Income, including salary/wages and profits (retained profits), is captured slightly differently for the IPP to produce a Professional Firm Profit Advice Report.
Key points to remember:
Exclusion of Trading Entities: A trading company or trading trust is NOT entered into this TaxPlan. Only the Professional (IPP added in the first column) and anyone else in their family group (spouse, children, bucket company) who receives income or benefits during the year from the professional firm are entered into TaxPlan columns.
Distribution of Profits: Any profits made by a trading company are excluded from TaxPlan unless they are distributed to the Professional or their family.
ATO Guidance Update: As of September 2024, the ATO's updated guidance states that a professional’s proportion of profits retained by a Professional Firm at the end of a financial year should be included in their profit entitlement assessment under PCG 2021/4. Therefore, you need to enter the following in the “Net Business Profits” cell of TaxPlan for the Professional:
Profit share received
Trust distribution received
Dividends received (including franking credits)
Share of any income retained by the Professional firm for the year
Important: If a Professional includes retained earnings by a Professional Firm Company in their income and these are paid out in a future year, you must REDUCE the income allocation to the Professional in the future year by the amount already assessed in the prior year.
Prior Year Retained Earnings: Retained earnings distributed to a Professional or their family this year are included in the TaxPlan.
Franked Dividends: A franked dividend paid directly from a professional company to a Professional or via a Trust to the Professional is included with the franking credits in the "Net Business Profits" line. For example, if a $75,000 cash dividend with $25,000 of franking credits is paid to Dr. Dave from his Medical Company, enter $100,000 under "Net Business Profits" for Dr. Dave in TaxPlan.
Non-Professional Firm Income: All other non-professional firm income should be entered in the usual places in TaxPlan. For example, a dividend from BHP shares should still be separated into the Franked Dividend and Franking Credits amounts in TaxPlan.