Personal Services Businesses and Part IVA
The Practical Compliance Guideline PCG 2025/5 has been released by the ATO, which explains when arrangements are considered low risk or high risk for the application of Part IVA. The guideline focuses on scenarios where individuals receive personal services income through a trust or company that qualifies as a personal services business (PSB).
Even though the PSI rules may not automatically tax the individual on the income, the ATO has long taken the view that Part IVA may still apply if profits are split with others or retained in the entity instead of being taxed to the individual who performed the work.
Low-risk arrangements
Arrangements are generally lower risk where:
- The PSI is paid to the individual who received it and taxed at their marginal tax rate.
- The individual receives an amount that reasonably reflects the value of their work.
- Associates are paid only for genuine services, and the amount paid is reasonable.
- Any delay in paying the PSI to the individual is temporary and not driven by tax reasons.
- Superannuation contributions are made for the individual as an employee of the entity.
- Profits are retained only temporarily for genuine business purposes (for example, cash flow or buying business assets), and this intention is actually carried out.
High-risk arrangements
Arrangements are higher risk where:
- PSI is paid to another entity, so it is taxed at a lower overall rate.
- The individual is underpaid compared to the value of their services.
- No income is paid to the individual who performed the work.
- Profits are said to be retained for business purposes, but there is no real commercial reason or follow-through.
- PSI is split with associates to reduce tax.
- Associates or service trusts are overpaid for the services they provide.
- More PSI is retained than needed for genuine business purposes and is later made available to the individual for personal use (for example, through a Division 7A loan). Simply retaining PSI can still be a risk factor.
First Year Compliance Approach for Payday Super
The ATO may investigate an SG shortfall for a qualifying earnings (QE) day for 1 July 2026 to 30 June 2027. For the first year, the ATO will focus on the application of compliance resources to the areas of highest risk, to investigate employers who have not paid the minimum amount of SG contributions for their employees. The ATO signaled that it will not have cause to apply compliance resources in respect of employers falling in the low-risk zone.
- Low risk: The employer tried to pay Super Guarantee (SG) on time and in full. Some payments were late due to issues, but they were fixed quickly. All employees ended up with no SG shortfall.
- Medium risk: The employer didn’t meet the low-risk conditions, but fixed all SG shortfalls within 28 days after the end of the quarter.
- High risk: The employer didn’t meet the low- or medium-risk conditions. At least one employee still has an SG shortfall more than 28 days after the quarter ends.
If an employer is trying to comply with Payday Super but payments are late due to errors, the risk level depends on whether the mistake is corrected and how quickly.
The PCG includes examples showing how these risk levels work. Employers can also move between risk levels during the year, for example, if they stop paying SG on time partway through the year.
Right to Occupy Under a Deceased’s Will
The ATO has released draft determination TD 2026/D1, which explains when a person is taken to have a right to occupy a dwelling under a deceased’s will for the purpose of applying the main residence CGT exemption.
The ATO says a right to occupy only exists where the will itself clearly gives a named person the right to live in the property. The right must arise directly from the will and cannot depend on later decisions, agreements or actions.
A right does not qualify if it is granted by an executor or trustee using a general discretionary power in the will, or if it is created under a separate agreement or deed between beneficiaries and the estate.
The draft determination includes examples covering rights created by trustee discretion, private agreements and court orders. The ATO notes that a family provision order is treated as if it were part of the will and can therefore qualify as a right to occupy under the deceased’s will.
Public Country-by-Country Reporting Exemptions
PS LA 2025/2 outlines the Administrative approach of ATO to the Commissioner’s discretion to allow full or partial exemptions from Australia’s Public Country-by-Country reporting obligations. It provides context on key considerations for exemptions and the application process, focusing on case-by-case assessments. The Public CBC regime applies to eligible reporting entities for reporting periods starting on or after 1 July 2024, which needs public disclosure of tax related information to improve transparency and meet OECD standards. Public country-by-country (CBC) reporting applies to certain companies, partnerships and trusts that are part of a CBC reporting group.
An entity is required to report if it was the CBC reporting parent in the previous year, meaning it had global income of A$1 billion or more and was not controlled by another group entity. Some subsidiaries may also need to report if they are not globally consolidated and meet the required thresholds.
Public CBC reporting is required where the group has Australian-sourced income of $10 million or more for the reporting period. Reports must be lodged within 12 months after year end and will be published by the ATO on a government website.
Exemptions are only granted in rare and exceptional cases. The ATO will consider whether public disclosure could cause serious harm. Where possible, the ATO prefers partial exemptions rather than full exemptions.
Entities should register with the ATO for Public CBC reporting before applying for an exemption. Exemption requests must be made in writing and supported by evidence.
Exemption decisions cannot be formally objected to or reviewed by the Administrative Review Tribunal. If an entity disagrees with the decision, it may apply to the Federal Court for review.
Transfer Pricing Issues Related to Inbound Distribution Arrangements
A draft Practical Compliance Guideline PCG 2019/1DC is an update to PCG 2019/1, dealing with transfer pricing outcomes for inbound distributors. Here are some proposed changes to PCG 2019/1:
- Clarification of scope: It applies to arrangements of any scale except where taxpayers opt into PCG 2017/2. It also outlines when an entity is an inbound distributor, being a business that consists of:
- Distribution of goods bought from related foreign entities for resale to third parties, where the Australian entities don’t significantly contribute to the creation of the goods in Australia.
- Sale of digital services/products where items are sold to third parties and the intellectual property is held by related foreign entities, where the Australian entities don’t significantly contribute to the creation of the products/services.
- Introduction of a white zone: The white zone is a new risk zone proposed. Taxpayers are in the white zone if they have any of the following:
- A signed Advance Pricing Arrangement (APA);
- A settlement agreement with the Commissioner;
- A relevant tribunal/court decision (within 3 income years); or
- A recent review with a low/high assurance rating.
Deductions for Mining and Petroleum Exploration Expenditure
The ATO has released draft Taxation Ruling TR 2017/1DC, which updates the existing TR 2017/1.
The draft changes clarify that, following the Full Federal Court decision in FCT v Shell Energy Holdings Australia Limited, the meaning of “exploration or prospecting” must be interpreted by considering the context and history of the tax law provision.
ATO Focuses On Related Party Property Development Arrangements
The ATO has issued Taxpayer Alert TA 2026/1, warning property developers about certain related-party property development arrangements.
These arrangements usually involve related entities setting up structures that delay taxable income while using tax losses, often repeatedly. The ATO says this is commonly done by inserting a separate “developer” entity between the landowner and the builder, even though, in reality, the activities form a single property development business.
The ATO is concerned that these arrangements may be considered tax avoidance schemes under the general anti-avoidance rules in the tax law.
The main risks identified by the ATO include income being artificially deferred, tax losses being used without a genuine commercial reason, and possible promoter penalties. The ATO is actively reviewing these arrangements and is expected to release a draft practical compliance guideline for public consultation.
Education Directions for SMSF Trustees
The ATO has released PS LA 2026/1 which provides guidance on the administration and application of an education direction under section 160 of the Superannuation Industry Act 1993. The statement indicates when and how the ATO will issue education directions to individual trustees or directors of corporate trustees of SMSFs following contraventions of SISA or Superannuation Industry (Supervision) Regulations 1994.
The statement applies to contraventions occurring on or after 1 July 2014 and focuses on education to identify knowledge gaps in a trustee’s knowledge or understanding of their duties and obligations to prevent contraventions from occurring.
ATO Proposes Zero Withholding for Remote Indigenous Artists
The ATO has released draft Legislative Instrument LI 2025/D25, proposing that no PAYG withholding apply to payments for artistic work made to remote Indigenous artists in Zone A who do not quote an ABN.
The aim is to reduce paperwork and support Indigenous artists in remote communities. If withholding is reduced to nil, the payer also does not need to provide a payment summary.
ATO Proposes Zero Withholding for Certain Payments to Religious Practitioners
The ATO has released draft Legislative Instrument LI 2025/D26, proposing to reduce the PAYG withholding rate to nil for certain payments made to religious practitioners.
The change applies to payments for remuneration or allowances connected with their religious duties. Examples include certain allowances where it is expected the practitioner will have deductible work expenses at least equal to the allowance, payments for locum services, and payments for other work or services provided by the religious practitioner.
Exemptions from Requirement to Lodge for MNE Groups
The ATO has issued LI 2025/28, which reduces compliance costs for multinational enterprise (MNE) groups by exempting them from lodging global and domestic minimum tax returns that would only ever show a nil liability.