December 2025 Round Up
One thing that stands out across all our articles this month is that the days of “fix it at the end of the quarter” or “sort it out later” are disappearing. Super will need to be paid when wages are paid. Families are discovering estate plans that no longer fit when money moves between generations. And the ATO is paying more attention to how income actually moves through a business, not just what the paperwork says. As more systems shift toward real-time expectations, timing now plays a bigger role in cash flow, smoother estate outcomes and staying ATO compliant.
1. Growing wealth transfers and prompting families to review outdated estate plans Read the full article
2. Payday Super: December Update Read the full article
3. Personal Services Income (PSI): What the ATO’s latest guidance means for contractors, consultants and service businesses Read the full article
Growing wealth transfers are prompting families to review outdated estate plans
Australia is entering a period where an estimated $3.5 trillion dollars in assets will change hands over the next two decades. Despite this enormous transfer of wealth, many families remain unprepared for the legal, tax and administrative challenges that can arise when estates are not structured with care.
Why traditional estate planning is often not enough
A valid will remains an essential part of any estate plan, yet many Australians do not have one. Research from the Australian Law Reform Commission indicates that close to sixty per cent of eligible Australians, around 12 million people, have not prepared a will. This means millions of families face potential delays, additional legal costs and uncertainty for beneficiaries.
Even where a will exists, the process does not necessarily run smoothly. The probate process confirms the validity of a will and authorises the executor to distribute assets, but this process can take months and in some situations more than a year. During this time, assets may be frozen and beneficiaries may be unable to access funds.
Over the past decade, disputes are estimated to have increased by about 25 per cent, with about one in ten wills being contested. This not only creates delays but can lead to legal costs that erode the value of the estate.
These issues highlight the value of seeking advice from professionals who specialise in estate planning. Accountants, advisers and estate lawyers help families understand how assets are owned, how they pass on death and how the tax system applies to those transfers.
Investment bonds as a non-estate asset in estate planning
While investment bonds have existed in Australia for many decades, they’re receiving renewed interest from professionals who advise on intergenerational wealth planning.
When the bond holder nominates a beneficiary, the bond may be treated as a non-estate asset. This means the proceeds can, in many cases, pass directly to the nominated beneficiary without going through probate. This direct transfer can reduce delays and administrative costs and can also reduce the risk of disputes where an estate might otherwise be challenged.
Investment bonds can suit individuals who want greater certainty that a specific person or organisation will receive a set amount. In appropriate cases, the bond structure can support philanthropic goals by nominating a charity or similar organisation as beneficiary.
Tax treatment of investment bonds and why it matters for estates
Investment bonds are tax-paid structures. Earnings inside the bond are taxed within the bond at a rate that is capped at 30 per cent. These earnings do not appear in the policyholder’s personal tax return provided withdrawals are not made within the first ten years.
A key estate planning benefit is that when the policyholder passes away, the bond proceeds are generally paid to the nominated beneficiary tax-free regardless of how long the bond has been held or the relationship between the parties. This treatment can be appealing for families who want simplicity and clarity in how wealth will be transferred.
The structure can also retain control over timing. Some investment bond providers allow conditions such as releasing funds only once a beneficiary reaches a specified age. This can be useful when planning for younger family members or beneficiaries who may need guidance in managing money.
The rising importance of estate planning in Australia
As large superannuation balances continue to grow and as lawmakers consider changes to the taxation of high-value super accounts, families are reviewing how their broader estate planning arrangements fit together. Superannuation does not automatically form part of a deceased estate and death benefit nominations can lapse or be challenged in certain circumstances. This landscape underscores the need for complementary structures that provide certainty.
Investment bonds are increasingly viewed as part of a modern estate planning toolkit rather than a niche strategy. Their ability to bypass probate in many situations, combined with clear tax outcomes for beneficiaries, makes them a practical addition to a carefully structured estate plan.
Financial advisers and accountants play an important role in helping families assess whether an investment bond suits their objectives and how it should interact with their will, superannuation and other structures.
Ensuring a smooth transfer of wealth
Australia is experiencing an unprecedented transfer of wealth and many families are unaware of how delays, disputes and tax complexities can erode the value of an inheritance. While wills remain fundamental, they are not always sufficient to ensure a timely and dispute-free transfer of assets. Investment bonds can complement traditional planning by allowing certain assets to pass outside the estate with clear tax outcomes and greater control over distribution.
Sound estate planning with guidance from accounting and legal professionals can help families protect wealth and ensure that it is transferred according to their wishes.
Payday Super: December Update
From now until mid-2026, we’ll share updates to help you prepare for Payday Super. Each month we’ll focus on one part of the change and what it may mean for your business.
Last month we explained the key changes coming on 1 July 2026, starting with super being paid with wages. You can read the full article here.
This month’s insight: Super may apply more broadly
One of the biggest changes that Payday Super brings is that it will be calculated on a broader range of earnings than the current ordinary time earnings, so more of the payments you already make may attract super once the new rules begin.
What this means for you in practice
Even if the total super you pay won’t change much, the way it is calculated might. Your payroll system will need to apply super correctly every payday, not just at the end of a quarter. This is where early awareness helps. If you know how different pay types are currently set up, wages, allowances, bonuses, regular top-ups, you’ll be in a better position to make small adjustments ahead of time.
What you may want to review over the coming months
Which earnings in your payroll currently have super applied
Whether any pay items are treated differently than you expect
Any areas where you’re unsure how super should apply under the new rules
If you’d like support reviewing your payroll setup or understanding how these changes apply to your business, our team can work through each part with you well before the 2026 deadline.
Personal Services Income (PSI): What the ATO’s latest guidance means for contractors, consultants and service businesses
The ATO has clarified how it will treat income earned through personal skills, releasing updated guidance explaining how it will approach situations where income is earned mainly from an individual’s own skills or expertise and how it will decide whether this type of income should be taxed to the individual or the entity they operate through.
Operating through a company or trust doesn’t automatically allow income splitting or profit retention
Many contractors and professionals use companies, trusts or partnerships to manage their business income. Some have assumed that once they pass certain tests or qualify as a business, they can safely split income with family members or retain profits within the entity.
The ATO is making it clear that this has never been guaranteed.
If the income is mainly a reward for one person’s labour or expertise, the ATO may still treat that income as theirs personally, regardless of the structure being used.
What this type of income usually looks like
The ATO refers to this as personal services income (PSI), income that is mainly paid for an individual’s labour, expertise or personal effort.
It commonly includes consulting fees, contracting work or advisory roles where the individual is clearly the main source of value.
The ATO provides further explanation here.
Why the PSI rules exist
These rules were introduced to prevent people from directing their labour-based income to other entities or family members purely to reduce tax.
The principles are straightforward:
- Income earned through personal effort should generally be taxed to the person who performed the work
- Deductions should be similar to what an employee could claim
- Income splitting should not create an unfair advantage
Do the PSI rules apply to you?
If you receive PSI, the next step is to work out whether the PSI rules actually apply to that income. If you can show that you operate a genuine business, not simply an individual providing labour through a structure, the PSI rules may not apply. This is known as being a personal services business (PSB).
You can demonstrate this by meeting one of the following four tests:
- Results Test: You’re paid to produce a specific result, supply your own tools/equipment, and fix any defects. PRATT Partners | Chartered Accountants
- Unrelated Clients Test: You earn PSI from multiple unrelated clients. Australian Taxation Office
- Employment Test: You hire others or apprentices to do part of the work (for example, at least 20% of the principal work is completed by others). Small Business Tax Toolkit
- Business Premises Test: You have a business location separate from your home that is used mainly for earning the PSI. Australian Taxation Office
The 80% rule also matters: if 80% or more of your PSI comes from one client (including associates), these tests generally cannot be used without an ATO determination.
How to tell whether your arrangements might attract ATO attention
As part of its latest guidance, the ATO has included examples to show the kinds of arrangements it sees as lower-risk or more likely to be reviewed. The focus is on whether income is being reported in a way that reflects who is actually doing the work.
Arrangements are generally considered lower-risk when the individual performing the services is paid in a way that makes commercial sense, for example, paying yourself a market-based amount before leaving any profits in the company or trust.
They become higher-risk when income is being directed away from the person who performed the work, such as splitting income with family members or retaining significant profits in an entity when the individual is still doing all of the work personally. These are the types of situations the ATO has indicated it may look at more closely.
Understanding this helps business owners decide whether their current structure is appropriate or whether adjustments may be worth considering before the 30 June 2027 transition period ends.
What this means for businesses using companies, trusts or partnerships
If your income is primarily driven by your personal expertise and it flows through an entity, this is a timely moment to check whether your structure still reflects how your business operates day-to-day. The ATO will consider:
– how you pay yourself
– how profits are retained
– whether income is being diverted away from the individual doing the work
– whether the structure serves a commercial purpose beyond tax timing
The ATO won’t review low-risk arrangements where businesses adjust by 30 June 2027
A useful point in the ATO’s latest guidance is its commitment not to use compliance resources to pursue higher-risk arrangements where taxpayers have made a genuine effort to move into a lower-risk position by 30 June 2027. For many businesses, this creates a practical window to review their structure, understand how income is being attributed, and make any adjustments needed to ensure the arrangement better reflects how the work is actually performed.
The key takeaway
The underlying rules have not changed. What has changed is the clarity of the ATO’s expectations. For anyone earning income based on personal expertise, this guidance is a reminder to review your structure, ensure income is attributed correctly, and make any necessary adjustments well before the 2027 deadline
Important: This is not advice. Clients should not act solely on the basis of the material contained in this article. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. This article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval. Liability limited by a scheme approved under Professional Standards Legislation.