Don’t panic. Just do things properly and do not cut corners.
The ATO crackdown is real, and high-income professionals targeting doctors and allied health using trusts, companies, or partnerships to split income are squarely in focus.
The Australian Financial Review has highlighted this in recent coverage, including “ATO targets high earners over use of trusts to evade tax” on 28 November and “Worried by the ATO’s new trust crackdown? Here’s what you can do”, on 29 November.
If your arrangement fails the key tests, the ATO can treat all the income as yours, removing income splitting and lower company tax rates and leaving you with a larger tax bill and potential penalties.
Who is in the spotlight?
The ATO is targeting professionals, specifically doctors, mentioned as an example in the guideline, who channel personal services income through trusts, companies, or partnerships to divert it to family members at lower tax rates.
The guidance includes high earners such as consultants, medical and legal professionals, and other specialists whose income is mainly a reward for their own skills and efforts.
What happens if you fail
If you do not meet the personal services business tests, the PSI rules can apply so the income is effectively taxed to you as if you earned it directly as an individual.
In higher-risk income splitting arrangements, the ATO may also apply general anti-avoidance rules, leading to reassessments, interest, and additional penalties.
Five key tests to watch
Outcome, not hours:
- You should be paid mainly for delivering a specific result, not just for the hours you work.
- Contracts and invoicing should reflect that you are responsible for producing an outcome and rectifying defects, often using your own equipment.
The 80% rule:
- No more than 80% of your personal services income should come from a single client and its associates if you want to rely on the other business tests.
- If 80% or more comes from one client group, you cannot self-assess against the other tests and may need an ATO determination to be treated as a personal services business.
Unrelated clients:
- You need income from at least two clients who are not related to each other or to you.
- Those clients must have engaged you as a result of your making offers to the public, such as through advertising, a website, tenders, or similar channels.
Staff or subcontractors:
- You should have employees or subcontractors who help deliver the actual services, not just perform administration or support work.
- The more your business model relies on others’ work rather than solely on your own labour, the stronger your position as a genuine business rather than just an individual earner.
Business premises:
- You need your own commercial premises used mainly for your work, physically separate from your home, and not provided by or shared with your clients.
- Having a distinct business location helps demonstrate that you operate a real business structure, not just a tax-driven arrangement.
The new guidelines and medical practitioners
The ATO’s Practical Compliance Guideline on “Personal services businesses and Part IVA of the Income Tax Assessment Act 1936” (for example, PCG 2025/5, available via the ATO Legal Database at https://www.ato.gov.au/law) published on 29 November 2025, sets out how the Commissioner will risk‑rate personal services business arrangements and when compliance resources will be deployed under Part IVA.
The Guideline makes it clear that even where you satisfy the personal services business tests, Part IVA can still apply if your structure’s primary effect is to divert, retain or split personal services income to achieve a lower overall tax rate than if it were simply assessed to you.
Consistent with other PCGs, the ATO explains that this document “sets out a practical administration approach to assist taxpayers in complying with relevant tax laws” and that, provided you follow it in good faith, the Commissioner will administer the law in line with this approach.
In practice, that means if you can position yourself clearly in the Guideline’s low‑risk zone, for example, by ensuring your own remuneration is broadly commensurate with your real work and most of the net personal services income is taxed in your hands, the ATO indicates it will generally not prioritise you for Part IVA review.
Tenant doctors versus contractor companies or trusts
Commentary on the Guideline and related ATO guidance uses medical practitioners as archetypal personal services businesses.
A typical higher‑risk scenario involves a doctor who has all billings paid to a company or trust, pays themselves only a modest salary, and leaves significant profits in the entity or distributes them to family members in lower tax brackets, something the Guideline and technical commentary identify as a Part IVA red flag.
This places independent contractor doctors who operate through companies or trusts at the top of the risk spectrum, mainly when those entities are also used to argue against payroll tax or superannuation obligations.
Conversely, genuine tenant doctor models, where the practitioner is self‑employed, bill in their own right and pay a commercial service fee to a service entity, align much more naturally with the ATO’s low‑risk indicators, and also with state payroll tax guidance on facilities/tenant arrangements.
Risk levels: who is most exposed?
Highest risk:
Subcontractor/independent contractor doctors operating via companies or trusts, being paid “contractor” fees from the medical centre and then on‑paying themselves, are the group most likely to trigger back‑dated GST, employer super, PAYG and payroll tax liabilities.
See, for example, commentary on new PSI and contractor rules for subcontractor doctors.
Moderate risk:
Contractors who call themselves “tenant doctors” but whose contracts, banking and advertising still make the centre look like the employer or the provider of care remain exposed because the arrangement is not genuinely a tenancy.
Guidance on the difference between a “Tenant Doctor” and an independent contractor highlights how mis‑labelling can increase risk. See article Don’t use the “C” Contractor Word! – Part One.
Related
Lowest risk:
In my opinion, genuine tenant doctor arrangements where doctors are self‑employed practitioners with their own ABN, paying a commercial service fee to a service entity, and where all evidence aligns with a facilities‑rental/business‑services model rather than an employment/contractor model, sit in the lowest‑risk zone.
Detailed examples of such compliant models are available in articles explaining genuine tenant doctor arrangements that attract no payroll tax.
Watch tenant doctor video presented at the 2025 May RACGP National Practice Owners Conference below:
In my view, recent ATO PSI and contractor guidance means subcontractor doctors may have to charge 10% GST on 100% of payments, face 11.5% employer‑style super guarantee exposures, and see up to five years of tax “clawback” if they cannot prove a legitimate tenant doctor arrangement.
By contrast, multiple legal and tax commentaries suggest that a properly documented, genuine tenant doctor model should not attract payroll tax, super, PAYG or GST on centre‑to‑doctor payments because no “wages” are being paid by the centre.
Tenant doctor practitioner compliant checklist
Practical checklists and self‑assessment tools are available to help practices and practitioners test whether they are truly tenant doctors rather than contractors. In my opinion, key elements of a robust tenant doctor model include:
Structure and status:
You should operate as an independent self‑employed doctor (typically a sole trader with your own ABN), rather than as an employee‑like contractor of the medical centre.
Ensure that your PRODA account is set up in your personal name only, and does not include the name of the co‑located practice or business with which you have a percentage‑based cost‑sharing arrangement, such as a 60/40 percentage split.
For more information, visit our provider onboarding checklist by clicking HERE.
Independent practitioner website presence – critical:
Ensure you have an independent website presence by renting rooms and/or purchasing services from a separate service entity while clearly operating your own practice with distinct branding, website and marketing, paying these expenses yourself (ideally from an individual account) to evidence that you genuinely run an independent business, and by establishing and regularly promoting a simple, compliant website through appropriate online channels (such as search listings, social media and patient communications) so your separate practice identity remains visible and active in the market.
Click HERE for more information about websites.
Contracts and documentation:
Put in place a clear written tenant‑doctor or services agreement that documents a facilities‑and‑services arrangement rather than an employment or contractor relationship, and ensure your operational workflows align with what the contract describes so all parties agree it reflects what happens in practice.
Ensure the agreement sets out a specific, commercial service fee (for example, a percentage of your billings) for room hire, staff and back‑office support, and does not describe or guarantee any form of wage.
Consider using tools such as the Doctor’s Pay (Tax Compliant Service Fee) Calculator to help automatically design and evidence compliant service‑fee models, agreements and calculations for your practice arrangements. Click HERE.
Banking and money flow:
Avoid fraud, errors and cash‑flow problems by ensuring all Medicare, private and terminal (including Tyro and HICAPS) receipts are recorded, reconciled “to the cent” and traceable back to individual patients and practitioners, with settlement reports regularly checked against your practice management system so there is no hidden pooling, diversion or re‑allocation that makes the centre appear to be the biller.
Recent national media and industry commentary on stolen and misused Tyro/HiCAPS terminals highlight the reputational, financial and regulatory risks of weak controls, reinforcing the need for tight reconciliation and transparent payment governance in medical practices.
For practical guidance on safer banking flows, income‑splitting risks and terminal controls, see Health and Life’s blog on terminal fraud and income splitting for doctors and practices.
Ensure your invoices and the service entity’s invoices clearly show that you (the practitioner) supply the medical services to patients and the centre supplies administration and facilities only, in line with GST and health‑services guidance that emphasise clear identification of the nature of each supply and its supplier.
Day‑to‑day control:
The practitioner controls clinical decisions, practice fees (see my article Sky-High Patient Fee Hike Notices Tied to Poor Legal and Tax Advice May Trigger an Audit), your working hours, your leave and your own fee schedule, within reasonable practice policies, consistent with being an independent business.
The practice advertises itself publicly as a host or facility provider, such as a “health hub or complex”, not as a “practice or medical centre”.
At the same time, you are publicly identified (for example, on the website, AHPRA and PRODA records) as an independent practitioner in a cost‑sharing or tenant doctor arrangement.
Articles on “how you publicly identify” as a contractor or tenant emphasise that branding and public messaging now matter for tax risk.
Third‑party and regulator evidence: ‘The Westfield Analogy’:
Like individual retailers at Westfield, each tenant doctor should appear as a separate business to regulators and the public.
Business registrations, tax returns, AHPRA declarations, Medicare records, website bios and social media profiles should all consistently present the practitioner as operating their own practice from rooms within the health hub or complex, not as being “employed by” or centrally contracted to it.
In the same way, Westfield does not present itself as employing Coles or Woolworths; the health hub’s documents, marketing, and cost‑sharing statements should support the narrative that the practitioner contracts with the service facility provider for rooms and services, rather than the other way around.
Independent legal and accounting advisers with tenant doctor experience should review and certify your arrangements regularly, and you can find explanatory videos and resources in dedicated practice‑management video libraries.
Public resources explaining tenant doctor models and offering tools (such as “A Genuine Tenant Doctor™ Arrangement Attracts No Payroll Tax: No Requirement for Bulk Billing” and “What Does a Genuine Tenant Doctor Model Look Like?”) are available at the Health and Life website: https://www.healthandlife.com.au.
Additional context on payroll tax issues for medical centres can be found in specialist tax and legal articles from firms such as KPMG, Grant Thornton, RSM and others.
How this safeguards your medico‑legal position up front and, as a flow‑on effect, helps prevent unnecessary payroll tax, income tax, GST and super obligations
When the tenant doctor criteria are met, there is no payment of “wages” by the centre to the doctor, so state revenue offices generally cannot impose payroll tax on doctor earnings under extended “relevant contract” provisions.
Because the doctor is a self‑employed practitioner, income from patients is taxed directly in the doctor’s hands, reducing the pressure to run risky income‑splitting or payroll tax-grouping contractor company/trust structures that the ATO is now challenging under personal services income and anti‑avoidance rules.
Suppose you are not a subcontractor company invoicing the centre. In that case, you are less likely to be dragged into the new 10% GST and 12% super guarantee contractor exposures that have been described for independent contractors and “employee‑like” arrangements.
Overall, a genuine tenant doctor arrangement, structured and evidenced in line with these principles and the checklists available from specialist medical tax resources, shifts you from the highest‑risk independent contractor category into the lowest‑risk tenant doctor category for payroll tax, extra income tax, GST and superannuation liabilities.
Where to from here?
Bottom line: don’t just move money – manage it properly.
In my opinion, automated, secure systems like our Doctors Pay Calculator can help protect against fraud, liability and manual errors by enforcing clear service‑fee flows and documentation, which supports both tax and legal compliance for clinics.
Please note we had submitted a 262-page ATO and payroll tax submission reviewed by two independent law firms and Chartered Accountants, see: Dahm the SROs (and the ATO), full speed ahead!
For broader tax, structure and risk‑management insights, you can explore articles and updates at the Health and Life Blog.
There is no need to panic, just do things properly and do not cut corners.
Suppose you are unsure about your next steps. In that case, specialist health‑sector advisers can work alongside your accountant, whether you are a practitioner or a practice owner, so you can focus on delivering patient care.
At the same time, they help you navigate PSI, Part IVA, payroll tax and accreditation issues.
The key is to ask the right questions, use structured checklists, and then share the results with your adviser so they can respond with targeted, evidence‑based recommendations.
Checklists and support links
The following tools may be useful starting points for assessing your risk and clarifying your status:
- For an individual practitioner: Contractor self‑assessment checklist – available HERE.
- For a medical centre/practice/clinic: Employee/contractor v tenant provider self‑assessment checklist – available HERE.
If you need to make a confidential, free, no‑obligation appointment with a specialist advisory firm, an example booking link is HERE.
This consultation can help you test whether your structure is still fit for purpose under the new PCG, PSI rules, and payroll tax environment, and identify any changes that might be needed.
If you are unsure about your structure, now is the time to seek professional guidance – not just for tax compliance, but also to support practice accreditation, operational robustness and financial resilience.
Using the new ATO Guideline as a roadmap, combined with sector‑specific tools like Doctors Pay Calculator and the Health and Life checklists, is one of the most cost-effective ways for medical and healthcare practitioners to turn a headline‑grabbing risk into a boringly low‑risk, sustainable practice model.
David Dahm is a chartered accountant, chartered tax adviser, registered tax agent, and a former AGPAL surveyor with 10 years of service. He is CEO and founder of the national medical and healthcare chartered accounting firm Health and Life.
This article was first published on the Health and Life website. Read the original here.
