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The ATO’s compliance approach to service fee reductions between a service entity and the operating partnership would be welcomed by professional firms who were looking for guidance in the Treasurer’s modified turnover test, say tax experts.
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Service trusts get reprieve under ATO guidelines
06 May 2020
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Late last month, Treasurer Josh Frydenberg announced that a change to the JobKeeper rules would see service entities recognised, with a modified turnover test now in place to cater for these arrangements.
However, the change did not cater to service trust arrangements used by professional firms.
Instead, the ATO released PCG 2020/4, setting out how the ATO will apply its compliance resources to schemes that have been entered into to enable an entity to gain access to the JobKeeper payment or an increased amount of the payment.
In the guideline, the ATO specified that there would be a low risk of the commissioner devoting compliance resources to arrangements where the service fee was reduced proportional to the operating entity’s reduced turnover.
Speaking to Accountants Daily, Chartered Accountants Australia and New Zealand tax leader Michael Croker said the ATO’s PCG would operate as part of a “twin-track strategy” with the new modified turnover test.
“This is important to explain to clients: there is a legislative pathway on service entities and the ATO pathway which is reflected in that PCG,” Mr Croker said.
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“The legislative pathway might not cater for service trust arrangements used by professional firms because of its reliance on the grouping arrangements.
“It is a good outcome because the only way that the service entity could have otherwise got the turnover down was to sack staff.”
Likewise, the Institute of Public Accountants general manager of technical policy Tony Greco welcomed the ATO’s guidelines.
“[The Treasurer’s legislative amendments] had a very narrow application of service entities; it completely missed the mark for professional firms,” Mr Greco said.
“This PCG has come along and provided an avenue in an indirect way.
“There is obviously an agreement between the service entity and the operating entity, but does the agreement allow for a change in the revenue model for the service entity?
“If the legal agreements can be altered in a way that fit within the PCG, then it does provide an avenue to pursue.”
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