Considerations from the Tax Institute Which Support the ChangeGPS Implementation:
PCG 2021/4: This guideline, titled “ALLOCATION of Professional Firm Profits,” focuses entirely on the allocation of professional firm-related amounts—whether they be wages, FBT items, super contributions, trust distributions, or dividends—to the professional. There is no mention of retained profits in a professional firm that trades as a company being included in the IPP’s assessment.
Paragraph 34: This guideline applies only where an IPP has received an amount of income from a practice generating its income from a business structure not subject to the PSI regime. The key word here is RECEIVED. Profits retained in a trading company are not received by the IPP.
Risk Assessment Factor Number 1: This factor assesses the “Proportion of profit entitlement from the whole of firm group returned in the hands of the IPP.” Retained profits in a professional firm company are not returned in the hands of the IPP.
Risk Assessment Factor Number 2: This factor assesses the “Total effective tax rate for income received from the firm by the IPP and associated entities.” Again, this focuses on income received by the IPP, not on retained income in the professional firm company.
The Tax Institute has published their interpretation on page 627 of its May 2022 “Taxation in Australia” journal, which aligns 100% with the ChangeGPS approach.