Consulting firms, marketing and creative agencies, recruiters, IT contractors and advisers all sell the same thing: people's time and expertise. That makes the accounting look simple. The tax is not. Two sets of ATO rules decide how much of the profit can be taxed outside the principal's own name, and many consultants have been set up with a company or trust that doesn't do what they were told it would.
This page covers both sides: the tax rules that apply to service businesses, and the numbers that tell you whether the business itself is healthy.
What goes wrong for consultants and agencies?
- A company that changes nothing. A consultant sets up a company to "pay less tax", but with one client and no staff the personal services income rules attribute the income straight back to them. They pay company return fees for no benefit, and sometimes claim deductions they aren't entitled to.
- Profit splitting that hasn't been tested. An agency owner directs profit to a family trust, spouse or bucket company without checking it against the ATO's PCG 2021/4 guidelines.
- Underpriced retainers. A retainer was set two years ago, the client asks for more each month, and nobody compares hours worked to the fee.
- Utilisation nobody measures. Everyone is busy, but much of the time goes on pitches, internal work and unbilled revisions.
- Contractors and payroll tax. Agencies and consultancies lean on freelancers. In most states, payments to contractors can count as wages for payroll tax.
What do we do for consultants and agencies?
| Area | What we do |
|---|---|
| PSI review | Test whether your income is personal services income and whether you pass a personal services business test, each year |
| Profit allocation | Score how principals take profit against PCG 2021/4 and fix arrangements that sit in the amber or red zone |
| Structure | Model sole trader, company and trust options with real numbers, then set up what fits |
| Reporting | Utilisation, effective hourly rate, retainer and project margins, revenue per head |
| Payroll | Payroll and Payday Super, contractor classification, payroll tax monitoring |
| Compliance | BAS, company and trust returns, individual returns, Division 7A loans |
| Planning | Pre-30 June tax planning, dividends and distributions, super contributions within the caps |
Our professional firm profits agent scores your profit allocation against the ATO's guidelines, and our structure advice letter agent drafts the written advice once the structure is chosen. A qualified accountant reviews both and signs off.
Which KPIs should a consultancy or agency track?
| KPI | What it shows | How it's worked out | Watch for |
|---|---|---|---|
| Utilisation | Share of paid time spent on billable work | Billable hours ÷ available hours, by person | Seniors below target because they do the pitching and admin |
| Effective hourly rate | What you really earn per hour | Fees earned ÷ hours worked on the client | Fixed-fee and retainer clients far below your rate card |
| Retainer margin | Whether retainers pay | (Retainer fee − cost of hours worked) ÷ retainer fee | Scope creep month after month |
| Revenue per head | Productivity | Fees (net of pass-through costs) ÷ full-time equivalent staff | Falling while headcount rises |
| Agency gross income | True agency revenue | Fees and commissions, excluding media and other pass-through costs | Reporting gross billings as revenue |
| Client concentration | Dependence on one client | Largest client's fees ÷ total fees | Above a third of revenue, and the 80% PSI rule for solo consultants |
| Debtor days | How quickly clients pay | Debtors ÷ fees × 365 | Large clients imposing 60- or 90-day terms |
Utilisation and effective hourly rate together answer the question most owners actually have: is the problem that we're not busy enough, or that we're busy on the wrong work?
Which tax rules apply to consultants and agencies?
The personal services income (PSI) rules
Income is personal services income if it is mainly a reward for an individual's personal skills or effort. A consultant, contractor or adviser earning fees for their own work usually has PSI. When PSI is earned through a company, trust or partnership, the PSI rules attribute it back to the individual for tax unless the business is a personal services business. You're a personal services business if you pass one of these tests:
| Test | Broadly what it requires |
|---|---|
| Results test | For at least 75% of the PSI: you're paid to produce a result, you supply the tools or equipment needed, and you're liable to fix defects at your own cost |
| Unrelated clients test | Income from two or more unrelated clients, obtained by offering your services to the public |
| Employment test | At least 20% of the principal work, by market value, is done by people other than you and your associates |
| Business premises test | Business premises you use mainly for the work, exclusively, for the whole year, separate from your home and your clients' premises |
If 80% or more of the individual's PSI comes from one client and its associates, only the results test can be self-assessed; otherwise you need an ATO personal services business determination.
If the rules apply, the income is taxed at the individual's rates, and deductions are limited to what an employee could claim. You can't split the income with a spouse or trust, deduct rent on your home, or pay associates for principal work. A company can still be useful for liability and admin, but it doesn't change the tax result. Separately, even where you pass a test, the general anti-avoidance rules can apply to arrangements that split personal earnings without commercial reason.
Professional firm profits (PCG 2021/4)
Where a business is a personal services business, or the income is generated by the business rather than mainly by one person's effort, the ATO's PCG 2021/4 applies to principals of professional firms, including consulting and many advisory businesses, who direct profit to associated entities. Your arrangement must be commercially driven and have no high-risk features. It's then scored on two factors: the share of profit the principal returns personally, and the total effective tax rate on that profit across the principal and associates. The scores place the arrangement in a green, amber or red zone. A principal who returns all their profit entitlement personally is automatically low risk.
We apply the same approach for law firms, engineers and consultants: score the arrangement before distributions are made, not after.
Agencies: pass-through costs and GST
Agencies often buy media, printing, production or software on clients' behalf. Whether the agency acts as principal or agent decides whether the spend is revenue or not, and that affects every margin you report. GST on overseas digital advertising and software subscriptions also needs care, because suppliers' invoices don't always show GST in a way you can claim.
Contractors, super and payroll tax
Freelancers who are paid mainly for their labour may be entitled to super even though they invoice you, and payments to contractors can count as wages for payroll tax unless an exemption applies. Our guide to employee vs contractor explains the tests.
Which structure suits a consultant or agency?
| Your situation | Usual starting point | Why |
|---|---|---|
| Solo consultant, one or two clients, PSI rules apply | Sole trader, or a company only for liability or client requirements | A company or trust doesn't change the tax; keep costs low |
| Solo consultant passing a PSB test | Company, possibly owned by a family trust | Company rate on retained profit, some flexibility; test PCG 2021/4 |
| Small agency with staff | Trading company owned by a family trust | Limited liability, retained profit for growth, dividend flexibility |
| Multi-principal consultancy | Company with each principal's shares held through their own family trust, plus a shareholders' agreement | Clear ownership, scope for each principal's planning, PCG 2021/4 scoring per principal |
| Owner planning to sell within a few years | Review now | Small business CGT concessions and the post-30 June 2027 CGT rules depend on structure and timing |
Money taken from a company other than as salary or dividends is usually a Division 7A loan. Our guide to Division 7A explains how to keep it compliant, and our bucket company guide covers retaining profit in a separate company.
How do we work with consultants and agencies?
- Free strategy call. We look at how you earn, who you earn it from and how money reaches you and your family.
- PSI and profit allocation review. We test the PSI rules and score PCG 2021/4 using last year's numbers.
- Structure fix if needed. If your setup isn't doing its job, we model alternatives and handle the changes.
- Monthly. Books current, utilisation and margin reporting, payroll and BAS.
- Before 30 June. Tax planning: salary, dividends, distributions and super within the caps, tested against the rules.
Everything runs on Nagaris. The AI agents draft; a qualified accountant reviews and signs off.
"We have been with BPAG for almost a year now and have felt significant improvement with the business, our own knowledge and motivation… BPAG are by far the best." Veronica Thomas, Google review
What does it cost?
Solo consultants usually start on Compliance Essentials (from $149 per week + GST), which covers bookkeeping, BAS, the company return and financial statements. Agencies with staff usually need Business Insights (from $249 per week + GST) for payroll and monthly KPI reports. Larger firms wanting forecasting and a monthly strategy meeting choose the Fractional CFO plan (from $499 per week + GST). See our pricing page.
What should you send us?
- Last two years' tax returns for you and every entity you use
- A list of clients for the year with fees from each
- Contracts with your largest clients (to test the results test)
- How you take money out: salary, dividends, distributions, loans
- Staff and contractor list with what each does
- Timesheet or project data, if you track it
- Your trust deed and company constitution
If you'd like a broader look at tax for the whole family group, see our tax strategy and planning service.
Frequently asked questions
Should a consultant operate through a company?
Often, but not for the reason many people think. If the personal services income rules apply, a company doesn't change who is taxed on the income. A company makes sense when you pass a personal services business test, want limited liability, plan to retain profit, or are building a team. If you're a solo consultant with one client, a sole trader setup may cost less and achieve the same tax result.
What is the 80% rule?
If 80% or more of your personal services income comes from one client and its associates, you can't self-assess as a personal services business under the unrelated clients, employment or business premises tests. You can still pass the results test, or apply to the ATO for a personal services business determination. Labour hire and agency arrangements make the 80% rule easy to hit.
Can I pay my spouse to do admin in my consulting company?
Yes, if they genuinely do the work and the pay is reasonable for it. If the PSI rules apply, deductions for payments to associates for principal work are denied, but reasonable payments for non-principal work such as bookkeeping or admin are generally allowed. Keep records of what they do and how the rate was set.
How should an agency treat media spend it passes on to clients?
It depends on whether the agency acts as principal or agent for the media purchase. If you're agent, only your fee or commission is your revenue; if you're principal, the full amount is revenue and the media is a cost. The answer changes your reported revenue and margins, which matters for your KPIs, lender conversations and any future sale.
Do I need to register for GST as a consultant?
You must register once your GST turnover reaches $75,000 or more. Below that it's optional. Most business clients don't mind GST because they claim it back, so many consultants register early to look established and claim credits on their own costs.
Official sources
General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.