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In the second part of her review of the year, Robyn Jacobson looks at state taxes, MYEFO, and the changing rules on professional conduct.
Newsletter
More questions than answers in code of conduct revisions
05 January 2024
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16 minute read
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The new year provides an opportunity to cast our eyes ahead to what’s on the tax and superannuation horizon for 2024. This second part of a two-part series discusses some of the key developments expected to command our attention this year.
Proposed legislative measures that did not complete their passage through Parliament by the last sitting day of 2023 (7 December) are likely to be progressed following the resumption of parliamentary sittings on 6 February.
Tax profession ethical and professional conduct
The focus on the tax profession and ethical and professional conduct dominated the headlines in 2023, attracting the attention of senators, the government, and various government agencies. The significant reform package announced on 6 August 2023 aims to restore public confidence and faith in the tax profession by covering three priority areas:
- Strengthening the integrity of the tax system.
- Increasing the powers of the regulators.
- Strengthening regulatory arrangements to ensure they are fit for purpose.
Enacted law
Following the announcement, we saw the passage of the Treasury Laws Amendment (2023 Measures No. 1) Act 2023, which amended the Tax Agent Services Act 2009 to:
- Insert new Code of Professional Conduct items 15 (and 16) that require a registered tax or BAS agent to seek approval before employing, or using the services of, an entity to provide tax agent services on their behalf if they know, or ought reasonably to know, that the entity is a disqualified entity – from 1 January 2024. A transitional rule applies to disqualified entities employed or used to provide tax agent services immediately before 1 January 2024.
- Reduce the registration period from every three years to annually – from 1 July 2024.
- Enable the minister to specify in a legislative instrument additional obligations that registered agents must comply with – from 1 January 2024.
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A draft determination, the Tax Agent Services (Code of Professional Conduct) Determination 2023, was released by the Treasury for comment by 21 January 2024 and will supplement the code. It proposes that, among other things, registered agents:
- Will need to protect public trust and confidence in the integrity of the tax profession and the tax system.
- Must not disclose any information they receive, directly or indirectly, from an Australian government agency in connection with any activities undertaken with the agency in their capacity as a registered agent.
- Must keep complete and accurate records relating to the tax agent services they have provided to each of their clients, including former clients.
- Must advise all current and prospective clients of various matters that could be reasonably relevant and material to a decision by a client to engage, or to continue to engage, the agent.
- Prevent a partner in a partnership or an executive officer of a company (and certain former partners and executives who continue to receive financial benefits within the six-month period preceding their possible appointment to the board) from being appointed a board member of the TPB where the firm has more than 100 employees – from 1 October 2024.
- Introduce new breach reporting requiring registered agents to “dob in” themselves and other registered agents to the TPB where they have reasonable grounds to believe that they or the other agent has breached the code and the breach is a “significant breach”.
The disqualified entity provisions and dob-in provisions in particular have many in the tax profession nervous about what this means for them. How will registered agents efficiently manage the increased compliance burden (in the form of additional costs and time) to ensure they comply with the disqualified entity provisions? What will be the effect on the relationships between registered agents of a positive obligation imposed on one agent to dob in another agent where they reasonably believe the code has been breached and the breach is a significant breach? What effect will this have on interactions between partners of the same firm or on practitioners in smaller regional communities? How will this operate when gaining or losing a client from or to another agent who you reasonably believe has breached the code? The dust is far from settled on these substantial changes in the regulation of the tax profession.
Proposed law
Newly introduced legislation, the Treasury Laws Amendment (Tax Accountability and Fairness) Bill 2023, proposes to further amend the TASA to increase obligations imposed on registered agents and increase the powers of the regulators. On 30 November 2023, the Senate referred this bill to the Senate committee for inquiry and report by 18 April 2024.
The measures in this bill propose to:
- Increase the maximum promoter penalties by 100-fold (see below).
- Expand whistleblower protection when evidence of agent misconduct is provided to the TPB.
- Give the TPB more time to complete investigations (up to 24 months).
- Enable the ATO and the TPB to refer ethical misconduct by advisers to “prescribed disciplinary bodies” (broadly include, but are not limited to, prescribed professional associations) for disciplinary action.
The previously touted maximum promoter penalty of $782.5 million will instead be $825 million due to the separately proposed increase in the amount of a penalty unit from $313 to $330. A Treasury consultation paper released on 10 December 2023 seeks feedback on enhancing the TPB’s sanctions regime.
MYEFO measures
The Mid-Year Economic and Fiscal Outlook 2023–24 was released on 13 December 2023 and the following significant measures were announced:
- A further increase in the amount of the Commonwealth penalty unit from $313 to $330. The increase is proposed to commence four weeks after the passage of the enabling legislation, with indexation expected to continue in line with the existing three-year schedule. This follows an increase from $222 to $275 on 1 January 2023 and indexation from $275 to $313 on 1 July 2023.
- Providing superannuation trustees with the ability to pay advice fees agreed between a member and their financial adviser from the member’s superannuation account – retroactively applying from the 2019–20 income year.
- Denying deductions for amounts charged under the general interest charge (GIC) and shortfall interest charge (SIC) provisions – from income years starting on or after 1 July 2025. The Commissioner will continue to retain the discretion to remit the GIC and SIC.
- Changing the foreign resident capital gains withholding tax regime by increasing the rate from 12.5 per cent to 15 per cent and reducing the withholding threshold from $750,000 to zero – this will affect real property disposals where the contract is entered into from 1 January 2025.
- Tripling foreign investment fees for foreign investors who apply to purchase established dwellings – from the day after the date of royal assent of the enabling legislation.
- Amending the definition of a fuel-efficient vehicle for luxury car tax purposes by reducing the maximum fuel consumption limit from 7 litres per 100 kilometres to 3.5 litres per 100 kilometres – from 1 July 2025.
- Allowing victims and survivors of child sexual abuse to seek access, via a court order, to additional personal or salary sacrifice superannuation contributions made by the offender – this would apply retrospectively and only to identifiable additional superannuation contributions starting from the 2002–03 income year.
Of these, the move to remove the deductibility of the GIC and SIC will be felt most by taxpayers. Many are accustomed to being able to manage their tax debts through the lessened impact of the post-tax amount of these interest charges. Once the charges become non-deductible, will the settings of the GIC still be appropriate or should they be reviewed as part of this measure? The GIC is already uplifted by a factor of 7 per cent and the SIC by a factor of 3 per cent. Notably, as the deductions will be denied, any GIC or SIC that is later remitted will no longer need to be included as assessable income.
State taxes
Significant payroll tax changes affecting general medical practitioners have been made in several states. While the changes apply retrospectively, Queensland and South Australia have each provided an amnesty to affected medical practices.
In the recent High Court decision in Vanderstock & Anor v State of Victoria [2023] HCA 30, it was held that subsection 7(1) of the Zero and Low Emission Vehicle Distance-based Charge Act 2021 (Vic) is invalid on the basis that it imposes a duty of excise within the meaning of section 90 of the constitution (which grants exclusive power to the federal Parliament to impose duties of customs and excise). This decision is likely to have significant implications for states’ ability to collect revenue from these sources.
On 1 December 2023, the federal Treasurer announced that the Commonwealth and the states and territories will work together on long-term options for zero-emission vehicles user charging in light of the Vanderstock decision and develop options in response to the implications of the decision on sources of state revenue.
Looking ahead
We expect to see progression, finalisation, and enactment of the various measures announced or released for consultation in 2023. The government’s approach to tackling the list of announced but unenacted measures, such as the corporate tax residency amendments, the individual tax residency rules, and Division 7A reforms remains uncertain.
On the administrative front, registered agents will continue to grasp the expanded application of client-agent linking, navigate the new beta version of the ATO website, and work with clients to manage their outstanding tax debts against the backdrop of the ATO’s firmer approach to debt collection.
Robyn Jacobson is the senior advocate at the Tax Institute.
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