The ATO has released new draft guidance around its examination of structures and profits for professional services firms. Specifically this applies to lawyers, architects, medical practices and engineers who are operating through trusts, companies and partnerships of discretionary trusts, however it may also extend to other industries where significant income is generated by the skills and expertise of the principle or owner of the business. What’s being examined within these structures is how the profits of the businesses are being taxed.

The draft guidance is intended to ensure the professional service practitioners receive and declare adequate income for services rendered. For example, if a business has a structure which has been designed to divert income (eg receive very little income for their services) to create a tax benefit, there is an increased risk of an audit which may result in further scrutiny.

We are concerned that this draft guidance is pushing the boundaries of what is reasonable to ensure businesses can maintain a low risk so we are monitoring developments from the ATO closely.

It is also worth noting that reducing audit risk to a low level based on this ATO guidance may require a higher proportion of business profits to be taxed to the professional service practitioner.

From 1 July 2021 the draft guidance will be classifying structures which require further examination to ensure practices and firms are operating within the required guidelines.

There are a range of risk factors which will need to be assessed under these guidelines. Further detail can be found on the ATO website.

If you have a professional practice, we will review and assess your structure as part of completing your 2021 financial statements. In the meantime, if you have any questions please feel free to contact us.