Last year we alerted you to the release of draft guidance by the Australian Tax Office (ATO) in respect of professionals. The ATO has now finalised their guidance and just before Christmas released Practical Compliance Guideline PCG 2021/4 which applies from 1 July 2022.

The guidance is concerned with whether there is a risk that income earned by an individual professional practitioner (IPP) from practice income or profits is not appropriately taxed in the hands of the IPP. The guideline will apply to medical practitioners who have a service entity or other businesses associated with the medical practice in their group. The framework in the guideline will be used to differentiate risk and tailor the ATO’s engagement with IPPs.

What you need to know

The information in our earlier article is still largely unchanged, however the following points should be noted:

• the use and application of the guideline will be applied by the ATO from 1 July 2022, which is a deferment of 12 months from the previous expected start date.
• the guideline only applies where an IPP has received an amount of income from a practice which generates its income from a business carried on in a business structure that is not subject to the Personal Services Income (PSI) regime.
• the guideline applies to IPP equity owners who hold their interest directly or through an associated entity.
• the guideline reinforces the fact that in order to be considered low-risk, the ATO will want the IPP to personally return more than 50% of the practice income received by the practitioner/related parties and pay tax at an average rate of more than 30%.

Summary

The impact of the guideline is to put IPP’s on notice that their affairs will most likely be scrutinised by the ATO if they do not declare a sufficient share of practice income in their personal tax returns, thereby highlighting the importance of seeking professional advice as to how these guidelines may affect you. We recommend all affected medical professionals understand how their affairs will be seen by the ATO in light of the finalisation of this guidance.

Learn More

If you have any questions or require assistance with reviewing your structure or profit allocation, please contact Angela Stavropoulos or Kristy Baxter from Pilot’s medical services division on (07) 3023 1300 or taxmed@pilotpartners.com.au.