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A recent tribunal case that saw a tax agent’s registration terminated over eight incompetently prepared income tax returns raises the bar for accountants, says one tax lawyer.
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Overclaimed work-related expenses see agent disqualified
19 February 2021
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Earlier this month, the Administrative Appeals Tribunal affirmed the Tax Practitioners Board’s decision to terminate the registration of S&T Income Tax Aid Specialists Pty Ltd, trading as Alpha Tax Aid.
S&T Income Tax Aid Specialists’ sole director, Sarwat McGuid, whose own registration has been terminated for “threatening, obstructive and unprofessional” conduct towards ATO and TPB officers, was found to have incorrectly lodged income tax returns on behalf of his clients.
An ATO audit on eight clients revealed $104,903 in work-related expense deductions that were ultimately amended to $22,166 after the claims were found to be irrelevant or unsubstantiated.
One of the claims included $11,461 in work-related car expenses for a crane operator who was not asked to provide evidence that he was required to travel for work.
Another involved claiming $120 of work-related clothing for a pair of Asics shoes for a school rowing coach on the basis that it was protective clothing to prevent the taxpayer from slipping in his job.
Mr McGuid was also heard to have claimed gym membership costs for a police officer on the basis that he often had to “break up brawls”.
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AAT senior member Adria Poljak found that Mr McGuid had repeatedly failed to question his clients’ claims, and failed to obtain evidence to support the required nexus between the expense claimed and earning assessable income.
“It appears in the evidence that Mr McGuid ‘believed’ his clients’ verbal claims and often estimated expenses when receipts were not available,” Ms Poljak said.
“Mr McGuid’s evidence at hearing was that even on occasions when he was not convinced an expense was deductable, he would claim it anyway, often with some small reduction ‘for protection’.
“He was of the mind that if the client was happy to take the risk, then he would claim the deduction.”
‘No client is worth your business’
HWL Ebsworth special counsel Vincent Licciardi said the case should prompt tax agents to reflect on their approach to claims put forward by their clients.
He believes accountants should be advising clients to provide objective evidence in relation to their claims, questioning their calculation and apportionment of claims, and documenting contemporaneous evidence of their advice to clients.
“It’s not that these rules didn’t exist before, but this is putting it front and centre for accountants who at times may be taking a bit of a shortcut or are pressed for time, in particular if they are doing higher volume work,” Mr Licciardi said.
“I think it is quite significant because what the accountant did in this particular case, probably 95 per cent of accountants do every day where they either just accept the claim by the client and they don’t really question them. This case is saying that’s not good enough anymore.”
Mr Licciardi said he understood concerns around auditing each claim, but he noted that it was necessary for accountants to take steps to protect their practice.
“Ultimately, it sets the bar quite high for accountants and much more than what most people would almost find acceptable and they might ask, ‘How do I audit everyone? I can’t run my business to the level that is required by the sort of standard set by this particular case’,” he said.
“The way to reduce the risk is to keep really good detail of file notes, working papers and discussions they have with clients in respect of each tax return, and that can be painful at times because, in some instances, you’re looking to turn them over quickly, but this case shows that it is ultimately for the benefit of the accountant’s business that they are taking those steps.
“One thing I say regularly to accountants is that no client is worth your business.”
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