PSI vs PSB for Solar Contractors and Subbies: How to Pass the Personal Services Business Tests in Australia

May 27

6 min read

Updated: Oct 13

By Rami Rajkumar, CPA, Founder and Partner, TechEdge Accounting. Updated 13 October 2026.

TL;DR. If you install, commission or maintain solar as a sole trader, or through your own company, trust or partnership, a lot of what you earn may be personal services income (PSI). If you can't self-assess as a personal services business (PSB) and don't hold a PSB determination from the ATO, the PSI rules apply. That limits your deductions to roughly what an employee could claim, and if you earn through an entity, the income gets attributed back to you.

What counts as personal services income

The ATO describes PSI as income that is mainly a reward for an individual's personal efforts or skills. The test is applied contract by contract. If more than 50% of what you're paid under a contract is for your personal efforts or skills, all the income from that contract is PSI. If it's 50% or less, none of it is.

In solar and EPC work, these arrangements usually land on the PSI side:

A sole trader installer billing labour-only day rates to one EPC main contractor.
An O&M technician on an hourly rate with a single solar farm operator.
A project manager engaged at a day rate for a commissioning period.

A contract where the materials and equipment you supply make up most of the price is a different story. The more the value comes from things other than your own labour and skill, the less likely the income is PSI.

The four PSB tests

You can self-assess as a PSB, and the PSI rules won't apply, if you pass one of these four tests.

1. The results test

You pass if, for at least 75% of your PSI in the year, all three of these are true:

You're paid to produce a specific result, such as a completed and commissioned install, not just for your hours.
You're required to provide the equipment or tools needed to do the work.
You're required to fix mistakes at your own cost.

This is the strongest test for solar subbies because the 80% rule (below) doesn't apply to it. Day rates, time and materials billing and labour hire setups where the principal supplies the tools usually fail it.

2. The unrelated clients test

You need PSI from two or more clients who aren't associated with each other, and the work has to come from offers or invitations you made to the public. The ATO says word-of-mouth referrals don't satisfy this. Neither do offers accepted through labour hire firms or similar intermediaries, or work you get by registering with an agency.

3. The employment test

You pass if at least 20% of the principal work (the work that produces the PSI) is done by others you engage, or if you employ one or more apprentices for at least half of the income year. A sole installer with no staff and no apprentice can't use this test.

4. The business premises test

At all times during the income year, you need business premises that you:

Use mainly (more than 50%) for the work that produces your PSI.
Have exclusive use of.
Keep physically separate from any premises you or your associates use for private purposes.
Keep separate from your clients' premises.

A dedicated workshop or yard can pass. A room at home or a desk at the main contractor's site office won't.

The 80% rule

If 80% or more of your PSI in a year comes from one client and their associates, you can't rely on the unrelated clients, employment or business premises tests. The only way to self-assess as a PSB then is the results test.

Plenty of solar subbies get most of their work from one main contractor. A good workshop and a website don't help them if they're above 80%. Their options are to pass the results test, diversify their client base, or apply to the ATO for a PSB determination, which the ATO says may be available in some circumstances, such as unusual ones.

Track invoiced income by client each quarter. If one client is drifting past 70%, you still have time in the year to change something before 30 June.

What happens if the PSI rules apply

For a sole trader, the main effect is on deductions. The ATO says your deductions are limited to those available to an employee. In practice that means:

No deductions for rent, mortgage interest, rates or land tax on your home.
No deduction for paying an associate, such as a spouse or relative, for non-principal work like bookkeeping or invoicing, and no deduction for their super either.

You can still deduct what you pay arm's length employees or contractors, and reasonable amounts paid to an associate who does principal work.

If you earn through a company, partnership or trust, the PSI is attributed to you as the individual who did the work. The entity can only claim car expenses for one privately used car, and it has extra PAYG withholding obligations on the amounts attributed to you.

The PSI rules don't make you an employee of your client, and they don't affect your ABN or GST registration.

Three solar examples

These are simplified to show how the tests interact. Your own contracts decide the answer.

Example 1: sole trader installer, one main contractor

Mike earns 95% of his income from one EPC contractor on day rates. The contractor supplies the materials and the larger tools. Mike isn't paid for a result and isn't liable for defects, so he fails the results test, and the 80% rule shuts off the other three. The PSI rules apply, so his home office and the money he pays his partner for invoicing aren't deductible.

What changes it: moving to a per-install price with Mike supplying the tools and carrying the defect liability, and winning some direct work from customers who find him through his own advertising.

Example 2: O&M technician with four clients

Sarah services four unrelated solar farm operators, with no client above 35% of her income, and she wins work through her website and LinkedIn. She meets the 80% rule and passes the unrelated clients test, so she can self-assess as a PSB.

Example 3: carbon project manager with an office

Raj earns 60% of his income from one aggregator and the rest from two other operators. He rents an office in a business park that only he uses, separate from his home and his clients. He meets the 80% rule and passes the business premises test. If his work from the other two came from his own public offers, he'd pass the unrelated clients test too.

Five mistakes we see

Assuming a company or trust fixes it. If the PSI rules apply, the income is attributed back to the individual who did the work.
Invoicing hours when the job is a result. "40 hours at $85" reads as labour. "Supply and install a 6.6kW system, including commissioning and a 12-month workmanship warranty" reads as a result. The contract has to back the invoice up.
Leaving the 80% check until tax time. The test runs over the income year from 1 July to 30 June. By March you should know where you'll land.
Counting agency or labour hire work as public offers. The ATO says it doesn't count for the unrelated clients test.
Claiming home occupancy costs anyway. Rent, mortgage interest, rates and land tax on your home aren't deductible against PSI when the rules apply.

Even when you pass a PSB test, the ATO still looks at arrangements that split income or retain profits in an entity to pay less tax overall. Its practical compliance guideline PCG 2025/5 sets out how it approaches that.

How we handle it for clients

On our Finance Manager tier, from $2,750 a month, we track invoiced revenue by client and flag anyone heading past 70%. On Financial Controller, from $4,950 a month, we also review your main contracts at the start for clauses that put the results test at risk, such as day rates, principal-supplied tools and missing defect liability. On Head of Finance, from $8,500 a month, we add PSB determination applications and modelling of the tax impact well before you lodge.

Talk to a CPA

Bring your two or three biggest contracts and we'll tell you which PSB test, if any, you'd pass today.

Book a free 30-minute call with a CPA, email info@techedgeaccounting.com.au or call +61 468 634 973.

General information only, not tax advice for your circumstances. PSI and PSB details reflect ATO guidance as at 13 October 2026. Check with your adviser before acting.