General anti-avoidance rules and PSI

In certain circumstances, the general anti-avoidance rules may apply to your personal services income arrangements.

Last updated 19 December 2025

Overview of general anti-avoidance rules

This information is relevant to you if both of the following apply:

You receive personal services income (PSI) as a sole trader or through your company, partnership or trust.
The PSI rules don't apply to your income because you are carrying on a personal services business (PSB).

The PSI rules were introduced to prevent the diverting, alienating or splitting of income with other individuals or entities in an attempt to pay less tax.

The general anti-avoidance rules (GAAR) in Part IVA of the Income Tax Assessment Act 1936 may still apply if you are a PSB and the PSI rules don't apply. For the GAAR to apply to your arrangement, there must be a sole or dominant purpose to obtain a tax benefit.

When the GAAR may apply

The GAAR may apply where there are factors indicating that the dominant purpose of the arrangement is to obtain a tax benefit by diverting, alienating or splitting your PSI or retaining profits in your lower-taxed company, partnership or trust (being an interposed entity).

In deciding whether the PSB has engaged in income splitting to gain a tax benefit, the following considerations may be relevant:

Whether the salary or wages paid to you is commensurate with both the
- skills you exercised or services you provided
- income received by the PSB for your services.
Remuneration commensurate to the value of your services will generally be the gross amount received by the PSB for your services, less allowable deductions (other than deductions associated with non-PSI income of the PSB or income splitting).
Whether the PSB distributes income to associates and does not distribute income to you, the individual who provided the actual services.
Whether the salary or wages paid to associates by the sole trader or PSB is not commensurate with both the
- skills exercised and services provided by the associate
- income received by the sole trader or PSB is for services performed by the individual (which is different to income being generated by assets of an interposed entity).

Examples include if you:

use a company, partnership, or trust to retain profits from your PSI
divert, alienate or split your PSI with an associate – which reduces your overall income tax liability, or
create an entitlement to deductions which would not be available to an individual providing the same services as an employee.

Example: when the GAAR may apply

Jason provides services as a computer analyst through his trust, JB Trust. Jason's wife and children are also beneficiaries of JB Trust. The contract price for Jason's services is $120,000.

Through the income year, Jason is paid a salary of $50,000 by JB Trust to perform his services. JB Trust also incurs $25,000 of deductions. The balance of $45,000 is distributed to Jason's wife and children, who are in the lowest marginal tax rate.

The JB Trust self-assesses as a PSB due to passing the results test. The PSI rules don't apply to the income. The GAAR may apply to the arrangement JB Trust has in place, as Jason may be obtaining a tax benefit by splitting the income with his associates.

If the GAAR applied, then the tax benefits would be cancelled. This is done by making a determination, and relevant amounts would be deemed to be included in Jason's assessable income.

End of example

The GAAR Panel advises on the application of the GAAR to particular arrangements.

Practical Compliance Guideline (PCG) 2025/5

PCG 2025/5 Personal services businesses and Part IVA of the Income Tax Assessment Act 1936 has been developed to help you manage compliance risks where your PSI is derived through a personal services entity (PSE) conducting a PSB.

The guideline clarifies that passing a PSB test doesn’t mean you can freely divert your PSI without it being considered tax avoidance. It also outlines the types of alienation arrangements we consider to be 'low-risk' or 'higher-risk' under Part IVA, and the likelihood of those arrangements being reviewed.

Part IVA can apply to any higher-risk arrangement; however, the amount of PSI diverted will always be a relevant factor in our decision to review or pursue Part IVA. In practice, we are more likely to target arrangements involving substantial distributions or payments to associated lower-tax persons or entities.

Importantly, you should not be concerned that we will apply compliance resources to pursue Part IVA where you have made a genuine attempt to move into a low-risk arrangement by 30 June 2027.

We encourage you to promptly assess your circumstances and take any necessary action, as we will continue to review some higher risk arrangements in the meantime, and will evaluate if you have taken (or are in the process of taking) genuine corrective action. For clarity, this approach is not an amnesty and it does not affect any decisions already made, including Part IVA determinations and assessments from previous compliance activity.

For more information, visit PCG 2025/5 Personal services businesses and Part IVA of the Income Tax Assessment Act 1936.

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