STOP PRESS! ATO releases final PCG regarding personal services businesses and Part IVA

The ATO has just released Practical Compliance Guideline PCG 2025/5 (previously released in draft form as PCG 2024/D2). This guideline explains when the ATO will be more likely to consider the potential application of Part IVA of the ITAA 1936 to an alienation arrangement where personal services income (‘PSI’) of an individual is derived through a personal services entity (‘PSE’) that is conducting a personal services business (‘PSB’). The ATO is aware that some taxpayers incorrectly assume that, where a PSB is being conducted, and the specific PSI provisions of Division 86 of the ITAA 1997 do not apply, then Part IVA will also not apply to their income splitting or retention of profits arrangements. However, Part IVA can apply to alienation arrangements involving income splitting and retention of profits where the dominant purpose of a participant in a scheme was to obtain a tax benefit. A non-exhaustive list of indicators that may contribute to an arrangement being assessed as low risk or higher risk are summarised in this guideline. It also provides 17 examples of common situations, and whether they would be classified as low-risk or higher-risk arrangements.