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Enhanced reporting requirements over breaches of the code and disqualified entities add to compliance requirements.
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How TASA changes could prove problematic
22 December 2023
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Important changes have been made to the Tax Agents Services Act 2009. Every tax and BAS agent must know what these changes entail.
The changes affect the people tax practitioners employ and the processes they undertake in relation to employment. Significantly, the changes also affect who tax practitioners engage to provide tax services for their clients and the documentation they now need to create.
Also, there are new reporting requirements in relation to “significant breaches” of the Code of Professional Conduct which will be problematic and challenging for tax practitioners.
These important changes are now enacted law. This was through Treasury Laws Amendment (2023 Measures No.1) Act 2023. This act received royal assent on 27 November. The changes I will discuss are in relation to:
- Interactions with “disqualified entities”.
- Reporting significant breaches of the Code of Professional Conduct.
There are other changes in this act, but I will not refer to them.
Disqualified entities
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The act introduces the concept of a “disqualified entity”. The definition of this term is too long to set out here. Very broadly, this is an individual or an entity that is not a tax practitioner and within the last five years has committed serious offences or breached TASA. It also includes an undischarged bankrupt or an entity that has gone into external administration.
The act now prevents tax practitioners from employing disqualified entities or having arrangements with such entities to provide tax agent services unless the employment or arrangement is approved by the TPB. If a tax practitioner wants to employ or engage a disqualified entity, the tax practitioner must make application to the TPB in an approved form and include the required information.
The TPB has 60 days in which to respond to the application. If no response is received within the 60 day period, the application is deemed to be rejected.
How is a tax practitioner to know whether an individual or entity is a disqualified entity?
Disqualified entities are under an obligation to advise a tax practitioner of their disqualified status before entering into a contract of employment or other arrangement with the tax agent. There are transitional provisions that can delay the need to notify the tax agent where the person is a disqualified entity on 31 December 2023. Significant fines can be imposed on a disqualified entity for not informing a tax practitioner within the required time period.
The explanatory memorandum to the act makes it plain that tax practitioners are expected to adopt new procedures to determine whether their staff and people they use in providing tax services are disqualified entities. This includes employees, associates, contractors and those from which tax practitioners seek advice. I note that the explanatory memorandum states that this requirement does not apply to those “who only provide peripheral services to assist a tax practitioner”. This would include administrative staff.
To me, this means that tax practitioners must now have procedures in place that directly ask all relevant people whether they are disqualified entities. I think best practice will entail the tax practitioner sending a document to the other party that sets out the full definition of a “disqualified entity” and asks them to confirm, in writing, that they are not such an entity.
Further, I think there will be an ongoing responsibility on tax practitioners to ensure that those they associate with in providing tax services have not become disqualified entities. It seems to me that an annual confirmation of this would be reasonable.
Tax practitioners will need to be able to demonstrate to the TPB, if required, that they have done whatever is reasonable to determine whether those they work with to provide tax agent services are not disqualified entities. This is despite the obligation on disqualified entities to advise tax practitioners.
Something that concerns me is, on the plain reading of s30-10(16), tax agent services cannot be provided to disqualified entities. I am sure that this is not the intention of the law, and a court may well “read down” the provision in its context. However, the TPB needs to clarify this point.
Reporting of significant breaches
The next part of the changes brought in by the act is the requirement to report a “significant breach” of the Code of Professional Conduct. These changes are problematic and will provide tax practitioners with endless challenges if they are enforced to the letter.
First, a tax practitioner must notify the TPB of a significant breach of the Code of Professional Conduct that they have committed within 30 days. This 30-day time period commences when the practitioner became aware of, or ought to have become aware of, the breach.
Also, a tax practitioner must notify the TPB within 30 days of a significant breach of the code by any other tax practitioner. Further, if that other tax practitioner is a member of a professional association accredited by the TPB, the first practitioner must also notify the professional association. Notification is required when the tax practitioner has “reasonable grounds to believe” that a significant breach by another tax practitioner has occurred.
I note that there is no requirement for one tax practitioner to be working with or associated in any way with another tax practitioner for this requirement. A tax practitioner could be at a barbecue and hear of something that another tax practitioner has (possibly) done and there is an obligation to notify the TPB.
Of fundamental importance to this reporting obligation is the definition of “significant breach of the code”. The definition is too long to set out here. Broadly, it entails arriving at an objective conclusion as to whether there has been an indictable offence committed, or an offence involving dishonesty, or where material loss might occur. The definition also seems to require one tax practitioner to know how many breaches of the code have occurred by another tax practitioner and how another tax practitioner ensures compliance with the code.
On one view, these requirements are, to an extent, impossible for an accountant or bookkeeper to meet. The requirements require knowledge of criminal law in all of the jurisdictions of Australia. It also requires (probably uninformed) speculation about the financial affairs and business practices of other people.
I am perplexed as to how these new requirements are going to work in practice. One hopes that the TPB does not take a hard line in relation to the administration of the provisions.
Due to the considerable uncertainty about these rules, I think it likely tax practitioners will over-report breaches. That is, I think the TPB is likely to be given many breach notifications that were never required. This is because there is no sanction for reporting a potential breach. There is only sanctions for not reporting breaches. So, there is no risk in reporting a breach, but significant risk in not reporting.
I predict that this will result in the TPB being overworked through following up supposed breaches. This will require the TPB to employ more staff with the result that the fees of tax agent registrations will increase.
I am also concerned that some tax practitioners may “weaponise” the ability to report (supposed) significant breaches against other tax practitioners that are their competitors. I would hate to see it become commonplace that compliance peccadilloes by one tax practitioner be a source of “significant breach” notifications being made to the TPB. This would be a distasteful and unhelpful development for our profession.
I presume that the TPB will produce guidance on how it will administer these new provisions. I trust that the approach of the TPB will be one that understands the limitations and lack of legal and other knowledge of tax agents and BAS agents.
Unfortunately, the weight of compliance requirements upon tax practitioners grows at an unabated pace.
John Jeffreys is director of John Jeffreys Tax.
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