You receive personal services income (PSI) if over 50% of your income is a reward for your personal efforts or skills. You can receive PSI in almost any industry or profession.
If the PSI rules apply to your income, you can only claim deductions if the expenses relate directly to earning PSI. You can’t claim rent, mortgage interest rates or payments to associates for support work. You also can’t claim expenses you generally can’t deduct as an employee.
For example, Andre is a sole trader. He charges $250 for a job – $25 for materials and $225 for labour. Andre keeps all required records and calculates his total PSI at the end of the financial year. He completes the PSI question in his individual tax return and is careful to only claim deductions he’s entitled to for his PSI. He also includes his income from other sources and related deductions in his return.
Remember, we are here to help you work out if PSI applies to you.