“If most of our income comes from one person’s skills or effort, are we exposed under the PSI or anti-avoidance rules?”

The ATO has sharpened its focus on personal services income arrangements, and the message is not subtle.

If income is being generated mainly through one person’s skills, effort or reputation, the ATO wants to know that the structure around that income still makes commercial sense and is not mostly there to reduce tax.

This does not mean every company or trust structure is suddenly a problem. Plenty of business owners use those structures for legitimate reasons like asset protection, flexibility and succession planning. The issue is what happens when the structure starts to create a big mismatch between who did the work and who gets taxed on the profit.

The ATO has made it clear that even where a business passes the usual tests to be treated as a Personal Services Business, the broader anti-avoidance rules in Part IVA can still apply if the arrangement is mainly tax-driven. That is a big warning for businesses that assumed clearing the PSI rules meant the story ended there.

Low-risk arrangements are more likely where:

• The person doing the work receives most of the economic benefit
• Profits retained in a company are backed by a genuine short-term business plan
• And family members are only paid commercially reasonable amounts for real work performed

Higher-risk arrangements are the ones you would probably expect:

• Income splitting with family members who did not really contribute
• Retaining profits without a genuine short-term commercial reason
• Or directing profit to entities or beneficiaries mainly because they pay lower tax or have losses to soak it up

The one useful piece of breathing room is the ATO’s transition period. Businesses that genuinely review and adjust higher-risk arrangements by 30 June 2027 are less likely to face Part IVA action on those arrangements if reviewed. It is not an amnesty, but it is a clear opportunity to get ahead of the issue.



Final thought

If the business is largely you, the structure around that business needs to stand up to a closer look. A review now is a lot cheaper and calmer than an audit later.