Personal Service Corporation Australia 2025: Guide for Professionals

For many Australian professionals—consultants, IT specialists, engineers, and medical practitioners—the question of how to structure their business remains front of mind. In 2025, the concept of a Personal Service Corporation (PSC) is more relevant than ever, with the ATO’s recent updates to the Personal Services Income (PSI) rules and ongoing changes in tax law. But what exactly is a personal service corporation, and how do the latest policies impact your bottom line?

What Is a Personal Service Corporation?

A personal service corporation is a company set up primarily to provide the services of an individual or a group of professionals, rather than selling or manufacturing goods. In Australia, this is most common among doctors, engineers, architects, consultants, and IT contractors. The main drawcard? Potential tax efficiencies and limited liability protection.

But the ATO keeps a close eye on these arrangements to prevent tax avoidance. The Personal Services Income (PSI) rules are designed to ensure that income derived mainly from personal skills or efforts is taxed at the individual’s marginal rate, not the company tax rate—unless certain business tests are met.

2025 Policy Updates: What’s Changed?

This year, the ATO has sharpened its focus on PSCs, releasing new guidance on PSI assessments. Key 2025 updates include:

• More rigorous PSI tests: The ATO now scrutinises contracts, work arrangements, and the presence of genuine business assets to determine if income is personal services income.

• Expanded reporting requirements: PSCs must provide detailed breakdowns of contracts and client arrangements to demonstrate compliance with PSI rules.

• Increased audit activity: The ATO’s 2025 compliance program includes targeted reviews of professionals using company structures for their consulting or freelance work.

For many, these updates mean less room for aggressive tax minimisation and a renewed emphasis on legitimate business practices.

Tax Implications and Common Pitfalls

Personal service corporations can still offer legitimate tax planning benefits—but only if you play by the rules. Here’s what to keep in mind:

• Company vs individual tax rates: If your PSC fails the PSI tests, most income will be taxed at your personal marginal rate, eliminating company tax advantages.

• Superannuation and leave: Structuring through a PSC means you need to handle your own super contributions and insurances. There’s no employer coverage by default.

• Fringe Benefits Tax (FBT): Providing fringe benefits (like a company car) via your PSC can trigger FBT liabilities, which have increased in 2025 following new ATO thresholds.

• Dividends and trust distributions: The government’s recent crackdown on family trust distributions means PSCs need robust documentation when paying dividends to shareholders or family members.

Example: Jane, a Sydney-based IT consultant, established a PSC in 2022 to manage several lucrative contracts. In 2025, she’s audited under the new PSI guidance. Because Jane’s business fails the “results test” (her clients direct her work and supply resources), her income is reclassified as PSI—so she loses access to the 25% company tax rate and pays personal tax on most of her earnings. A costly lesson in compliance.

Is a Personal Service Corporation Right for You?

With the ATO tightening the screws in 2025, PSCs remain a viable structure for many professionals—but only when set up and managed correctly. Consider a PSC if:

• You work for multiple clients and control how your work is performed

• Your business employs staff or owns significant business assets

• You’re seeking limited liability protection for contractual risks

On the other hand, if you have only one main client, or your work is heavily directed by others, the ATO may see through your company structure—and the tax advantages could evaporate.