What is Personal Services Income (PSI) for sole traders?

Understand what PSI is, when the PSI rules apply, and why it matters for sole traders.

Summary

Personal services income (PSI) is income mainly earned as a reward for your personal efforts or skills as an individual. If more than 50% of the income received under a contract is for your personal efforts or skills, the income from that contract is generally PSI.

What this means

Common examples of PSI include consultants, contractors, IT professionals, tradespeople and freelancers who mainly sell their own time and skills. PSI can be earned as a sole trader directly, or through a company, partnership or trust.

If your income is PSI, you then need to work out whether the PSI rules apply or whether you are conducting a personal services business (PSB). If the PSI rules apply, they can limit some deductions and affect how income is attributed. For example, some home occupancy expenses and certain payments to associates for non-principal work may be restricted. The ATO provides a PSI tool to help work through these rules.

Typical actions

  • Review each contract or invoice to work out whether it produces PSI.
  • Use the ATO's Personal services income tool as guidance.
  • Keep records that show how your income is earned.
  • If the PSI rules apply, review which deductions are affected.
  • Speak with a registered tax agent if you are unsure.

Official ATO sources

Last checked: 24 August 2026

Income that is PSI
Explains what counts as personal services income.

Personal services income tool
The ATO's decision tool for working out whether PSI rules apply.

Claiming deductions when receiving PSI
Explains how PSI rules affect the deductions you can claim.

Related questions

Important notice: Tax Clarity is an independent information tool. This page provides general information based on official sources. It does not provide tax, legal, financial, or accounting advice. Tax rules can change, and how they apply depends on your circumstances. For advice about your situation, speak with a registered tax agent or qualified professional.

Need help understanding this in plain English?

Try the Tax Clarity App for a plain-English answer.

Open Tax Clarity App

Related Questions