What Is a Personal Services Business (PSB), and Is Your Business One?

Picture this: you’ve worked tirelessly to build your business, secured steady clients, and are starting to see the financial rewards. But then tax season rolls around, and suddenly, you’re faced with a pile of rules you don’t quite understand.

Could your business be classified as a Personal Services Business (PSB)?

If so, it changes the game.

Many Australian entrepreneurs unknowingly make mistakes here, costing them money, time, and peace of mind. So, how do you know if your business qualifies? And what should you do about it? Let’s dive into the details.

What Is a Personal Services Business (PSB)?

Think of a PSB as a business where most of the money you make comes from your personal skills, labour, or expertise. In other words, if over 50% of what you’re paid for a contract is due to you—not the materials, tools, or other resources you provide—then you might be operating as a PSB.

But it doesn’t stop there. To officially qualify as a PSB, your business also needs to pass at least one of the Personal Services Income (PSI) tests. Confused? Don’t worry, here’s a quick rundown:

The Results Test

• Are you paid to deliver a specific result?
• Do you provide your own equipment or tools?
• Are you responsible for fixing mistakes at your own cost?

If you answered “yes” to these questions, congratulations! You’ve passed the Results Test.

The 80% Rule

Does more than 80% of your income come from one client? If yes, you need to dig deeper into the other tests to see if your business qualifies as a PSB.

The Other Tests (Pass at Least One)

Unrelated Clients Test: You work with multiple unrelated clients.

Employment Test: You employ others to do a significant portion of the work.

Business Premises Test: You operate from a dedicated business location separate from your home.

Why Does It Matter If You’re a PSB?

Here’s the good news: being a PSB means you’re entitled to the same tax deductions as any other business. From claiming a portion of your home office expenses to paying a family member for admin tasks, the benefits are substantial.

However, there are some important rules to keep in mind:

• Any profits made by the business must be paid to you as wages, directors’ fees, or bonuses. This means you can’t stash profits in a company to take advantage of lower tax rates or distribute them to family members via a trust.

Ignoring these rules can lead to issues with the Australian Taxation Office (ATO), and no one wants that, right?

Is Your Business a PSB?

Let’s say you’re a freelance IT consultant. You’ve just scored a big contract with a major company, and they’re paying you to develop a custom software solution. You provide the code, but they supply all the hardware and office space.

In this case, you might not pass the Results Test, as you’re not providing your own tools or taking on the risk of fixing mistakes. You’d need to assess the other tests to determine whether your business is a PSB.

Now, imagine you’re a self-employed accountant who is working from home. Most of your income comes from preparing tax returns, and you use your own computer, printer, and software. You’re paid for delivering a specific outcome—completed tax returns—and if there’s an error, you’re responsible for fixing it.

You would likely pass the Results Test, making your business a PSB.

What If Your Business Isn’t a PSB?

If your business doesn’t qualify as a PSB, the rules are stricter. The ATO might limit your tax deductions, and you’ll need to include all income as personal earnings. This could lead to higher taxes if you’re not careful about structuring your finances.

Common PSB Industries

Not sure if this applies to you? PSBs are common in industries like:

• IT Consulting
• Engineering
• Legal and financial services
• Medical professions
• Construction and trades

If you operate in one of these fields, it’s worth digging into whether your business structure is right for your situation.

What Should You Do Next?

Still unsure if your business qualifies as a PSB? Here’s your action plan:

• Review the PSI Tests: Check whether your business meets the criteria.
• Consult a Tax Professional: An expert can help you determine the best structure and ensure you’re compliant with ATO rules.
• Take Control of Your Taxes: Make sure you’re not overpaying by claiming all deductions you’re entitled to.

Final Thoughts

Running your own business is a big deal, and the last thing you want is to be blindsided by tax complications. By taking a closer look at your business structure and understanding what it means to operate as a Personal Services Business, you’re setting yourself up for success.

So, ask yourself: Is my business a PSB? If the answer isn’t clear, it’s time to find out. After all, the more you know, the better equipped you’ll be to make the right decisions for your financial future.

 

Disclaimer: This website is designed for informational and educational purposes. Although we exert diligent efforts to maintain the accuracy and reliability of the content, we must disclaim liability for any errors, omissions, or inaccuracies. The content provided is “as is” and is not accompanied by warranties, whether expressed or implied. It should not serve as the sole basis for financial or legal decisions.

Given the evolving nature of financial regulations and conditions, the accuracy and reliability of information may change over time. Users are urged to exercise due diligence and consult with a qualified financial professional for personalised advice. ‘Clear Tax Accountants’ bears no responsibility for direct or indirect consequences, encompassing financial loss or legal matters stemming from the use or misuse of the information on this website.

Please be aware that the information, by no means, is a substitute for financial advice. 

The Australian Tax Rates 2024-2025

Think about it—what if you could get just a little more in your paycheck each month?

Whether it’s an extra $100 or $1,000, that extra cash could make a world of difference in your day-to-day life.

Thanks to the changes in the 2024-2025 tax rates, that’s exactly what could happen.

For many Australians, these updates mean less tax paid, which translates directly into more money in your pocket.

But how could these changes benefit you? Let’s dive into the details.

Tax Cuts and What They Mean for You

From July 1, 2024, the Australian Taxation Office (ATO) has made changes to the tax rates and brackets that could lower how much tax you pay. That means a little extra breathing room in your budget. And who doesn’t need that, right?

So, how does this actually work?

Tax brackets are divided into ranges based on your taxable income. The more you earn, the higher the percentage of tax you pay on that income. But with the new changes for 2024-2025, the rates have shifted in a way that could put more money back into your bank account.

Here’s the breakdown of the new rates:

• $0 – $18,200: 0% (Yes, that’s right—no tax at all!)

• $18,201 – $45,000: 16% (Down from 19%.)

• $45,001 – $135,000: 30% (Down from 32.5%.)

• $135,001 – $190,000: 37% (Threshold increases from $120,000.)

• $190,001 and over: 45% (Threshold increases from $180,000.)

(Img: Income Tax Rates 2024-25)

So, whether you’re in the lower brackets or earning more, these adjustments make a meaningful impact. You’ll pay less tax on the same income, which means you can keep more of your hard-earned cash.

Company Tax Rates for 2024-2025

For companies, the tax rate now depends on your income level. Base rate entities—those with a lower turnover (under $50 million) and more than 80% of income from active sources—will now benefit from a reduced tax rate of 25%. 

This is down from the previous 27.5% and represents an even greater opportunity for businesses to retain more of their earnings and reinvest for growth.

But there’s more. If your business isn't eligible for the base rate entity discount, the general company tax rate remains at 30%. For most businesses, though, the decrease to 25% should provide significant savings.

Can Businesses Take Advantage of These New Tax Brackets?

The short answer: absolutely.

Small businesses and sole traders are set to benefit significantly from these changes in tax rates. By paying less tax on their profits, business owners can free up more capital to reinvest in their companies. This could mean expanding operations, hiring new staff, or even taking steps to improve your marketing strategy and grow your customer base.

Impact on Sole Traders

As a sole trader, you might be wondering how these tax changes apply to you. Great news—there are some solid benefits.

With the ATO’s updated tax brackets, if your taxable income falls between $18,201 and $45,000, you’ll see a reduction in the tax rate from 19% to 16%. For those earning between $45,001 and $135,000, the tax rate has been reduced from 32.5% to 30%. 

These cuts directly impact your bottom line, leaving you with more of your income to reinvest in your business, save for the future, or simply enjoy.

Additionally, the thresholds for the higher tax rates have shifted, allowing you to earn more before hitting those higher tax brackets. Specifically, the 37% tax rate threshold increased from $120,000 to $135,000, and the 45% tax rate threshold rose from $180,000 to $190,000. 

If you're a growing sole trader, these changes give you more leeway to increase your income without jumping into higher tax brackets too quickly.

Impact on Companies

For companies, the impact of the new tax rates will vary depending on your business structure and income levels. If your business is classified as a base rate entity, you’re likely in for a good deal. 

The lower tax rate of 25% applies to businesses that meet certain conditions, such as having less than $50 million in turnover and more than 80% of your income from active sources (not passive income).

The reduced tax rate is excellent news for businesses aiming to grow and invest in their future. With more of your profits staying in your pocket, you have the opportunity to invest in expanding your business, upgrading technology, or hiring new staff to support growth. 

The savings you make now could be reinvested into areas that will help you stay competitive in the market.

If your business doesn't qualify for the 25% tax rate, don’t worry. The general company tax rate remains at 30%, which still represents a competitive rate compared to many international tax systems. And remember, it's always a good idea to consult with a tax professional to ensure you're taking full advantage of any tax-saving strategies available to your business.

Final Thoughts

The new Australian tax rates for 2024-2025 are a clear win for many people. Lower rates and higher thresholds mean more money stays with you, and you can use it however you see fit—whether that’s for immediate needs, long-term savings, or investments in your future. 

The government is offering you a break, so it’s time to take advantage and make sure you’re getting every cent you deserve.

Don’t let this opportunity slip by. Take a closer look at your finances, plan your next steps, and make the most of these tax changes to create a more financially secure future for yourself and your family. Let's dive and read our more blogs here:

i) Are You Ready for the New Individual Income Tax Rates That Are Now in Effect? ii) Tax Rates For Australian Residents iii) Smart Tax Planning Strategies to Keep More Money in Your Pocket

The Tax Deductions Only Property Accountants Know

Picture this: you are sitting at your desk with a pile of receipts and bank statements, trying to wrap up your taxes. You feel confident you have claimed everything you can. But what if you are wrong? What if there are deductions you don’t even know exist?

For many Australian property owners, this is the reality. By not working with a property accountant, you could be handing over extra money to the tax office without even realising it.

Are You Overpaying Your Taxes?

Let’s be honest—no one enjoys paying taxes. But paying more than you owe? That’s a bitter pill to swallow.

The Australian tax system is no walk in the park. For property investors, it is even more complicated. The rules are tricky, the details confusing, and the opportunities to save are often buried under mountains of jargon.

You might think you have it covered—claiming loan interest, repairs, and a few other deductions. But without a property accountant, how can you be sure you are not missing something?

5 Tax Deductions You Could Be Missing

Here are just a few ways property accountants help uncover deductions that most people overlook:

Depreciation: Making Wear and Tear Work for You

Did you know that the natural wear and tear on your investment property could save you money? 

A depreciation schedule lets you claim this as a deduction. But figuring out what qualifies and how to claim it isn’t easy. A property accountant can make sure this goldmine doesn’t slip through your fingers.

Loan Interest: Getting It Right

If you have taken out a loan for your investment property, the interest is deductible. 

But if that loan is also used for personal expenses or renovations, things get messy. A property accountant helps you separate what is deductible from what isn’t so you don’t claim too much—or too little.

Capital Works: Big Changes, Big Savings

Renovated your property? Added a new deck or landscaped the backyard? These improvements may qualify for deductions under capital works. But the rules about what you can claim and over how many years can be confusing.

Travel Expenses: Not Completely Gone

While recent changes to Australian tax laws have limited travel deductions, some property-related trips can still be claimed. A property accountant knows exactly when this applies and can make sure you don’t miss out.

Repairs vs. Improvements: Knowing the Difference

Repairs can be claimed as an immediate deduction, but improvements can’t—they are claimed over several years. It is a fine line, and getting it wrong could cost you.

Want to Learn More?

If you are ready to discover all the tax deductions you could be missing out on, there’s more to explore. Visit our official blog for a deeper dive into the tax-saving tips only property accountants know. Read the full article here and make sure you’re not leaving any money on the table this tax season!

Mistakes You Might Be Making on Your Tax Returns

 Tax times can be extremely stressful. Amidst this stress, making mistakes on tax returns is not unheard of. However, the ATO does not accept this, and every mistake you make will be met with a penalty.

Some mistakes might lead you to an audit, which is the last thing anybody wants. Thus, to help you, we have highlighted those mistakes you must avoid at all costs.

1.   Not Claiming Everything You Are Entitled To

Deductions are nothing new. You can easily claim the deductions with the right paperwork to prove your work-related expenses. Still, the percentage of people not claiming everything they can is surprisingly high.

Deductions can be claimed on travel costs for work, tools and equipment. Moreover, there are a plethora of deductions that are for specific professions solely. You can consult a tax accountant to know better about these deductions and how to claim them.

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