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  • Guidance for allocation of professional firm profit and income

    We've finalised Practical Compliance Guideline PCG 2021/4 Allocation of professional firm profits – ATO compliance approach, which applies from 1 July 2022. It sets out our compliance approach to the allocation of profits or income from professional firms in the assessable income of the individual professional practitioner (IPP).

    The old guidelines were suspended after we identified they were being misinterpreted. We found professional firm arrangements, where Part IVA applies, were precluded due to being low risk under the suspended guidelines.

    We engaged with the public, peak professional bodies and an external working group to understand the commercial, structural and operational issues affecting professional firms. The key changes resulting from this consultation include:

    • additional examples featuring a wider variety of arrangements and structures used by IPPs
    • confirming that being high risk doesn't automatically result in audit or application of the anti-avoidance provision Part IVA
    • a change in the benchmark percentages used in the Risk Assessment Framework to determine whether an arrangement is low, medium, or high risk
    • a revised application date of 1 July 2022
    • a two-year transitional period until 1 July 2024 for arrangements that were low risk under the suspended guidelines, but moderate or high risk under the new PCG.

    There are two ‘gateways’ that need to be passed and a risk assessment framework we use to assess the compliance risks of an IPPs arrangement. IPPs need to assess their eligibility to apply these guidelines annually. They can use this framework to:

    • self-asses their level of risk, using a risk assessment framework and schedule
    • understand the level of engagement they can expect from us
    • decide whether to seek professional advice or contact us to discuss their self-assessment of the arrangement if they determine it's moderate or high risk
    • support their application for binding advice if they wish to obtain certainty.

    If you wish to discuss your profit allocation arrangements with us, email ProfessionalPdts@ato.gov.au.

    See also

    Last modified: 16 Dec 2021QC 67533