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ATO’s Updated Guidance on Professional Firm Profits – What You Need to Know

The ATO has been tightening its focus on how professional firm profits are allocated, particularly in cases where those profits are distributed to related entities. With the transitional arrangements ending on 30 June 2024, practitioners should expect increased scrutiny and the potential for reviews if their arrangements don’t meet the ATO’s low-risk criteria.

If you operate a professional practice through a trust, company, or partnership of discretionary trusts, it’s essential to understand how the ATO is assessing these structures and what steps you need to take to ensure compliance.

Key Issues to Consider

1. Risk of Income Splitting – The ATO is concerned about situations where professionals divert income to family members or entities to reduce tax obligations.
   
   

2. Commercial Justification – Profit distributions should reflect genuine business arrangements, not just tax minimisation strategies.
   
   

3. Control and Personal Exertion – The ATO examines whether the professional's personal effort is generating most of the income, and if so, whether profits are being allocated in a way that aligns with their contribution.
   
   

4. Use of Discretionary Trusts – If profits are being allocated to discretionary trusts, the ATO will assess whether these distributions are commercially driven or primarily for tax benefits.
   
   

What to Do Next?

To mitigate risk and ensure compliance, practitioners should:

• Review Business Structures – Ensure your current structure aligns with the ATO’s expectations and doesn’t raise red flags.

• Assess Your Risk Rating – The ATO’s guidelines provide a risk assessment framework. Businesses falling into the high-risk category are more likely to face audits.

• Document the Commercial Basis of Profit Allocations – Keep clear records demonstrating the reasons behind distributions and how they reflect business needs, not just tax advantages.

• Seek Professional Advice – With the ATO stepping up its reviews, engaging a tax specialist to review your structure and risk rating is a smart move.

Final Thoughts

The end of the transitional period means the ATO will now be actively reviewing professional firm profit allocations. If your firm operates through a trust, company, or partnership of discretionary trusts, now is the time to ensure your arrangements meet the ATO’s requirements to avoid compliance risks.

If you need guidance on reviewing your business structure and assessing your risk, feel free to reach out.

Accu Accounts
www.accuaccounts.com.au

Maximising Tax Deductions for Your Rental Property

Property investors can claim capital works deductions for structural elements of a rental property, helping to reduce taxable income over time.

Key Depreciation Deductions:

✔ Capital Works Deductions (Division 43)

• Applies to structural elements like walls, doors, windows, kitchens, roofs, and sinks.

• Deductible at 2.5% per year for 40 years from the date of construction.

✔ Capital Allowances & Decline in Value (Division 40)

• Covers depreciable assets such as appliances, carpets, blinds, and hot water systems.

• Depreciation based on effective life of assets (prime cost or diminishing value method).

Maximising deductions requires a depreciation schedule prepared by a quantity surveyor. If you own a rental property, reviewing depreciation claims can significantly boost tax savings.

For expert guidance, contact us today.

Accu Accounts
www.accuaccounts.com.au

ATO Unsuccessful in Appeal on Bendel – UPE Not a Loan for Division 7A

Important Update for Business Owners: UPEs & Division 7A

The Full Federal Court (FFC) has ruled that unpaid present entitlements (UPEs) to a company are not considered loans under Division 7A. This decision challenges the ATO’s previous stance (TD 2022/11) and confirms that for Division 7A to apply, there must be a clear obligation to repay, not just a debtor-creditor relationship.

Key Points for Business Owners

• Trust distributions to private companies may not automatically trigger Division 7A.

• The ATO’s previous position on UPEs may no longer apply.

• Now is a good time to review trust and company structures with a tax advisor.

Case Reference: Commissioner of Taxation v Bendel [2025] FCAFC 15 (19 Feb 2025).

This ruling provides clarity but may have further implications for businesses with UPEs. Seek professional advice to ensure compliance.

Accu Accounts
www.accuaccounts.com.au

Maximise Cash Flow with Debit Finance (Factoring)

If your business has high outstanding debts/accounts receivable, debit finance (factoring) can be a great tool to improve cash flow.

Benefits:

• Get instant cash when invoices are issued rather than waiting for payment.

• The finance company helps chase outstanding debts, reducing admin work.

Things to Consider:

• Bookkeeping setup and transaction management can be complex.

• Reconciliation is important as finance companies send bulk statements on specific dates.

How to Manage in Bookkeeping Software:

1. Liability Account Method – Record payments and fees via journal entries (best for fewer, high-value invoices).

2. Bank Account Method – Treat it like a credit card for easier matching and reconciliation (ideal for many small invoices).

Setting it up correctly from the start is key to avoiding bookkeeping issues later.

Need help? We can guide you through the setup and ongoing transactions.

Accu Accounts
www.accuaccounts.com.au

Single Touch Payroll (STP) – ATO’s Payroll Reporting Changes

The ATO has introduced Single Touch Payroll (STP), requiring all businesses, including micro-businesses, to report payroll information in real time. This follows similar global trends, such as the UK’s real-time PAYG reporting introduced by HMRC in 2012.

Impact on Small Businesses:

• Previously, small businesses could manage payroll with spreadsheets and annual tax agent reports.

• Now, all businesses paying wages must comply with STP, regardless of the number of employees.

What You Need to Do:

• Use STP-compliant payroll software

• Set up STP in your software

• Report payroll to the ATO before each pay run

• ATO calculates PAYG withholding tax and superannuation

Benefits of STP:

• No more annual payment summaries for employees.

• Greater transparency for employees and the ATO.

Challenges:

• Small businesses may need to pay around $10 per month for STP-compliant software.

• Limited free STP solutions (currently, only Reckon’s basic payroll app is free).

• Setting up STP requires calling the ATO, and confirmation can take time.

Transitioning to STP is a significant change, often compared to the introduction of GST. While it simplifies reporting in the long run, business owners must ensure compliance now.

For help with STP setup and payroll compliance, contact us today.

Accu Accounts
www.accuaccounts.com.au

Are You Ready for the End of Financial Year (EOFY)?

As EOFY approaches, small business owners should review their financials and take advantage of tax concessions available from the ATO.

Key EOFY Considerations for Small Businesses

• Small Business Entity Concessions
  Businesses with an aggregated turnover of less than $10 million can access ATO concessions. Most apply only to transactions completed before 30 June.
  
  

• Review Income Timing
  Some income is taxed on receipt rather than when invoiced. Consider deferring income where possible.
  
  

• Prepaid Expenses
  Prepaying next year’s expenses can bring tax deductions into this financial year.
  
  

• Employment-Related Expenses
  Staff bonuses should be documented before 30 June to be deductible.
  
  

• Bad Debts & Instant Asset Write-Off
  Review outstanding debtors and write off bad debts. The instant asset write-off applies to purchases under $30,000 ($33,000 if GST-registered).
  
  

• Asset & Inventory Revaluation
  Reviewing the true value of inventory can provide potential tax benefits.
  
  

• Private Company Loans (Div 7A)
  Loans to directors/shareholders must have a formal loan agreement. Otherwise, the ATO treats them as unfranked dividends, potentially leading to 76.5% tax.
  
  

• Managing Capital Gains
  The contract date, not settlement date, determines which financial year a capital gain is taxed in.
  
  

• Superannuation Payments
  Super contributions must be received by the fund by 30 June to qualify as a deduction.
  
  

• Maximise Concessional Super Contributions
  You can contribute up to $25,000 into super and claim a personal tax deduction. A contribution notice must be submitted to your fund before 30 June.
  
  

EOFY can be complex, but with careful planning, you can optimise tax savings and stay compliant.

For expert guidance, contact us today.

Accu Accounts
www.accuaccounts.com.au