Personal services income

The Australian Taxation Office (ATO) has recently identified the common mistakes businesses make with relation to Personal Services Income rules. In summary they are as follows:-

1. Self assessing that the first condition of a results test has been passed when paid on an hourly or daily rate, not when tax payers must be paid as a result of achieving a specific result.
2. Not obtaining a determination from the ATO when failing to meet the results test and 80 per cent or more of the income is from one client.
3. Self assessing that the unrelated clients test has been met when the services are provided are not a direct result of making offers to the public. This is common where services are through a labour hire firm or through an agency.
4. Applying the personal services business test to the whole entity and not to the individual where the test needs to be applied on an individual basis, by the individual.
5. Retaining profits from personal services income when any profit made must be paid as a salary and wage to the individual who performed the services.
6. Not complying with the additional PAYG obligations.
7. Failing to complete and attach a personal services income schedule with their tax return.
8. Claiming deductions for personal services income where there is no entitlement. They may include rent, mortgage interest, rates for their home or their associate’s home that is the place of business, payments to a spouse and the like for support service work such as secretarial duties.

In order to get a clear understanding and to ensure compliance it is strongly recommended that you discuss your personal services income matters with your Chartered Accountant.

It is also important to note that these personal services income rules not only apply to companies but also to trust structures.