In 2014 the Australian Taxation Office (ATO) issued guidelines (which were finalised in 2015) providing safe harbour benchmarks (30% effective tax rate, 50% individual share of income or benchmark comparable senior employee remuneration) for acceptable profit sharing arrangements involving Individual Professional Practitioners and legally effective practice entities.
The full ATO statement can be seen below or on their website here.
Assessing the risk: allocation of profits within professional firms
When we published the Assessing the Risk: Allocation of profits within professional firms guidelines and Everett Assignment web material in 2015 we stated they would be reviewed in 2017.
In reviewing the guidelines we have become aware they are being misinterpreted in relation to arrangements that go beyond the scope of the guidelines.
We have observed a variety of arrangements exhibiting high risk factors not specifically addressed within the guidelines, including the use of related party financing and self-managed super funds.
In light of these concerns, the ATO is suspending the application of the guidelines and Everett Assignment web material as of 14 December 2017. Individual professional practitioners contemplating entering into new arrangements from 14 December 2017 are encouraged to engage with us through Early engagement or via Professionalpdts@ato.gov.au.
Those who have entered into arrangements before 14 December which comply with the guidelines and do not exhibit high risk factors can rely on those guidelines. Arrangements entered into prior to 14 December exhibiting any of the high risk factors may be subject to review. We encourage those who are uncertain about how the law applies to their existing circumstances to engage with us as soon as possible.
The ATO will begin consulting with interested stakeholders in early 2018 on replacement guidance and the application of any required transitional arrangements, noting new guidance will apply prospectively.
If you have any questions regarding the above, please contact Professioanlpdts@ato.gov.au.
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