ATO Update: Structuring Tax Affairs in Professional Services Firms

You need to make sure you are not in their RED zone before 30 June 2025.

The ATO has updated its approach to assessing tax compliance for professional service firms, focusing on income redirection and profit allocation to associated entities. Their concern is that some firms use complex structures to significantly reduce tax liabilities without a clear commercial rationale.

Key risk factors that could place a firm in the ATO’s RED zone include:

✅ Profit allocation arrangements that lack genuine commercial substance;
✅ Structures designed primarily for tax advantages rather than legitimate business purposes;
✅ Use of multiple share classes or trust arrangements that obscure the true economic benefit of an entity;
✅ Financing arrangements involving non-arm’s length transactions.

The ATO has outlined compliance guidance (PCG 2021/4) to help professional firms assess their risk level and ensure they stay within acceptable parameters. Firms must review their tax structures before 30 June 2025 to ensure compliance, particularly if they have arrangements that could be considered high risk.

At Walsh Accountants, we have developed a flow diagram that may assist you in determining whether your professional services firm falls within the Red Zone.

If you are concerned about how these changes may impact your business, Senior Manager Jack Cave is up to date on all the latest changes and available for consultations. Connect with us today to schedule a consultation.

Senior Manager Jack Cave

Accounting is much more than just numbers—it’s about the people behind them. Since joining Walsh Accountants, I’ve worked closely with clients from a wide range of industries and backgrounds—from sole trader start-ups to SMEs with turnover exceeding $20 million. This hands-on experience, combined with strong technical accounting knowledge, allows me to provide tailored support and strategic advice on complex tax matters, business structuring, cashflow management, and performance reporting. It’s all about people, first and foremost.

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