The Australian Bookkeepers Association, Chartered Accountants Australia and New Zealand, CPA Australia, the Financial Advice Association of Australia, the Institute of Public Accountants, the Institute of Certified Bookkeepers, the National Tax & Accountants’ Association, the SMSF Association, and The Tax Institute (the Joint Bodies) welcome the opportunity to provide feedback to the Treasury on the Consultation paper, Enhancing the Tax Practitioners Board’s sanctions regime (the Consultation Paper), released on 10 December 2023.
The Joint Bodies support the proposition that the Tax Practitioners Board (TPB) should have a robust sanctions regime to deter misconduct and impose appropriate penalties proportionate to the level of wrongdoing. It is important for the tax profession to be held to the highest standard, a standard to which the vast majority of the profession already adheres. This will ensure that the community has confidence in the operation and administration of our taxation and superannuation system.
Fundamentally, we consider it important that any sanctions regime be built on the core principles of proportionality and fairness. That is, the TPB’s powers should be proportionate to the wrongdoing, be flexible so as to allow for consideration of a tax practitioner’s circumstances, and include a fair process. To give effect to these principles, the TPB’s powers should comprise a wider range of graduated sanctions that allow the TPB to impose the appropriate sanction proportionate to the severity of the relevant contravention or misconduct. We have explored these core principles and their application in the context of the matters considered in the Consultation Paper in greater detail below.
In the Review of the TPB Final Report (2019), and the Government’s response, it was acknowledged that a gap exists in the sanctions available to the TPB, particularly mid-range sanctions, which should be addressed. Further, it was identified that the TPB lacks interim powers that would allow it to respond more swiftly to curtail seriously egregious or harmful conduct with sufficient urgency.
The Joint Bodies are broadly supportive of these two observations and the Government’s objectives to enhance the TPB’s sanction powers to address these identified shortcomings.
Co-design and collective implementation
The Joint Bodies appreciate the extra time provided by Treasury in responding to the Consultation Paper, particularly in light of the holiday period that spanned part of the consultation period. Given the nature of the matters considered in the Consultation Paper and their impact on the tax profession, we consider it essential that there is an ongoing dialogue between the Government and the tax profession as these matters progress.
The Joint Bodies look forward to working with the Treasury and the TPB to tailor and fine-tune the design of the proposed sanctions as this body of work proceeds to the stages of design and drafting of the law. We also look forward to supporting the co-design of the legislative amendments through our close involvement in the Tax Practitioner Governance and Standards Forum (TPGSF) and other consultation forums. Good consultation will ensure that the TPB’s powers are effective and operate as intended, based on the principles noted above.
From an implementation perspective, the Joint Bodies recommend an implementation timeline be determined at the outset. We also welcome the opportunity to be involved in the co-design process for the new sanctions with Treasury and the TPB, and opportunities to consult, educate and communicate with our members in a timely manner. This will assist in increasing our members’ awareness of the impacts of these measures. It will also allow time for the Joint Bodies to properly integrate changes into our respective disciplinary, quality assurance and reporting processes, and support the tax profession with education on the changes.
A principle-based approach to designing the TPB sanctions regime
To inform our preliminary positions on the proposals in the Consultation Paper, the Joint Bodies have identified a set of key principles. We consider that the TPB’s sanctions regime should be designed in accordance with these principles:
a. Comprehensive and coherent — the sanctions regime should offer a graduated range of sanctions suited to the regulated conduct and contemporary tax practice;
b. Agile — the sanctions regime should enable responsive regulation and enforcement;
c. Effective — regulatory sanctions should be a credible deterrent, but no greater than is necessary to achieve the aims of deterrence;
d. Proportionate and fitting — the sanctions imposed should reflect the gravity of misconduct, as well as the purpose for which they are imposed;
e. Clear and consistent — the sanctions regime should be easily understood by those to whom it applies and the broader community, and be consistent in their application; and
f. Fair and lawful — the rules and the regulation must afford natural justice, including procedural fairness, and be authorised by law.
These principles are adopted largely from, and are aligned with, those developed by the Australian Securities and Investments Commission (ASIC) Enforcement Review Taskforce, as set out in the Treasury’s positions paper in 2017.
The last principle — fair and lawful — is an important aspect of any regulatory regime. It requires that the provisions and procedures must be made and implemented in accordance with law. We draw attention to this point in particular as one of the queries we have flagged in our submission is the need to ensure that any infringement notice regime is designed in a constitutionally valid manner if it is to proceed. This requires there to be a proper exercise of administrative/executive powers, without crossing over into the exercise of judicial power, in breach of the doctrine of separation of powers.
The sanctions regime reform proposals
The Consultation Paper contains the following proposals in relation to the TPB’s enhanced sanctions regime:
- criminal penalties for parties who operate without being registered by the TPB;
- broader and increased civil penalties in the Tax Agent Services Act 2009 (Cth) (TASA);
- an infringement notice scheme attached to the civil penalty regime;
- a new power to allow the TPB to enter into enforceable voluntary undertakings (EVUs) with tax practitioners; and
- a new power to allow the TPB to impose interim and contingent suspensions.
In Appendix A, we provide a summary of our preliminary views about each of the proposed sanction reforms based on an adapted version of Table 1 – Current State and Proposed Future State of Sanctions in the Consultation Paper.
Learnings from the financial services regulatory reforms
We note that the Australian Law Reform Commission (ALRC) has recently released its report on the financial services industry regulatory reforms in 2019 following the Royal Commission (ALRC Report 141).The ALRC considers that those reforms made the legislation a complex, incoherent, confusing maze.
ALRC Report 141 provides a cautionary tale for the work that we are about to embark on to reform the sanction and enforcement powers under the TASA. According to the ALRC:
Complexity costs consumers not only in the expenses that are passed on by financial services providers, but by failing to protect them from misconduct.
ALRC Report 141 also states:
The existing legislative framework is unnecessarily complex, and the tools used to build and maintain the framework — such as notional amendments, conditional exemptions, and proliferating legislative instruments — often create more problems than they aim to solve. Much legislation is unclear and incoherent, and the objective of an adaptive, efficient, and navigable legislative framework remains unrealised. These problems also combine significantly to undermine the substantive content and quality of the law. The ALRC’s findings underscore those of the Financial Services Royal Commission: fundamental norms of behaviour are unclear, and the law should be simplified so that its intent can be met.
It will be important to understand, learn from, and apply these learnings in the context of the current TASA reforms. We look forward to engaging with you further in the next stage of this consultation process.