What Does the ATO’s New Guidance Means for Personal Services Structures
Late last year, the ATO finalised PCG 2025/5, setting out how it will apply Part IVA (the general anti-avoidance provisions) to arrangements involving Personal Services Income (PSI) earned through companies, trusts or partnerships.
While PCG 2025/5 does not change the law, it significantly clarifies where the ATO will focus its compliance activity, particularly for professionals who operate through structures that qualify as a personal services business (PSB).
A quick refresher: PSI, PSBs and the common misconception
Personal services income (PSI) is income that is mainly a reward for an individual’s personal effort or skills.
Many professionals correctly rely on the PSB tests (such as the results test or unrelated clients test) to avoid the specific PSI attribution rules. However, a long‑standing misunderstanding has been that passing the PSB tests is the end of the analysis.
PCG 2025/5 makes the ATO’s position very clear:
- Even if a structure qualifies as a PSB, the anti avoidance rules may still apply where income is diverted, retained or split in a way that lacks genuine commercial justification.
What PCG 2025/5 actually does:
The Guideline sets out a risk‑based framework showing when the ATO is more (or less) likely to apply compliance resources to PSI structures. It focuses on what the ATO refers to as “alienation arrangements” broadly, structures that look like genuine businesses but may be used to reduce tax, such as:
- Splitting income with family members on lower tax rates
- Leaving profits in a company without a commercial reason
- Diverting income to another entity to reduce tax
The ATO categorises arrangements into lower‑risk and higher‑risk, based on a range of indicators:
Lower-risk arrangements:
- Income is taxed to the person who earned it
- Payments to others reflect real work performed
- Money kept in a company is for genuine business needs
Higher-risk arrangements:
- Income splitting to others with little or no commercial involvement
- Long-term profit retention in companies without a genuine business purpose
- Remuneration that is not aligned with the value of services provided
Higher-risk setups are more likely to trigger ATO reviews and Part IVA concerns.
What this means in practice
For many, PCG 2025/5 will be a confirmation rather than a surprise. The ATO has long held concerns about profit retention and income splitting in PSI structures, this PCG simply formalises how compliance resources will be deployed.
That said, it does raise the bar on:
- clearly documenting commercial reasons for retained profits
- ensuring remuneration arrangements remain defensible over time
- periodically reviewing whether structures still reflect how the business actually operates
At Macro Group, we’re helping clients step back and check their existing structures against PCG 2025/5, focusing on:
- whether current outcomes align with commercial reality
- documenting business reasons for retained earnings
- identifying practical, low‑disruption adjustments where needed
Importantly, this is not about dismantling valid structures, but about ensuring they stand up to review if questioned.
If your business earns PSI through a company, trust or partnership now is an appropriate time to reassess your position.
Date: 27/04/2026
The Macro Group Limited AFSL: 485843 Tax Agent Number 24 76 5236.
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