Personal services income for companies, partnerships and ...

1 NAT services income for companies , partnerships and trustsGuide for companies , partnerships and trusts COMMONWEALTH OF AUSTRALIA 2014 This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to the Commonwealth Copyright Administration, Attorney-General s Department, 3 5 National Circuit, Barton ACT 2600 or posted at PUBLISHED BYAustralian Taxation Office Canberra November 2014 JS 33503 OUR COMMITMENT TO YOUWe are committed to providing you with advice and guidance you can rely on, so we make every effort to ensure that our publications are correct.

2 If you follow our guidance in this publication and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we must still apply the law correctly. If that means you owe us money, we must ask you to pay it but we will not charge you a penalty. Also, if you acted reasonably and in good faith we will not charge you you make an honest mistake in trying to follow our advice and guidance in this publication and you owe us money as a result, we will not charge you a penalty. However, we will ask you to pay the money, and we may also charge you correcting the mistake means we owe you money, we will pay it to you.

3 We will also pay you any interest you are entitled are protected under GST law if you rely on any GST advice in this publication. If you rely on this advice and it later changes, you will not have to pay any extra GST for the period up to the date of the change. If you feel that this publication does not fully cover your circumstances, or you are unsure how it applies to you, you can seek further assistance from us. We regularly revise our publications to take account of any changes to the law, so make sure that you have the latest information. If you are unsure, you can check for a more recent version on our website at or contact publication was current at November services income FOR companies , partnerships AND TRUSTS 301 WHAT Personal services income IS 5 Working out if the income your business receives is Personal services income (PSI) 6 income that is PSI 7 income that is not PSI 8 Does your business receive PSI?

4 902 WORKING OUT IF THE PSI RULES APPLY 11 Overview 12 Step 1: The results test 14 Step 2: The 80% rule 20 Step 3: The other tests 22If your business doesn t pass any of the tests the PSI rules apply 3003 WHEN THE PSI RULES APPLY 35 Overview 36 Deductions when the PSI rules apply 36 Attributing PSI 40 Tax return obligations when the PSI rules apply 44 Additional PAYG withholding obligations 4404 WHEN THE PSI RULES DON T APPLY 5305 Personal services income TERMS EXPLAINED 56 MORE INFORMATION inside back cover4 Personal services income FOR companies .

5 partnerships AND TRUSTSW orking out if the income your business receives is Personal services income (PSI) 6 income that is PSI 7 income that is not PSI 8 Does your business receive PSI? 9 WHAT Personal services income IS016 Personal services income FOR companies , partnerships AND TRUSTSWORKING OUT IF THE income YOUR BUSINESS RECEIVES IS Personal services income (PSI)Many consultants and contractors operate their business through a company , partnership or trust. In many cases, the income received for the work they do may be classified as PSI. If you are an employee only earning salary and wages (that is, working for an employer and not under an Australian business number), do not read any further.

6 This information does not apply to we say you , your or your business we are referring to the company , partnership or trust you earn your income through. If you are a sole trader refer to Personal services income fro sole traders (NAT 72511).To know if your business is receiving PSI, you will need to look at the income (or reward) from each contract you complete, and work out what percentage of the payment is for:n the skills, knowledge, expertise or efforts of those who performed the services that is, the labour componentn the materials supplied and/or tools and equipment used to complete the you work out that.

7 N more than 50% of the income you received is for the skills, knowledge, expertise or efforts of the individuals who performed the services , then the income for that contract is PSIn 50% or less of the income received is for the skills, knowledge, expertise or efforts of the individuals who performed the services , then the income for that contract is not business income can be a mixture of PSI and other income . So, it is important to look at the income you received from each separate contract to work out whether it is PSI. The terms and conditions of the contract as well as invoices and written agreements (which show the arrangement you have for the work) are important in working out whether the income is PSI or not.

8 Even if the income received from the contract is in the name of your business, you still need to work out whether this income is classified as more than one individual provides services through your business, you will need to work out the amount of PSI that belongs to each : Working out if income is classified as PSIMark is a qualified plumber who operates through his company , Mark s Plumbing services Ltd. He is the only plumber in the business and owns the company . In a week, two customers call Mark s Plumbing services Ltd and request plumbing work to be completed. Mark completes both contracts on behalf of the company .

9 The company will be paid for the work completedWork doneWhat Mark chargedIs the income PSI?Contract 1n Fixed blocked toiletn Repaired several leaking taps Total amount of $250:n $225 labour (90%)n $25 materials (10%)Yes, the $250 is PSI as more than 50% of the income received is for Mark s skills and 2n Installs a bathroom vanityTotal amount of $800:n $160 labour (20%)n $640 materials (80%)No, the $800 isn t PSI as 50% or less of the income received is for Mark s skills and WHAT Personal services income ISPERSONAL services income FOR companies , partnerships AND TRUSTS 7 income THAT IS PSIYou can receive PSI by performing services in any industry or occupation.

10 This includes income :n of a professional practising on their own account without assistance for example, a medical practitioner in a sole practicen payable under a contract where the labour or services of a person make up more than 50% of the value, for example, contractors in the building, IT and transport industryn of a professional sports person or entertainer from the exercise of their professional skills (this does not include income from endorsements) n of consultants, for example, computer consultants or engineers from the exercise of Personal expertisen of a commission agent who contracts with a supplier to sell goods on their behalf.