At the TAXATION, we understand that doctors and other medical professionals often earn income directly from their personal services. While this is common in the healthcare industry, it raises important tax considerations—particularly around Personal Services Income (PSI). Knowing how PSI works and how to manage it can save you from unexpected tax issues and ensure your practice is structured effectively.
What Is PSI? (According to the ATO)
Personal Services Income (PSI) is income mainly earned from your personal skills, knowledge, or efforts. For doctors, this often includes:
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Session fees or consulting income
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Specialist referral fees
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Payments made directly for your professional services
If more than 50% of your income comes directly from your personal work (not from staff, assets, or business systems), the ATO may classify it as PSI.
The Australian Taxation Office (ATO) defines Personal Services Income (PSI) as income that is mainly a reward for your personal efforts or skills, rather than being generated by the use of assets, plant, equipment, or employees. Australian Taxation Office+1
Why is PSI Important for Doctors?
If PSI rules apply:
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Limited deductions: You can only claim expenses directly related to earning that income (e.g., professional indemnity insurance, medical supplies). Broader business deductions, like rent, marketing, or staff costs, may be restricted.
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Taxed like wages: The income may be treated as if you personally earned it, even if it flows through a company, trust, or partnership.
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Increased tax risk: Incorrectly claiming deductions or misclassifying PSI may attract ATO review or penalties.
For medical practitioners who often use service entities (such as companies or trusts), failing to manage PSI properly can result in higher taxes and compliance issues.
How Doctors Can Avoid PSI Rules Applying
Doctors can demonstrate that their practice is genuinely a business and not simply personal services income. This can be done by passing certain tests:
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Results Test
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Show that you are engaged to achieve a specific outcome, not just to provide personal services.
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Example: A doctor contracted to run a vaccination clinic with responsibility for the full outcome, not just hourly services.
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Unrelated Clients Test
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Derive income from multiple, unrelated clients or medical practices.
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Example: A doctor working across several independent clinics or on a locum basis.
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Employment Test
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Employ or engage others (doctors, nurses, or assistants) who perform at least 20% of the principal medical work.
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Example: Running a medical centre with other practitioners providing patient care.
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Business Premises Test
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Maintain your own consulting rooms or medical practice premises, separate from your home or client facilities.
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Example: Leasing a clinic space and operating independently.
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If you pass the results test, or one of the other tests (and less than 80% of your income is from one client), the PSI rules will not apply.
Practical Tips for Doctors
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Diversify your client base: Work for multiple practices or contracts.
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Employ staff: Engage nurses, medical receptionists, or other doctors.
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Invest in business structure: Lease your own premises, invest in equipment, and build a recognisable brand.
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Keep clear records: Maintain contracts, invoices, and evidence to show you operate a business and not just as an individual earner.
Final Thoughts
For doctors, the way income is classified can significantly affect both your tax obligations and your ability to claim deductions. With the right structure and approach, you can ensure PSI rules don’t unfairly limit your business.
At the TAXATION, we help medical professionals structure their practices effectively, reduce compliance risks, and maximise tax outcomes.
📞 Contact the TAXATION today to review your PSI position and ensure your practice is working for you, not against you.
