ATO publishes new profit allocation guidelines for public consultation
Tax Law - 22 Mar 2021
Whether you operate a professional business, or you advise clients who do, the new ATO proposed guidance highlights the need to self-assess your arrangements.
The ATO has released proposed guidelines for public consultation around allocation of profits from professional business structures. This will be relevant for professionals in a number of industries such as:
- Accounting ;
- Financial services; and
The proposed guidelines are not restricted to partnerships but extend to company and trust structures.
The ATO withdrew previous public guidance in 2017, leaving many firms disappointed with no idea of what issues may attract the ATO’s attention and no way to self-assess their risk profile. While the new proposed guidelines are more complex, they at least show the ATO is engaging with the industry.
There are two ‘gateways’ to apply the proposed guidelines. First, your arrangements must be commercially driven. Second, your arrangements must not demonstrate any ‘high risk’ features such as:
- Non-arm’s length financing;
- Arbitraging accounting standards and tax law;
- Material differences from Everett or Gallard arrangements;
- Multiple share classes; and
- Transactions and arrangements targeted by a Taxpayer Alert.
Once through the gateways, you then self-assess your risk profile based on financial metrics. There are three risk zones: Green, Amber and Red. The lower the risk, the less likely it is that the ATO would seek to review your arrangements.
Where firms have been applying the withdrawn public guidance, and do not demonstrate any of the high risk features, the proposed guidelines allow a two year transitional period to move to the new framework and self-assess risk.
One final note is that the proposed guidelines will not apply to employees deriving salary and wages, nor where the arrangement is subject to the Personal Services Income rules.
Whether your firm (or client) is continuing to use the withdrawn advice, or if you want to self-assess your arrangements to either gain comfort or identify the need to adjust, we can assist with a robust review applying the new guidelines – speak to us today!
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The information contained in this blog is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. In all cases, you should consult with a professional advisor familiar with your factual situation for advice concerning specific matters before making any decisions. By reading this blog, you confirm your understanding of this disclaimer.