Professional practices face new risk assessment on profits

Professional practices need to take a closer look at the way its practitioners are remunerated as the ATO released additional guidelines to professional practices, which it will use to determine the practices likelihood for audit selection.

“Professional service firms need to consider their current business structures, review any profit sharing arrangements as well as any recent re-structures, to assess their situation against the new assessment tool issued today by the ATO.

“The ATO has expressed concern about the way in which professional practitioners are structuring how Principle Practitioners are remunerated. The new risk assessment tool will apply for audit selection for tax returns starting with the 2015 tax year.

“There is a higher risk of a tax audit if you can’t satisfy at least one of the three tests issued by the ATO,” said Steve Westaway, Professional Services Partner, Grant Thornton Australia.

The ATO’s position is that you either comply with new guidelines or be prepared to take your case to court. Are you prepared to fund the cost and time to challenge the ATO’s view to establish the correct legal position? Unfortunately, the answer for most is no.

What should you do?

1. If restructuring, identify and consider the commercial benefits sought in undertaking the restructure

2. Review profit sharing arrangements in light of the three ATO tests

3. If the firm has restructured in the new financial year, consider the treatment of the tax and stamp duty implications and ensure the restructure has been documented including implementing governance to reflect the new structure used.