PSI Compliance Focus

The ATO has made it clear that it is focusing on compliance situations where profits relating to an 
individual’s personal services are split with others or  retained in a company. 

PCG 2025/5 was released late last year and sets out the ATO’s compliance approach in terms of whether the general anti-avoidance rules in Part IVA can apply to trusts or companies that derive personal services income (PSI) and are able to pass the PSI tests. While the PSI attribution rules don’t apply to these entities, this doesn’t necessarily mean that Part IVA can’t apply.

The ATO continues to focus on higher-risk arrangements, particularly where significant amounts of PSI are diverted away from the individual who generated the income. The ATO is encouraging personal services businesses (PSBs) to review their arrangements and address any PSI alienation risks as soon as possible. 

Where a genuine effort is made to move an arrangement to a low-risk position by 30 June 2027, the ATO has indicated it will generally not seek to apply Part IVA if the arrangement is reviewed during the transition period. 

The ATO has clarified that its compliance approach under PCG 2025/5 is not an amnesty or safe harbour, but a targeted initiative encouraging PSBs to review and address higher-risk PSI alienation arrangements. The ATO has indicated it will continue to scrutinise high-risk cases, but voluntary corrective action taken by taxpayers will be considered when determining whether to pursue Part IVA compliance action.

Where a PSI review commences between 28 November 2025 and 30 June 2027, the ATO has stated it will generally not seek to apply Part IVA if a PSB can demonstrate a genuine attempt to move an alienation arrangement to a low-risk position. This includes selfassessing whether PSI has been inappropriately diverted, taking meaningful steps to address higher-risk behaviours, and ensuring current year tax returns are compliant. In cases involving significant PSI diversion, prior year returns may also need to be amended.

For reviews or audits already underway, the ATO has indicated it will work with taxpayers to identify any further action required to address historical noncompliance. However, where a review or audit has 
been finalised and an assessment or Part IVA determination issued, the decision will generally stand, subject to normal objection rights.

The ATO has also clarified how PCG 2025/5 interacts with PCG 2021/4 on professional firm profit allocation. PCG 2025/5 applies where income is primarily generated from an individual’s personal services and there is a risk of PSI alienation, while PCG 2021/4 applies to broader professional practices supported by systems, staff and capital, where the income is generated from a business structure. TheATO emphasises that as businesses evolve, alienation risk is not removed entirely but assessed under a different compliance framework.