ATO professional practice guidelines – where are we now?

On 24 September 2019, the Australian Taxation Office (ATO) updated its guidance on “Assessing the risk: allocation of profits within professional firms”.

By way of background.

In 2015, the ATO published the “Assessing the risk: allocation of profits within professional firms” and “Everett Assignment” guidelines (together the Guidelines). On 14 December 2017, the ATO suspended the application of the Guidelines as the ATO considered some taxpayers and/or advisors were misinterpreting and applying the Guidelines beyond their scope.

Since the suspension, the ATO has engaged in consultation with tax professionals and plans to issue new guidance (although the form and timing of that guidance is unknown).

On 25 June 2018, six months after the suspension, the ATO said for the year ended 30 June 2018:

  • taxpayers who entered into arrangements prior to 14 December 2017 that follow the Guidelines and do not show any “high risk” factors could continue to rely on the suspended Guidelines for the year ending 30 June 2018;

  • where an individual principal practitioner's arrangement was in place before 14 December 2017 without “high risk” factors, and the individual met one of the benchmarks in the Guidelines, the ATO would consider the arrangement lower risk for the year ending 30 June 2018; and

  • where individual professional practitioners were contemplating new arrangements or had concerns or uncertainty about potential “high risk” factors within their arrangements they were encouraged to engage with the ATO.

The latest update on 24 September 2019, three months after 30 June, is to “[provide] certainly for year end 30 June 2019”.

The ATO says:

  • taxpayers who entered into arrangements prior to 14 December 2017 can continue to rely on the suspended Guidelines for the year ending 30 June 2019 if their arrangement:

    • follows the suspended Guidelines;

    • is commercially driven; and

    • does not show any of the “high risk” factors;

  • where those conditions are satisfied, the ATO will consider the arrangement lower risk for the year ended 30 June 2019; and

  • where individual professional practitioners were contemplating new arrangements or had concerns or uncertainty about potential “high risk” factors within their arrangements they were encouraged to engage with the ATO.

The latest update, while disappointing that it happened 3 months after 30 June, appears on the surface to take a similar approach for the 30 June 2019 year as for the 30 June 2018 year with regards to arrangements in place before 14 December 2017. What is unknown is whether the difference in wording between the 25 June 2018 and 24 September 2019 releases is a substantive difference in approach.

For taxpayers that entered into arrangements after 14 December 2017, or are contemplating doing so, the ATO continues to recommend engaging with it.

While taxpayers and their advisors will welcome the (belated) update for the 30 June 2019 year, the (close to) two-year delay in releasing updated Guidelines increases uncertainty and compliance costs for professionals in meeting their tax obligations.

Sladen Legal’s tax and commercial practices, together with our extensive history of dealing with the ATO, place us in an excellent position to advise on the structure of, and allocation of profits in, professional firms.

For more information please contact:

Neil Brydges
Principal Lawyer | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E: nbrydges@sladen.com.au

Daniel Smedley
Principal | Accredited Specialist in Tax Law
M +61 411 319 327| T +61 3 9611 0105
E: dsmedley@sladen.com.au

Neil Brydges