Personal services income (PSI)

If your partnership mainly earns income from providing services to your clients, it may be a personal services entity (PSE).

Your partnership will not be a PSE if it primarily earns income from the use of assets, sale of goods, or from a business structure.

If your partnership is a PSE, you need to apply certain tests to check whether the PSI rules apply to your partnership. The rules will not apply if your partnership meets one or more of the tests. If the rules do apply, they will affect how you report your PSI to the ATO and the deductions you can claim.

Very generally speaking, if the personal services income rules apply to your partnership, it will affect how your partnership splits its income. The PSI earned will belong to the partner that earns it. It will be reported in their individual tax return and taxed at their marginal tax rate, regardless of the income split stated in the partnership agreement. It’s important to seek advice from a tax professional.

Starting a small business

Steps Progress

Is my hobby a business?

9 mins

Business structures overview

5 mins

Business registrations

5 mins

Sole trader structure

7 mins

Partnership structure

10 mins

Company structure

13 mins

Trust structure

7 mins

Small business support

10 mins

Related courses

1 mins

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