PSI and expenses related to future income

Trading under ABN as a sole trader. PSI rules apply. I use a private contractor (not an associate) to do part of the principal work

I am currently working on a project that'll help me gain more PSI work in the future , used the same contractor services to get help. Are their fees in relation to this a valid deduction against current year PSI income?

 

the contractor is providing services to your business ?

and they will supply you with a valid tax invoice ?

cant see why that would be an issue. just make sure they have an abn and that they arent in an employee relationship.

 

Yes to both questions. One of them has an ABN, the other one is an overseas contractor. They both supply invoices.

I was under the same impression as well until someone recently said that since it's not directly related to current PSI contracts/income but MAY help result in future PSI - it may not be deductible but that didn't make any sense.

 

relevant legislation would be s8-1 iTAA97

As long as not prohibited elsewhere a general expense connected to the production of income should be deductible

 

PSI rules are not relevant to a sole trader. Its all their income anyway. The alienation rules limit that person paying related parties etc or switching the income. These are far older tax rules than the PSI rules introduced around 1999. The real issue is can I deduct the outgoing to a contractor ?

Yes, The general deductibility priciples apply. Provided they perform services and there are no non-arms length issues. The timing issue is one for cashflow management and doesnt limit deductibility.

Have you considered the workers comp problems ?
1. You are not covered for a workplace injury
2. Unless as a sole trader, you have a workers comp policy, the contractor could claim for injury and you could be personally liable without a policy

I would be ensuring you have a suitable contract agreement drawn up so they also dont argue you owe super, that they are entitled to more that is agreed and invoiced etc. And dont pay them "by the hour". Pay them for results eg specific tasks and measures. That way its less likely their income is PSI if they use a company.

 

1. Both are remote workers and I worked a clause into the contract that they should hold appropriate liability insurance.
2. Good point, I remember looking at this at one point. I should get a jump on this to cover myself. This particular business is in IT but nevertheless good to have this in place.

The local contractor only gets clearly spelled out results based tasks with fixed quotes that I raise a PO for. The overseas contractor is paid a retainer and does a minimum amount of hours each month (not unlike a casual employee) but on a month-to-month contract basis. Accountant said this should be fine with further no obligations to tax withholding or paying social security in their home country.

 

Might be worth just checking (it’s unclear from
above) that their work isn’t Capex in nature to support your future PSI over multiple years.