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In an effort to safeguard consumers from unethical practitioners that could compromise the integrity of the tax system, the Tax Practitioners Board (TPB) has introduced new codes within its Code of Professional Conduct.
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Disqualified entities: What does it mean for your practice and what should you do now to ensure compliance from an HR perspective?
03 September 2024
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14 minute read
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These codes specifically address disqualified entities and their impact on tax agent services (including BAS services).
But what exactly does it mean and what constitutes a disqualified entity? First and foremost, disqualified entities can include individuals, companies, partnerships, trusts, and super funds. The criteria for what could lead to becoming a “disqualified entity” include those convicted of serious offences, fraud, or dishonesty, as well as those penalised for promoting or implementing tax exploitation schemes. Additionally, undischarged bankruptcies, those under external administration, and those who contravene the Tax Agent Services Act fall into this category.
For practitioners, compliance with these codes is crucial. Two new codes, namely Code 15 and Code 16, were implemented on 1 January 2024. Code 15 prohibits registered practitioners from employing or using disqualified entities to provide tax agent services (including BAS services) unless they have obtained TBP approval. Code 16 aims to prevent arrangements where disqualified entities operate through registered tax practitioners, a prevalent practice. Importantly, these codes also apply to offshoring arrangements, which will add another layer of complexity from a compliance perspective. To ensure compliance with these new codes, practitioners must demonstrate that they have made reasonable inquiries to determine the disqualified entities’ status of those who share in the revenue or income received from tax agent services, regardless of whether that be an employee, associate, contractor, or other relevant third party. However, administrative support or those providing tax agent-related services for no fee or reward will be exempt from the new codes.
To assist practitioners in getting their houses in order, so to speak, the TPB has introduced transitional provisions until 31 December 2024. This means that anyone utilising the services of a disqualified entity has until the end of the year to either cease those arrangements or apply to the TPB for permission to continue working with the disqualified entity.
So, from an HR perspective, how can practices – whether large or small – ensure compliance?
There are key steps that are recommended:
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New staff – vetting and checks: Prior to hiring new staff members or engaging contractors or consultants, etc, discuss the new codes to ensure they are aware of the rules and their self-disclosure obligations. Undertake suitable proof of identity checks and obtain written confirmation that they are not disqualified entities via the use of the Disqualifying events declaration and consent form available from the TPB website. Equally important is doing appropriate due diligence via seeking verification through TPB and ASIC websites to verify status disclosure, ensuring to take screenshots with dates to demonstrate that verification was undertaken at a certain point in time. Thereafter, when issuing letters of offer and employment agreements or engagement documentation, etc, include a clause relevant to the “disqualified entitles” mandate so that there’s no confusion or questions raised later that could create uncertainty or risk for the practice.
Existing staff/associates/contractors, etc: Provide ongoing information/training on the new codes to existing staff, associates, contractors, and stakeholders, ensuring that information is provided in writing as evidence of compliance. It would also be prudent to update and distribute updated employment/contractor agreements that include a clause relevant to the disqualified entities’ requirements and perform the necessary checks. It would also be beneficial to request declarations and verification of their status yearly (at a minimum) to avoid possible warnings or sanctions from the TPB. All documentation should be securely stored and filed appropriately and updated at the same time each year so that it becomes a business-as-usual activity that isn’t forgotten.
By following these recommendations, practitioners can navigate the complexities while upholding professional standards, protecting consumers, and doing the right thing from an HR perspective.
If a relevant party becomes disqualified, it’s essential to navigate the situation quickly with care and adherence to legal requirements. Under Fair Work legislation, ensure that any entitlements due to the disqualified entity are met. This includes paying out relevant notice periods, settling accrued annual leave and long service leave, and complying with other provisions outlined in legislation and their employment agreement. It is also essential to keep detailed records for seven years to demonstrate compliance with Fair Work record-keeping legislation. It’s also strongly recommended that a carefully worded letter of termination that references the relevant disqualified entities clauses be issued to demonstrate why the working relationship ceased.
Approach the matter professionally and delicately while emphasising confidentiality. Communicate clearly with the affected party while respecting their right to privacy. Practitioners are also urged to seek independent legal advice regarding the impact of terminated arrangements from an unfair dismissal standpoint. Despite the challenges, practitioners must adhere to the updated Code of Conduct and do so fully by 1 January 2025, which means that practitioners should regularly communicate with their team and related stakeholders, emphasising the gravity of adhering to the new codes, including the significant risks and financial penalties for non-compliance that could apply to both the employer and the disqualified entity for non-compliance. Regular and clear communication and proactive measures are vital to managing this critical issue effectively.
The TPB is taking these new codes very seriously and will monitor compliance via several different methods, including self-reporting by affected parties, random audits, complaints, and whistleblowing by clients, colleagues, families, and stakeholders; data matching and information sharing with other regulators; and annual declarations to the TPB.
Practitioners who wish to apply for permission to work with a disqualified entity must do so via their portal on the TPB website. Each application will be reviewed on a case-by-case basis and the TPB has advised that they will respond within 60 days of the initial application. When making their determination, they will consider factors such as the seriousness of the disqualifying event, the circumstances, and the role the disqualified entity played in the event. If an application is denied, the Administrative Appeals Tribunal may hear any lodged appeals. It is important to note that there is no obligation to apply to work with a disqualified entity if it’s deemed too risky or not in the practice’s or related parties’ best interests.
While most professionals working in the tax and BAS industries will likely be unaffected by these new codes, some will now have to have serious conversations with employers and clients, the outcomes of which may significantly impact their ability to continue their careers in the industry.
Barbara Selmer Hansen is an HR consultant, coach, presenter, and writer. She collaborates with small- to medium-sized businesses to enhance their HR compliance, develop effective people and culture strategies, and implement tailored learning and development tools. She empowers both leaders and staff to work to their highest potential.
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