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Personal Services Income

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Old 03-03-12
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Default Personal Services Income

Hi all,

I'm looking for some clarification on this PSI issue.

From my understanding, If your 'personal skills/labour' create the income, it will be charged at a marginal tax rate, the same as a sole-trader, for example: if i was working for myself through a company structure, and contracting to an employer as a 'hourly paid' person, say $50/hr for 40 hours a week.

Since it is my 'skill' (supervisor) that would be generating the income, is that PSI? As opposed to something like selling an iPhone app, the app would be generating the income which would be classed as the 30% tax rate?

Also, if i earned say $200k in the company structure through the year, and employed my wife to maintain records etc, would the gross income of the company be taxed at PSI as it would be my 'personal service' that would generate the income?

Just curios, thanks!

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Old 07-03-12
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Default Re: Personal Services Income

PSI is a tricky business and you really should talk to an accountant about your specific situation.

Generally speaking if the only thing you are doing is "contracting" to a company at $50/hour for 40 hours/week then it's almost definitely going to come under PSI, even if it is through a company as it doesn't meet the 80% rule.

There's a lot of good info on the ATO site regarding PSI and I'd strongly recommend you check out:

http://www.ato.gov.au/businesses/con...age=2#P16_1161

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Old 07-03-12
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Default Re: Personal Services Income

Sounds like PSI. In which case the ATO under audit activity would look to see that any income splitting (to wife) was added back to the company's profit, and then the net profits distributed to yourself and therefore taxed to yourself.

There's nothing stopping you from an interposed entity, its just that the tax law tries to look through it.

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