ATO and income splitting – this time its personal
12/12/2025
The Australian Taxation Office (ATO) has issued Practical Compliance Guideline PCG 2025/5, a reminder that taxpayers are at risk of audit if personal services income is split to reduce tax.
The ATO has indicated that even if your business satisfies the statutory Personal Services Income (PSI) rules and operates as a Personal Services Business (PSB), your overall tax position may still be classified as either a ‘higher’ or ‘lower’ risk arrangement. This means that compliance obligations extend beyond simply meeting the PSI criteria, as how your arrangements are structured could affect your risk of being audited.
The guidance addresses the application of the general anti-avoidance provisions of Part IVA to the alienation of personal services income.
High-risk arrangements and the PCG
The ATO has flagged that taxpayers whose arrangements are deemed ‘high risk’ under the guidelines outlined in the ATO’s Practical Compliance Guide (PCG 2025/5) need to take proactive steps to move to ‘low risk’ arrangements.
This transition should occur before 30 June 2027. Failure to do so may result in the ATO allocating compliance resources to investigate these arrangements under Part IVA of the Income Tax Assessment Act, which addresses schemes intended to avoid tax.
Reviewing your Personal Services Business
Every business that generates income from providing personal services should carefully review its arrangements. The aim is to ensure compliance with the ATO’s expectations and to reduce exposure to potential audits or compliance action. Taxpayers are encouraged to assess their current structures and take steps to shift towards ‘low risk’ arrangements well before the 2027 deadline.
Industries impacted
The guidance is relevant to all industries where trading through companies or trusts is common. It particularly affects professionals who derive income from their personal services, including doctors, architects, accountants, lawyers, engineers, IT consultants, and tradespeople such as electricians and plumbers. Essentially, any business structure used to allocate income from personal work could be subject to scrutiny under PCG 2025/5.
How SW can help
SW can assist by reviewing your existing arrangements and providing guidance on how the ATO may view them in light of PCG 2025/5. Our expertise can help you identify areas of risk and implement changes to strengthen your compliance position, giving you confidence that your business is prepared for any potential ATO scrutiny.
