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Step 1: is the income PSI?
Income is PSI where more than 50% of what you are paid for a contract is a reward for your personal efforts or skills: the consultant's advice, the developer's code, the engineer's design. It is not PSI where the payment is mainly for selling or supplying goods, the use of income-producing assets (the excavator, not the operator), or a genuine business structure with multiple workers producing the result. A company can have both kinds, and the rules apply contract by contract.
Step 2: the self-assessment tests
| Test | Pass condition | Reality check |
|---|---|---|
| Results test | Paid to produce a result, supplying your own equipment, liable to fix defects at your own cost, for at least 75% of PSI | The strongest pass, and genuine fixed-price project work. Hourly-rate contractors inside someone else's team fail it |
| Unrelated clients (needs the 80/20 gate first) | Two or more unrelated clients won through public offers such as advertising, tenders or marketplace presence | Word of mouth alone strains this, and the agency you contract through is not your client |
| Employment test | Employees or contractors perform at least 20% by value of the principal work | Real delegation, not admin help |
| Business premises test | Premises exclusively yours, separate from home and from clients, all year | The rarest pass for consultants |
What failing means, and what passing does not mean
Fail all tests and the PSI is attributed to you personally. The structure becomes a pass-through: no income splitting with a spouse, no retention at 25%, and deductions cut back to roughly what an employee could claim, so no rent to yourself and no spouse admin wages beyond market value for actual work. The company also inherits attribution-side withholding obligations most people miss.
Pass a test and you are a personal services business, so the attribution rules stand down and normal business deductions return. But passing is not a licence to split or retain. The general anti-avoidance rule, Part IVA, still targets alienation of personal-exertion income, and the ATO's guidance on profit splitting by personal services businesses is explicit. A consultant paying themselves a token salary while distributing the rest to a spouse is running the exact fact pattern the Commissioner litigates.
The compliance surface: PSI questions sit inside the individual and company returns as label questions. They are self-assessed, easily wrong for years, and a standard review target for ABN contractors. Structures built years ago and never tested since should be re-run every year the way the law assumes they are, because client mix changes and the 80/20 balance drifts annually.
Frequently asked questions
What is personal services income?
What is the 80/20 rule for PSI?
Does PSI apply if I have a company?
Can I split PSI income with my spouse?
How do I know if I pass the results test?
General information only - not personal tax, financial or legal advice. Consider your own circumstances or speak to a registered tax agent. Remission of penalties or interest and payment plans are decisions of the ATO and outcomes can't be guaranteed.