ATO signals heightened scrutiny of medical professionals and their structures.

In November 2025, the ATO released new guidance (PCG 2025/5) highlighting when it is more likely to review income arrangements used by professionals such as doctors, dentists other personal services providers who operate through trusts or companies.

The guidance focuses on situations where income generated from an individual’s personal skills or effort is received through a business entity, even where that entity qualifies as conducting a personal services business (PSB).

What this guidance is and what it is not

This update is not aimed at effective structuring generally, nor is it directed at the legitimate use of service entity arrangements where a separate entity charges arm’s‑length fees for administration, staff, premises or practice support.

Rather, the ATO’s concern is limited to arrangements where personal services income itself is being received, retained or distributed through a trust or company, in a way that may reduce or defer tax compared to the individual being assessed directly on that income.

Why this matters

A common misconception among professionals is that once the PSI rules no longer apply, because a PSB is established, there is no further compliance risk. The ATO has made it clear this is not always the case.

The way income flows through a structure, and ultimately who benefits from that income, remains highly relevant.

Important things to keep in mind

Where an incorporated medical practice derives income primarily from the personal services of the practitioner, the ATO expects the entity to operate on a nil‑profit basis at year end. In practical terms, this means taxable income should generally be fully paid out to the practitioner, most commonly via bonuses, with the retention of profits not usually acceptable.

If exact nil profits cannot be achieved within the income year, any remaining taxable income should be distributed to the doctor in the following year as a franked dividend. The underlying rationale is that incorporation does not alter the personal accountability of the practitioner, and income from personal medical services should still be treated as the practitioner’s income.

Medical practitioners that do not make a bona fide attempt to achieve nil profits may be regarded as non‑compliant with relevant ATO legislation and guidance. However, whether these rules apply at all depends on whether the income is classified as personal services income or as income of a business structure. ATO guidance recognises that where a practice employs at least as many non‑principal medical practitioners as principals, or derives income significantly from business assets such as expensive medical equipment, the income may be characterised as business income and these requirements may not apply. In the absence of these factors, the ATO will generally expect a nil‑profit outcome.

Low‑risk vs higher‑risk arrangements

The ATO has outlined indicators it considers when assessing risk:

• Lower‑risk arrangements generally involve income flowing through an entity but ultimately being taxed to the individual whose efforts generated it, without tax being deferred.
• Higher‑risk arrangements typically involve income being split with associated parties on lower tax rates, or profits being retained within a structure in a way that delays taxation of personal services income.

The guidance includes multiple practical examples to illustrate how these indicators may arise in real‑world professional structures.

Materiality and transition period

The ATO has also confirmed that the amount of income involved matters. Arrangements involving substantial distributions or benefits to lower‑tax associates are more likely to attract attention than minor or incidental differences.

Importantly, professionals who make a genuine effort to transition their affairs into a lower‑risk position by 30 June 2027 should not expect increased compliance activity during that transition period.

Key takeaway

For medical professionals using trusts or companies, the message is clear: while legitimate structuring and service entity arrangements remain appropriate, how personal services income is ultimately taxed continues to be a key focus area. Reviewing existing arrangements now can help reduce future risk and uncertainty.

About The Author

Megan Goodwin is a Partner in Specialist Medical Services, providing comprehensive advice to medical professionals to support financial clarity and confidence. Direct, genuine, and reliable, she builds strong client relationships and delivers strategies focused on achieving both personal and business objectives.