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Australia

23 June 2022

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ATO Issues Notice on Compliance Approach to Professional Firm Profit Allocation Arrangements

The Australian Taxation Office (ATO) has issued a notice on its compliance approach to the allocation of professional firm profits as outlined by Practical Compliance Guideline (PCG) 2021/4, which applies from 1 July 2022.

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Professional firm profit allocation arrangements

Professional firms (such as accounting, law, medical, engineering, architecture, management consulting, and financial service practices) should review their profit allocation arrangements using PCG 2021/4 Allocation of professional firm profits – ATO compliance approach, which applies from 1 July 2022.

PCG 2021/4 outlines our compliance approach to the allocation of profits or income from professional firms, in the assessable income of the individual professional practitioner (IPP).

It aims to address arrangements that alienate, or inappropriately redirect, the income of an IPP to an associated entity (such as a spouse or family trust) with the effect of reducing the IPP's tax liability.

Professional firm owners and operators need to review their profit allocation arrangement against 2 'gateways' in PCG 2021/4. If their arrangement passes both gateways, PCG 2021/4 will help them to:

  • self-asses their level of risk, using a risk assessment framework
  • understand the level of engagement they can expect from us
  • decide whether to seek professional advice or contact us.

A 2-year transitional period until 1 July 2024 may apply to arrangements that were low risk under the suspended guidelines, but are now considered moderate or high risk under PCG 2021/4.

PCG 2021/4 contains several case studies and examples which may be useful for you when reviewing your arrangements.

If your circumstances are unique and not covered by the guidance, we encourage you to contact us via email at ProfessionalPdts@ato.gov.au

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