What is personal services income (PSI) for doctors?
PSI is income mainly for your own clinical skills and work. If you stop treating patients, the income largely stops too, in practice.
For many medical practitioners, that’s the core economic reality of clinical work: the billings exist because you performed the consultations, procedures, reporting, or on-call services.
When do the PSI rules apply to a doctor?
PSI rules apply when your income is PSI and you don’t qualify as a personal services business under the results test or other PSB tests.
The PSI rules matter when both are true:
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the income is PSI, and
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you’re not treated as conducting a personal services business (PSB) for that PSI.
This is why doctors can legally use companies and trusts, but still end up with most PSI effectively taxed in the practitioner’s own hands.
Is my Medicare, hospital or private billing PSI?
Most Medicare, private and hospital billings you personally generate are PSI, even if invoiced through a company, trust or partnership.
As a practical starting point, most personally generated clinical billings will be PSI because they are a reward for your professional skill and labour. This is consistent with how PSI commonly applies across professional services, including medical practitioners.
Income that is not PSI is usually income that does not depend on your personal exertion—think genuine investment income, or practice income that is meaningfully produced by systems, assets, and other practitioners (not just admin support).
How do the PSB tests work for medical practitioners?
If you pass the PSB tests, PSI attribution doesn’t apply to that PSI—provided you can self-assess or have the ATO’s confirmation where needed.
The ATO outlines four PSB tests:
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Results test
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Unrelated clients test
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Employment test
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Business premises test
In many doctor scenarios, the results test is the first gate to consider, and then the 80% rule determines whether you can self-assess the other tests.
What is the 80% rule, and why does it matter for doctors?
If 80% or more of your PSI comes from one client and its associates, you usually can’t self-assess the other PSB tests at all.
If 80% or more of your PSI comes from one client and its associates, you generally don’t meet the 80% rule, which means you typically can’t self-assess the unrelated clients, employment, or business premises tests.
Doctor-specific implication:
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A practitioner effectively working within a single hospital group or corporate network can fall into the 80% limitation more often than expected (even if they rotate sites).
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Locums with genuinely separate engagements are more likely to have the flexibility to self-assess the other PSB tests.
If you can’t self-assess, the practical pathway is often whether you can support PSB treatment through the appropriate ATO process for your circumstances.
What happens if PSI rules apply to my company or trust?
When PSI rules apply, net PSI is attributed to you and the entity’s deductions and distributions are limited for that PSI.
Once the PSI rules apply:
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Attribution: Net PSI is attributed to the individual who performed the principal work, even if invoiced by an entity.
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Deductions: Certain deductions are restricted when they relate to PSI (including specific limits around payments to associates for non-principal work and certain occupancy-style costs).
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Income splitting: Splitting PSI to people who didn’t generate it is the central behaviour the regime is designed to neutralise.
Plain-English takeaway: if the income is mainly for your labour, the tax outcome is pushed back toward looking like your labour income.
What did PCG 2025/5 change in ATO focus for doctors?
PCG 2025/5 doesn’t change PSI law; it shows where the ATO will review profit allocation and Part IVA risk in medical structures.
PCG 2025/5 is practical compliance guidance—meaning it signals ATO review priorities and risk markers, rather than changing the underlying PSI law.
Across professional (including medical) structures, the themes repeatedly emphasised in commentary on PCG 2025/5 are:
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Low risk: the practitioner is paid commercially realistic remuneration for the work that generated the PSI.
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Higher risk: PSI is diverted to family members/entities on lower rates, or retained in a way that doesn’t match a defensible commercial purpose.
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Part IVA overlay: even where PSI/PSB technical positions are argued, profit allocation behaviour can still attract scrutiny if it appears driven mainly by tax outcomes.
How do I keep my structure commercially defensible?
Pay yourself close to market for clinical work, document commercial reasons for retained profits, and keep service fees and contracts consistent.
A practical “doctor-safe” checklist looks like this:
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Assume clinical billings are PSI unless you can prove otherwise
Base your position on what truly generates the income (you, vs other practitioners, vs assets/systems). -
If using an entity, align pay with the work actually performed
Large gaps between what the doctor earns personally and what the entity retains/distributes are where reviews tend to become uncomfortable. -
Keep contracts, billing flows and service fee logic consistent
Mismatch is a common trigger: the paperwork says one thing; the money movements say another. -
If profits are retained, document the commercial reason
Working capital, expansion, staffing, fit-out, technology investment—these are easier to defend when documented contemporaneously.
A final caution
PSI, PSB and Part IVA outcomes are fact-dependent. The same “structure” can be low-risk or high-risk depending on who earns the income, what is retained, and why.