It is fairly common for professionals, such as IT specialists, engineers and business consultants, to operate their business through a company or a trust. If you are in this position, you need to be aware of the rules that will treat the income earned by the company or trust from the provision of your own services (personal services income or PSI) as your personal income. These rules (the PSI rules) also deny a deduction for certain types of expenditure.
The ATO has issued a draft ruling (TR 2021/D2) providing general guidance on the operation of the rules. The draft ruling considers a number of issues including:
- the meaning of PSI and income that does not qualify as PSI;
- determining whose PSI it is;
- the effect of the PSI rules; and
- the various tests to determine if a PSB is being carried on (the results, unrelated clients, employment and business premises tests).
Even if the PSI rules do not apply where your services are hired out through a company or trust, the ATO points out that the general anti-avoidance rules may still apply to the arrangement.
Tip! The PSI rules (and the general anti-avoidance rules) are complicated. Talk to your tax adviser if you provide your services through a company or trust or are thinking of doing it.
