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If more than 50% of your income is PSI and not considered PSB, PSI rules apply to your tax return. (Refer to URL for the definition of PSI and PSB.)
If the PSI rules apply, your income will be treated as employment income, preventing you from using a company structure or claiming more deductions as business expenses to reduce your tax liability, ensuring it is taxed at the individual level.
Let’s say you're an employed accountant. You might set up a company to work as a contractor, aiming to benefit from the lower 25% company tax rate and reduce your tax liability.
However, if 100% of your income comes from the company you were previously employed by, and you're not responsible for the costs of any mistakes on the job, you would not meet the results test or the 80% rule. Hence, you will be subject to the PSI rules, and your income will be treated as employment income.
When the PSI rules apply, you cannot claim the following expenses as business deductions.
(includes reimbursement of an expense, rent, allowances etc)
(if the associates do principal work, their super contributions are deductible)
Associates: ex) spouse, child or other relative
Principal work: the work a business must perform under a contract to receive payment.
Non-principal work: incidental or support work that is not central to meeting obligations under a contract. ex) bookkeeping, issuing invoices, administrative duties and running the home office.
