Personal services income (PSI) is income generated primarily on account of an individual’s personal skills, effort or expertise.
Individuals can receive PSI in any industry. We mostly find this in IT consultants, construction workers, engineers and medical practioners.
The key to receiving PSI is that the recipient does not receive salary but invoices the employer for services rendered. It is important that the invoice amount must be for at least 50% for labour, skills or expertise of the contractor. Besides this, there are a few more rules that need determination applicability of PSI rules
If PSI rules apply, then it affects how the special tax rules are applied to report income and claim deductions.
Where the invoice is claimed through a separate entity like a Company, the entity is said to carry a Personal Services Business (PSB). Under PSB rules there is no change in tax rules, except that income will need to be included as PSI in the individual tax return.
For a confidential discussion about PSI rules and what PSB structure suits you, please feel free to contact us at email@example.com