Note: Published October 2025. Check the ATO’s current guidance on personal services income before relying on this article, and talk to your accountant about your own arrangements.

The Australian Taxation Office has signalled a significant shift in how it views family trusts used by professionals, with a renewed focus on anti-avoidance provisions and the personal services income (PSI) rules.

Key developments

The ATO is preparing a final practical compliance guideline for personal services businesses, starting with education for tax agents and professionals, followed by closer scrutiny and enforcement. Its concern is professionals such as doctors, lawyers, accountants, consultants and even tradespeople using companies and trusts to distribute income earned from their personal skills and effort to family members on lower tax rates.

What’s changing?

Family trusts and companies remain a legitimate part of business structuring in Australia. But the ATO is taking a firmer stance on arrangements that alienate personal services income. In practice, income generated directly from an individual’s professional expertise, rather than from business assets or trading activity, should be taxed in that individual’s hands.

The ATO’s definition of professional is broad and includes skilled tradespeople. The guidance will clarify the boundaries of acceptable income splitting and reinforce the general anti-avoidance rules in Part IVA where the dominant purpose of an arrangement is a tax benefit.

Practical implications

For example, if an accountant operating through a family trust earns $200,000 and distributes it equally to a spouse and adult children, the ATO is likely to see that as a problem under the anti-avoidance provisions. The same principle applies to other professionals and consultants.

The ATO does recognise legitimate commercial reasons for service trusts, such as employing administrative staff or owning specialist equipment. Excessive service fees or artificial arrangements designed mainly to divert income will attract attention.

Business income versus personal services income

Trusts remain appropriate vehicles for trading businesses such as retail or logistics, and for property holdings, where income comes from assets or the sale of goods rather than personal effort. In those cases income can be distributed according to the trust deed. The distinction is the source of the income.

Our perspective

Most of our clients want to comply with the law while getting the best outcome they legitimately can. The rising cost and complexity of compliance, particularly for small business owners and sole practitioners, makes tailored advice more important, not less.

• Review your structures. Make sure personal services income is being treated in line with ATO guidance.
• Document the commercial rationale. If you use a service trust, keep clear records of its purpose and how its fees are set.
• Stay informed. We’ll keep clients updated as the ATO’s position develops.

General information only. Not tax advice. Seek advice from a registered tax agent about your circumstances.