PSI vs PSB: personal services income explained
If you earn your income mainly from your own skill and effort — as a contractor, consultant or professional — the tax law asks a simple but important question: is your income personal services income, and if so, are you running a personal services business? The answer decides whether you are taxed as an individual on that income, or as a genuine business. This factsheet explains the difference, why it matters, the ATO tests — with an interactive self-check — and two worked examples.
English & Chinese PDF versions of this factsheet are available on request — please contact us.
* General information only. Kristy Pan & Co. provides this material for general knowledge; it does not constitute tax or financial advice and does not take account of your specific circumstances. This information is current as at 14 July 2026; we will do our best to update it when any policy or legislation changes. Please contact us before acting.
The difference: PSI vs PSB
These two terms sound alike but do opposite work. PSI describes a type of income. PSB describes a status you may reach that switches off the special PSI rules. Understanding both is the key to managing your tax obligations.
Personal services income (PSI)
Income that is mainly (more than 50%) a reward for your personal efforts or skills as an individual. It applies whether you work as a sole trader or through an interposed company, trust or partnership — a personal services entity.
Personal services business (PSB)
If you earn PSI but meet certain statutory tests, you are conducting a PSB. In effect the ATO recognises you as running a genuine, independent business — not an employment-like arrangement — and the restrictive PSI rules do not apply.
Putting a company or trust around your work does not, by itself, change the tax.
If your income is PSI and you are not a PSB, the income is attributed back to you and taxed at your individual rates — whatever entity earned it. Whether you qualify as a PSB is what really moves the outcome. This factsheet reflects the ATO’s current ruling on the PSI rules, TR 2022/3.
Why it matters: the tax treatment
The classification changes two things: who is taxed on the income, and what you can deduct. The contrast between the two outcomes is stark.
Attributed & restricted
- Income attribution: if you use a company or trust, the net PSI is transferred directly to your individual return and taxed at your marginal rates.
- No income splitting: you generally cannot split the profit with a spouse or associate, or retain it in the company at the company rate.
- Deduction limits: no deduction for rent, mortgage interest, rates or land tax on your home, and no payments to a spouse or associate for non-principal work (such as basic bookkeeping).
Taxed as a business
- The restrictive PSI rules do not apply.
- Your income keeps its character as ordinary business income — you can split profits or retain earnings in a company structure (subject to the general anti-avoidance rules).
- You can claim standard, legitimate business deductions.
Being a PSB is not a licence to do anything: profit splitting and retained earnings remain subject to Part IVA, the general anti-avoidance rule, and the ATO’s professional-firms guidance. But it removes the specific PSI restrictions, which is a very different starting point.
Qualifying as a PSB: the ATO tests
To be a PSB for the income year you must either pass the results test — the primary gateway — or meet the 80% rule and satisfy one of three further tests.
The results test — the primary gateway
You pass if, for at least 75% of your PSI, all three of these conditions are met:
Paid for a result
You are paid to produce a specific, completed outcome — not simply an hourly or daily rate for ongoing labour.
Your own tools
You supply the tools and equipment needed to do the work.
Liable for defects
You are legally liable to rectify defective work — and bear the cost of doing so.
If you don’t pass the results test: the 80% rule
If you cannot pass the results test, you must first clear the 80% rule: less than 80% of your PSI comes from a single client (and their associates). If you clear it, you then need to pass any one of these three tests:
Unrelated clients test
You have two or more unrelated clients, won through public offers such as advertising or a website.
Employment test
You employ others (or engage them) to perform at least 20%, by market value, of the principal work.
Business premises test
You use dedicated business premises exclusively for the work — separate from your home and from the client’s premises.
One big client can take the choice out of your hands.
If 80% or more of your PSI comes from a single client and you do not pass the results test, you cannot self-assess as a PSB under the other three tests. Your only route is to apply to the ATO for a personal services business determination. This is why the mix of clients — not just the paperwork — matters so much, and why it is worth reviewing before the year ends rather than after.
Quick self-check: might the PSI rules apply to you?
Tick the ones that apply — this is a general guide, not an ATO determination. Nothing here is saved or sent.
The more of these apply, the more likely the PSI rules restrict you — and the more it is worth a conversation. This self-check is a general guide only; it is not an ATO determination and does not decide your tax position.
Two worked examples
The same person, the same company — two very different arrangements. The contrast shows how the results test decides the outcome.
Sarah, the on-site IT analyst
Sarah is an IT analyst who contracts through her company, Sarah Tech Pty Ltd, to a single bank. She works on-site using the bank’s computers, is paid $100 per hour, and has no liability if things go wrong.
Outcome: This is PSI. Because she is paid for her time (not a specific result), uses the client’s tools, and carries no rectification risk, she fails the results test. And because 100% of her income is from one client, she cannot self-assess under the other tests. The net income is attributed directly to Sarah and taxed at her marginal rates.
Sarah, building a fixed-price application
Sarah Tech Pty Ltd contracts to build a custom software application for a fixed price of $50,000. Sarah works from her own office, uses her own specialised computers, and the contract states she must fix any bugs at her own expense.
Outcome: This is a PSB. She satisfies all three elements of the results test — paid for a result, supplies her own tools, and is liable for defects. The PSI rules do not apply, and her company is taxed under standard business tax rules.
How we help
We test whether the PSI rules apply to your income, work through the results test and the 80% rule against how you actually operate, advise on whether a company or trust structure will do what you hope, and — where the position is genuinely uncertain — help you seek a personal services business determination from the ATO. The aim is simple: your tax position should match the way you really work.
Glossary of terms
- Personal services income (PSI)
- Income that is mainly (more than 50%) a reward for an individual's own personal efforts or skills, whether earned directly or through an interposed entity.
- Personal services business (PSB)
- A status, met by passing the results test or the 80% rule plus one of three further tests, under which the PSI rules do not restrict how the income is taxed.
- Personal services entity (PSE)
- A company, partnership or trust through which an individual provides their personal services — the net PSI may still be attributed to the individual under the PSI rules.
- Results test
- The primary PSB test, met where — for at least 75% of the PSI — you are paid to produce a result, supply your own tools and equipment, and are liable to rectify defective work at your own cost.
- Personal services business determination
- A determination from the ATO confirming PSB status, needed where 80% or more of the PSI comes from one client and the results test is not passed.
- Part IVA
- The general anti-avoidance rule in the tax law, which lets the ATO unwind arrangements entered into mainly to obtain a tax benefit — including artificial profit splits.
- ATO
- The Australian Taxation Office — the federal agency that administers the tax and superannuation systems and the PSI rules.
This factsheet contains general information only, drawn from publicly available Australian tax law and ATO guidance on personal services income — principally Taxation Ruling TR 2022/3. The self-check and the worked examples are simplified illustrations, not an ATO determination. This material does not take into account your circumstances and is not advice. Please consult Kristy Pan & Co. about your situation before acting.