CPA Australia, Chartered Accountants Australia and New Zealand, Australian Bookkeepers Association, the Financial Advice Association of Australia, the Institute of Public Accountants, the Institute of Certified Bookkeepers, the National Tax & Accountants’ Association, the Institute of Financial Professionals Australia, the SMSF Association, Stockbrokers and Investment Advisers Association and The Tax Institute (together, the Joint Bodies) welcome the opportunity to comment upon the proposed amendments to the Code of Professional Conduct (the Code) contained in the Tax Agent Services Act 2009 (TASA). The exposure draft amendments are contained in the Tax Agent Services (Code of Professional Conduct) Amendment (Measures No. 2) Determination 2024 (the ED amendments) and Explanatory Statement (the ES). The ED amendments make changes to the Tax Agent Services (Code of Professional Conduct) Determination 2024 (the Determination) which amends the Code.
Our comments below relate to the ED amendments as well as other provisions of the Determination.
It is the view of the Joint Bodies that:
- The ED amendments greatly improve sections 45 (keeping clients informed) and 20 (activities undertaken for government) by making them more targeted and closely aligned to the policy intent of those provisions. The Joint Bodies welcome these amendments and appreciate the government listening to and actioning our concerns in relation to these provisions.
- In section 25 (maintaining confidentiality in dealings with government confidential information), a distinction needs to be drawn between activities undertaken “for" government and broader activities undertaken by tax practitioners. Replacing “working with the agency” with “working for the agency” will align it with section 20 and appropriately limit its operation.
- The proposed amendments to section 15 (false or misleading statements) are an improvement to the original section 15 of the Determination, however it does not meet what was agreed in the negotiated agreement of 10 September 2024. Additional requirements have been added that were not agreed to, which dilutes the meaning of substantial harm and further amendments are required to meet what was agreed.
Originally, section 15 required tax/BAS agents to report to the Australian Taxation Office (ATO) statements which the agent reasonably believed were false, incorrect or misleading in a material particular, or omitted some matter or thing without which the statement is misleading in a material respect, where the maker did not correct the statement within a reasonable time.
Whilst the members of the Joint Bodies would prefer the removal of the “dob-in” provisions, the government has been steadfast that removal is not an option. An improvement was negotiated to raise the threshold at which the dob-in provisions become operative, using concepts from the non-compliance with laws and regulations (NOCLAR) requirements of the Accounting Professional and Ethical Standards (APES), with which many tax practitioners are familiar.
Now, the threshold before reporting becomes mandatory is that after a reasonable period of time, you are not satisfied that the false or misleading statement was corrected and:
- it was made due to recklessness as to the operation of a taxation law or intentional disregard of a taxation law; and
- the client's actions have caused, are causing, or may still cause, substantial harm to the interests of others.
Changes are needed to the definition of the term “substantial harm” in note 4 of section 15 and the ES so that the definition is consistent with APES 100. APES 100, R260 and R360 state that, as a pre-condition for reporting to a regulatory authority, it is serious adverse financial and non-financial harm to the client’s investors, creditors, employees or the general public that is to be considered. The current references to a tax practitioners' obligations in paragraph (b) of note 4 to section 15, and the addition of other criteria in the explanatory statement (such as client’s customers, competitors, Parliamentary intent, and public confidence and trust) impose a significantly different test than that which is contemplated by the APES 110 360.5 A3. These references should be removed so it is consistent with the negotiated scope of the provision.
Further refinements around the explanation of ‘material’ are also needed to ensure that the intent to align the concepts with the NOCLAR provisions of the APES is met.
Even with the currently proposed amendments, sections 10 (upholding and promoting the ethical standards of the tax profession) and 15 (false and misleading statements) remain of concern, particularly for small and medium practitioners, as these provisions fundamentally change the relationship between tax/BAS agents and their clients and impose additional compliance burdens on those least able to bear them. We have highlighted below our concerns and recommendations regarding section 15, and we have provided our feedback regarding section 10 in Appendix A to this letter.
Section 15
Section 15 is about taxpayer integrity, not tax agent integrity, and the requirement for tax agents to ‘dob-in’ taxpayers to the ATO is being consulted upon publicly for the first time now.
Whilst the bar for reporting is set high, it is unlikely that the average taxpayer will hear that message. Based on feedback from our members, what taxpayers will hear is that a tax/BAS agent is no longer a trusted advisor acting in their best interest but is now effectively an outsourced ATO officer. There are strongly held concerns within our membership bases that any required reporting of clients to the ATO will undermine the trusted relationship and impact public confidence in the integrity of the tax system.
Taxpayers, especially small and medium business clients, rely heavily on tax/BAS agents to ensure that they comply with the tax laws. Requiring tax/BAS agents to dob-in clients, albeit with a higher threshold, may deter clients from having full and frank discussions with their tax/BAS agent, leaving them with inadequate advice and potentially exposed to greater penalties.
It may drive taxpayers who need guidance to navigate a complex tax system away from registered tax/BAS agents altogether. Section 15 may encourage the use of non-registered practitioners or independent self-assessment by taxpayers and place a much high compliance assurance burden on the ATO to ensure that Australia’s revenue base is not eroded. This outcome would be detrimental to the system as a whole.
The final report of the 2019 Review of the Tax Practitioners Board (the James Review) considered the issue of to whom the tax practitioner owes a duty, and stated at paragraph 2.4:
“Tax practitioners do not have a duty to the ATO. The core object is the appropriate standards of professional and ethical conduct. Tax practitioners must be free to provide professional and ethical advice to their clients, so that taxpayers can fulfil their obligations to the ATO. It is this tripartite relationship that contributes to the integrity of the tax system.”
Excessive regulation and red tape
These amendments are part of a broader package of measures directed to increasing the integrity of the tax profession. The sheer volume of changes, and in some cases the severity of the response, have caused concern among the profession. This is particularly evident in relation to small and medium sized practitioners who are disproportionately affected by rapidly changing and overly complex regulations. This is particularly concerning when, in some cases, a breach of those rules can result in termination of registration.
Multiple overlapping and in some cases, inconsistent, rules create confusion. The avalanche of red tape is being compared to what financial advisers have experienced which resulted in the loss of over 12,000 financial advisors. The Australian Law Reform Commission (ALRC) report on the financial services industry regulatory reforms in 2023 (ALRC Report 141) warns that complexity costs consumers not only in the expenses that are passed on by financial services providers, but by failing to protect them from misconduct.
Cautionary lessons should be learnt from those experiences. Our members are concerned that the substantial increase in their regulatory burden will necessitate price increases, due to legal costs and increased insurance premiums, among other things. This will adversely impact taxpayers who are most in need of their advice. It is also resulting in some practitioners reconsidering their careers in the tax profession and bringing forward their retirement date, with increasingly fewer new practitioners in the pipeline to replace them.
Recommendations
We recommend the following actions:
- Clarifying the definition of ‘material’ in sections 15(2)(c) and 15(2)(d), as detailed in Appendix A.
- Deleting paragraph (c) of Item 2 in 15(2)(d). This requires a tax agent to tell a client that they may be required to ‘dob-in’ the client to the ATO if they do not correct a statement and may cause personal safety concerns for the tax/BAS agent. Alternatively, there should be a carve out for advising a client of this requirement if personal safety is an issue.
- Amending paragraph (b) of Note 4 to section 15(2) and the explanatory statement. Substantial harm considers the impact of an action or inaction of a client. As currently drafted, the Determination and explanatory statement require considerations broader than that of the client’s action or inaction to be taken into account.
- Section 25 – change ‘with the agency’ to ‘for the agency’ in the same manner as done for section 20.
- Withdrawing or amending section 10 as detailed in Appendix A.
For footnotes and appendixes, please download the article at the top of the page.