March 31, 2026 | Consultant Compliance

PSI Rules for Consultants: The 2026 Personal Services Income Guide

Key Takeaways

The PSI rules are designed to prevent individuals from "hiding" personal income within a company structure.
Pass the Results Test to be classified as a Personal Services Business (PSB) and avoid most PSI restrictions.
The 80/20 rule is the largest hurdle for solo consultants—no single client should represent more than 80% of your income.

In 2026, the ATO is more focused than ever on ensure professional service providers pay their fair share. For management consultants, this means the Personal Services Income (PSI) rules are a constant shadow over your bookkeeping.

If the ATO decides your consulting income is "personal", they will treat you like an employee of your own company, limiting your deductions and changing your tax rate. Here is how to understand—and navigate—these complex rules.

1. What Exactly is PSI?

PSI is income that is earned mainly as a reward for your personal efforts or skills. If you are a management consultant, your income is almost certainly PSI because clients are paying for *your* advice, not for a product or the use of an asset.

2. Are You a Personal Services Business (PSB)?

This is the "Golden Ticket." If you qualify as a PSB, the restrictive PSI rules do not apply to you. To be a PSB, you must pass one of several tests:

The Results Test: You are paid to produce a specific result, you provide your own tools, and you are liable for the cost of fixing any defects/mistakes. (This is the strongest test to pass).
The 80% Rule: If you get more than 80% of your income from one client, you must also pass one of the three "remaining" tests: The Unrelated Clients test, Employment test, or Business Premises test.

💡 Note: If you are a solo consultant working via a recruitment agency for a single government department on a long-term contract, you are almost certainly caught by the PSI rules. You may need to obtain a PSB Determination from the ATO to protect your business deductions.

3. The Consequences If PSI Rules Apply

If you fail to qualify as a PSB, the tax implications are significant:

The business cannot retain profit (it must all be paid out to the individual as salary).
You cannot split income with a spouse (unless they also performed the consulting work).
Certain deductions are disallowed, such as rent paid to an associate or interest on a personal car.

4. Protecting Your Practice

The best way to protect your consulting brand from PSI issues is to ensure your contracts are written as "Service Agreements" for a result, rather than "Labor Hire" for a set number of hours. Diversifying your client list so that no one client dominates more than 80% of your billings is also a key strategy in 2026.

Worried About the PSI Rulings?

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