Question: Is person regarded to be an employee if PSI Rules apply?
Answer: No. PSI Rules do not imply that an individual subject to these rules is an employee.
Nor do they change contractual arrangements made by PSI earners with other parties or affect their eligibility for ABN Number. The only purpose of these rules is to prevent PSI earners from getting any tax benefits they would otherwise would not be entitled to if the were earning this income as employees
The Result Test is based on the factors used to distinguish employees from contractors. However, PSI rules capture broader range of individuals providing personal service. To pass the Result Test, you must satisfy ALL three conditions of the test for 75% or more of Personal Service, whereas the Employee vs Contractor test is worked out on the balance of relevant factors. Therefore, it is possible for PSI Rules to apply for genuine contractors.
Question: If you receive PSI, are you eligible for Simplified Depreciation Concession?
Answer: Yes. If your income falls under PSI Rules, it does not mean you are not carrying on a business. You can still apply Simplified Depreciation Concession (including instant asset write-off) if you satisfy Small Business eligibility criteria.
To be eligible to for SBE Depreciation you are only required to:
- Be carrying on a business during the year, and
- Have an aggregated turnover under $10 million
The fact that PSI Rules deny deductions that are not available to employees does not change eligibility to claim deduction for costs of depreciating assets under Small Business Simplified Depreciation rules (see s 328-235 ITAA 1997).
The only exception is an amount paid for a car, for which deductions would not be allowed to Personal Services Entity under PSI Rules.
Question: If you are an individual receiving PSI, are you able to rely on substantiation exemptions applicable to employees?
Answer: No. Substantiation exemptions rules do not apply to PSI earners. You have to keep all the records for all the expenses you are claiming.
Substantiation exemptions applicable to employees include expenses under $300, laundry expenses, per diem travel and meal expenses, etc. As you are not deemed to be an employee, you cannot rely on these exemptions.
Note, individuals and partnerships (but not other entities) can still rely on substantiation exemptions which are not restricted to employees (e.g. business travel).
Question: Are individuals receiving PSI eligible for a Small Business Offset?
Answer: No. Individuals are not eligible to claim Small Business Income Tax Offset in respect of their PSI.
Even though falling under PSI Rules does not mean you are not carrying on a business, Small Business Income Tax Offset (SBITO) does not apply to Personal Service Income not produced from conducting a personal services business. Amounts received as Personal Service Income are specifically excluded from calculation of Net Small Business Income to which SBITO applies.
Note, SBITO may still be applicable to non-PSI Small Business Income.
Question: Can I be eligible for JobKeeper Payment as a PSI Earner?
Answer: Yes. If you receive Personal Service Income as a sole trader, you may be eligible for JobKeeper Payment, provided all the eligibility requirements are satisfied.
Receiving Personal Services Income, whether you pass PSI Tests or not, does not preclude you from receiving JobKeeper Payments. As a sole trader, you may be eligible to receive JobKeeper Payments for your employees AND for yourself as a business participant if you also satisfy the integrity rules.
Find out more about JobKeeper Payments.
There is nothing in the JobKeeper Rules that requires that payments to employees must be deductible for tax purposes in order for the employees to be eligible. However, keep in mind that JobKeeper payments are assessable income to the business. If you employ your associates to do non-principal work and receive JobKeeper payments for them, you will be assessed on the payments but will not be able to claim deductions for wages you pay to those associates.
To learn more about PSI, see Personal Service Income Rules article.
If you need assistance with determining if PSI Rules or any other avoidance measures apply to you, we are able to help! We have extensive experience in assisting clients operating Service Based Businesses with their structuring, tax minimisation, compliance, and other matters.
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