Almost all working holiday ABN income is personal services income, because you are paid for your own labour rather than for goods, assets or other people's work. PSI is not a penalty. It restricts a small set of deductions that backpackers rarely have anyway.
What counts as personal services income?
Income earned mainly from your own skills or effort rather than from selling something. If the payer is buying your hands and your hours, the income is PSI whatever the invoice says.
- Tradespeople paid for their labour
- Cleaners paid for their cleaning
- Fruit pickers paid by the bin or by the hour
- Freelancers and consultants paid for their own work
- Delivery riders paid per drop
A carpenter invoicing a construction company is paid for hours and skill, so that is PSI. So is a picker invoicing a labour hire contractor.
What would make your ABN income business income instead?
Business income comes from something other than your personal effort: goods you produce, assets you own, or people you employ. The test is whether the money would still arrive if you were not there to do the work. For nearly every backpacker on an ABN, the answer is no.
- Producing and selling goods, such as a bakery
- Income from business assets, such as leasing equipment
- Employing others to do the work you have contracted for
- Reselling products bought from suppliers
How does the 80% rule actually work?
The 80% rule is the first test the ATO applies: if more than 80% of your personal services income in a year comes from one client and their associates, you cannot self assess out of the PSI rules. Below 80%, three further tests can take you out of PSI, and you need pass only one.
- Results test: you are paid for a specific outcome, supply your own tools, and are liable to fix defects at your own cost
- Unrelated clients test: you have two or more unrelated clients won through public advertising or a similar offer
- Employment test: you pay someone else to do at least 20% of the principal work
- Business premises test: you work from premises that are physically separate from your home and your client's
In practice most working holiday makers fail all four. One farm, one agency or one platform supplies nearly all the income, the tools are the client's, and there is no separate premises.
Which deductions does PSI actually restrict?
PSI restricts deductions that only make sense inside a real business structure and leaves the ordinary work related deductions intact. What goes is the ability to shift income or costs onto other people.
Still deductible under PSI:
- Tools and equipment you personally use
- Protective clothing and uniforms
- Travel between work sites on the same day
- Vehicle expenses for genuine business travel
- The work portion of phone and internet
- Self education directly related to the work you are already doing
Restricted or unavailable under PSI:
- Wages or superannuation paid to a partner or family member for support work
- Rent for premises that the work does not genuinely require
- Most home office occupancy costs
Does PSI change what a rider or a picker can claim?
For riders, pickers, cleaners and labourers, PSI changes almost nothing. The bike, the boots, the phone plan share and the kilometres between sites are still claimable. The restricted deductions are ones this group does not have.
We see the anxiety far more often than the consequence. Someone reads that their income is PSI, assumes deductions are being taken away, and either overclaims or claims nothing. Both cost money.
When does the classification genuinely change your outcome?
It matters when the ABN work is a real second business rather than dressed up wages. If you subcontracted other backpackers, split invoices with a partner, or ran two genuinely unrelated client bases, the tests can produce a different answer and the deduction set widens.
It also matters when the ABN was never appropriate. Where the arrangement looks like employment, with set hours, supervision and the client's equipment, the issue is not PSI but sham contracting, which changes who owes your super and your minimum rates. Our guide on employee versus contractor status sets out that test.
What decides it in your case?
Four facts you already know: how many clients paid you, whether any one accounted for more than 80% of the ABN income, whether you supplied the tools and carried the risk of fixing your own mistakes, and whether anyone worked for you.
PSI, sham contracting and ordinary contracting all look identical on a bank statement and produce different returns. When we prepare a tax return with ABN income in it, describing the work accurately, who paid you, how you were paid and whose equipment you used, is what tells us which rules apply.