A motion proposing to permit the incorporation of barristers’ practices was defeated at a general meeting of the NSW Bar Association held on 17 September 2013.
The motion had sought an indication of support for changes that would allow barristers to choose to practise through single member, sole director companies. The motion was defeated (745 no; 375 yes) in a ballot conducted at a general meeting of the Bar Association on 17 September 2013.
- The proposal had divided the profession with some thinking incorporation could undermine the Bar’s reputation if they were seen to be chasing the tax benefits of incorporation enjoyed by many other professional services businesses.
- Detailed advice from 4 leading senior counsel had also suggested that any tax advantage from incorporation was “illusory” in the case of barristers’ practices. As incorporation offered no additional advantage over the present mode of conducting a barrister’s practice, the advice warned that Pt IVA of the ITAA 1936 would apply if the dominant purpose of incorporation was to obtain a tax benefit.
- Note that David Pritchard SC and Edward Muston also released advice on 11 September 2013 concerning the limitation of liability under the Professional Standards Act 1994 (NSW) in the context of the incorporation of barristers’ practices.
[FJM Note: There are so many problems with this proposal. The 30% company rate is only available so long as the money remains in the company, and most barristers will want to spend the after tax earnings, and have to distribute it out as a dividend, where they will be subject to ‘top-up tax’ in the Barrister’s hands (or worse, if those earnings are loaned out, the loan might be deemed to be an unfranked dividend under Division 7A of Part III of the Income Tax Assessment Act 1936). The proposal was not to allow a Barrister’s spouse to hold shares, and thus income split, and if it were, there would be Part IVA (GAAR) risk in selecting a for the Barrister, which was less than the net earnings of the company. Incorporation also provides no asset protection, as a negligent barrister would be primarily liable, and his employee company only vicariously so (quite apart from the liability limiting provisions of the Professional Standards legislation). And finally, earnings that were not subject to payroll tax, could become subject to payroll tax if paid as salary (for the really well paid, who exceed the state thresholds of about $700k).
[LTN 184, 23/9/13]