16: Income Earned From Your Efforts - Who Reports the Income and Pays the Tax?

Do you earn your income from providing your services to clients and customers? Well, how you earn income can have major tax implications for business owners. Yet many enterprising professionals fail to fully grasp complex personal services income rules that can have a big impact on their annual tax bill.

Sally illuminates this notoriously confusing area of tax law. She tackles the big questions around income generated predominantly from personal effort and skills:

What exactly constitutes personal services income?
When do special tax restrictions apply on diverting this income to another person or entity?
What tests must be satisfied to be a personal services business?
How might clever structuring fall foul of ATO anti-avoidance provisions?

In this episode of the Smarten Up! The Tax and Business Podcast, you’ll learn:

The definition of personal services income and who it applies to (1:53)
Why rules exist to prevent diverting this income to companies and trusts (3:39)
The critical personal services business tests (6:53)
Passing the 80% rule and other tests (8:39)
When the ATO’s anti-avoidance rules might apply (15:20)
Examples of when income is and isn't from personal efforts (19:20)

Understanding personal services income rules is vital for certain business structures to access deductions and optimise tax obligations. This episode breaks down key concepts for owners earning income predominantly from their personal exertion.