PSI vs PSB for Solar Contractors and Subbies — How to Pass the Personal Services Business Tests in Australia (2026)

If you're a solar installer, EPC subbie or carbon-credit broker operating as a sole trader, partnership, trust or one-person company, the Personal Services Income (PSI) rules under Part 2-42 of the Income Tax Assessment Act 1997 may apply to your business — and if they do, the ATO can re-attribute your income to you personally, deny most of your deductions, and audit historic returns.

What we see in first-quarter engagements: at least one in four sub-$5M installer or subbie clients is operating in PSI territory without realising. Some have been there for years. The fix is structural — and the test runs year by year, so this matters every 30 June.

This guide walks through what triggers PSI, the four Personal Services Business (PSB) tests that get you out, the 80% rule that overrides them, and three worked solar-contractor scenarios.

What is Personal Services Income?

Personal Services Income is income that is mainly a reward for an individual's personal efforts or skills. Plumbing, electrical work, installation labour, consulting, project supervision — anything where the value you sell is fundamentally your labour rather than the use of an asset, the supply of materials, or a productised output.

The 50% test: if more than half of the income from a contract is for the labour, skills or expertise of one individual, the ATO treats the whole contract as PSI.

Examples in solar, EPC and renewables

• A sole-trader installer billing labour-only days to one EPC main contractor — PSI.

• A 2-person installer team where one director runs all site work — PSI for that director's slice.

• An O&M technician sub-contracted to one solar farm operator under a labour-rate contract — PSI.

• A project manager engaged for a 6-month commissioning period at day rates — PSI.

If a contract supplies labour AND materials and the materials are >50% of the contract value, it may not be PSI. But labour-only and labour-dominant contracts almost always are.

When the PSI rules apply

Default rule: if your income is PSI and you don't pass at least one of the four Personal Services Business tests, the PSI rules apply.

When they apply:

1. Income is attributed back to you as an individual — even if you billed through a company, partnership or trust, the net PSI is treated as your personal income.

2. Most deductions are denied — rent on home office (unless you pass the business premises test), payments to associates, super for associates, most vehicle deductions, sub-contractor payments where the work is what you'd otherwise do yourself.

3. You can't split income — even via a trust to family members.

4. PAYG withholding rules apply — your client may need to withhold tax from your invoices.

5. Small-business CGT concessions and instant asset write-offs may not be available.

The hit on a $200k-$300k sole-trader installer who flunks PSI can easily be $30k-$60k per year in lost deductions and re-attributed income. Over 5 years with ATO audit interest, you're looking at a six-figure remediation event.

The four PSB tests — pass one to escape

The Personal Services Business tests let you operate normally — as a business, not as a personal-services individual. You need to pass at least one.

1. The Results Test (the gold standard)

You pass if, for at least 75% of your PSI in a year, you meet all of:

• You're paid to produce a specific result — a working solar install, a commissioned battery system, a completed O&M cycle — not just hours.

• You supply the plant and equipment or tools of trade needed to produce that result.

• You are liable to rectify defects at your own cost.

Why this is the gold standard: passing the Results test means you don't have to worry about the 80% rule (covered below). You can rely on Results no matter how concentrated your client base is.

What kills it for solar contractors: day-rate contracts. Time-and-materials. Labour-hire arrangements where the principal supplies the tools. Contracts with no defect-liability clause. Sub-contracts that say "follow the main contractor's directions" rather than "deliver this specific outcome."

2. The Unrelated Clients Test

You pass if:

• You earn PSI from two or more unrelated clients in the year, AND

• You get the work from making offers to the public — advertising, a website, networking, referrals from past unrelated clients. Not just word-of-mouth through one principal.

Sub-contracting through one EPC main contractor who then assigns you to multiple end sites does NOT count as multiple clients — the main contractor is your only client.

3. The Employment Test

You pass if you have employees (or contractors who are not associates) doing at least 20% of the principal work — the work that generates the PSI. Apprentices count and the threshold drops in some circumstances. Check current ATO guidance for the exact rule each year.

For a sole-trader installer with no staff: not available.

4. The Business Premises Test

You pass if you have business premises that:

• Are used exclusively by you to do the principal work — not a corner of the spare bedroom.

• Are physically separate from your private residence.

• Are physically separate from the premises of your clients.

• You have exclusive use of — not a co-working hot desk or a desk at the main contractor's office.

A dedicated yard, workshop or warehouse used only for solar install operations passes. A home office in your living room doesn't.

The 80% rule — the trap that overrides everything

If 80% or more of your PSI in a year comes from one client and that client's associates, you can only rely on the Results test to escape PSI. You can't use the Unrelated Clients, Employment or Business Premises tests on their own — even if you tick those boxes — unless you also get a Personal Services Business Determination (PSBD) from the ATO.

Many solar subbies sit at 90-100% from a single main contractor. They have a great workshop, run public ads, and tell themselves they're a real business. None of that matters under the 80% rule. They either need to pass Results, get a PSBD, or diversify.

How to monitor the 80% threshold

Track invoiced PSI by client each quarter. If a single client is creeping above 70%, you have two quarters to either:

• Bring on new clients to bring the % down, or

• Restructure the contract to clearly pass the Results test, or

• Apply for a PSBD with the ATO — lead time 28+ days.

We track this monthly in the Financial Controller tier as part of revenue-concentration risk reporting.

Three worked solar-contractor scenarios

Scenario 1: Sole-trader installer sub-contracted to one EPC main contractor

Mike, sole-trader, $240k turnover, 95% from one EPC main contractor on labour-hire day rates. EPC supplies materials and most large tools; Mike supplies hand tools.

Verdict: Fails Results — no specific result, no tools, no defect liability. 80% rule triggers — can only rely on Results. PSI applies. Mike's $240k is attributed to him personally. Most deductions denied. Tax bill jumps about $22k from what he'd been reporting.

Fix: Restructure contracts to outcome-based — per-install fee with defect warranty. Bring on 2-3 unrelated retail customers to drop EPC below 80%. Reassess at year-end.

Scenario 2: 4-client O&M technician

Sarah, sole-trader, $180k turnover, 35% / 30% / 20% / 15% across four solar farm operators. She advertises on LinkedIn and via a website.

Verdict: Passes Unrelated Clients — 4 unrelated clients sourced via public offers, no single client above 80%. PSI does not apply. Sarah can claim her ute, fuel, super, and run her structure normally.

Scenario 3: Carbon-credit broker / accredited project manager

Raj, $320k turnover, 60% from one large carbon-credit aggregator on retainer plus 40% from two other operators on project fees. Has a dedicated office in a shared business park — exclusive use, not at any client's premises.

Verdict: Passes Business Premises — exclusive-use business premises. Also passes Unrelated Clients — 3 unrelated clients, no single client at 80%. Two tests passed — comfortable PSB status. PSI does not apply.

Six common mistakes we fix in first-quarter engagements

1. Assuming a trust or company structure shields you. It doesn't. PSI rules pierce the structure — the income still gets attributed back to the individual who did the work.

2. Confusing labour-hire with results-based contracts. A labour-hire contract is the textbook PSI trigger. A results-based contract — per-install, per-MW, per-commissioning-milestone with defect warranty — is the textbook PSB Result test pass. The wording of the contract matters.

3. Not documenting what the contract actually pays for. If your invoice says "labour 40 hrs @ $85/hr" you're billing labour. If it says "Complete installation of 6.6kW system at [site] including commissioning and 12-month workmanship warranty — $4,800" you're billing a result. Same dollars; very different ATO posture.

4. Missing the 80% threshold deadline. The 80% test runs per income year (1 July – 30 June). By March / April each year you should know whether you'll trip it. Waiting until tax time is too late to restructure.

5. Sub-contracting through one principal forever. Comfortable, predictable — and a structural trap. We help clients build a deliberate diversification plan (2-3 secondary clients) to keep PSI risk low.

6. Claiming home office without passing the Business Premises test. The home-office deduction under PSI rules is extremely restrictive. Best to either move to a real business premises or accept the limitation.

Where this fits in a TechEdge engagement

Across every Finance Office tier, we monitor PSI / PSB risk as part of monthly close:

• Finance Manager tier (from $2,750/mo): Track invoiced revenue by client. Flag when any client crosses 70% of PSI year-to-date. Surface at month-end review.

• Financial Controller tier (from $4,950/mo): All the above plus contract-structure review at engagement start. We read your master service agreements and flag any clauses that put PSB status at risk — no defect-liability clauses, no tools-of-trade clauses, principal-direction language.

• Head of Finance tier (from $8,500/mo): All the above plus PSBD application support, ATO ruling requests where structure is borderline, and pre-tax-time scenario modelling so you know the cash impact 90 days before lodgement.

The cost of getting PSI / PSB wrong on a $200k-$500k installer or subbie business is structurally larger than a year of the Finance Manager tier. This is one of the highest-ROI conversations we have with new clients.

Related reading

• Outsourced Finance for Solar Installers in Australia — Five Revenue Streams Done Right

• Construction Accounting Australia — A CPA's Practical Guide to AASB 15

• ACCU & Carbon Credit Accounting in Australia

• Finance Function Maturity Audit

Take the Maturity Audit

Not sure where you sit? Take the 5-minute Finance Function Maturity Audit and we'll send back a tier recommendation and a structural risk flag within 48 hours.

Or book a 30-min discovery call — bring your top 2-3 contracts and we'll tell you in real-time whether you'd pass a PSB test today.

PSI / PSB rules are complex and fact-specific. This article is general guidance, not personal tax advice. Engage a CPA to assess your specific contracts and circumstances. Last updated 27 May 2026 reflecting the ATO's current guidance and Part 2-42 ITAA 1997.