Four years after suspending the application of its guidelines Assessing the Risk: Allocation of profits within professional firms, the ATO has released its long-awaiting replacement guidelines. Practical Compliance Guideline PCG 2021/4 sets out the ATO’s revised compliance approach to the allocation of professional firm profits and also provides a risk assessment framework to assist individual professional practitioners to self-assess their risk. This finalises draft Practical Compliance Guideline PCG 2021/D2 (see related TT article).
The new guidelines are confined to arrangements that have a genuine commercial basis (“Gateway 1”) and do not include any high-risk features (“Gateway 2”). Taxpayers who pass through both gateways can self-assess their compliance risk. Those who do not are encouraged to engage with the ATO.
The ATO’s risk assessment methodology comprises three risk zones – low (green), moderate (amber) and high (red) – for assessing a profit allocation arrangement.
- Practitioners who return 100% of the profit entitlement in their personal tax return are automatically within the green zone and do not need to consider the other risk assessment factors.
- The ATO treats as high risk (and may make a Pt IVA determination in relation to) schemes designed to ensure a practitioner is not directly rewarded for services provided to the firm, or receives a reward which is substantially less than the value of those services.
DATE OF EFFECT: 1 July 2022. Taxpayers with pre-existing arrangements can continue to rely on the suspended guidelines until 30 June 2022, provided their arrangement complies with those guidelines, is commercially driven and does not exhibit any high-risk features. There is also a grace period for arrangements that were considered low risk under the suspended guidelines but now have a higher risk rating under PCG 2021/4. These taxpayers can continue to apply the suspended guidelines until 30 June 2024. [LTN 243, 16/12/21]
[Tax Month – December 2021 – Previous 2021] 5.1.22