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What is personal services income and how is it taxed?

Personal services income is income that is a reward for, or the result of, your personal efforts or skills. It does not include income generated by supplying or selling goods, an incoming-producing asset, granting a right to use property, or a business structure.

If the majority of the income you receive from each contract you complete is due to labour - that is, your skills, knowledge, expertise or efforts - as opposed to the materials supplied or the tools and equipment used to complete the job, then that income is classified as personal services income.

Personal services income can be paid directly to the individual that earned it or a company, partnership, or trust (a personal services entity) for which they work.

If your income is classified as personal services income it may affect certain aspects of your tax situation, such as limiting the deductions you can claim against this income and changing your PAYG withholding.