Personal services income (PSI) is the ATO's term for income that's produced mainly, more than 50%, from your own skills or efforts as an individual, such as a contractor's or consultant's fees. Earning PSI doesn't by itself change your tax. The PSI rules only apply if you can't self-assess as a personal services business (PSB), and when they do, they limit the deductions you can claim and stop the income being split with others.
The rules mainly affect contractors working through a sole trader setup, company, partnership or trust. Everything below comes from the ATO's personal services income pages, checked in October 2026.
Is your income PSI?
It's PSI if it's mainly a reward for your personal effort or skill. Only individuals can earn PSI, either directly as a sole trader or through a company, partnership or trust, which the ATO calls a personal services entity. Common examples include IT consultants, engineers, financial professionals, construction workers and medical practitioners.
The ATO's simplest example is a plumber, Andre, who charges $25 for materials and $225 for labour on a $250 job, in Australian dollars as of October 2026. All $250 is PSI, because the job is mainly a reward for his skill.
The tests that switch the rules off
| Route to being a PSB | What you need |
|---|---|
| Results test | For at least 75% of your PSI: paid to produce a specific result, you provide the equipment or tools, and you fix mistakes at your own cost |
| Unrelated clients test, plus the 80% rule | PSI from 2 or more unrelated clients, won as a direct result of offers to the public, and less than 80% of PSI from one client and its associates |
| Employment test or business premises test, plus the 80% rule | Pass either of those ATO tests, and less than 80% of PSI from one client and its associates |
If you pass, you're a PSB for that income year and the PSI rules don't apply. If you can't self-assess, you may be able to apply to the ATO for a PSB determination. Either way the PSI rules don't make you an employee, don't affect your ABN or GST registration, and don't decide whether you're running a business.
The results test in practice
Hourly or daily rates are the usual reason people fail. The ATO says that if you're paid by the hour or the day, it's unlikely you meet the first condition, because the payment isn't tied to a result. Joseph, who works 40 hours a week for a local authority through his company and invoices hours each fortnight, fails for exactly that reason.
Fixing mistakes is the other trap. Dave, a software specialist, has no clause about defects and in practice invoices the client for fixing his own mistakes, so he fails the third condition. Joe, who installs air conditioning ducts to a set of plans, brings his own tools and must fix defects at his own cost, passes.
The 80% rule and associated clients
If you're relying on the unrelated clients, employment or business premises test, less than 80% of your PSI can come from one client and its associates. Associates include a client's relatives and companies it controls, so two related companies count as one client.
The ATO example: Binglei, an IT consultant, bills ABC Pty Ltd $70,000 and ABC Telecommunications Pty Ltd, which ABC owns, $30,000. Because they're associates, that's one client providing all of Binglei's PSI, so the 80% rule fails.
Offers to the public: what counts
- Counts: print, radio or TV advertising, internet ads, maintaining a website, competitive public tenders, and ads in newspapers, journals or directories.
- Doesn't count: word-of-mouth referrals, unless you work in a very specialised niche with very few potential clients.
- Doesn't count: work through labour hire firms or similar intermediaries, or responding to ads on recruitment websites.
- Repeat clients only count if the new work came from your offers to the public that year.
What you lose if the PSI rules apply
- You can only deduct expenses you'd be entitled to as an individual earning that income.
- No deduction for rent, mortgage interest, rates or land tax on your home, even if you work from a room in it.
- No deduction for payments to an associate, such as a spouse or child, for non-principal work like bookkeeping, invoicing or running the home office.
- No deduction for super contributions for an associate doing non-principal work. For an associate doing principal work, the deduction is capped at the superannuation guarantee minimum.
- Keep records of expenses for 5 years, showing whether each relates to PSI or other income.
The ATO's Rodri example shows the second point: he's a marketing consultant who employs his wife to issue invoices and run the home office, and he can't deduct her wages under the PSI rules. If your business employs staff, our guide to the superannuation guarantee explains the minimum that sets that cap, and PAYG withholding covers the extra obligations a PSI entity can have.
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The verdict
If most of what you earn is for your own skills, assume your income is PSI and test yourself honestly. Contractors paid by the hour by one main client usually won't pass, and the cost is lost deductions and no income splitting. If you can move to fixed-price, results-based work, or win clients through your own website or advertising rather than an agency, you can change which side of the line you fall on.
Payers can report PSI on a dedicated payment summary, and our PAYG payment summary guide explains how that form works.
Frequently asked questions
What is personal services income?
Income produced mainly, more than 50%, from your own skills or efforts as an individual, whether you earn it as a sole trader or through a company, partnership or trust.
Do the PSI rules apply to everyone who earns PSI?
No. They don't apply if you self-assess as a personal services business or have a PSB determination for that income year.
What is the results test?
For at least 75% of your PSI you must be paid to produce a specific result, provide any equipment or tools needed, and be liable to fix mistakes at your own cost.
What is the 80% rule for PSI?
If 80% or more of your PSI comes from one client and its associates, you don't meet the rule, so you can't rely on the unrelated clients, employment or business premises test.
Do word-of-mouth referrals count for the unrelated clients test?
Generally no, unless you work in a very specialised or niche industry with only a very small number of potential clients.
Can I claim home office rent against PSI?
Not when the PSI rules apply. You can't deduct rent, mortgage interest, rates or land tax for your residence against PSI.
