PSI and Healthcare Professionals
Personal Services Income (PSI) is a tax concept that covers income produced mainly from your personal skills or efforts as an individual. If more than 50% of the amount you receive for a particular contract is for your personal labour, skills or expertise, this income is classified at PSI.
You can receive PSI in almost any industry as a trade or profession and this includes healthcare professionals such as medical specialists, so you can be subject to the PSI regime.
The PSI tax regime was introduced to address:
- The diversion of income derived from personal services to a separate legal entity (i.e. company, partnership or trust) which would otherwise be taxable to an individual personally;
- Splitting income earned from personal services with other individuals (i.e. family members); and
- Gaining other taxation advantages such as claiming deductions generally only available to businesses.
There are a number of factors that impact on the application of the PSI rules, which include, but are not limited to:
- Income sources and type of work performed
- Contractual arrangements / relationships
- Business structures
What does it mean if the PSI rules apply?
If the PSI rules apply:
- There can be restrictions on tax deductions that can be claimed (as a sole trader or through another entity, e.g. a company or a trust)
- The PSI being derived by an individual via a separate entity may be attributed back to the individual and taxed at their individual tax rates
- Lump sum payments from healthcare centre operators may be taxed as ordinary income, not as a capital gain.
Exclusions to PSI
Generally the PSI rules do not apply to:
- income that is mainly generated by the use of assets, the sale of goods, or a business structure
- income derived as part of a Personal Services Business (PSB). There are a series of tests for determining whether such a PSB exists
- Employees who only receive salaries and wages.
Determining whether the PSI rules apply to your situation can be complex, especially for healthcare professionals. Find out if the PSI impacts you and how to best approach it with our team at BLG Business Advisers. Take this opportunitu to get in touch online or by calling (02) 4229 2211.