Date posted: 21/04/2021

Joint submission on ATO draft guidance on allocation of professional firm profits

The Joint Bodies support the ATO’s efforts to address artificial arrangements that seek to alter taxpayers’ liabilities but reject propositions underpinning the draft PCG.

Chartered Accountants ANZ, CPA Australia, Institute of Public Accountants, the Business Law Section of the Law Council of Australia and The Tax Institute (together, the Joint Bodies), have made a joint submission on the draft PCG 2021/D2 Allocation of professional firm profits – ATO compliance approach (the draft PCG). The joint submission outlines our general collective views on the draft PCG and these will be complemented with more specific separate submissions from the respective associations, member firms and members.

The Joint Bodies support the ATO’s efforts to address artificial and contrived arrangements that seek to inappropriately alter taxpayers’ tax liabilities. However, the Joint Bodies reject the foundational propositions that underpin the draft PCG.

The Joint Bodies acknowledge the draft PCG is primarily a guide to assess the likelihood of the ATO reviewing the affairs of an individual professional practitioner (IPP) and the IPP’s firm with a view to applying the general anti-avoidance provisions in the Income Tax Assessment Act 1936 (Part IVA). However, the Joint Bodies observe that the exclusionary “Gateways” and risk assessment framework are not necessarily constructed to align with Part IVA factors. Rather, the draft PCG uses broad, unadjusted measures as proxies for Part IVA risk. As a result, the risk scores reflect neither the nuance or specificity required to properly assess the level of risk.

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