ATO close to completing guidelines on allocation of profit issues
After completing its consultation on high-risk arrangements in relation to the allocation of professional firm profits including arrangements involving SMSFs, the ATO is expected to complete its draft guidelines on the issue next month.
As previously reported by SMSF Adviser, the ATO stated that after reviewing guidelines it published in 2015 regarding the allocation of profits within professional firms, it identified some arrangements that went beyond the scope of those guidelines.
The Tax Office observed a number of arrangements exhibiting high-risk factors which were not specifically addressed within the guidelines, including the use of related-party financing and SMSFs.
After suspending the guidelines, the ATO consulted with professionals across the market to ensure its draft guidance appropriately reflects the environment.
In an online update, the ATO said it has now completed its consultation which was conducted with professional bodies, including representatives of tax and accounting professional associations.
It is now in the process of developing a Draft Practical Compliance Guideline and is incorporating the feedback and input gained during the consultation into the draft guideline. It expects to complete the draft guideline next month in November.
The draft guideline will explain how the ATO intends to apply compliance resources when considering the allocation of professional firm profit or income in the assessable income of individual professional practitioners.
“It will also assist individual practitioners to self-assess their risk against risk assessment factors,” the ATO stated.
“When finalised, this guideline will replace the professional firm guidelines that were suspended in December 2017.”
Some of the concerns identified by the ATO while consulting with interested stakeholders on replacement guidance include arrangements that lack any meaningful arrangements such as disposal of an equity interest through multiple assignments and the creation of new discretionary entitlements such as dividend access shares.
It also had concerns about arrangements that undertake an assignment to dispose of an equity interest to an SMSF.
The ATO previously stated that for the years ended 30 June 2018 and 30 June 2019, taxpayers who entered into arrangements prior to 14 December 2017 which comply with the guidelines and do not exhibit any of the high-risk factors can continue to rely on the suspended guidelines.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.