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The power of effective advocacy has resulted in changes to the Code of Professional Conduct.
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Necessary changes to the TASA Determination
26 September 2024
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In my August column, I wrote about the sweeping changes to the Code of Professional Conduct (Code) in the Tax Agent Services Act 2009 (TASA) with a particular focus on the breach reporting rules and the Tax Agent Services (Code of Professional Conduct) Determination 2024 (Code Determination).
Let’s start with where things stood at the start of August. Using a new power in the TASA that enables the Minister to determine by legislative instrument additional Code obligations, the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP, registered the Code Determination on 2 July 2024. It contains eight additional code obligations with which registered tax and BAS agents (practitioners) must comply. The unacceptably short period for practitioners to understand and comply with their new obligations, given the commencement date of 1 August 2024, was immediately flagged by The Tax Institute and other professional associations (Joint Bodies).
The Joint Bodies, representing the profession, also took issue with two particularly overreaching provisions in the Code Determination: section 15 about reporting clients to the ATO (or the Tax Practitioners Board (TPB)) in certain circumstances, and section 45 about keeping clients informed.
Well, a lot has happened in the past two months! After extensive consultation and collaboration, the Minister and the Treasury have listened and constructively engaged with the Joint Bodies to address those aspects of the Code Determination that were extremely problematic for the profession — in short, they were showstoppers. In this column, I explain the latest proposed changes to the Code Determination.
Release of proposed amendments
There is a lot to digest, and the profession may baulk at yet more changes to the TASA framework. But, in this case, the proposed changes are a negotiated outcome that took on board concerns raised, and solutions canvassed, by the Joint Bodies. Compromises were made along the way by all involved to reach a workable solution. The collective efforts of the Joint Bodies, and the profession more broadly, have persuaded the government that some aspects of the Code Determination were an overreach, too broad in their scope, and not consistent with the policy intent.
An exposure draft of the Tax Agent Services (Code of Professional Conduct) Amendment (Measures No. 2) Determination 2024 (Amending Determination) was released on 25 September 2024, with comments due by 2 October 2024. The Amending Determination proposes to significantly amend sections 15 and 45 of the Code Determination, as well as make minor amendments to sections 20, 30 and 40 to clarify the intent and scope of those provisions.
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The key changes to sections 15 and 45 are explained below.
Section 15 — False or misleading statements
Old law
Broadly, old section 15 required you to notify (the Board or) the Commissioner where:
- you prepared a statement and you become aware that it was false, incorrect or misleading in a material particular; and
- the maker of the statement does not correct the statement within a reasonable time.
The Joint Bodies and the profession considered the requirement to ‘dob-in’ your client in these circumstances to be an overreach that would undermine the important agency relationship of trust that exists between a practitioner and their client. The requirement in what was paragraph 15(2)(c) of the Code Determination raised the intolerance bar for even honest mistakes to an unacceptably high level.
Proposed law
New section 15 sets out redesigned obligations relating to false and misleading statements. It is now a longer, somewhat more complicated provision, which will likely challenge many practitioners in navigating their way through it to readily identify their new obligations. However, it now requires a much higher culpability threshold to be reached before you have a reporting obligation in respect of a client.
Where you have reasonable grounds to believe a statement that you prepared or made (directly or indirectly) to the Commissioner and/or the TPB was materially false or misleading (merely incorrect statements are no longer included), you must, broadly, take each of the following actions when the situation described applies:
- Advise your client that the statement needs correcting, about the consequences of not correcting the statement, and about your obligations under the tax law relating to false or misleading statements (including what steps you may need to take under the law).
- Withdraw from the engagement and professional relationship with your client (including no longer providing tax agent services (TAS) to your client) where:]
- You have taken the steps outlined under Advise above;
- You are not reasonably satisfied that your client has corrected the statement or otherwise adequately explained the basis for the statement; and
- You have reasonable grounds to believe the false or misleading statement is due to recklessness as to the operation, or intentional disregard, of a taxation law,
unless doing so would risk your personal safety or that of your family or an ‘at risk staff member’ or would be unlawful under another Australian law (the exclusions).
- Notify the relevant regulator (the Commissioner or the TPB) that you have advised your client that the statement should be corrected and you are not reasonably satisfied that your advice was acted upon where you have reasonable grounds to believe that your client’s actions or inactions have caused, are causing, or are likely to cause, substantial harm to public interests.
The only circumstances in which you will need to notify the regulator are where:
- You have taken the steps outlined under Advise above;
- You are not reasonably satisfied that your client has corrected the statement or otherwise adequately explained the basis for the statement;
- You have reasonable grounds to believe the false or misleading statement is due to recklessness as to the operation, or intentional disregard, of a taxation law; and
- You have reasonable grounds to believe your client’s actions have caused, are causing, or may still cause, substantial harm to others (including investors, creditors, employees, or the public),
unless one, or both, of the exclusions applies.
You will need to notify the Commissioner or the TPB that you have advised your client that a statement should be corrected and that you are not satisfied that your client acted on your advice.
These new obligations broadly align with certain requirements contained in the Australian Ethical & Professional Standards Board (APESB) ethical standards. Complying with APESB standards is mandatory for members of Chartered Accountants Australia and New Zealand, CPA Australia and the Institute of Public Accountants. This does not mean that all registered tax practitioners must now comply with APESB standards where they are not otherwise required to do so. Rather, some key principles from the APESB standards have been lifted and used as a framework for the new obligations under section 15.
Section 45 — Keeping your clients informed
Old law
Broadly, old section 45 required you to notify all current and prospective clients, among other things, of ‘any matter’ that could significantly influence a client’s decision to engage you or continue to engage you. The scope of this provision was greatly concerning and it was an overreach, inconsistent with the policy intent.
Proposed law
Section 45 has been completely rewritten and there is now certainty that matters of a personal nature do not fall within the scope of the provision. It is framed as an exhaustive list of matters, events and circumstances that practitioners must disclose to their current and prospective clients. The existing requirement to notify clients of the existence of the TPB Register and the complaints process is unchanged.
The matters, events and circumstances prescribed in new section 45 broadly relate to:
- Convictions involving fraud or dishonesty and serious tax offences;
- Adverse findings against a practitioner, including penalties, sanctions and orders as a result of promoting or engaging in a tax avoidance or evasion scheme under the tax law; and
- Conditions applying to registration as a tax practitioner.
Current investigations are not required to be notified under section 45, and it is now clear that a ‘prospective client’ is a client who makes enquiries of a practitioner to engage them to provide TAS, not the public at large. Section 45 is now a reasonable and sensible provision that is easily understood and implementable.
Section 45 will apply to events that have occurred within the last five years, however:
- The five-year look back period does not apply to matters or events occurring before 1 July 2022 (to align with the recent changes to the information disclosed on the TPB Register); and
- No action is required to be taken by practitioners before the new obligations begin to apply to them in 2025 — the notification of new events occurring in the transitional period to existing clients is delayed until no later than 30 days after the new obligations begin to apply to the practitioner.
Section 30
Briefly, old section 30 required practitioners to keep records, including all relevant information considered in the provision of TAS. This could be read as requiring practitioners to retain every receipt and document that substantiates the information in clients’ returns and statements. This would result in clients’ raw data that they are already required to keep under the tax laws being unnecessarily duplicated by practitioners in their systems.
New section 30 clarifies that it will be sufficient for practitioners to reference information reasonably considered in providing their service.
Parliamentary processes and disallowance motions
A legislative instrument cannot be merely ‘withdrawn’. Like an Act of Parliament, a legislative instrument can be amended (including to effectively repeal by deletion) only by a later legislative instrument that is registered and not disallowed.
On 10 September 2024, a motion in the Senate moved by Senator Dean Smith (Liberal Senator for WA) to disallow the Code Determination was negated (ayes: 31 votes and noes: 31 votes). This resulted in the Code Determination not being disallowed.
However, on 18 September 2024, Senator David Pocock (Independent Senator for ACT) gave notice of a second disallowance motion which is scheduled to be moved in the Senate on 8 October 2024. As for any disallowance motion, this notice may be withdrawn, the motion may proceed on the scheduled date or the motion may be deferred to a date within the 15-day sitting period following the date of the notice.
Final thoughts
Practitioners will need to work their way through their new obligations, but at least now, thanks to the power of effective advocacy:
- The delayed application of the Code Determination to 2025 will allow practitioners the time to prepare and comply;
- The reporting obligation relating to clients applies only to the most serious cases where clients’ actions or inactions have caused, are causing or may cause substantial harm to others; and
- The obligation to notify clients is confined to a reasonable and exhaustive list of relevant matters.
Policy development must involve due process to ensure new law is subject to proper consultation and scrutiny. In the case of the TASA amendments, they must be fairly implemented without unreasonably burdening the vast majority of practitioners who conduct themselves with integrity and honesty.
The new Code obligations that apply from 1 January 2025 (for large firms) and 1 July 2025 (for small firms) are fairer, more readily implementable, and reflect the policy intent, compared to the old versions of the amended provisions. They are a significant improvement on the Code Determination as currently registered. That said, the consultation process was lacking at times and earlier engagement with the Joint Bodies would have likely led us to the same outcome but with far less angst along the way. May this experience inform future government consultations.
About the Author
Robyn Jacobson is the Senior Advocate at The Tax Institute.
About The Tax Institute
The Tax Institute is the leading forum for the tax community in Australia. Our reach includes membership of over 10,000 tax professionals from commerce and industry, academia, government and public practice and 40,000 Australian business leaders, government employees and students. We are committed to representing our members, shaping the future of the tax profession and continuous improvement of the tax system for the benefit of all, through the advancement of knowledge, member support and advocacy. Read more at taxinstitute.com.au
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