On the 16th December 2021, the ATO finalised their Practical Compliance Guideline on the allocation of professional firm profits which was released as a draft in April 2021. These Guidelines are relevant to professional firms including, but not limited to, accounting, architectural, engineering, financial services, legal, medical and management consulting professions. The Guideline sets out the ATO's compliance approach to the allocation of profits or income from professional firms and if there is a risk the income earned by the individual professional practitioners (IPP) is not appropriately taxed to the IPP. The following link contains the final PCG 2021/4.
The majority of the Guideline remains unchanged, and the mechanisms discussed in our first article 'Allocation of professional firm profits' is still applicable. The Guidelines were originally proposed to apply from 1 July 2021 and now has been updated to apply from 1 July 2022. The time to transition from arrangements based on the ATO’s previous guidelines published in 2015 has also been extended from 30 June 2023 to 30 June 2024.
The main issue identified in the draft Guideline was the lack of guidance provided where the business structure was operated through a company. The ATO has listened to the request of the professional bodies on this omission and has included case studies on the application of the risk assessment framework for this situation. The ruling has also been updated to provide guidance on the calculation of the remuneration received by the individual professional practitioner to include all components such as superannuation and fringe benefits.
Please contact your Ulton Advisor to review your current arrangements to determine whether any action is required.
Source: The Australian Taxation Office (ATO), Practical Compliance Guideline PCG 2021/4 https://www.ato.gov.au/law/view/view.htm?docid=%22COG%2FPCG20214%2FNAT%2FATO%2F00001%22
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