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  • Assessing the risk: allocation of profits within professional firms

    When we published the Assessing the Risk: Allocation of profits within professional firms guidelines and Everett Assignment web material in 2015 we stated they would be reviewed in 2017.

    In reviewing the guidelines we have become aware they are being misinterpreted in relation to arrangements that go beyond the scope of the guidelines.

    We have observed a variety of arrangements exhibiting high risk factors not specifically addressed within the guidelines, including the use of related party financing and self-managed super funds.

    In light of these concerns, we have suspended the application of the guidelines and Everett Assignment web material as of 14 December 2017.

    Individual professional practitioners contemplating entering into new arrangements from 14 December 2017 are encouraged to engage with us through:

    Recent consultation on the guidelines

    After suspension of the guidelines, we committed to consulting with professionals across the market to help us ensure the draft guidance product appropriately reflects the environment. Consultation has been ongoing since early 2018, with a view to publishing new guidance.

    We have concerns with the following arrangements, which were noted during our review:

    • Lack of any meaningful commercial purpose regarding arrangements including, but not limited to  
      • disposal of an equity interest through multiple assignments
      • the creation of new discretionary entitlements such as Dividend Access Shares
      • utilising amortisation leading to differences between tax and accounting income.
    • Disregard for CGT consequences and inappropriate use of CGT concessions.
    • Assignments where profit sharing is not directly proportionate to the equity interest held.
    • The creation of artificial debt deductions.
    • Undertaking an assignment to dispose of an equity interest to a self-managed super fund.
    • Assignments where the arrangement is not on all fours with the principles of Everett and Galland.

    Providing certainty for year end 30 June 2018

    Those taxpayers who have entered into arrangements prior to 14 December 2017 which comply with the guidelines and do not exhibit any of the high risk factors outlined above can continue to rely on the suspended guidelines for the year ending 30 June 2018.

    Where an individual principal practitioner's arrangement was already in place before 14 December 2017 without high risk factors, and they meet one of the three benchmarks previously published, the arrangement will be considered lower risk for the year ending 30 June 2018.

    Where individual professional practitioners are contemplating new arrangements, or have concerns or uncertainty regarding potential high risk factors within their current arrangements they are encouraged to engage with us as soon as possible.

    Next steps:

      Last modified: 25 Jun 2018QC 42218