The ATO has recently conducted a review into its Guidelines on the risks surrounding the allocation of profits within professional firms and the use of Everett Assignments (Guidelines) following the initial suspension of the Guidelines in December 2017.
When the ATO first suspended the Guidelines, they noted that they were aware the Guidelines were being misinterpreted in relation to arrangements that went beyond their scope. The only specific examples given by the ATO at the time were the use of related-party financing and self-managed super funds.
The ATO has now set out a list of specific concerns following its review of the Guidelines, which are listed below:
- Lack of any meaningful commercial purpose regarding arrangements including, but not limited to:
- disposal of an equity interest through multiple assignments;
- the creation of new discretionary entitlements such as Dividend Access Shares; and
- utilising amortisation leading to differences between tax and accounting income.
Disregard for CGT consequences and inappropriate use of CGT concessions. Assignments where profit sharing is not directly proportionate to the equity interest held. The creation of artificial debt deductions. Undertaking an assignment to dispose of an equity interest to a self-managed super fund. Assignments where the arrangement is not on all fours with the principles of the Everett and Galland cases.
Since the suspension of the Guidelines, the ATO has been consulting with industry with a view to publishing draft guidance prior to 30 June 2018. Submissions can be made by email here.
The ATO website currently states:
- Those who have entered into arrangements before 14 December 2017 which comply with the Guidelines and do not exhibit high risk factors can rely on those Guidelines.
Arrangements entered into prior to 14 December 2017 exhibiting any of the high risk factors may be subject to review.