The Australian Taxation Office (ATO) has suspended the application of the Assessing the Risk: Allocation of profits within professional firms guidelines and Everett Assignment web material (Guidelines) which it published in 2015.
The Guidelines set out low and high risk factors the ATO would consider in assessing whether Part IVA (the general anti avoidance provision of Australian tax laws) would apply in connection with the allocation of profits from a professional firm carried on through a partnership, trust or company. The Guidelines considered that Part IVA may apply to Everett Assignments (where a partner assigns part of their interest in a partnership to another person, such as a spouse).
In publishing the Guidelines, a key issue the ATO wanted to address was arrangements that involved professionals inappropriately "splitting" the income that was derived from their services, with the effect of reducing the overall amount of tax paid.
The ATO suspended the application of the Guidelines because they claimed they were being misinterpreted in relation to arrangements that went beyond the scope of the guidelines. The ATO indicated that schemes were being entered that exhibited high risk factors that were not addressed by the Guidelines, including the use of related party financing and self-managed super funds.
The ATO advises that professionals who entered into arrangements before the suspension of the Guidelines are able to continue to rely on the Guidelines provided that they comply with them and do not exhibit high risk factors. Arrangements entered into before the suspension of the Guidelines that exhibit high risk factors may be reviewed by the ATO.
Professionals who wish to enter into new arrangements are encouraged to engage with the ATO before doing so.
The ATO has indicated that it will work towards implementing a replacement set of guidelines.
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