If Psi Rules Do Not Apply

If you pass one or more of these tests, your personal service income will be deemed to be generated in connection with the conduct of personal services activities, and the PSI Rules will not affect your tax obligations. If personal service income is paid to your business, partnership or trust and not directly to you, the business is your personal service unit. In 2000, for example, various rules were introduced to better regulate people who earn income through personal services. If the Psi rules apply if your business income is PSI, then the income generated is taxable in the hands of the person who generated the income, regardless of the entity used. Any other income you earn will follow normal tax rules. Personal services income (PSI) is income that is primarily a reward for a person`s personal efforts and skills. It is common for sole proprietors or individuals to earn PSIs through an intermediate unit and thus be subject to PSI rules and structures. When looking at tax planning issues for entrepreneurs, you need to start by determining whether you are really an entrepreneur and not just an employee. WARNING: Just because you`ve passed the tests and the PSI rules don`t apply doesn`t mean everything is fine. If you have entered into an agreement whose primary purpose is to obtain a tax benefit, such as income splitting, the anti-tax avoidance section of the Tax Act may impose severe penalties. After answering a series of questions, the tool will provide you with a report with tips on whether your income is PSI and whether the rules apply to you. It will also summarize the answers you give and explain what your result means for your tax obligations.

PASS A TEST – PSI RULES DO NOT APPLY: If you pass one of the tests, the PSI rules do not apply to your income. The only change to your tax affairs is that you have to fill out certain questions on your tax return for the PSI you receive. According to ATO, the PSI rules do not affect the following: In this article, we will cover the full scope of these personal service income rules to help you determine whether or not they apply to you. For the PSI received, you need to know if the PSI rules apply to this income. The rules were put in place to better regulate and monitor income activity and to ensure that contractors pay their employees correctly, complete appropriate reports, and do not benefit from lower tax rates and deduction gaps. If you do not pass any of the tests, psi rules may apply. This means that if the PSI rules apply to the PSI you have received, they affect how you report that PSI and the deductions you can claim. If you have received the PSI and the rules apply to you, you will need to complete certain questions on your tax return, and the deductions you can claim will likely be affected.

If a company is not a PSB, the psi rules apply. If you fail the result test, you can only take the following tests if 80% or less of your PSI comes from a customer If 80% or more of your revenue comes from a customer, then you are stuck and the PSI rules apply to you unless you request a special provision from the ATO. If each of your customers provides less than 80% of your total PSI, the PSI rules apply unless you can pass ONE of the remaining tests: Independent Customer Test, Job Test, or Business Premises Test. You must register all income-related contracts. You will then examine each of them and determine if you have received psi for work. If so, you need to know if the PSI rules apply to this income. Use the ATO`s Personal Services Income Tool to understand if the rules apply to you, or talk to your accountant or tax advisor for advice. If you answer “yes” to any of the job test questions, you have passed the job test and the PSI rules do not apply.

If you have not passed either the job test or the independent customer test, you must pass the business premises test if you do not want the PSI rules to apply. The rules and steps can be quite complex, so if you`re still struggling to determine whether or not the personal services income rules apply to you, the ATO also offers a useful online tool. If the income is primarily for your personal skills or efforts, then it is “your personal income,” whether it is income from another entity and is for work or the production of a result, or is paid under a contract. PsI rules do not consider contractors to be employees and do not affect the legal relationship between the contractor`s business and the other parties they deal with. Psi rules apply when 50% of the income you receive for a contract is for your work, skills or expertise. If more than half of the income received for a contract was for your work, skills or expertise, all income from that contract will be classified as PSI. If you answered YES to these questions, you passed this test and the PSI rules do not apply to you. If you can`t answer yes, you`ll need to review the job test. If you pass one of the three tests, the PSI rules do not apply to you. However, if you do not pass either test, the PSI rules will apply to you. Learn more about how to complete your tax return when PSI rules apply.

There are a number of annoying rules called “PSI rules” that affect the amount of taxes you pay. If these rules don`t apply to you, you may have access to more deductions and reduce your tax bill. If you meet the criteria in step #2, the PSI rules do not apply. .