Tax Distributions for Professional Firm Profits

Assessing the risk: allocation of profits within professional firms

On 1 March 2021, the ATO released Draft Practical Compliance Guideline PCG 2021/D2 Allocation of professional firm profits – ATO compliance approach (Draft PCG). The Draft PCG concerns arrangements involving individual professional practitioners (IPPs) who redirect their income to an associated entity from a business or activity which includes their professional services and has the effect of altering their tax liability.

After more than three years, and much anticipation, the Draft PCG explains the Commissioner’s risk-based compliance approach and outlines the ATO’s risk assessment process to determine if a Principal’s distribution profits from the firm is at risk of further ATO compliance review. When the Draft PCG is finalised (expected to be in November 2021), every Principal must review, assess and document their distribution policy as it applies from 1 July 2021.

The revised guidance:

    • outlines risk factors for when the ATO considers a distribution to be low, moderate, and high risk;
    • sets out a risk assessment framework when considering the allocation of profits within professional service firms (PSF); and
    • stipulates the ATO’s expectation for PSFs to review and assess their eligibility to apply the guidelines on an annual basis.


A Guide to:

Tax Distributions for Professional Firm Profits

As The Lawyer’s Accountants, FWO Chartered Accountants have prepared a white paper to:

    • summarise and step through key concepts in the Draft PCG,
    • unpack the main issues and considerations for Principals, and
    • discuss what actions professional firms must take.

This simple and easy-to-read guide helps ensure you are crystal clear in your understanding of the the new rules.

Warning: Ignore Your Profit Distributions Arrangements at your own risk

Download your free copy here


On-Demand Webinar:

Tax Distributions for Professional Firm Profits

In a recent webinar, Matt Schlyder, The Lawyer’s Accountant, summarised key concepts and presented a general overview to Law Firm Principals to help create awareness on these upcoming changes.

Watch Now

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FWO Chartered Accountants are the Lawyer’s Accountants. We specialise in providing tax advice and assistance to lawyers and Law Firms. Once the guidelines are finalised, we will be commencing reviews of Law Firm’s current arrangements under these guidelines to provide compliance advice and advise on any changes that are recommended to comply, including documentation to support any ATO enquiry into these arrangements.

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