A contractor walks into a meeting with three questions. Is the income really business income, does a company or trust make any difference, and can the Australian Taxation Office still challenge the structure even if a determination has been granted? For many professionals, that's the issue behind a personal services business determination, and the answer starts with what the income is doing in substance, not what the invoice header says.
By Panbo Ye, CFP® | FCPA | SSA® | Founder, Everglow
Who this article is for: professionals, contractors, medical practitioners, tradies, consultants, and trustees who earn income through their own skills or effort and need to understand whether the personal services income rules apply, whether a personal services business determination is relevant, and where the remaining risk sits even after a determination is in place.
Currency note: This article reflects Australian rules, thresholds and regulator guidance current as at 07/2026.
Is Your Income Really Business Income or Just Disguised Employment
A Sydney contractor can look like a business on paper and still be caught by the personal services income rules. A sole trader, company, or trust does not change the substance of the work, and the ATO starts by asking whether the money is mainly a reward for your own skills or effort. If it is, a personal services business determination may become relevant only after the personal services business tests are considered. For a practical comparison of contractor and employee treatment in another jurisdictional context, renn autónomo comparison shows how quickly label and substance can diverge.
A personal services business determination is the Commissioner of Taxation's formal notice that the PSI rules do not apply for the relevant income year. Under the ATO's framework, that matters because the PSI regime can attribute income back to the individual and restrict deductions, while a valid determination can move the income outside that treatment for that year. The legal timing matters too, because the exclusion only operates when the determination is in force for the income gained or produced, under section 87-15 of the Income Tax Assessment Act 1997 and the Commissioner's notice power in section 87-65 (section 87-15, section 87-65).
For many readers, the key decision is not whether they have an ABN or a company. It is whether the income is really personal services income and, if so, whether they can self-assess as a personal services business or need the Commissioner to step in. The ATO's small business guidance is clear that a PSBD is issued for one individual earning PSI, and where multiple individuals earn PSI through a company, partnership or trust, a separate determination is needed for each person (ATO small business guidance).
Practical rule: if the work is mainly your own labour, the structure is only the wrapper. The tax question comes after that, not before.
Learn how contractor status and employment status are compared in Australia
The Four Tests That Determine Your Personal Services Business Status
A consultant can hold an ABN, trade through a company, and still be caught by the PSI rules if the income is really just payment for personal labour. The first checkpoint is the 80% rule. If 80% or more of your PSI comes from one source, the ATO generally expects a personal services business determination unless the results test is met or a narrow exception applies (ATO PSBD guidance). If less than 80% comes from one source, the position opens up, but you still need to satisfy at least one of the four statutory tests in section 87-15 before you self-assess as a PSB (section 87-15).
The results test carries the most weight
The results test is the cleanest pathway because it looks at how the engagement is structured and performed. You must answer yes to all three conditions, and the ATO says the test must be satisfied for at least 75% of the PSI in the income year, as set out in the ATO PSBD guidance. In practical terms, that means you are paid for an outcome, you provide your own tools and equipment, and you carry liability for defects.
If those three elements are not really present in the contract and the day-to-day work, the results test falls away quickly. A fixed fee for deliverables, genuine control over your own inputs, and real exposure to rectify defective work are the markers the ATO expects to see.
The other three tests are narrower
The unrelated clients test asks whether you have two or more unrelated clients, and whether the work is obtained through public advertising or a similar invitation to the market. The employment test asks whether others perform at least part of the principal work. The business premises test asks whether you maintain and use dedicated premises that are physically separate from home and client premises, as described in the ATO PSBD guidance.
The point is not whether the entity looks like a business on paper. A trust deed, a company registration, or a contractor agreement does not decide the issue by itself. The contract terms and the way the work is carried out matter more than the label.
A results-test review should also be matched against the way the work is billed and delivered. Read the results test overview for PSI earners for a closer look at the practical indicators.
| Summary of the Four Personal Services Business Tests | Key Requirement | Threshold or Condition |
|---|---|---|
| Results test | Paid for a result, supply own tools, liable for defects | Must be satisfied for at least 75% of PSI |
| Unrelated clients test | Two or more unrelated clients sourced publicly | Available only if the 80% rule does not block self-assessment |
| Employment test | Others perform the principal work | Available only if the 80% rule does not block self-assessment |
| Business premises test | Dedicated, physically separate business premises | Available only if the 80% rule does not block self-assessment |
When and How to Apply for a Personal Services Business Determination
A PSBD is a fallback, not a badge of commercial legitimacy. It comes into play where the individual or entity does not already self-assess as a PSB under one of the four tests. The ATO's guidance says a determination may be issued where there is uncertainty about whether a test is met, where unusual circumstances prevented a test from being satisfied, or where the unrelated clients test was met but unusual circumstances stopped the 80% rule from being satisfied (ATO small business guidance).
What the Commissioner has to be satisfied about
Section 87-65 says the Commissioner may make or vary a PSBD by written notice to a personal services entity, and the notice can set the effective day, the period it applies, and any conditions attached. The Commissioner must also be satisfied that one or more of the statutory conditions in subsections 87-65(3A), (3B), (5) or (6) are met for the income year when the determination first takes effect.
That detail matters because a determination is not automatic, and it is not a request for reassurance. It is a decision made under the statutory framework and on the facts available at the time. Where the ATO is dealing with one individual through a company, partnership or trust, the entity needs a separate PSBD for each individual who earns PSI (ATO small business guidance).
Company registration and structure setup services at Everglow Prosperity
The practical starting point is to document what changed, why self-assessment is uncertain, and what evidence shows the work history. The ATO process is technical, but the commercial question stays plain, does the arrangement behave like a personal services business, or does it only look like one on paper?
The Hidden Risk That Survives a Successful Determination
A lot of professionals assume the job is done once a PSBD is issued. That is not the right reading of the risk, because the determination deals with the PSI outcome, not every broader anti-avoidance concern around how profits move through the structure. Australian commentary on the ATO's newer guidance highlights the risk area that sits beyond the determination itself, especially where the working individual draws relatively low remuneration while larger amounts are retained or distributed to non-working associates without a clear business purpose (Palfreyman commentary).
Why salary and distribution settings still matter
The commercial pattern the ATO is looking at is straightforward. If the individual is doing the work and most of the profit is left sitting in the entity or channelled to family members who are not working in the business, the structure can still attract scrutiny. Advisers are now telling clients to benchmark remuneration, document the reason for retention, and review distributions against market rates, because the key issue is broader than whether PSI rules formally apply (Palfreyman commentary).
A PSBD can move the PSI question off the table, but it does not make the rest of the structure invisible.
That matters for company and trust structures used by doctors, consultants, and contractors. It also matters where the business has a family trust layer, because the ATO can still examine whether the profit split matches the economics of the work. If you want one place to monitor both the PSI position and the surrounding compliance picture, Everglow Prosperity's PSI service and advisory team can support the tax, structure, and remuneration review together, which is often more sensible than dealing with the determination in isolation.
See how attributed PSI treatment interacts with entity structures
A Sydney Medical Professional Handles the PSI Rules
Dr Anya Sharma is a fictional example used to show how the rules work. She is not an Everglow client.
Dr Anya Sharma in Surry Hills, Sydney, runs her practice through a company and invoices around $420,000 across the year. If $380,000 of that comes from her own clinical work and only a small amount comes from other services or separately engaged support, her adviser would first test whether the income is PSI, then ask whether she can self-assess as a PSB or whether she needs a PSBD depending on client concentration and contract terms.
How the decision would likely be approached
If one hospital network or referral source were providing 80% or more of the PSI, Dr Sharma would generally need the results test or a determination to avoid the PSI rules. If she worked from dedicated rooms, used her own equipment, and had clear contractual liability for defect-type issues in the service arrangement, the results test might support PSB treatment. If not, a PSBD would be the fallback path, not a cure-all.
Her adviser would also look at the broader structure. If the company retained a large balance while her salary stayed relatively modest, the issue would not end with PSI status. The ATO scrutiny discussed earlier would still matter, especially if any family trust distributions or retained earnings looked disconnected from the commercial reality of the practice. The practical question is whether the profit left in the structure can be justified against what the work produced and what a comparable practitioner would receive. That review sits alongside the determination work, not after it. For an adviser who needs support on qualifications and practitioner standards, Everglow Prosperity's tax agent qualifications page sets out the professional baseline used in that kind of analysis.
For a medical professional comparing structure, service flow, and compliance settings, the healthcare and medical industries page from Wistec is a useful sector reference point, especially where practice management, contracts, and entity choice are being considered alongside tax.
Healthcare and medical industries guidance for professional structures
Dr Sharma's position would therefore depend on the contract mix, the ownership of the practice premises, the level of client concentration, and how profit is extracted. A migrant practitioner starting out in Sydney would need the same analysis, because residency history does not change the PSI tests, but it can change how the business is documented and operated.
Record-Keeping, Common Pitfalls, and When to Seek Advice
The ATO position is easier to defend when the records show how the work is run. Keep contracts that show a results-based engagement where that is true, retain invoices and client records that evidence multiple unrelated clients, and keep proof of business premises if you rely on that test. If remuneration benchmarking or profit retention is part of the picture, document the commercial reason in writing, not just in a board minute after the fact.
What tends to go wrong
The most common mistake is treating a company as a shield. It isn't. PSI can still be attributed through a company, and a trust does not fix that problem if the work is mainly your own labour. Another recurring issue is failing to review PSB status each year when client concentration changes, then relying on an old determination as if it were permanent.
Good file discipline saves time later. If the ATO asks why the structure works, your records should answer the question without guesswork.
Seek advice early if the structure includes a company or trust, if more than one practitioner is involved, if you are a new migrant establishing a practice, or if there are cross-border income issues in the background. Those are the situations where a quick desktop view can miss the actual tax risk, and where a review specific to your circumstances is usually cheaper than unwinding a problem later.
Meet the qualifications behind our tax and advisory work
Questions Professionals Frequently Ask About PSB Determinations
Can a PSBD apply retrospectively
Sometimes a determination may be written to cover a period, but that depends on the Commissioner's decision and the conditions attached to the notice under section 87-65. It is not safe to assume a later approval will fix every earlier issue. The facts, timing, and the application outcome all matter (section 87-65).
What if my circumstances change after I get a determination
If the client mix, contract terms, or working arrangements change materially, the basis for the determination may no longer be the same. A PSBD is tied to the relevant income and the facts that justified it. That is why annual review matters, especially where one client becomes dominant or the work is no longer results-based.
Does PSI change superannuation guarantee obligations
Not by itself. The PSI rules and superannuation guarantee are separate questions, and a contractor can be in scope for one without the other. If the contract is wholly or principally for labour, super obligations may still arise under the super law even if the entity is otherwise dealing with PSI treatment.
Do temporary visa holders or recent migrants get a different PSBD test
The statutory tests do not change because someone is a migrant or on a temporary visa. What can change is the way the business is set up, evidenced, and explained. New arrivals often need more care around contracts, premises, and record-keeping, especially if they are building a practice from scratch.
The core answer is still the same, a personal services business determination helps only when the PSI rules would otherwise apply and the statutory conditions are met. The right approach depends on your contracts, client concentration, remuneration settings, and whether your broader structure can stand up to scrutiny.
If you would like clarity on how these principles may apply to your own circumstances, contact Everglow on 1300 913 929 or email contact@everglow.au.
To book directly: Book a meeting with Panbo.
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