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Have you received personal services income?

Personal services income (PSI) is income mainly produced from your personal skills or efforts. There are special tax rules that apply if your income is classified as PSI.

Almost any trade, industry or profession can receive PSI. The most common are financial professionals, IT consultants, engineers, construction workers and medical practitioners. PSI does not affect employees receiving only salaries and wages.

When more than 50 per cent of the amount you received for a contract was for your labour, skills or expertise, then the income is classified as PSI.

If you have received PSI (including if you have received it as a company, partnership or trust), you will need to work out if the PSI rules apply to that income. You can use the ATO’s Personal services income decision tool to do this.

Where the rules do apply, they affect how you report your PSI to the ATO and the deductions you can claim.

In the circumstances where the PSI rules do not apply, you are still required to declare any PSI amounts at the relevant labels on your tax return. Where you receive PSI but the rules do not apply, there are no changes to the deductions you can claim.

It is important to note that PSI is not only applicable to sole traders. Those who produce PSI through a company, trust or partnership and the PSI rules apply, the income will be treated as your individual income for tax purposes.

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What Are The Consequences Of Improperly Lodged Tax Returns?

May 4, 2021

With tax return season approaching quickly this year, you may have already started looking into lodging your income tax return. Ensuring that your details are correct and that any information about your earned income from the year is lodged is the responsibility of the taxpayer and their tax agent. However, if during this income tax return process the tax obligations of the taxpayer fail to be complied with, the Australian Taxation Office has severe penalties that they can enforce.

Australian taxation laws authorise the ATO with the ability to impose administrative penalties for failing to comply with the tax obligations that taxpayers inherently possess.

As an example, taxpayers may be liable to penalties for making false or misleading statements, failing to lodge tax returns or taking a tax position that is not reasonably arguable. False or misleading statements have different consequences if the statement given results in a shortfall amount or not. In both cases, the penalty will not be imposed if the taxpayer took reasonable care in making the statement (though they may still be subject to another penalty provision) or the statement of the taxpayer is in accordance with the ATO’s advice, published statements or general administrative practices in relation to a tax law.

The penalty base rate for statements that resulted in a shortfall amount is calculated as a percentage of the tax shortfall, or in the case of no shortfall amount, as a multiple of a penalty unit. This percentage is determined by the behaviour that led to the shortfall amount or as a multiple of a penalty unit, which are as follows:

If a statement fails to be lodged at the appropriate time, you may be liable for a penalty of 75% of the tax-related liability if:

To ensure that the statements, returns and lodgements are done correctly, and avoid the risk of potential penalties, contact us today. We’re here to help.