Earn Your Income Through a Company or Trust? The ATO Has New Rules for You

This is not about businesses in general. A retailer, a café, or a trades business with a team of employees earns its income from selling goods and the work of many people. The ATO’s concern is with what it calls personal services income: money earned essentially by one person’s expertise, even though it is paid into a company or trust.

What has changed?

Many professionals were advised years ago to set up a company or trust, and many of those structures pass the ATO’s established tests. The new guidance, PCG 2025/5, says that passing those tests is no longer the end of the story. The ATO’s position is now clear: income earned by your personal effort should end up taxed in your hands, at your rate.

Two common practices are in the spotlight. The first is sharing that income with family members — a wage to a spouse, or trust distributions to family — beyond what their actual work in the business justifies. The second is leaving profits in the company mainly to be taxed at the lower company rate — particularly where that money is then drawn out through loans. Keeping funds in the business for a genuine commercial need, such as equipment or running costs, remains acceptable, but the purpose needs to be real and documented.

Questions to ask yourself

• Does my business income come mainly from my own skills and work, rather than from employees, products, or equipment?
• Is part of that income going to my spouse or family — and does the amount honestly match what they do?
• Are profits sitting in my company mainly because the tax rate is lower there?
• Do I take money out of the company as loans rather than wages or dividends?
• If the ATO asked me to justify my structure tomorrow, could I?

If any of these hit close to home, your arrangement is likely to be one the ATO now calls higher risk.

The deadline that matters

The ATO has allowed time to put things right. Make a genuine move to a compliant arrangement by 30 June 2027 and you can expect earlier years to be left alone. The exposure is back taxes at your personal rate, plus interest and significant penalties. The ATO has also signalled that rushed, cosmetic fixes made near the deadline will not count — which makes starting early the safest position.

If your structure involves a family trust, there is a second change coming: the Government has announced a new minimum tax on family trusts, which will remove much of the benefit of distributing income to family members on lower tax rates.

What should you do?

You do not need to interpret ATO guidelines yourself — that is our job. What you need is a straight answer: is my structure at risk, or not?

At Bizally, we review how professionals and contractors are structured against the ATO’s new guidance. If your arrangements are fine, we will tell you and you can stop worrying. If they need to change, you will get a practical plan with time to carry it out properly. Contact the Bizally team today for a conversation.