t apply
Conversely, personal services income rules do not apply when an invoice for a job you complete includes fees of less than 50% of the value of the invoice for your personal efforts, skills, and labour.
If so, the value of the entire job is not considered to be personal services income.
You also don’t earn personal services income when:
- You supply finished goods, even if you made them.
- From renting out equipment or vehicles.
- From licensing out intellectual property.
Personal services income tax deductions
Each job you undertake can either be PSI or not. PSI doesn’t necessarily apply to all your income. As such, keeping records of each job is important come tax time.
You can claim specific tax deductions when you earn personal services income under PSI rules, such as:
- Licencing or registration fees.
- bank fees and other account-keeping fees.
- Certain insurance fees.
- An employee’s salary or wages if they’re engaged at an arm’s length.
- Some of your home office expenses.
See related terms
What is a sole proprietorship?
What are fixed assets?
How to calculate gross profit margin?
