Author Alan Maddick 2nd March 2021

The allocation of profits in Professional Services Firm has been an evolving area in Income Tax Law for a number of years (since at least the 1980s) its an area that I have worked actively in since starting my Practice. In the last few years the tax Office has actively engaged Professional Services Firms and their Advisers to try and develop clear guidance on what is allowable and what is not.

On one end of the spectrum we have some Professionals that treat their Business Income and PSI declaring 100% of their income on their personal return.

On the other end of the spectrum we have Professionals who are streaming all or a large majority of their Income to Family Trusts and other structures reducing their Taxable Income down to artificially low levels.

The treatment of these issues also varies from Industry to Industry with some (for example Accountants) paying little attention to the older case law and others like Medical Practitioners often relying heavily on the 1980s laws and guidance.

The ATO has recently released draft guidance PCG 2021/D2 to me this looks well written and does clarify the ATOs position. So what does it say;

The main message remains in line with other guidance publish over the last few years – there should be a commercial reason for any structuring that is put in place and overall the average tax rates paid should not be too low.

There is quite a bit more detail in the draft guidance from the Tax Office which is great and gives everyone a lot more certainty.