The ATO has been concerned for some time about how many professional services firms are structured - specifically, professional practices
such as lawyers, accountants, architects, medical practices, engineers, architects etc., operating through trusts, companies and
partnerships of discretionary trusts and how the profits from these practices are being taxed.
New ATO guidance that comes into effect from 1 July 2022, takes a strong stance on structures designed to divert income in a way that
results in principal practitioners receiving relatively small amounts of income personally for their work and reducing their taxable income.
Where these structures appear to be in place to divert income to create a tax benefit for the professional, Part IVA may apply. Part IVA is
an integrity rule which allows the Tax Commissioner to remove any tax benefit received by a taxpayer where they entered into an arrangement
in a contrived manner in order to obtain a tax benefit. Significant penalties can also apply when Part IVA is triggered.
A new method of assessing the level of risk associated with profits generated by a professional services firm and how they flow through to
individual practitioners and their related parties, will come into effect from 1 July 2022. Professional firms will need to assess their
structures to understand their risk rating, and if necessary, either make changes to reduce their risks level or ensure appropriate
documentation is in place to justify their position