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PSI in TR 2022/3 is worked out in 9 steps. Not that the Taxation Ruling lists those nine steps but this is what it comes down to. In this episode we cover Step 1 to 4. And then in the next two episodes, we cover Step 5 to 9.
PSI in TR 2022/3 – Step 1 to 4
In this episode, Neil Brydges of Sladen Legal in Melbourne walks you through the first four steps of dealing with PSI complying with TR 2022/3.
Here is what we learned but please listen in as Neil explains all this much better than we ever could.
To listen while you drive, walk or work, just access the episode through a free podcast app on your mobile phone.
PSI in TR 2022/3 – Step 1 to 4
When you try to work out a PSI issue, it can get a bit confusing. There are five percentages – 20%, 50%, 75%, 80% and 100% – that play a big role. And then there are 6 tests – the 50% PSI test, the 80% hurdle and then the four PSB tests. And so it helps to put all this into a proper process – steps 1 to 9.
Step 1 to 4
You start with the 50% PSI test – do you even have PSI? Then you identify the test individuals, allocate the PSI to them and then do the first PSB test, the 75% Results Test. That is what we will cover in this episode today – steps 1 to 4
Steps 5 to 9
If you fail the 75% Results Test, then in step 5 you look at the 80% hurdle, and if you pass the 80%, you do the Unrelated Clients, Employee and Business Premises Test. If you fail the 80% hurdle but otherwise would pass the employee or business premises test, then you look at an ATO PSB Determination. So these are steps 5 to 9 which we cover in the next two episodes, ep 419 and 420.
TR 2022/3
We have reworded the examples in TR 2022/3 for two reasons.
a) An example is like a story. And to tell a story you don’t use 137 protagonists. You focus on one, two or three but not hundreds of different names. That is a sure path to utter confusion.
So to make it less confusing, we don’t use 137 different names the ATO uses in their examples, but we just talk about Bob – Bob, Bob’s company, Bob’s family trust, his wife Sheila, and their two adult college kids. It’s all about Bob.
and b) If you can say something in 10 words, then don’t say it in 523 words. So we have also significantly shortened the examples. Just makes it easier to focus.
50% PSI Test
To look at PSI, it is easy to jump straight to the 4 PSB tests. There is a lot of talk about the results, unrelated clients, employees, and business premises tests. They are getting all the limelight when it comes to PSI.
But before you get to the 4 PSB tests, you need to identify whether you even have PSI and which test individuals received this PSI. So you start with the 50% PSI Test. That is where it all begins.
The 50% PSI test is an all-or-nothing test. If personal efforts and skills are 50% or less, then nothing is PSI. And if personal efforts and skills are over 50%, even if they are just 50.0000001%, then all of it is PSI. So it is about all or nothing.
If you fail the 50% PSI Test and hence have PSI, then you identify the test individuals and allocate the PSI to them.
75% Results Test
Once you have allocated the PSI to the relevant test individuals, you run each individual individually through the 75% results test.
So this is how far we get in this episode. In the next two episodes 419 and 420, we go through the other three PSB tests and then also talk about PSB determinations.
Please listen in since we only touch the tip of the iceberg in these show notes. We go into a lot more detail in the actual episode.
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Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 20 May 2024
Tax Talks spoke to Neil Brydges - Principal Lawyer at Sladen Legal - for more details.
