Professional Practices such as accounting, architectural, engineering, financial services, legal and medical are now under the ATO microscope. The ATO asserts that Part IVA (income tax general anti-avoidance rule) may apply where a professional practitioner receives a low proportion of the profit in genuine businesses (non-PSI) that operate via a Partnership, Trust and/or Company.

Following the ATO’s Taxpayer Alert 2013/3, the ATO has just released new draft guidelines labelled ‘Assessing the risk; allocation of profits within professional firms’.  Click here to view the guidelines.

In those guidelines, the ATO  says Taxpayers will be rated as Low Risk and will not be subject to compliance action on this issue, where their situation meets one of the following guidelines regarding income from the firm (salary, distribution of partnership or trust profit, distributions from associated service entities, dividends from associated entities or combination of these);

  • The Professional Practitioner receives assessable income from the firm in their own hands as an appropriate return for the services they provide. In determining an appropriate level of income, the taxpayer may use the level of remuneration paid to the highest band of professional within the firm or if there is no such employees, comparable firms or relevant industry benchmarks, or
  • 50% or more of the income to which the Professional Principal and their associated entities are collectively entitled in the relevant year is assessable income in the hands of the Professional Principle, or
  • The Professional Principle and their associated entities, both have an effective tax rate of 30% or higher on the income received from the firm.

If there are any queries please do not hesitate to contact our office on 07 3394 2311.