Practical Compliance Guidelines for Professional Services

Updated March 2nd 2022

In December 2021, the ATO released its Practical Compliance Guideline PCG 2021/4 which sets out the ATOs revised compliance approach to the allocation of professional firm profits and also provides a risk assessment framework to assist individual professional practitioners to self-assess their risk.

The purpose of these guidelines is to ensure that everybody is paying their fare share of tax and that professional practitioners are not redirecting an excessive amount of their income to other entities or family members. The guidelines outline particular at risk taxpayers who may have been previously exploiting the system.

The new guidelines are confined to arrangements that have a genuine commercial basis (“Gateway 1”) and do not include any high-risk features (“Gateway 2”). Taxpayers who pass through both gateways can self-assess their compliance risk. Those who do not are encouraged to engage with the ATO.

The ATO’s risk assessment methodology comprises three risk zones – low (green), moderate (amber) and high (red) – for assessing a profit allocation arrangement. See matrix below.

  • Practitioners who return 100% of the profit entitlement in their personal tax return are automatically within the green zone and do not need to consider the other risk assessment factors.
  • The ATO treats as high risk (and potentially as serious tax avoidance) schemes designed to ensure a practitioner is not directly rewarded for services provided to the firm, or receives a reward which is substantially less than the value of those services.

Start date: 1 July 2022. Taxpayers with pre-existing arrangements can continue to rely on the suspended guidelines until 30 June 2022, provided their arrangement complies with those guidelines, is commercially driven and does not exhibit any high-risk features.

There is also a grace period for arrangements that were considered low risk under the suspended guidelines but now have a higher risk rating under PCG 2021/4. These taxpayers can continue to apply the suspended guidelines until 30 June 2024.  

Professional services in this sense is considered to be somebody in business providing services such as (but not limited to) accounting, architectural, engineering, finance, legal, medical and management consulting.

You can access a copy of the risk assessment matrix here.