PSI Classification Skill

Determines whether income received by a personal services entity (PSE) is personal services income (PSI) under Division 84 ITAA 1997, and whether the entity qualifies as a personal services business (PSB) under Division 87.

When to Use

• Assessing whether contractor/consultant income is PSI

• Evaluating PSB status to determine deduction availability

• Checking if 80% rule applies (s 87-15)

• Running the four PSB tests for borderline cases

• Determining deduction restrictions under Division 86

PSI Determination (s 84-5)

Income is PSI if it is mainly a reward for the personal efforts or skills of an individual. Key indicators:

• Would the income still be earned if the individual was not involved?

• Is the income from a contract that is mainly for the individual's labour?

• Is equipment or tools a significant part of the arrangement?

PSB Tests (Division 87)

If income IS PSI, the entity may still be a PSB if it passes ANY ONE of these tests:

1. Results Test (s 87-18) — ALL THREE required

• Paid to produce a result (not just for time)

• Required to provide own tools/equipment

• Liable for defective work (rectify at own cost)

2. Unrelated Clients Test (s 87-20)

• PSI from 2+ unrelated entities

• Services offered to the public

3. Employment Test (s 87-25)

• Entity employs or engages others to do 20%+ of the principal work

4. Business Premises Test (s 87-30)

• Maintains business premises that are separate from client's premises AND home

• Premises at which the entity mainly conducts personal services activities

Impact of PSI Rules (if not PSB)

Deduction PSB Non-PSB (PSI rules apply)

Salary/wages to associates Allowed Not deductible

Rent on premises Allowed Not deductible

Home office expenses Allowed Limited to individual-only costs

Entity maintenance costs Allowed Not deductible

Super contributions Allowed Attributed to individual

Engine Reference

• Engine: lib/analysis/psi-engine.ts

• Function: analyzePSI(tenantId, financialYear, options)

• Output: PSI determination, PSB test results, deduction restrictions, confidence score

• Database: psi_analysis_results table

Legislation

• ITAA 1997, Division 84 — What is PSI

• ITAA 1997, Division 85 — PSI entities

• ITAA 1997, Division 86 — Deduction restrictions

• ITAA 1997, Division 87 — PSB tests