A Company Logo Does Not Make You a Business

A consultant can have a company, a trust, a tasteful logo and three subscription software platforms and still earn personal services income. The rules ask what produced the income. If it is mainly an individual’s personal efforts or skills, the answer may be PSI regardless of the invoice heading.

PSI is the starting question

Identifying PSI does not automatically mean every anti-avoidance rule applies. The next question is whether the individual or entity conducts a personal services business. The results test, unrelated clients test, employment test and business premises test contain detailed conditions. An ATO determination may be available in limited circumstances.

Attribution and deductions

Where the PSI rules apply, income earned through an interposed entity may be attributed to the individual whose work produced it. Deductions can also be limited. Paying income to a spouse, retaining profit at a company rate or describing labour income as a dividend does not answer the statutory tests.

Passing a test is not the end of the story

Even where a personal services business exists, general anti-avoidance principles and commercial substance still matter. The contracts, risk of rectification, ability to delegate, client base, employees, premises, systems and profit-generating assets should reflect the position claimed.

Review before year end

Map each income stream to the person, assets and systems that generated it. Apply the tests to the actual contracts and conduct, not the preferred description. If the position is genuinely uncertain, consider whether a private ruling should be sought before distributions and returns lock in the consequences.