Beaconsfield (03) 9707 0555
Cranbourne (03) 5995 2700
Pakenham (03) 5940 4555
Warragul (03) 5622 1793
Draft guidelines have been released by the Tax Office on how the general anti-avoidance legislation should apply to professional firms that allocate profits to individual professional practitioners with proprietorship in the firm. Firms potentially affected include those providing services in the accounting, architectural, engineering, financial services, legal and medical professions.
Professional firms can be structured in a range of ways, depending on the choices made by the owners, but the Tax Office has warned that in some cases the way a business is structured “can be used in ways that give rise to different tax consequences and resulting tax compliance risks”.
Its concerns about tax compliance in these instances are based on where arrangements are set up so that a practice’s income is treated as being derived from the business itself, even though the source of that income is actually the provision of professional services by individuals.
It said this is particularly the case where:
Experts comment that the release of draft guidelines before they are finalised may be a signal that the Tax Office intends to commence compliance activity, including audits, of practitioners for the 2014-15 income tax year. The guidelines (ask this office if you’d like to know more) potentially have wide application.
The Tax Office guidelines apply if:
High and low risk
The Tax Office says taxpayers will be rated as low risk and not subject to compliance action if they meet one of the following guidelines regarding income from the firm (including salary, partnership or trust distributions, distributions from service entities or dividends from associated entities):
Where none of these guidelines are satisfied, the Tax Office said the practitioner’s arrangement will be considered higher risk, with increased chance of compliance action. The lower the effective tax rate of an arrangement, the higher the Tax Office will rank the compliance risk.
DISCLAIMER:All information provided in this publication is of a general nature only and is not personal financial or investment advice. It does not take into account your particular objectives and circumstances. No person should act on the basis of this information without first obtaining and following the advice of a suitably qualified professional advisor. To the fullest extent permitted by law, no person involved in producing, distributing or providing the information in this publication (including Taxpayers Australia Incorporated, each of its directors, councilors, employees and contractors and the editors or authors of the information) will be liable in any way for any loss or damage suffered by any person through the use of or access to this information. The Copyright is owned exclusively by Taxpayers Australia Inc (ABN 96 075 950 284).