The ATO has updated its online guidance on ‘Assessing the Risk: Allocation of profits within professional firms guidelines’ and ‘Everett Assignments’ (Guidelines), following the initial suspension of the Guidelines in December 2017.
When it first suspended the Guidelines, the ATO noted that it was aware that they 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. Following this, there was the 2018 Budget announcement that partners that alienate their income by creating, assigning or otherwise dealing in rights to the future income of a partnership, will no longer be able to access the small business CGT concessions in relation to those rights. This may reduce future ‘Everett Assignments’ if the small business CGT concessions are not available.
The ATO has now set out a number of specific concerns following its review, 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 - 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 Everett and Galland.
Since the suspension of the Guidelines, the ATO has been consulting with industry with a view to publishing draft guidance and ‘providing certainty prior to 30 June 2018’.
Submission in relation to this process can be made by email.
The current ATO website notes that:
- those who have entered into arrangements before 14 December which comply with the Guidelines and do not exhibit high risk factors can rely on those Guidelines and
- arrangements entered into prior to 14 December exhibiting any of the high risk factors may be subject to review.
Given the wide application of the original guidelines in practice, it is hoped that the ATO’s final guidance provides a sensible response to the issues that its review has revealed; rather than a knee jerk reaction which will punish many for the transgressions of a few.