TaxRambling.com

The new guideline on the Alienation of Professional Firm Income (PCG 2021/4)  applies from 1 July 2022, so may be an issue when looking at this years tax returns… So below I have a 10 pager covering it in detail… But…

If you have existing arrangements, you can continue to rely on the suspended guidelines for 1 July 2017 to 30 June 2022 if your arrangement is commercially driven and does not exhibit any of the high-risk factors listed below.

More importantly, if you find that an arrangement was low risk under the suspended guidelines but has a higher risk rating under PCG 2021/4, you can continue to apply the suspended guidelines until 30 June 2024!!!!!

A summary of the suspended guidelines we can use to 30 June 2024

The suspended guidelines were much simpler than what you will see below. They were that if any of three benchmarks were satisfied, then the practitioner would be considered low risk and unlikely to be subject to ATO review provided no other compliance issues were evident.

The three benchmarks were:

• The income derived by the professional practitioner had to be at least the level of remuneration paid to the highest band of professional employees providing equivalent services to the firm. If the firm did not have any employees providing equivalent services, you could use data from comparable firms or industry benchmarks

• The income derived by the professional practitioner had to be at least 50% of the firm’s income to which the practitioner and their associated entities were collectively entitled

• The practitioner and their associated entities both had to have an effective tax rate of 30% or higher on the income received from the firm

Give the professional 50% of the income from the firm and send the other 50% to the spouse, adult kids, other entities… and there was no risk. Pay them a commercial rate and there was no risk…

This is probably what we will use until 2024, but then we will be stuck with the new guideline.