Will the ATO be targeting Professionals and Professional firms?
The ATO updated their guidance on Service entity arrangements in 2019 and now in 2021 have provided a broader risk matrix to determine which professional practices should be reviewed and/or audited. Should Professionals, such as doctors, dentists, pharmacists, lawyers and accountants be concerned?
The new guidelines PCG 2021/D2 are effective from 1 July 2021 and all professional business owners should have their structures reviewed as part of their tax planning process.
You may not have a complex financing arrangement or complex multiple classes of shares or have an arrangement that is subject to a taxpayer alert but still be a "high risk" professional. You may be at high risk for audit and Part IVA tax avoidance penalties if there is little commercial basis for your remuneration as the Individual Professional Practitioner (IPP) if:
1) The proportion of your profit entitlement returned to you is < 60%, if
2) Your total effective tax rate for the income received from the firm is < 30% OR, if
3) Your remuneration from the firm is < 100% of other employees with similar duties.
It is time to review your plans/structure now and tidy up any missing pieces of documentation.
The Guidelines also emphasise the importance of legal form and documentation that is consistent with economic substance.
PCG 2021/D2 does not apply to individuals who are subject to the PSI (Personal Services income) rules and applies to Practices/Businesses that have more than one Professional providing services.
Nevertheless, sole practitioners should also review their arrangements with their accountants to be sure they comply with current ATO guidance.
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