PSI and Part IVA: PCG 2025/5 now finalised
The ATO has finalised its compliance guideline, PCG 2025/5, on the application of the general anti-avoidance rule (Part IVA) to income-splitting arrangements involving personal services businesses (PSBs). The guideline confirms that even if an entity qualifies as a PSB, Part IVA can still be applied by the Commissioner to cancel tax benefits obtained from income splitting. The PCG uses a risk-based framework to signal the types of arrangements the ATO is likely to scrutinise.
In practice, this pushes many taxpayers into the ATO’s low-risk box, not because the law requires it, but because most small businesses can’t afford a Part IVA fight, even if they’re right on principle.
If a taxpayer is outside the low-risk examples, it’s sensible to seek advice early and prepare contemporaneous evidence of the commercial reasons for the position.
Payday Super: 1 July 2026
The 'Payday Super' laws received Royal Assent on 6 November 2025 and will commence on 1 July 2026. Employers will be required to pay superannuation guarantee (SG) contributions at the same time as they pay salary and wages (with funds reaching employees' accounts within 7 business days). The reforms also adjust the superannuation guarantee charge (SGC) calculation and penalties. A new voluntary disclosure regime will replace SG statements. Penalties for shortfalls are expected to be significantly reduced where a voluntary disclosure is made before the ATO commences compliance activity.
These changes will require adjustments to payroll systems and cash flow management to accommodate more frequent superannuation payments. If a payment date for an SG contribution is missed, the new regime further incentivises making an early voluntary disclosure to the ATO to minimise penalties. This is far better than waiting for the ATO to identify an error, where penalties can be substantial.
Family trust elections: amnesty window
The ATO has announced a limited amnesty for family trust elections (FTEs). Where trustees have made genuine errors (such as nominating the wrong 'specified individual' or making distributions outside the family group), the ATO may remit up to 80% of the general interest charge (GIC) if the trustee proactively self-reviews and corrects the position by 31 December 2026. After this date, GIC remission for these errors is unlikely and liabilities will continue to compound daily.
Act before the deadline. If any of your clients' trusts may have made inadvertent distributions outside the defined family group, or if the FTE itself may be invalid, seeking advice is critical. A self-review and voluntary correction now will provide significant savings in interest and penalties compared to the costs of a future audit. This window closes in just over one year.
Rental properties & holiday homes
The ATO has released new draft guidance on deductions claimed for rental properties, particularly holiday homes with mixed personal and rental use: TR 2025/D1 (rental property income and deductions), PCG 2025/D6 (apportionment methodology) and PCG 2025/D7 (application of section 26-50 to holiday homes). Where a property is rented but also used privately, expenses must be apportioned on a 'fair and reasonable' basis. However, if a property is primarily held for private recreation rather than to produce income, deductions for ownership costs (interest, rates, maintenance) may be denied entirely under section 26-50 of the ITAA 1997. Transitional relief for arrangements entered into before 12 November 2025 is available until 1 July 2026.
Review all mixed-use properties. Taxpayers must be able to demonstrate a genuine intention to derive rental income. Factors that increase the risk of deductions being denied include: restricting the property's availability for rent during peak holiday periods, setting rental rates above market value, deterring potential tenants and making limited or no real effort to advertise the property for rent. Ensure the apportionment methodology is well-documented and defensible.
Bendel: HCA appeal
The High Court will continue hearing the Bendel case today following a recent adjournment to allow for further submissions to be made. At issue is whether an unpaid present entitlement (UPE) owed by a trust to a corporate beneficiary is a 'loan' for Division 7A purposes. The Full Federal Court decided in the taxpayer's favour (finding it is not), but the ATO maintains its long-held view that UPEs can trigger deemed dividends.
Until the High Court provides a definitive ruling, the law in this area remains uncertain. The ATO will continue to administer the law according to its published views. Keep an ear out for further updates.
Look-through earnout arrangements
A note to practitioners:
When selling a business, earnout arrangements can qualify for valuable small business CGT concessions, but only if they are structured as 'look-through earnout rights' that meet strict statutory requirements. Many earnouts fail to meet these requirements, resulting in the loss of concessions and potentially millions of dollars in additional tax. We have seen instances where this occurs because tax advice was not obtained when negotiating the business sale agreement.
The structure of an earnout right must be considered at the time of negotiating a business sale, not afterwards. Small and seemingly minor changes to the sale contract can have significant tax implications. Obtaining tax advice during the negotiation phase is crucial to ensure any earnout component is structured correctly to preserve eligibility for the CGT concessions.
