‘Nothing new’: Tax experts weigh in on ATO’s PCG 2025/5

With this guideline, the Tax Office also revealed practical guidance on the types of alienation that it would consider to be either low or higher risk of Part IVA applying and the likelihood of the ATO having cause to apply compliance resources to review those arrangements.

The ATO made clear it had a long-standing view on the treatment of PSI according to ordinary tax rules and the potential application of Part IVA, its predecessor, former section 260, to income splitting and retention of profits arrangements.

“For the purposes of this guideline, alienation of PSI occurs when the services of an individual are provided by an interposed entity controlled by or associated with the individual rather than directly by the individuals who perform the services,” the PCG said.

“There have been many cases where those provisions have been found to apply to the alienation of PSI. Nevertheless, and despite the note to section 86-10 of the Income Tax Assessment Act 1997 (ITAA 1997), we are aware that some taxpayers incorrectly assume that where a PSB is being conducted, and the provisions of Division 86 of the ITAA 1997 do not apply to their income splitting or retention of profits arrangements.”

On the released guidance, many opinions and perspectives were shared from the tax community, yet the Institute of Public Accountants senior tax advisor, Tony Greco, told Accountants Daily the final practical compliance guideline on PSI and the application Part IVA contained “nothing new”.

“It’s an untested interpretation of whether the ATO can apply Part IVA when the entity has passed the PSI tests and is conducting a personal services business,” he said.

“The pursuit would argue that you cannot alienate PSI income and therefore Part IVA is relevant. Others would argue that the PSI rules were specifically put in place so that you could alienate your PSI where you satisfy the tests and are conducting a personal services business.”

Greco added that until there was a test case, the ATO’s interpretative position would remain unresolved and a test case was what was needed to bring the matter to rest.

“To date, no one has been willing to test the law and air their private details in the public domain to bring clarity to these anti-avoidance provisions in the PSI law. The one silver lining is that the ATO says it will not apply compliance resources to pursue Part IVA where taxpayers have made a genuine attempt to move into a low-risk arrangement by 30 June 2027.”

Over the weekend (29 November), The Australian Financial Review reported on the release of the final PCG and included comments from tax advocate and specialist, Robyn Jacobson, who said this was an area of confusion since the rules had been established, and there had always been potential for Part IVA to apply in these circumstances.

Jacobson told the Financial Review: “Some taxpayers have wrongly assumed that Part IVA cannot apply to their arrangement where they pass the PSI tests and are conducting a personal services business.”

Lee-Ann Hayes, Accurium head of tax education and co-host of Under the Hood, also contributed to the conversation following the ATO’s release of the final guidance.

Hayes told Accountants Daily she felt “quite vindicated” as she had been warning practitioners that, despite having a PSB, the ATO always had Part IVA up its sleeve.

“We almost have a whole new generation of accountants that have not needed to directly concern themselves with those old pre-PSI IT rulings, so there is a misconception that having a PSB is a green light to retain or split,” she said.

“I am also concerned it signals the gearing up of a compliance focus on this area by the ATO, particularly as we have the allocation of professional firm profits sitting in the background. That and also TR 2022/3, looking at the PSI rules more broadly.”