New ATO Guide on Service Trusts

Dentists, doctors and other professionals could lose tax benefits under a new Australian Taxation Office (ATO) Guide designed to prevent income splitting and passing profits to family members. This Guide, called Your Service Entity Arrangements, was published yesterday on the ATO website.

According to the ATO, the new Guide is intended "to help you ensure your business is claiming only deductible service fees and charges for your service entity arrangements".

The Guide indicates that service trust fees will only be deductible if businesses can show they are calculated from a practical and business point of view.

The fees charged back to the partnership for the services would also need to be at a commercial rate. A mark-up of 3-5 per cent would be regarded as acceptable. More than 30 per cent of profits going into the service trust, or amounts greater than $1 million, would be likely to result in ATO attention.

Members with service trusts are encouraged to talk with their accountants about the implications of the updated ATO position.