Privacy Policy | Contact Us  
logo
spacer spacer spacer spacer spacer spacer spacer
spacer
spacer
spacer
spacer

Liability limited by a scheme approved under Professional Standards Legislation.

spacer
Hot Issues
Be alert for phoenix activity, businesses told
Equifax signs data agreement with ATO
E-invoicing will reduce emissions, says PwC
State and Federal Disaster support --- May 2022
Largest cities in the world 1500 to 2100
Last chance to claim the loss carry-back
Changes to recovery loan scheme for small and medium enterprises
About the cash flow forecasting template
Federal budget 2022: Winners and Losers
ATO puts 50,000 directors on notice.
FBT Reminder – Odometer Reading
Data matching program: government payments
Budget: Big wins for SMEs
Small businesses show sign of omicron rebound
Federal Budget 2022 - Overview
Federal Budget 2022 and YOU - Part 1
Federal Budget 2022 and YOU - Part 2
Budget at a Glance - Video
Undisclosed income risks hefty asset betterment assessments
Superannuation Guarantee (SG) increases
How stress and burnout are different, and why the difference is important
Accountants ‘have important role to play’ in digital transformation
ATO launches campaign to target tax withholding on overseas royalties
ATO releases new draft guidance products impacting private trusts
GDP by country since 1800
ATO releases new guidelines to combat identity theft.
Articles archive
Quarter 1 January - March 2022
Quarter 4 October - December 2021
Quarter 3 July - September 2021
Quarter 2 April - June 2021
Quarter 1 January - March 2021
Quarter 4 October - December 2020
Quarter 3 July - September 2020
Quarter 2 April - June 2020
Quarter 1 January - March 2020
Quarter 4 October - December 2019
Quarter 3 July - September 2019
Quarter 2 April - June 2019
Quarter 1 January - March 2019
Quarter 4 October - December 2018
Quarter 3 July - September 2018
Quarter 2 April - June 2018
Quarter 1 January - March 2018
Quarter 4 October - December 2017
Quarter 3 July - September 2017
Quarter 2 April - June 2017
Quarter 1 January - March 2017
Quarter 4 October - December 2016
Quarter 3 July - September 2016
Quarter 2 April - June 2016
Quarter 1 January - March 2016
Quarter 4 October - December 2015
Quarter 3 July - September 2015
Quarter 2 April - June 2015
Quarter 1 January - March 2015
Quarter 4 October - December 2014
‘Shot across the bow’: ATO puts professional firm profit allocations on notice

Accountants and business leaders who hold equity positions in their firms and split profits between personal income and associated entities, have been urged to consider whether the arrangements put them in the path of the ATO.



Just before Christmas, the ATO issued its new approach to professional firm profits, with the release of the Practical Compliance Guideline PCG 2021/4 four years after the previous guideline on professional firm profits was suspended. 


The guideline tries to create a risk assessment framework for professionals whose firm derives income from a business structure rather than personal services income of a professional, or income directly related to their personal exertion. 


Pitcher Partners executive director Ashley Davidson said the guideline provides a broad outline of the ATO’s approach in applying additional scrutiny to business owners who share in the profits of a professional business.  


The definition of professionals outlined in the guideline is that of the Australian Council of Professions, which includes elements such as accreditation, ethical guidelines that must be met to maintain practice, specialist knowledge and skills and a requirement of upholding a high standard of behaviour.  


That definition, based on the membership of the ACP, includes not only lawyers, consultants and accountants, but doctors and dentists, surveyors and engineers, veterinarians, geologists, psychologists and others.  


“The framework uses three risk zones, labelled green, amber and red, and the Commissioner has warned closer attention will be paid to those who fall in the red or amber zone,” Mr Davidson said.  


“The challenge for professionals is that a wide range of structures and arrangements, often set up for retention of talent or other legitimate commercial reasons, could now be considered riskier under the clarified guidelines. 


“If you are a white-collar worker, and owner of a professional business or associated with one, and you derive income from a business that is not counted as personal services income, you may find you fall under the general scope of the guideline.” 


Mr Davidson said the first step for professionals was to understand the risk profile of current arrangements and assess whether the ATO would consider it to be a commercially driven arrangement. It should also be examined for any features the ATO might consider to be “high risk”. 


These two tests, known as gateways, had to be passed before a professional could apply the PCG to their situation.  


“The new PCG doesn’t apply to existing arrangements until 1 July 2024, but after that date, you will need to pass both gateways before you can apply the new guidelines to your personal arrangements,” Mr Davidson explained. 


“If a professional’s circumstances fail to pass either of these gateways, the ATO suggests it might view the arrangement as an attempt to redirect income away from the individual.” 


For those planning to acquire equity in a professional practice, the new guidelines will apply from 1 July 2022, according to Mr Davidson.


“This guideline is a shot across the bow for business owners who share in profits, based on some fairly arbitrary distinctions as to whether the ATO considers them to be professionals or not,” he warned.


“Regardless, seeking advice to understand the scope of the PCG and how it might impact your tax position is critical.”


 


 


Tony Zhang


03 February 2022


accountantsdaily.com.au




17th-February-2022
spacer
sitemap | site by Acctweb