PSI Rules for Doctors and Medical Professionals
The Personal Services Income rules are the most misunderstood area of tax for Melbourne medical professionals. Get this wrong and you’ll either miss structuring opportunities that are legitimately available to you, or set up a structure that delivers no actual tax benefit while costing you ongoing accounting fees to maintain.
This page explains what PSI is, how it applies to different types of medical professionals, and what it means for your practice structure and deductions.
What is Personal Services Income?
Income is classified as Personal Services Income when more than 50% of it is generated by your personal effort, skills, and expertise — rather than by assets you own or by a business structure employing others. For most doctors, the income earned from clinical work is PSI: it’s your skills, your knowledge, and your time that generates the revenue.
The key test is the 80% test: if you receive 80% or more of your income from a single client or practice, your income is PSI unless you can satisfy one of the PSI business tests.
The PSI business tests
The results test — You’re engaged to produce a specific result (rather than just provide time), you supply your own equipment or tools, and you’re liable to fix defective work at your own cost. For most Melbourne doctors paid under service agreements for consultation time, this test is difficult to pass. Surgeons engaged per procedure are more likely to pass it.
The unrelated clients test — You provide services to two or more unrelated clients, and you market your services to the general public. GPs working across two independent practices may pass this test.
The employment test — You employ or engage others who perform at least 20% of the principal work. For a sole practitioner this is difficult to satisfy.
The business premises test — You use premises (not a home office, not shared rooms at a client’s location) exclusively for your work, and the premises are physically separate from your home. Specialists with their own consulting rooms in a commercial building have a stronger case.
PSI in practice — how it applies to different Melbourne doctors
GP working under a service agreement at one practice, bulk billing. Most likely outcome: PSI applies. Income is generated by personal effort, comes primarily from one source, and you’re paid for time worked rather than a result.
GP working across two practices, approximately 50/50 billing. PSI may not apply, or may only partially apply. With income split roughly evenly between two unrelated practices, you pass the unrelated clients test. This opens up structuring options that don’t exist for the single-practice GP.
Dermatologist with own rooms in Melbourne CBD, billing across multiple private hospitals and their own patient list. Strong likelihood of passing the business premises test and the unrelated clients test. PSI less likely to apply. This doctor has meaningful structuring options.
Anaesthetist working primarily at one private hospital. Often a PSI situation — income concentrated from one source, earned through personal skill. The results test may assist if the anaesthetist is engaged to complete a procedure rather than to provide time. Worth examining the actual contract terms.
Locum GP working through an agency. Almost certainly PSI. Single payer (the agency), time-based payments, no genuine business infrastructure.
What PSI means for your structure and deductions
If your income is PSI, the following applies regardless of whether you operate as a sole trader, through a company, or through a trust:
- The income must be attributed to you personally for tax purposes
- You cannot income-split with family members through a trust or company
- Your company or trust cannot retain profits at the lower corporate rate
- Deductions are limited to those an employee in the same position could claim
Under PSI rules, you can still claim AHPRA registration, indemnity insurance, CME, professional memberships, and work-related travel between practice locations — these are all expenses an employee in your position would also incur. You cannot claim rent on premises used only for your PSI work, or salaries paid to associates for work on your PSI income.
Related services
- Accounting and tax for doctors — full overview
- Practice entity structuring for doctors
- Accounting for GPs
- Accounting for surgeons and specialists
- Accounting for locum doctors
Frequently asked questions
How do I know if PSI rules apply to my medical income?
The key question is whether more than 80% of your income comes from a single client or practice. If yes, you almost certainly have PSI income. If your income is spread across multiple unrelated practices or clients, you may pass one of the PSI business tests — particularly the unrelated clients test. We assess this specifically for each doctor.
Can I still have a company if my income is PSI?
Yes — you can still operate through a company structure. But PSI rules require the income to be attributed back to you personally for tax purposes, which means the company cannot retain profits at the 25% corporate rate or split income with family members. The company may still be useful for managing cash flow and building financial infrastructure.
What is the results test for PSI, and can Melbourne doctors pass it?
The results test requires that you are engaged to produce a specific result (rather than just provide time), supply your own equipment or tools, and are liable to fix defective work at your own cost. For most Melbourne doctors paid under service agreements for consultation time, this test is difficult to pass. Surgeons engaged per procedure are more likely to pass it.
Does PSI affect what deductions I can claim?
Under PSI rules, deductions are limited to those an employee in the same position would be entitled to claim. AHPRA registration, indemnity insurance, CME, professional memberships, and work-related travel are still deductible. However, you cannot claim deductions for rent on premises used only for your PSI work, or salaries paid to associates for work on your PSI income.
Contact us on 1300 212 663 or at our Melbourne CBD office.