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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 became aware they were being misinterpreted in relation to arrangements that go beyond the scope of the guidelines.

    We 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suspension of the guidelines, we committed to consulting with professionals across the market to help us ensure the draft guidance product appropriately reflects the environment.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, (noted during our review) as:

    • a lack of any meaningful commercial purpose regarding arrangements including    
      • a 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
       
    • a 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 2019

    Taxpayers who have entered into arrangements prior to 14 December 2017 can continue to rely on the suspended guidelines for the year ending 30 June 2019 as long as their arrangement:

    • complies with the suspended guidelines
    • is commercially driven, and
    • does not exhibit any of the high risk factors outlined above.

    Where these conditions are satisfied, they will be considered lower risk for the year ended 30 June 2019.

    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: 24 Sep 2019QC 42218