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Tax practitioners should be given additional time to comply with the disqualified entity requirements given the potential legal and financial impacts of terminations, major bodies say.
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Terminations under new Code items pose ‘legal consequences’, TPB warned
07 March 2024
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The transitional period provided to tax practitioners to comply with new items 15 and 16 of the Code of Professional Conduct may not be sufficient given the interplay in timing between different obligations, according to Chartered Accountants ANZ and CPA Australia.
Guidance issued on the new items by the Tax Practitioners Board explained that tax practitioners will need to review their employment and engagement contracts and take necessary steps where they discover they have unknowingly employed or used an existing disqualified entity.
In a recent submission, the joint bodies stated that the transitional period provided may not be sufficient to allow tax practitioners to take the necessary steps to comply in a timely manner.
“There could be significant legal and financial consequences to tax practitioners in terminating disqualified entities to comply with this new obligation under Professional Conduct,” the joint bodies stated.
The submission noted that the transitional period of 1 January 2024 to 31 December 2024 that applies to protect tax practitioners from breach of the new Code items in the first year will lapse before the time when existing employees or contractors who are disqualified entities are required to notify the tax practitioner that they are disqualified.
“Under section 45-20, existing employees or contractors are not required to notify until 30 January 2025. By this stage, there is no transitional protection, and the obligations to either severe the relationship or seek approval are in operation,” the submission said.
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This leaves tax practitioners exposed to breach of the Code at the time they are notified, when it will likely be the first knowledge that they have of the disqualified status of their employees, and the first opportunity they have for taking action to severe the relationship, the major accounting bodies said.
“While the TPB expects that tax practitioners will use the 12-month transitional period to become aware of any disqualified entities on their staff, realistically, there is nothing to compel disqualified entities to notify and for the time being, the information available on the Register is mostly deficient for the purpose of informing them of disqualifying events,” it stated.
CA ANZ and CPA Australia said the TPB should therefore have discretion to allow tax practitioners to apply for additional time to comply with the new disqualified entity requirements, so that they have time to seek, obtain, and implement necessary legal advice.
The joint bodies also said the TPB should provide interim approval for tax practitioners where they are seeking approval from the TPB to retain a disqualified entity.
“We can envisage there being situations in which a tax practitioner wishes to contact the TPB to inform the TPB that they have been made aware they are employing a disqualified entity, but are seeking approval from the TPB to retain the disqualified entity for a finite period only, while going through the due process of terminating their employment and maintaining resourcing capacity,” the submission said.
“We believe that it would be constructive for the TPB to consider implementing a policy and process around this scenario to encourage tax practitioners to inform the TPB so that they can be covered during an agreed interim period while the practitioner undertakes what is expected to be a slightly extended process of severing the employment relationship.”
A scenario where a tax practitioner needs to obtain employment law advice and comply with a lawful process of severing the employment relationship may be one scenario and valid reason for which a relatively longer, but finite approval period is required.
“Issues of this nature would also be particularly relevant to small and micro practices for example in regional locations, where they often have difficulty in resourcing clients’ tax obligations and meeting lodgement deadlines should they lose a staff member due [to] an extremely limited or competitive market for recruiting tax talent,” it said.
“For these circumstances, tax practitioners would require a procedure that enables an agreed, limited period of time to allow a relationship with a disqualified entity to be severed lawfully and the entity replaced.”
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