The ATO updated their guidance on trust distributions. Accountants are scrambling.
RSM is warning that PCG 2021/4, the ATO's practical compliance guideline on professional service firm profit allocation, is landing practitioners with higher personal income tax bills. The guidance was introduced in December 2021 and updated in June 2024.
The issue: professionals structuring income through discretionary trusts to allocate profits to lower-tax family members. The ATO considers this profit shifting. PCG 2021/4 sets out when these arrangements will attract scrutiny.
What the guidance actually says
The PCG assesses whether profit allocations to individual practitioners reflect genuine services rendered. If the ATO decides distributions don't align with personal exertion, expect the income to be re-attributed at higher marginal rates.
Practitioners have until 30 June 2027 to transition to low-risk arrangements. Miss that date, and retrospective audits become a real possibility.
RSM's concern is that many professionals restructured years ago under different guidance. The updated PCG shifts the goalposts.
Broader compliance context
This sits within the ATO's $50 billion debt recovery push. By 7 January 2026, the ATO had issued 21 Departure Prohibition Orders, blocking individuals from leaving Australia over unpaid tax. Insolvency appointments hit 4,391 in Q2 FY26, up 11% year-on-year.
The ATO is running parallel blitzes on PAYG, GST, and super debts. Director Penalty Notices are being issued more freely. ASIC is simultaneously scrutinising insolvent trading and phoenixing.
What to do
Review existing trust distribution arrangements against PCG 2021/4 criteria. Document resolutions properly. If your structure relies on profit allocation to beneficiaries who don't meaningfully contribute, you're in the high-risk zone.
Small Business Restructuring remains available for debts under $1 million, though the ATO won't allow general interest charges as deductions.
The 30 June 2027 deadline is firm. Transition now or reconcile trust distributions to defensible allocation principles. The ATO knows where to look.