In December, the ATO published new guidelines regarding how Professional Firms must allocate their profit. Professional Firms include legal, medical, engineering, architecture, management consulting and financial service practices.

Under the new guidelines, which come into effect from July 1 2022, Professional Firms will need to review their profit allocation arrangement from two new ‘gateways’ before they can establish if they are meeting their obligations.

Gateway One states there must be a genuine commercial basis for the arrangement and profit distribution. Gateway Two is there must be no high-risk features to the arrangement.

If your arrangement passes both gateways, the guideline will help you to:

• Work out if there’s a risk and if your arrangement isn’t compliant.
• Decide whether to seek professional advice.
• Support your application for ‘binding advice’ if you want certainty.

These changes are there to ensure everyone pays the right amount of tax, and create a level playing field for every professional in their respective industries.

If you are considering entering new arrangements or have concerns about your existing profit allocation arrangements, contact us.