Personal services income: assemble a PSI evidence pack
A personal services income review starts with how the income was earned and who performed the work. Gather the contracts and the actual working arrangements, including what triggers payment and who bears the cost of defects. A company structure or ABN doesn't settle the question, and a completed checklist isn't a passing test.
What you’ll get from this guide: A contract and income matrix ready for a registered tax agent to assess.
- Gather facts for each person generating the income.
- Compare contract terms with what happened in practice.
- Keep missing evidence separate from a failed or passed test.
This pack helps a consultant or contractor who has been asked about personal services income (PSI). Give the registered tax agent the working records before drawing a conclusion.
Start with the person who earned the income
List the individual doing the work, the entity invoicing, each engagement and income amount. The ATO's PSI guidance explains why the character of the income needs review even when a business structure sits between the worker and client.
Where several people generate income, retain the allocation evidence. A single company sales total may hide different arrangements for different workers. Reconcile the contract list to the accounts before using it for a percentage calculation.
Fictional engagements. These descriptions are facts to investigate, not tax outcomes.
| Engagement | Payment basis | Tools and defects | Evidence gap |
|---|---|---|---|
| Website build | Milestone invoices | Own laptop; rectification clause | Check whether clause is enforceable and followed |
| Support contract | Hourly invoices | Client system; rework invoiced | Retain time records and rework invoices |
| Installation project | Agreed completed work | Tools supplied; defect cost unclear | Obtain full contract and correspondence |
Group the income by the individual who generated it before the adviser considers the applicable tests.
Keep the contract and the working evidence
The ATO's PSI record-keeping guidance identifies records such as contracts, invoices and work records. Save variations, acceptance emails, timesheets and defect correspondence alongside the signed agreement.
For each engagement, ask what had to happen before payment was earned. Record whether tools were required, who supplied them, and who was liable for fixing defects. An attractive clause isn't enough if the actual arrangement operates differently.
Understand the results-test questions
The current ATO results-test guidance says all three conditions must be met for at least 75% of the PSI earned: payment for a specified result, required tools or equipment supplied where needed, and liability for fixing defects at the provider's cost. For an entity with multiple individuals generating PSI, the assessment is made for each individual.
An hourly invoice or a personal laptop is evidence, not a complete answer. The source explains qualifications, including circumstances where tools are not needed and the importance of an enforceable rectification obligation. Have the agent check the full arrangements rather than award one point per tick.
If the results test isn't met, ask what further tests or determination process can be considered. Don't assume that having several client names is enough, or that failing this one test completes the analysis.
Record the conclusion and year
Copy the PSI contract matrix
Copy the template, save a text file for offline use, or print this page with its examples and sources. Fill in your own copy and check it before relying on it.
Income year Individual doing work Entity/client Contract reference Income amount Payment trigger Required equipment Defect liability Actual rework practice Evidence missing Agent conclusion
Keep the agent's conclusion with the source records and reporting consequences. Review changed contracts rather than carrying last year's answer forward automatically. The company structure guide covers entity choices; the business records guide helps store the evidence used here.
Key takeaways
- Gather facts for each person generating the income.
- Compare contract terms with what happened in practice.
- Keep missing evidence separate from a failed or passed test.
Where to get help
Use the ATO's results-test explanation and record guidance with a registered tax agent.
Related tasks
Continue through the tax records and business money guides.
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General information only. This guide doesn't take your personal or business circumstances into account and isn't financial, legal or tax advice. Rates and thresholds change — check the official sources linked in this guide and get qualified advice where your circumstances require it.