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PSI diagnostic

How Sessional walks you through the four PSB tests and the 80% rule. Guidance, not advice.

Important

Guidance, not advice. This diagnostic does not determine your tax position. Sessional Australia never calculates attributed PSI income or prepares a tax figure. The four tests each have nuance the product cannot capture: confirm the diagnostic output with your registered tax agent before acting on it.

Why PSI matters for locums

Personal Services Income is income mainly a reward for an individual's personal efforts or skills. Nearly all locum clinical work qualifies as PSI in practice: you are paid for your labour, not for a result, a product, or a genuine business structure. PSI by itself is not a problem. What matters is whether your engagement pattern amounts to a Personal Services Business (PSB).

If you pass at least one of the four PSB tests, PSI attribution rules do not apply. If you fail all four and you do not hold an ATO Personal Services Business Determination, the ATO treats the income as earned by you personally, regardless of any Pty Ltd or trust you invoice through. The diagnostic tells you which of those worlds you appear to live in.

The four PSB tests

  • Results test. You are paid for a specific result, you supply your own tools, and you bear rectification risk. Locum consultations and sessions almost never meet this test because the payment is for time, not for an outcome.
  • Unrelated clients test. Two or more unrelated clients in the year AND you acquired them through offers to the public (website, advertising, directory, referrals). Pure agency work generally fails the "offers to the public" limb, because the agency brokered the client relationship.
  • Employment test. You employ one or more people (not associates) doing at least 20% of the principal work by market value. Solo locums fail this trivially.
  • Business premises test.Separate business premises used exclusively for your business, physically separate from your home and from clients' sites. Locums rarely pass.

The 80% rule

Before the four tests even apply, the 80% rule asks: did a single client (or client-and-associate group) pay you more than 80% of your PSI in the year? If yes, you cannot self-assess as a PSB even if you pass one of the tests. You must apply for an ATO Personal Services Business Determination or treat the income as PSI.

Sessional estimates the 80% rule using your income streams grouped by (income source, payer name). If all your work is through one agency, or one dominant hospital, or one direct practice, the rule trips and the diagnostic flags "Likely need an ATO PSB Determination".

Interpreting the diagnostic output

  • Likely a Personal Services Business. You pass one or more tests and the 80% rule does not trip. Treat as indicative only: use the result as input for a conversation with your tax agent.
  • Likely need an ATO PSB Determination. The 80% rule trips. Self-assessment is blocked; either apply for a Determination or accept that PSI rules apply.
  • Likely not a Personal Services Business. You fail all four tests on the answers provided. If you currently invoice through a Pty Ltd or trust for income splitting or retained profits, those strategies are likely not effective.
  • Inconclusive.Too many answers came back as "unsure". Answer the open questions, or bring the output to your accountant.

Common questions

Does a Pty Ltd shield me from PSI?

No. If you fail all four PSB tests, the ATO attributes PSI back to you as an individual regardless of the entity you invoice through. The interposed entity is ignored for tax attribution purposes.

Why does my agency-only work hurt the unrelated-clients test?

The ATO's position is that an agency brokered the client relationship. You have not made offers to the public; the agency has. The test requires two or more unrelated clients acquired through your own public-facing offers: website, advertising, directory listing, word of mouth.

What is a PSB Determination?

An ATO administrative decision confirming that a specific contractor runs a Personal Services Business even where the 80% rule would block self-assessment. It is a paper process that needs a Determination application and supporting evidence. The Determination applies for the year you hold it; you renew each year.

If I pass one test, am I definitely a PSB?

Not automatically. Passing one test puts you in PSB territory, but the 80% rule can still override. Even then, the underlying fact pattern matters: "pass" from the diagnostic is guidance, not a determination.

Related reading

Tax, PSI, super, and GST: the broader regulatory context PSI sits in.

BAS preparation: how GST classification flows into the quarterly BAS.