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2022-2023
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TREASURY LAWS AMENDMENT (2023 MEASURES NO. 1) BILL 2023
EXPLANATORY MEMORANDUM
(Circulated by authority of the Assistant Treasurer and Minister for Financial Services,
the Hon Stephen Jones MP)
Table of Contents
Glossary................................................................................................. iii
General outline and financial impact ...................................................... 1
Registration of providers and assisted decision making7
Sustainability standards ............................................. 13
Government response to the Review of the Tax
Practitioners Board .................................................... 21
Off-market share buy-backs ...................................... 39
Franked distributions funded by capital raisings ........ 49
Statement of Compatibility with Human Rights .......... 63
Attachment 1: Independent Review of the Tax Practitioners Board -
Final Report ............................................................... 75
Glossary
This Explanatory Memorandum uses the following abbreviations and acronyms.
Abbreviation Definition
AASB The Australian Accounting Standards
Board
ASIC Australian Securities and Investments
Commission
ASIC Act Australian Securities and Investments
Commission Act 2001
ATO Australian Taxation Office
AUASB The Auditing and Assurance Standards
Board
BAS Business activity statement
Bill Treasury Laws Amendment (2023
Measures No. 1) Bill 2023
Budget Time 7:30pm, by legal time in the Australian
Capital Territory, on 25 October 2022
Commissioner Commissioner of Taxation
Corporations Act Corporations Act 2001
Financial Advisers Register Register of Relevant Providers
FRC The Financial Reporting Council
GST Act A New Tax System (Goods and Services
Tax) Act 1999
IAASB International Auditing and Assurance
Standards Board
ICCPR International Covenant on Civil and
Political Rights
Glossary
Abbreviation Definition
ICESCR International Covenant on Economic,
Social and Cultural Rights
IFRS Foundation The International Financial Reporting
Standards Foundation
ISSB The International Sustainability
Standards Board
ITAA 1936 Income Tax Assessment Act 1936
ITAA 1997 Income Tax Assessment Act 1997
Licensee Australian financial services licensee
Special Account TPB Special Account
TAS Act Tax Agent Services Act 2009
TPB Review Independent Review of the TPB
TPB Tax Practitioners Board
Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
General outline and financial impact
Schedule 1 - Registration of providers and
assisted decision making
Outline
Schedule 1 to the Bill amends the Corporations Act to:
• allow ASIC to approve applications from one or more licensees to
register on the Financial Advisers Register the same relevant provider,
and
• allow assisted decision-making to be used for any purpose for which
ASIC may make decisions in the performance or exercise of ASIC's
functions or powers to register a relevant provider.
The amendments are technical in nature.
Date of effect
Schedule 1 to the Bill will commence on the day after Royal Assent.
Financial impact
Nil.
Human rights implications
Schedule 1 to the Bill does not raise any human rights issues. See Statement of
Compatibility with Human Rights -- Chapter 6.
Compliance cost impact
The amendments in Schedule 1 to the Bill do not have a compliance cost.
Schedule 2 - Sustainability standards
Outline
Schedule 2 to the Bill provides the AASB with functions to develop and formulate
1
General outline and financial impact
sustainability standards. It clarifies the AUASB's function to develop and maintain
relevant auditing and assurance standards for sustainability purposes. It also empowers
the FRC to provide strategic oversight and governance functions in relation to the
AASB's and AUASB's sustainability standards functions.
Date of effect
Schedule 2 to the Bill will commence the day after Royal Assent.
Proposal announced
Schedule 2 to the Bill partially implements the Restoring Treasury's Capability on
Climate Risks and Opportunities - modelling and reporting standards measure from the
2022-23 October Budget.
Financial impact
Nil.
Human rights implications
Schedule 2 to the Bill does not raise any human rights issues. See Statement of
Compatibility with Human Rights -- Chapter 6.
Compliance cost impact
The amendments in Schedule 2 to the Bill are expected to have minimal regulatory
impact.
Schedule 3 - Government response to the
Review of the Tax Practitioners Board
Outline
Schedule 3 to the Bill implements the following recommendations of the TPB Review
to:
• update and modernise the objects clause of the TAS Act
(Recommendation 2.1);
• create financial independence for the TPB from the ATO
(Recommendation 3.1);
2
Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
• require tax practitioners to not employ or use a disqualified entity
without the TPB's approval, or enter an arrangement with a
disqualified entity (Recommendation 4.6);
• convert to an annual registration period (Recommendation 4.7); and
• enable the Minister to supplement the existing Code of Professional
Conduct to ensure that emerging or existing behaviours and practices
by tax practitioners are properly addressed (Recommendation 5.1).
These recommendations are intended to improve the effectiveness and independence of
the TPB, enhance community confidence, and support high standards in the tax
profession whilst streamlining the regulation of tax practitioners.
Date of effect
The amendments in Part 1 of Schedule 3 to the Bill apply from the first quarter
following Royal Assent. The amendments in Part 2 of Schedule 3 to the Bill apply
from 1 July 2024. The amendments in Part 3 of Schedule 3 to the Bill apply from 1
July 2023.
Proposal announced
Schedule 3 to the Bill partially implements the recommendations included in the
Government's Response to the TPB Review released on 27 November 2020.
Financial impact
There are no financial impacts for four of the five recommendations. The TPB's
registration fees will require further consultation with industry and accordingly the
financial impact of Recommendation 4.7 is unquantifiable.
Regulation impact statement
The TPB Review has been certified as a process and analysis equivalent to an Impact
Analysis. The full text of the TPB Review has been provided at Attachment 1.
Human rights implications
Schedule 3 to the Bill raises human rights issues. See Statement of Compatibility with
Human Rights -- Chapter 6.
Compliance cost impact
Schedule 3 to the Bill is expected to have a low increase in compliance costs. It is
expected that the measure will increase regulatory costs for businesses by
approximately $400,000 per year.
3
General outline and financial impact
Schedule 4 - Off-market share buy-backs
Outline
Schedule 4 to the Bill improves the integrity of the income tax system by aligning the
tax treatment of off-market share buy-backs undertaken by listed public companies
with the tax treatment of on-market share buy-backs. It also amends the income tax law
in respect of selective share cancellations to ensure alignment of tax treatment across
capital management activities for listed public companies.
Date of effect
The amendments made by Schedule 4 to the Bill apply to buy-backs and selective
share cancellations undertaken by listed public companies that are first announced to
the market after Budget Time.
A buy-back or selective share cancellation is announced to the market (if the
announcement is made before the buy-back or cancellation occurs) when the buy-back
or cancellation has been disclosed to the approved stock exchange on which the shares
or membership interests are listed, and that notification has been released to the market
as required by the rules of that stock exchange.
For buy-backs and selective share cancellations undertaken by listed public companies
that are not announced to the market, or the announcement is made after the buy-back
or the cancellation, the amendments apply to those buy-backs that occur after Budget
Time.
Proposal announced
Schedule 4 to the Bill fully implements the 'Improving the integrity of off-market
share buy-backs' measure from the 2022-23 Budget.
Financial impact
Schedule 4 to the Bill is estimated to have the following impact on receipts over four
years to 2025-26 ($m):
2022-23 2023-24 2024-25 2025-26
.. 150.0 200.0 200.0
.. not zero, but rounded to zero
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
Human rights implications
Schedule 4 to the Bill does not raise any human rights issues. See Statement of
Compatibility with Human Rights -- Chapter 6.
Compliance cost impact
Schedule 4 to the Bill is expected to have minimal regulatory impact.
Schedule 5 - Franked distributions funded by
capital raisings
Outline
Schedule 5 to the Bill amends the ITAA 1997 to prevent certain distributions that are
funded by capital raisings from being frankable. This ensures that arrangements cannot
be put in place to release franking credits that would otherwise remain unused where
they do not significantly change the financial position of the entity.
Date of effect
The amendments in Schedule 5 to the Bill apply to distributions made on or after
15 September 2022.
Proposal announced
Schedule 5 to the Bill fully implements the 'Tax integrity--franked distributions
funded by capital raisings' measure from the 2016-17 MYEFO. The change to the
application date of the measure has not previously been announced.
Financial impact
Schedule 5 to the Bill is estimated to have the following impact on receipts over
5 years to 2026-27 ($m):
2022-23 2023-24 2024-25 2025-26 2026-27
10.0 10.0 10.0 10.0 10.0
Human rights implications
Schedule 5 to the Bill does not raise any human rights issues. See Statement of
Compatibility with Human Rights -- Chapter 6.
5
General outline and financial impact
Compliance cost impact
Schedule 5 to the Bill has moderate compliance costs for affected entities.
6
Registration of
providers and assisted decision making
Table of Contents:
Outline of chapter .................................................................................. 7
Context of amendments ......................................................................... 7
Detailed explanation of new law ............................................................ 8
Multiple registrations of relevant providers ...................................... 8
Assisted decision making .............................................................. 10
Commencement, application, and transitional provisions .................... 11
Outline of chapter
1.1 Schedule 1 to the Bill amends the Corporations Act to:
• allow ASIC to approve applications from more than one licensee to
register on the Financial Advisers Register the same relevant provider,
and
• allow assisted decision-making to be used for any purpose for which
ASIC may make decisions in the performance or exercise of ASIC's
functions or powers to register a relevant provider.
1.2 These amendments will improve the operation of the registration process and
are technical in nature.
Context of amendments
1.3 The Financial Sector Reform (Hayne Royal Commission Response - Better
Advice) Act 2021 introduced into the Corporations Act a requirement for all
relevant providers to be registered on the Financial Advisers Register. The
obligation to register enhances transparency and improves the accountability of
relevant providers.
1.4 A relevant provider is an individual who is authorised to provide personal
advice to retail clients about relevant financial products. A relevant provider
may be an individual who is:
7
Registration of providers and assisted decision making
• a licensee;
• an authorised representative of a licensee; or
• an employee or director of a licensee, or an employee or a director of a
licensee's related body corporate.
1.5 Relevant providers who are also a licensee are required to apply to ASIC to be
registered.
1.6 Other relevant providers who are not also a licensee require a licensee to apply
for them to be registered. Their registration as a relevant provider will remain
in force until the licensee who applied for their registration no longer
authorises the person to provide financial advice on the licensee's behalf, or
disciplinary action is taken against the relevant provider which cancels their
registration or bans them from providing financial advice.
1.7 From 1 July 2023, it will be an offence for a relevant provider to provide
financial advice while unregistered. Offences also apply to licensees if a
relevant provider whom they have authorised provides financial advice while
unregistered.
1.8 Schedule 1 makes a number of amendments to address a technical limitation
by enabling ASIC to approve applications to register the same relevant
provider when the relevant provider has an existing registration in force. This
is relevant in circumstances where a relevant provider is authorised by more
than one licensee to provide financial advice. These amendments are necessary
to minimise the risk of an inadvertent breach of the law.
Detailed explanation of new law
Multiple registrations of relevant providers
ASIC may approve multiple registrations
1.9 Part 1 to Schedule 1 permits ASIC to approve an application from a licensee to
register a relevant provider, including when the relevant provider has an
existing registration in force. These amendments are technical in nature and
ensure the obligation to register a relevant provider operates efficiently.
1.10 A relevant provider who is also a licensee is required to apply to ASIC for their
own registration on the Financial Advisers Register. When the application
requirements are satisfied, ASIC must approve and register the person on the
Financial Advisers Register. There is no substantive change to these
provisions.
[Schedule 1, item 11, subsection 921ZC(1) of the Corporations Act]
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
1.11 A licensee may apply to ASIC to register a relevant provider who they have
authorised to provide personal advice to retail clients about relevant financial
products. If the application is made in accordance with section 921ZB, the
amendments provide under new subsection 921ZC(1A) that ASIC must record
in the Financial Advisers Register that the relevant provider is registered in
relation to the licensee.
[Schedule 1, items 10 and 11, section 921ZB and subsection 921ZC(1A) of
the Corporations Act]
1.12 To avoid all doubt, the amendments provide that a relevant provider may be
registered multiple times in relation to different licensees. An explanatory note
is included under the new subsection to confirm that the relevant provider may
provide financial advice on behalf of multiple licensees, as long as the relevant
provider is registered in relation to one of them.
[Schedule 1, item 11, subsection 921ZC(1B) of the Corporations Act]
1.13 While the amendments enable ASIC to approve an application by one or more
licensees to register the same relevant provider, it is not a requirement that
every licensee who may authorise the relevant provider to provide financial
advice on their behalf must register that relevant provider. If a relevant
provider has a registration in force on the Financial Advisers Register, the
relevant provider can provide financial advice on behalf of a second licensee
who has authorised them.
[Schedule 1, item 11, subsections 921ZC(1A) and (1B) of the Corporations
Act]
1.14 The amendments limit the risk of an inadvertent breach of the law if the
licensee who registered the relevant provider ceases to authorise them. Without
these amendments, when the licensee who registered a relevant provider
revokes their authorisation, the relevant provider could become unregistered
and unknowingly give advice while authorised by another licensee.
1.15 A number of consequential amendments have been made to provisions in
Division 8C of Part 7.6 of the Corporations Act to give effect to new
subsection 921ZC(1A). These amendments relate to when ASIC must refuse
an application to register the relevant provider, their obligation to provide
written notice about the outcome of an application, and the relevant provider's
period of registration.
[Schedule 1, items 12 to 16 and 19, sections 921ZC and 922Q of the
Corporations Act]
1.16 Other consequential amendments ensure the correct cross referencing of
provisions or provide an updated section heading.
[Schedule 1, items 5 to 9 and 17, sections 921Z, 921ZA, 921ZB and 921ZD of
the Corporations Act]
9
Registration of providers and assisted decision making
When a registration is in force
1.17 The amendments clarify the period that a registration is in force and the effect
of certain events on registrations where there is more than one registration for a
relevant provider.
1.18 Registration comes into force when ASIC records the relevant provider in the
Financial Advisers Register. The registration will continue in force until the
earliest of the following events occur:
• a registration prohibition order or banning order relating to the relevant
provider comes into force; or
• the licensee who applied to register the relevant provider stops
authorising them to provide financial advice.
[Schedule 1, item 18, section 921ZE of the Corporations Act]
1.19 The amendments clarify that for relevant providers registered in relation to
licensees, a registration prohibition order or banning order will apply to all
registrations for that relevant provider. However, if a licensee stops authorising
the relevant provider, the registration for the relevant provider will only cease
in relation to that licensee and any other registrations for that relevant provider
will continue to be in force.
[Schedule 1, item 18, section 921ZE (Note 2) of the Corporations Act]
1.20 Additional amendments have been made to clarify that any orders made by a
Financial Services and Credit Panel, such as a registration suspension order
and registration prohibition order, will have effect on all current and future
registrations in relation to that relevant provider.
[Schedule 1, items 1 to 4, section 921L of the Corporations Act]
Assisted decision making
1.21 Part 2 of Schedule 1 amends the Corporations Act to allow ASIC to use
assisted decision-making processes for any purpose for which ASIC may make
decisions in the performance or exercise of ASIC's functions or powers to
register a relevant provider under Division 8C of Part 7.6 of the
Corporations Act. The new law enables ASIC to use a wide variety of
processes and technologies for this purpose (including computer applications
and systems) and a decision made using such a process is taken to be a
decision of ASIC.
[Schedule 1, item 25, section 921ZF of the Corporations Act]
1.22 The requirement for relevant providers to be registered requires ASIC to make
a large number of decisions in response to registration applications. ASIC is
required to decide for each registration application that it receives, either to
approve or refuse the application.
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
1.23 The use of assisted decision-making processes, including computer automated
and computer-assisted decision making, enables ASIC to deliver a high
standard of service in an effective and efficient manner. The new law provides
a sound legislative basis to ensure these benefits can be realised. The
decision-making process lends itself to automation because the circumstances
in which ASIC must approve or refuse an application are prescribed.
1.24 The new law includes provisions to promote the appropriate use of assisted
decision-making processes. For example:
• the use of such processes must be arranged by ASIC and used under its
control;
• any decision made by such processes must comply with all of the
requirements of the legislative provisions under which the decision
was made. This means, for instance, that any review mechanism
applicable to the decision remains in place; and
• ASIC may change a decision made by an assisted decision-making
process if it is satisfied that the decision is wrong. In this circumstance,
a person would not need to request a review of the incorrect decision
because ASIC is able to change the decision on its own motion.
[Schedule 1, item 25, section 921ZF of the Corporations Act]
Commencement, application, and transitional
provisions
1.25 The amendments commence on the day after Royal Assent.
1.26 Schedule 1 repeals section 1684L as this section is now obsolete.
[Schedule 1, item 20, section 1684L of the Corporations Act]
1.27 Section 1684L provided that the offence provisions in sections 921Y and
921Z, which deal with providing financial advice when unregistered, were to
commence from 1 January 2023. These provisions are omitted by the
Corporations Amendment (Registration of Relevant Providers)
Regulations 2022 until 30 June 2023. Sections 921Y and 921Z, as amended by
this schedule, apply to the provision of financial advice by a relevant provider
on or after 1 July 2023.
1.28 The amendments provide transitional arrangements to ensure any existing
registrations, or applications for registration, that are made before the
commencement of the amendments will continue in force and may be dealt
with in accordance with the provisions as amended. Transitional arrangements
also provide that any registration suspension orders, registration prohibition
orders or action by a Financial Services and Credit Panel continue in force and
have effect as if the orders were made having regard to the provisions as
11
Registration of providers and assisted decision making
amended.
[Schedule 1, item 24, Part 10.69 of the Corporations Act]
1.29 In addition, minor technical amendments are made to a transitional provision
in Part 10.57 of the Corporations Act to ensure it operates as was intended by
the Financial Sector Reform (Hayne Royal Commission Response--Better
Advice) Act 2021. The amendment will ensure a relevant provider who had a
pending application to be a registered tax (financial) adviser with the TPB (the
Board) before 1 January 2022, and whose registration was subsequently
granted by the Board, is appropriately transitioned and registered on the
Financial Advisers Register.
[Schedule 1, items 21 to 23, Section 1684U of Corporations Act]
1.30 The amendment has a necessary and appropriate retrospective application to
apply on or after 1 January 2022 to allow those granted registration after
1 January 2022 by the Board to be recorded on the Financial Advisers Register
as registered. This application provision is beneficial and necessary to achieve
the original intent as explained the Explanatory Memorandum to the Financial
Sector Reform (Hayne Royal Commission Response--Better Advice) Bill 2021,
and will minimise the administrative burden for effected relevant providers.
[Schedule 1, item 24, section 1699H of Corporations Act]
12
Sustainability standards
Table of Contents:
Outline of chapter ................................................................................ 13
Context of amendments ....................................................................... 13
Summary of new law............................................................................ 14
Comparison of key features of new law and current law ...................... 15
Detailed explanation of new law .......................................................... 15
Objects of the financial reporting system....................................... 15
The role of the AASB..................................................................... 16
The role of the AUASB .................................................................. 18
The role of the FRC ....................................................................... 18
Confidentiality ................................................................................ 19
Commencement .................................................................................. 19
Outline of chapter
2.1 Schedule 2 to the Bill provides the AASB with functions to develop and
formulate sustainability standards. It clarifies the AUASB's function to
develop and maintain relevant auditing and assurance standards for
sustainability purposes.
2.2 It also empowers the FRC to provide strategic oversight and governance
functions in relation to the AASB's and AUASB's sustainability standards
functions.
Context of amendments
2.3 Growing awareness of the financial risks and opportunities of climate change
and broader sustainability issues has prompted a range of international
financial system responses. Many key markets for Australian companies are
introducing measures to improve transparency, manage systemic risks and
align capital flows towards climate and sustainability goals. A common and
13
Sustainability standards
important component of this is company disclosure of sustainability and
climate-related financial risks and information.
2.4 To help meet the market demand for consistent international disclosure, the
IFRS Foundation has set up the ISSB to develop comprehensive and consistent
global standards for sustainability reporting, including climate-related
disclosures. The ISSB concluded consultation on two draft standards in July
2022:
• IFRS S1 General Requirements for Disclosure of Sustainability-related
Financial Information; and
• IFRS S2 Climate-related Disclosures.
2.5 The AASB consulted on the ISSB exposure drafts to gather feedback to
provide input into the ongoing work of the ISSB and inform the AASB as to its
proposed approach to sustainability reporting in Australia. The feedback
expressed a strong demand from Australian businesses, investors, financial
institutions, and users and preparers of financial information, for Australian
sustainability standards to align with the final ISSB recommended standards.
2.6 The IAASB is developing an overarching standard for assurance on
sustainability reporting. It has signalled that a suite of standards for assurance
on sustainability reporting that provide more specificity than an overarching
standard will likely need to be developed over time.
2.7 The ASIC Act currently does not explicitly grant the AASB and the AUASB
the function to develop and formulate sustainability standards and associated
auditing and assurance standards. This is necessary to support the
Government's commitment to ensure entities provide Australians and investors
with greater transparency and accountability in relation to their climate-related
plans, financial risks, and opportunities. The proposed sustainability standards
would provide general guidance, assisting relevant industry to prepare systems
and processes for eventual transition to mandatory climate-related financial
disclosures. They would also be flexible enough to accommodate future global
developments in other sustainability reporting.
Summary of new law
2.8 The amendments confirm the AASB, AUASB and FRC as the entities
responsible for:
• formulating sustainability standards;
• developing auditing and assurance standards for sustainability
purposes; and,
• providing strategic oversight, respectively.
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
2.9 This measure leverages the existing bodies' experience to facilitate the
development of sustainability standards while longer-term governance
arrangements for sustainability-related financial reporting, including climate
disclosure, are developed and implemented.
Comparison of key features of new law and
current law
Table 2.1 Comparison of new law and current law
New law Current law
The AASB may formulate sustainability The AASB does not have a specific function
standards. to formulate sustainability standards.
The AUASB may formulate auditing and The AUASB does not have a specific and
assurance standards for sustainability express function in relation to sustainability.
purposes.
The FRC has oversight of the process of The FRC does not have a specific function in
developing sustainability standards, in relation to oversight of sustainability
addition to accounting standards and standards.
auditing standards.
Detailed explanation of new law
2.10 The Australian financial reporting system will be extended to include the
development and assurance of sustainability standards.
2.11 This allows the AASB to establish, in the first instance, non-binding reporting
requirements for sustainability that will, as far as is practicable, align with
significant international developments, including the standards under
development by the ISSB. The FRC will have oversight of sustainability
standard-setting processes and governance of the standard-setting bodies.
Objects of the financial reporting system
2.12 The amendments extend the main objects of Part 12 of the ASIC Act to
facilitate the:
• development of sustainability standards that require the provision of
financial and other related information that:
- allows users to make and evaluate decisions about allocating
scarce resources; and
15
Sustainability standards
- assists directors to discharge their obligations in relation to
financial reporting; and
- is relevant to assessing performance, financial position,
financing and investment; and
- is relevant and reliable; and
- facilitates comparability; and
- is readily understandable; and,
• Australian economy by having sustainability standards that are clearly
stated and easy to understand.
[Schedule 2, item 2 and 3, paragraph 224(a) and subparagraph 224(b)(iii) of
the ASIC Act]
2.13 The object to facilitate the development of accounting standards and
sustainability standards that require the provision of financial information also
extends to the provision of other related information. An example of other
related information for the purposes of sustainability standards may include
emissions reporting. This ensures consistency and clarity of the AASB
functions for both accounting and sustainability standards.
[Schedule 2, item 2, paragraph 224(a) of the ASIC Act]
2.14 Sustainability standards include standards relating to climate. For example, the
ISSB is developing a standard for climate-related disclosures as well as general
requirements for disclosure of sustainability-related financial information.
[Schedule 2, item 4, section 224 (Note) of the ASIC Act]
The role of the AASB
2.15 The AASB will have additional functions in relation to sustainability
standards.
2.16 The AASB can develop conceptual frameworks for the purpose of evaluating
proposed sustainability standards and international sustainability standards.
These conceptual frameworks do not have the force of standards.
[Schedule 2, item 15, paragraph 227(1)(a) of the ASIC Act]
2.17 The AASB can formulate sustainability standards.
[Schedule 2, item 16, paragraph 227(1)(ca) of the ASIC Act]
2.18 The standards formulated do not have legal effect but may be applied or
adopted by some other authority. This means that the standards developed and
issued by the AASB are not enforceable until further legislative changes are
made to apply the standards.
[Schedule 2, item 18, section 227 (Note 3) of the ASIC Act]
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
2.19 The legislative note clarifies that the framework within which the AASB is to
formulate and make accounting standards and sustainability standards is set out
in section 224 and Division 2 of Part 12 of the ASIC Act.
[Schedule 2, item 18, section 227 (Note 4) of the ASIC Act]
2.20 The AASB can participate in and contribute to the development of a single set
of sustainability standards for world-wide use.
[Schedule 2, item 17, paragraph 227(1)(d) of the ASIC Act]
2.21 The AASB may formulate a sustainability standard by issuing the text of an
international sustainability standard. International sustainability standards are
made by the ISSB, or another international body specified by the regulations.
Sustainability standards include standards relating to climate. Standards made
in Australia can therefore align with the climate-related disclosure and
sustainability standards developed by the ISSB.
[Schedule 2, item 1 and 19, subsections 5(1) and 227(4) of the ASIC Act]
2.22 However, text of an international sustainability standard may be modified if
necessary to consider the Australian legal or institutional environment and to
ensure that any disclosure and transparency provisions in the international
standard are appropriate to that environment.
[Schedule 2, item 19, subsections 227(5) of the ASIC Act]
2.23 The AASB may distribute a draft international sustainability standard for
consultation, whether or not modified.
[Schedule 2, item 19, subsection 227(6) of the ASIC Act]
The framework for making sustainability standards
2.24 Division 2 of Part 12 of the ASIC Act has been extended to set out the
framework within which AASB is to make sustainability standards. The same
framework applies to accounting standards.
[Schedule 2, item 22, section 227C of the ASIC Act]
2.25 In formulating sustainability standards, the AASB must have regard to the
suitability of a proposed standard for different types of entities. The AASB
may apply different sustainability requirements to different types of entities.
[Schedule 2, item 25, subsection 229(3) of the ASIC Act]
2.26 A failure to comply with the framework for making or formulating standards
does not affect the validity of the standard. This applies to both sustainability
standards and accounting standards.
[Schedule 2, item 28, section 234 of the ASIC Act]
2.27 Provisions relating to the framework for making accounting standards and
sustainability standards have been amended and restructured to improve
readability.
[Schedule 2, item 21, 23, 24, 26 and 27, Division 2 of Part 12 (heading),
subsections 228(1) and (2), subsection 229(1), subsection 231(1) and
subsection 231(2) of the ASIC Act]
17
Sustainability standards
Administration of the AASB
2.28 The procedures of the AASB are amended to account for sustainability
standards. A meeting of the AASB (or part of a meeting) that concerns the
contents of a sustainability standard or an international sustainability standard
must be held in public.
[Schedule 2, item 29, subsection 236A(2) of the ASIC Act]
2.29 The qualification requirements for the appointment of members of the AASB
has also been amended to account for sustainability standards. A person must
not be appointed unless they have knowledge of, or experience in, business,
accounting, law, government, science, sustainability or climate change.
[Schedule 2, item 30, subsection 236B(3)]
The role of the AUASB
2.30 The AUASB functions are expanded to include formulating auditing and
assurance standards for sustainability purposes.
[Schedule 2, item 20, paragraph 227B(1)(b) of the ASIC Act]
Administration of the AUASB
2.31 The qualification requirements for the appointment of members of the AUASB
has similarly been amended to account for sustainability standards. A person
must not be appointed unless they have knowledge of, or experience in,
business, accounting, law, government, science, sustainability or climate
change.
[Schedule 2, item 31, subsection 236F(4) of the ASIC Act]
The role of the FRC
2.32 The law expands FRC's oversight and governance powers to account for the
development of sustainability standards.
2.33 The FRC has broad oversight of the processes for developing sustainability
standards in Australia. These standards replicate FRC's existing standards
functions in relation to accounting standards and auditing standards.
[Schedule 2, item 5 and 8, paragraph 225(1)(a) and subsection 225(1A) of
the ASIC Act]
2.34 Provisions relating to the role of the FRC have been amended and restructured
for readability.
[Schedule 2, item 5, 6, 7, 9 to 14, paragraph 225(1)(a), (d) and (e), subsection
225(2)(heading), paragraph 225(2)(c), (e) to (h), subsection 225(2A)
(heading), paragraph 225(2A)(c), (e) to (h) of the ASIC Act ]
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
Confidentiality
2.35 The FRC, the AASB, the Office of the AASB, the AUASB and the Office of
the AUASB must take all reasonable measures to protect from unauthorised
use or disclosure information given to it in confidence. Disclosure of
information to bodies that set international sustainability standards is taken to
be authorised.
[Schedule 2, item 32, paragraph 237(2)(c) of the ASIC Act]
Commencement
2.36 Schedule 2 will commence the day after Royal Assent.
19
Government response
to the Review of the Tax Practitioners
Board
Table of Contents:
Outline of chapter ................................................................................ 21
Context of amendments ....................................................................... 22
Detailed explanation of new law .......................................................... 22
Updated and modernised objects clause ...................................... 23
Establishing a special account for the TPB ................................... 23
Requiring tax practitioners to not employ or use a disqualified entity
without TPB approval, or enter an arrangement with a disqualified
entity.............................................................................................. 25
Convert to an annual registration period ....................................... 35
Enable the Minister to supplement the existing Code of Professional
Conduct ......................................................................................... 36
Further amendments ..................................................................... 36
Commencement, application, and transitional provisions .................... 37
Outline of chapter
3.1 Schedule 3 to the Bill amends the TAS Act to ensure that tax agent services
and BAS services provided to the public are of an appropriate ethical and
professional standard and to enhance the financial independence of the TPB
from the ATO. To achieve this, Schedule 3 to the Bill implements the
following recommendations of the TPB Review to:
• update and modernise the objects clause of the TAS Act
(Recommendation 2.1);
• create financial independence for the TPB from the ATO
(Recommendation 3.1);
21
Government response to the Review of the Tax Practitioners Board
• require tax practitioners to not employ or use a disqualified entity
without the TPB's approval, or enter an arrangement with a
disqualified entity (Recommendation 4.6);
• convert to an annual registration period (Recommendation 4.7); and
• enable the Minister to supplement the existing Code of Professional
Conduct to ensure that emerging or existing behaviours and practices
by tax practitioners are properly addressed (Recommendation 5.1).
3.2 Legislative references are to the TAS Act unless otherwise stated.
Context of amendments
3.3 In 2019, the Government announced an independent review into the
effectiveness of the TPB and the TAS Act, to ensure that tax agent services are
provided to the public in accordance with appropriate professional and ethical
standards.
3.4 On 27 November 2020, the Government released the final report of the TPB
Review and its response to it. The Government's response forms part of the
Government's wider commitment to improve the effectiveness of the TPB,
who are responsible for the registration and regulation of tax practitioners.
Implementation of the recommendations will uphold confidence and support
high standards in the tax profession.
3.5 The Government supports 20 of the TPB Review's 28 recommendations in
full, in part or in-principle and seeks to achieve three key objectives:
• to increase the independence and effectiveness of the TPB;
• ensuring high standards in the tax profession; and
• streamline the regulation of tax practitioners.
3.6 Schedule 3 to the Bill implements recommendations through legislative
changes.
Detailed explanation of new law
3.7 These amendments implement the Government's commitment to ensuring high
standards of ethics and competency in the tax profession. This has been
achieved by creating a stronger, more independent and effective TPB through
the implementation of recommendations from the TPB Review.
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
Updated and modernised objects clause
3.8 This provision implements recommendation 2.1 of the TPB Review, and
updates and modernises the object of the TAS Act, to support public trust and
confidence in the integrity of the tax profession and the tax system. This is in
addition to the current object which is to ensure that tax agent services are
provided to the community in accordance with appropriate standards of
professional and ethical conduct.
[Schedule 3, item 1, section 2-5 of TAS Act]
3.9 As tax professionals play a key role in providing tax agent services to the
community at large, there is a need and an expectation to hold them to a high
standard, so that the public's trust and confidence in the integrity of the tax
profession and the tax system is maintained.
3.10 This amendment also rephrases the wording of the objects clause to reflect that
the TPB is a more mature organisation that is no longer in its start-up phase,
making them more contemporary and aligning more closely with the TPB's
current role and responsibilities. The amendments also highlight the TPB's role
to ensure consumer protection to clients of tax practitioners.
[Schedule 3, item 1, subsection 2-5(2) of TAS Act]
Establishing a special account for the TPB
3.11 In accordance with Recommendation 3.1 of the TPB Review, a Special
Account has been established for the TPB, meaning funding for the TPB will
largely be independent from the ATO. A Special Account enables a special
appropriation to be made specifically for the TPB, for the purposes identified
in the TAS Act. This dispenses with the need for yearly discussions with the
Commissioner and provides the TPB with greater financial independence and
the ability to control its own budget and manage its regulatory functions. This
option still allows the TPB and ATO to continue utilising their existing
synergies and shared services which reduces overall costs and allows both
bodies to benefit from information sharing.
[Schedule 3, item 14, subsection 60-145(1) of TAS Act]
3.12 The creation of a TPB Special Account also supports the TPB's ongoing
financial independence from the ATO. These provisions represent increased
independence for the TPB as they will be legally entitled to an established
amount, in comparison to the current process where the ATO has the final
decision regarding the portion of its annual departmental budget allocated to
the TPB.
3.13 Financial independence aligns with the overall purpose of the TPB Review, to
recognise the TPB as having distinct functions and powers from the ATO, and
having responsibility for regulating tax practitioners with consistency whilst
limiting undue influence from the ATO. Similar to the objects clause, this
23
Government response to the Review of the Tax Practitioners Board
provision supports tax practitioner and community confidence in the TPB's
regulation of the profession.
3.14 The Special Account is established within the standalone TAS Act, which is
compliant with section 80 of the Public Governance, Performance and
Accountability Act 2013. Specific reporting requirements will apply to ensure
the proper administration of the Special Account.
[Schedule 3, item 14, subsection 60-145(2) of TAS Act]
3.15 This amendment outlines the amounts that will be set aside specifically for the
TPB and will be credited to the Special Account to increase its balance. This
will primarily consist of any fees collected by the TPB on behalf of the
Commonwealth (excluding penalties or penalty related payments) and be
supplemented by additional amounts which must be appropriated by the
Parliament for the purposes of the Special Account.
[Schedule 3, item 14, section 60-150 of TAS Act]
3.16 In practice, the TPB will be primarily funded by the registration and renewal
fees received from tax practitioners. The Commissioner must also credit
amounts appropriated by the Parliament for the purposes of the TPB to the
Special Account.
3.17 This furthers the financial independence of the TPB from the ATO for two
reasons. First, the TPB will operate on a partial cost-recovery basis (reflecting
the services it provides). Secondly, the Commissioner will not have discretion
about the amount which should be credited to the Special Account. That is, the
Commissioner will not be able to withhold amounts appropriated by the
Parliament for the TPB's purposes, which are specifically identified in the
Portfolio Budget Statements.
3.18 The provision setting out the purposes of the Special Account governs the
purposes for which money standing to the credit of the Special Account can be
spent, decreasing its balance. The accountable authority for management and
administration of the Special Account (in this instance, the Commissioner) is
responsible for ensuring that funds from the Special Account are not used for
purposes outside the scope established in this provision.
3.19 Primarily, the Special Account is to pay for all costs associated with the
functions undertaken by the Board under the TAS Act and cover the salaries
and wages for all TPB employees. This includes indirect costs that the ATO
incurs (such as accommodation costs, and the expenses of administering the
Special Account) in relation to the TPB's operations. The balance of the
Special Account can also be reduced without requiring a real or notional
payment. This allows for the repayment of any savings to the Budget.
[Schedule 3, item 14, section 60-155 of TAS Act]
3.20 The amendments provide that any application fees for registration which have
been received prior to the commencement date but must be refunded after
commencement, should be debited from another appropriation, and not from
the Special Account. This avoids the potential for the Special Account to
24
Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
commence with a negative balance as it ensures that only fees which have been
initially credited into the account, may then be refunded, and debited out from
the account.
[Schedule 3, item 15 of TAS Act]
Requiring tax practitioners to not employ or use a
disqualified entity without TPB approval, or enter an
arrangement with a disqualified entity
3.21 Tax practitioners play an important role in ensuring a high standard of tax
agent and BAS services are provided to the public. The statutory requirements
imposed on tax practitioners (i.e., registration, meeting education standards and
an ongoing compliance with the Code of Professional Conduct) assure the
general public that only accredited professionals are eligible to handle complex
tax affairs. Tax practitioners need to demonstrate and maintain a certain degree
of competence in the provision of tax agent services.
3.22 Like many other professions, tax practitioners need to utilise the wider
workforce to provide their services and assist the general public with meeting
their compulsory tax law obligations.
3.23 Recommendation 4.6 is anchored in concerns about insufficient internal
governance practices leading to tax practitioners employing or using people
who are unsuitable to provide tax services on their behalf. This increases the
risk of sub-standard tax advice and tax fraud by or on behalf of taxpayers
which diminishes the integrity of the tax system.
3.24 In particular, there is an identified gap in the regulation of tax services whereby
entities who would not qualify to be registered as a tax practitioner (e.g., an
applicant whose registration application was rejected for not meeting fit and
proper requirements) are nevertheless able to provide tax services under the
auspices of a registered tax practitioners.
3.25 Recommendation 4.6 is being implemented by introducing the following
obligations:
• new obligations under the Code of Professional Conduct for tax
practitioners to ensure that :
- they do not employ or use entities who meet the definition of a
'disqualified entity' to provide tax agent services on their
behalf, unless approved by the TPB; and
- they do not enter an arrangement with a disqualified entity in
connection with providing tax agent services; and
• an entity who meets the definition of a 'disqualified entity' must
disclose their disqualified status to the tax practitioner if:
25
Government response to the Review of the Tax Practitioners Board
- they are being employed or used to provide tax agent services
on behalf of the tax practitioner; or
- they are entering an arrangement with a tax practitioner in
connection with providing tax agent services.
3.26 These amendments ensure that the entities employed or used by tax
practitioners in the provision of tax services, have the appropriate ethical and
professional attributes to be employed in the tax profession. The amendments
mirror the requirements that currently apply in respect of legal practitioners
and their employees and associates in Victoria and New South Wales.
3.27 The amendments are intended to facilitate compliance with, and preserve the
integrity of, the taxation system. They are designed to reduce the possibility of
tax fraud and evasion by or on behalf of taxpayers (e.g., claiming
unsubstantiated deductions) in response to the identified gap in the law, as well
as protect consumers from services being provided by inappropriate entities.
Disqualified entity
3.28 The definition of a disqualified entity is partially based on the objective
criteria which is currently utilised to determine whether individuals are 'fit and
proper' in sections 20-15 and 20-45 of the TAS Act. In addition to this, it
includes anyone who has:
• committed a serious offence, as defined in the ITAA 1997;
• been subject to sanctions by the TPB;
• had their registration terminated, suspended, or refused for reasons
other than work experience and qualifications; or
• found to have breached the Act by the TPB or Court.
By assessing entities against similar criteria to registered tax practitioners, the
overall standard of tax services and the profession will increase.
[Schedule 3, items 4 and 7, subsection 45-5(2) and subsection 90-10(1) of
TAS Act]
Tax practitioners cannot employ or use a disqualified entity without the
TPB's approval
3.29 Registered tax and BAS agents are required to comply with a new ongoing
obligation under the Code of Professional Conduct. Tax practitioners must not
employ or use an entity to provide tax agent services on their behalf, if they
know or ought to reasonably know that they are a disqualified entity, unless
they have received approval from the TPB.
[Schedule 3, items 2 and 4, subsections 30-10(15) and 45-5(1) of TAS Act]
26
Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
3.30 As part of their Code of Professional Conduct obligations, tax practitioners are
required to consider the following:
• who are the individuals or entities who have been employed or used or
seek to be employed or used by the registered tax practitioner to
provide tax agent services on their behalf; and
• whether any of those individuals or entities meet the definition of a
disqualified entity.
Tax practitioners would likely need to assess the following entities who are or
will be used in providing tax agent services: employees, associates or
contractors. However, this list is illustrative only and depends on the specific
facts and circumstances of each tax practitioner and the people and entities
they employ or use in their business.
3.31 Individuals who only provide peripheral services to assist a tax practitioner are
not included in the scope of these amendments. For example, administrative
support staff who are only responsible for the administrative management of
client files and data would not be considered as providing tax agent services on
behalf of a tax practitioner.
3.32 Further, individuals or entities who are included in the scope of those who are
'used' to provide tax agent services are those that would share in the revenue
and income received from the services provided under the tax practitioner. This
is intended to avoid imposing sanctions on those providing tax agent services
for no fee or reward, in line with paragraph 50-5(1)(c).
3.33 Tax practitioners who fail to comply with this obligation under the Code of
Professional Conduct may face further disciplinary action from the TPB from
the existing sanctions in the TAS Act (i.e., written cautions, orders, suspension,
or termination of registration (see Subdivision 30-B)). Please see diagram 3.1
for an illustration of this provision.
3.34 The combination of an ongoing Code of Professional Conduct obligation and
administrative sanctions acts as a strong deterrence to tax practitioners from
employing or using those with a disqualified status.
3.35 A tax practitioner meets the Code of Professional Conduct requirement where
the tax practitioner has sought and received approval from the TPB for the
disqualified entity's employment or use of their services. The exemption for
this obligation provides an opportunity for a disqualified entity to continue
employment in the tax profession and allows the TPB to review the matter
before making a final decision on the employment of the disqualified entity.
3.36 Tax practitioners are expected to implement new onboarding requirements,
information gathering and employee reporting processes to determine whether
their staff and people they use are disqualified entities and if notification and
approval by the TPB is necessary. This ensures that employees and contractors
used by tax practitioners must meet the standards set by the new laws.
27
Government response to the Review of the Tax Practitioners Board
3.37 Due to the overlap between these provisions and the existing section 50-25
provision, an exemption has been added to section 50-25 to ensure that civil
penalties will not apply to tax practitioners who employ or use a deregistered
entity but have received approval from the TPB for the entity under section 45-
5. The Government is further considering the graduated sanctions potentially
applicable under the TAS Act and the suitability of section 50-25 within the
TAS Act will be determined at a later date.
[Schedule 3, item 5, subsection 50-25(3) of TAS Act]
Tax practitioners cannot provide tax agent services in connection with an
arrangement with a disqualified entity
3.38 In addition to the obligation on tax practitioners to not employ or engage
disqualified entities, they also have an ongoing obligation to not provide tax
services in connection with an arrangement with an entity that they know, or
ought reasonably to know, is a disqualified entity.
[Schedule 3, item 2, subsection 30-10(16) of TAS Act]
3.39 An arrangement is defined widely in accordance with section 995-1 of the
ITAA 1997 to include a range of agreements or undertakings between the tax
practitioner and the disqualified entity that is connected with the tax
practitioner providing tax agent services.
3.40 This second Code of Professional Conduct obligation intends to prevent
arrangements where the disqualified entity is operating through the tax
practitioner. For example, this would cover arrangements where a disqualified
entity benefits from an arrangement where the tax practitioner derives fees
from providing tax agent services. This may occur in scenarios where the
disqualified entity is acting as the controlling mind of the tax practitioner and
continues their operations using the registered tax practitioner's credentials.
3.41 This Code of Professional Conduct obligation places an onus on registered tax
and BAS agents to be aware of the entities that are connected to the tax agent
services they are providing. If the tax practitioner breaches this obligation, they
may face sanctions under Subdivision 30-B. Please see diagram 3.1 for an
illustration of this provision.
3.42 As noted above, disqualified entities have an obligation under sections 45-10
and 45-15 to notify tax practitioners of their status if arrangements they have or
seek involve the tax practitioner provides tax agent services in connection with
an arrangement between the parties.
Disqualified entities must notify tax practitioners of their status
3.43 A disqualified entity has the obligation to notify the tax practitioner of their
status if:
28
Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
• they seek or continue employment or engagement to provide tax agent
services, or become a disqualified person in the course of their
employment or engagement; and
• they seek or continue an arrangement in connection with a tax
practitioner in connection with the provision of tax agent services or
become a disqualified person in the course of an arrangement.
3.44 Under the first notification requirement, disqualified entities must notify their
potential or current employer that they satisfy the definition outlined in
subsection 45-5(2) either prior to entering, renewing, or extending their
employment or engagement with a tax practitioner to provide tax agent
services on their behalf. Alternatively, if they become a disqualified entity
during the course of employment or engagement, notification must occur
within 30 days of the entity knowing or when they ought to have known they
are disqualified. This disclosure must be made in writing.
[Schedule 3, item 4, subsection 45-10(1) and section 45-15 of TAS Act]
3.45 Following the provision of notice by a disqualified entity, it is the tax
practitioner's responsibility to contact the TPB and seek approval to employ or
use the individual or entity to provide tax agent services on their behalf. A note
has been included under subsection 45-5(1) indicating that approval should be
sought in these circumstances.
3.46 The first notification requirement is intended to prevent disqualified entities
from working under registered tax practitioners unless authorised by the TPB.
The notification requirement on disqualified entities will achieve this intent by
putting the tax practitioner on notice about their disqualified status. This
effectively prohibits disqualified entities from entering or continuing their
employment or engagement under a tax practitioner, without the TPB's
approval.
3.47 Under the second notification requirement, a similar notification must be made
by disqualified entities prior to entering, renewing, or extending an
arrangement with a tax practitioner in connection with providing tax agent
services, or if they become a disqualified entity in an existing arrangement,
within 30 days of the entity knowing or when they ought to have known they
are disqualified.
[Schedule 3, item 4, subsection 45-10(2) and section 45-15 of TAS Act]
3.48 This requirement links with the Code of Professional Conduct obligation at
subsection 30-10(16), as notification by disqualified entities in this scenario
will trigger tax practitioners to take action or face potential sanctions for
breach of their Code of Professional Conduct obligation.
3.49 If a disqualified entity fails to provide written notice to the tax practitioner,
prior to commencing or during the provision of tax agent services or where
there is an arrangement with the tax practitioner, the TPB can apply to the
Federal Court to seek civil penalties of up to 250 penalty units for individuals
and 1,250 penalty units for body corporates. Please refer to diagram 3.2 below
29
Government response to the Review of the Tax Practitioners Board
for an illustration of these notification requirements.
[Schedule 3, item 4, subsections 45-10(3) and 45-15(3) of TAS Act]
3.50 These penalties aim to encourage disqualified entities to disclose their status to
employers and tax practitioners and remain transparent about issues which may
impact the quality of services provided on a tax practitioner's behalf or
services provided by tax practitioners under the influence of a disqualified
entity. Further, in scenarios where the TPB becomes aware of a disqualified
entity who has not notified the tax practitioner in the performance of their
duties under the TAS Act or the Tax Agent Services Regulations 2022, the
disclosure of this information to the tax practitioner will be exempt from the
secrecy provisions in the TAS Act. Accordingly, by requiring disqualified
entities to disclose their status both prior and throughout their engagement, the
TPB is able to remain informed and effectively limit the provision of tax agent
services by disqualified entities they deem inappropriate to work or operate
within the tax system.
Approval processes for the TPB
3.51 When a tax practitioner applies to the TPB in writing to seek approval to
employ or use a disqualified entity, in accordance with their obligations under
sections 30-10(15) and 45-5, they must submit an application form and any
documents required by the TPB. This application form and documentation is
used by the TPB to assist their approval process to determine whether to allow
a disqualified person or entity to be employed or used by a registered tax or
BAS agent.
[Schedule 3, item 4, subsection 45-5(3) of TAS Act]
3.52 The amendments outline the circumstances which must be considered by the
TPB as part of their approval process. The three key factors outlined in the law
are intended to ensure the TPB considers the specific nature of the
disqualification in connection with the role which would be or currently is
undertaken by the disqualified entity. This is particularly important due to the
wide range of offences which are included within the definition for a
disqualified entity. It also provides all disqualified individuals and entities
greater certainty and consistency in the decision-making process undertaken by
the TPB.
3.53 These factors are not exhaustive and the TPB is still required to consider any
other matters relevant to their decision. The TPB have the flexibility to
exercise their expertise in the area and include other factors which they deem
as relevant to determining whether to approve a disqualified person or entity
for employment with a tax practitioner.
[Schedule 3, item 4, subsection 45-5(6) of TAS Act]
3.54 The TPB's decision-making process must be concluded within 60 days, or a
longer period agreed between the TPB and the tax practitioner. If no decision
is made by the TPB in the relevant time period, the TPB is deemed to have
30
Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
rejected the application for the disqualified entity to be employed or engaged.
These timeframes ensure that both applicants for new roles and tax
practitioners are able to receive confirmation in a timely manner on whether
the applicant can be engaged to provide tax agent services.
[Schedule 3, item 4, subsections 45-5(4) and (5) of TAS Act]
3.55 After an application has been approved or rejected, the TPB is required to
notify the tax practitioner in writing of the outcome within a reasonable period.
If the application is rejected, the TPB is required to provide reasons to the tax
practitioner in relation to why the disqualified entity cannot be used to provide
tax services. This process provides clarity for tax practitioners and to
disqualified entities to understand why they are unable to pursue a livelihood
in the taxation industry and will assist applicants who request an administrative
review under section 70-10.
[Schedule 3, item 4, subsection 45-5(7) of TAS Act]
3.56 When notifying the applicant of the TPB's decision, a 'no invalidity' clause is
included, meaning a failure to notify applicants in a reasonable period or
provide reasons for the rejection of the application, will not invalidate the
decision made by the TPB to approve or reject an application. A similar clause
is included in sections 20-30 and 40-20 of the TAS Act relating to the
notification of registration and termination.
3.57 Despite this 'no invalidity' clause, the following still apply in relation to
applications for approval of a disqualified entity:
• the TPB is still required to make a decision in the 60-day period or
longer timeframe as decided between the tax practitioner and TPB;
• the three key factors outlined in subsection 45-5(6) must be considered
by the TPB when processing applications; and
• applicants may apply to the Administrative Appeals Tribunal for
merits review or judicial review following these decisions.
3.58 This clause is necessary in relation to application approvals, as it ensures that
an administrative issue will not impact a permissive decision which allows
disqualified entities to work in the tax industry. Without the inclusion of a 'no
invalidity' clause, there is potential that a minor administrative issue will
prevent the hiring or continued employment of a disqualified entity, as their
engagement to provide tax agent services cannot occur without approval from
the TPB.
3.59 Further, the clause also provides certainty to tax practitioners and disqualified
entities in scenarios where their application has been rejected, as disqualified
entities are prima facie unable to provide tax agent services without TPB
approval. As such, this clause which upholds the decision to reject an
application where there is an administrative error merely provides finality to
the question of whether the disqualified entity can be employed and creates no
additional barriers to these entities.
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Government response to the Review of the Tax Practitioners Board
3.60 By ensuring an administrative failure does not impact the validity of the TPB's
decision-making, the underlying purpose of the notification and approval
process is not compromised as disqualified entities who have not been
approved by the TPB are continued to be excluded from providing tax agent
services. Overall, this limits the potential risk of misconduct and tax fraud and
maintains high standards within the tax profession.
Merits review of the application
3.61 The decision to reject an application seeking approval for a disqualified entity
to be employed or used to provide tax agent services can be appealed by tax
practitioners to the Administrative Appeals Tribunal. This avenue provides for
merits review of the TPB's decision by the tax practitioner to the
Administrative Appeals Tribunal, who can provide a determination on whether
the correct decision was initially made.
[Schedule 3, item 6, subsection 70-10(ha) of TAS Act]
Application and transitional provisions for Recommendation 4.6
3.62 The amendments for Part 1, which includes Recommendations 4.6, commence
from the first 1 January, 1 April, 1 July or 1 October to occur after the day the
Bill receives the Royal Assent.
3.63 Application and transitional provisions have been included to appropriately
capture both existing and new employees or entities who may be disqualified
and provide tax practitioners and regulators with sufficient time to implement
Recommendation 4.6.
3.64 A transitional period for the notification requirements and the delayed
application of the Code of Professional Conduct requirement has been allowed
to ensure sufficient time for:
• tax practitioners to implement internal processes to confirm whether
their existing workforce consists of disqualified entities;
• existing employees and entities to disclose that they are disqualified to
the relevant tax practitioner; and
• the TPB to have time to establish the systems and operations necessary
for the notification and approval process and administrative guidance.
Application and transitional rules in relation to the notification requirements
Application rules for disqualified entities applying from commencement
3.65 The disclosure requirement in sections 45-10 and 45-15 apply from the
commencement date for:
• any disqualified entities seeking to be employed or used to provide tax
agent services;
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
• any disqualified entities seeking to enter into an arrangement with a tax
practitioner in connection with providing tax agent services;
• if an entity becomes a disqualified entity after commencement.
Transitional rules for disqualified entities existing on commencement
3.66 An existing disqualified entity refers to all employees, associates, contractors,
or entities who have been employed or used to provide tax agent services, or
have arrangements in force with a tax practitioner, prior to the commencement
date, and fulfill the definition of a disqualified entity on the date of
commencement.
3.67 The transitional rules provide that notice must only be provided within 30 days
from the date that is 12 months after commencement ('the transitional period')
for existing disqualified entities who provide tax agent services on behalf of a
tax practitioner or are in an arrangement with a tax practitioner to provide tax
agent services.
[Schedule 3, item 4, subsection 45-20 of TAS Act]
3.68 This means that where the existing disqualified entity is still employed or
engaged, or still under an arrangement with a tax practitioner, immediately
before the conclusion of the transitional period, the disqualified entity has 30
days after 12 months from the commencement date to give notice.
3.69 If they fail to provide notice within 30 days after the transitional period, civil
penalties may be applicable to the disqualified entity. If an existing
disqualified entity breaches their obligation to disclose their status to their tax
practitioner after the transitional period, individuals could face up to 250
penalty units and body corporates could be penalised up to 1,250 penalty units.
[Schedule 3, item 4, subsection 45-20(3) of TAS Act]
3.70 This transitional period ensures no civil penalties are applicable for existing
disqualified entities for at least one year after commencement.
3.71 Comparatively, a 12-month transitional period does not apply for any entities
who become a disqualified entity after the commencement date, or in other
words, all entities who are not existing disqualified entities on the
commencement date. These disqualified entities must provide notice within 30
days of becoming aware of their disqualified status.
Application rules for tax practitioners in relation to the Code of Professional
Conduct
Application from commencement
3.72 For tax practitioners who will enter, renew, or extend a contract or arrangement
with a new entity after the commencement date, the ongoing obligations in the
Code of Professional Conduct under subsections 30-10(15) and (16) apply to
the tax practitioner from the commencement date.
[Schedule 3, subitem 9(1) and 9(2), subparagraph (1) and (2) of TAS Act]
33
Government response to the Review of the Tax Practitioners Board
Application from 12 months from commencement
3.73 From 12 months after the commencement date, registered agents must also
ensure they do not continue to employ or have an arrangement in force with an
existing disqualified entity. If an existing disqualified entity is still employed
without approval from the TPB, or an arrangement is still in force, the
obligations and sanctions under the Code of Professional Conduct will become
applicable 12 months from commencement.
[Schedule 3, subitem 9(3), subparagraph (3) of TAS Act]
3.74 This means that the new Code of Professional Conduct obligation is deferred
for tax practitioners for their existing disqualified entities by 12 months from
commencement. This provides sufficient time for the tax practitioner and the
TPB to implement the relevant information gathering and approval processes.
Acquisition of property
3.75 To the extent that the operation of subsections 30-10(15) and (16), or any other
provisions which relate to subsections 30-10(15) and (16) would result in an
acquisition of property from a person otherwise than on just terms within the
meaning of section 51(xxxi) of the Constitution, the relevant provision will not
have any effect. All other provisions in the TAS Act will continue to operate as
normal.
[Schedule 3, subitem 9(4), subparagraph (4) of TAS Act]
Diagram 3.1 Application of Code of Professional Conduct obligations on
tax practitioners
34
Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
Diagram 3.2 Obligations on disqualified entities under Part 4A
Convert to an annual registration period
3.76 These provisions implement Recommendation 4.7 of the TPB Review and
convert the registration period from at least every three years to at least every
year. The update to an annual registration period will align with tax
practitioners' other regulatory obligations such as maintaining professional
indemnity insurance. It will ensure that the TPB has greater ongoing visibility
of tax practitioner registrations, increases the sector's integrity, and ensures a
level playing field. It will also increase consumer confidence that tax
practitioners continue to meet the ongoing registration requirements of the
TAS Act.
[Schedule 3, items 10 and 12, section 20-1 and subsection 20-25(4) of the
TAS Act]
3.77 To accommodate for the shorter renewal period, the maximum time permitted
for the TPB to process and determine the outcome of an application has been
reduced to four months. Within this four-month timeframe, the TPB must
decide whether to accept the new registration application, and if the applicant
does not receive a final decision in this timeframe, the registration application
is considered to be rejected by the TPB. Renewal of tax practitioners'
registration will continue to be active until a final decision is made by the TPB.
[Schedule 3, item 11, subsections 20-25(2) and (3) of the TAS Act]
35
Government response to the Review of the Tax Practitioners Board
3.78 These changes only apply to registration or renewal applications submitted on
or after 1 July 2024, ensuring there is no retrospective effect of these
amendments.
[Schedule 3, item 13 of the TAS Act]
Enable the Minister to supplement the existing Code
of Professional Conduct
3.79 Section 30-10 sets out the legislated Code of Professional Conduct for all
registered tax practitioners. The Code of Professional Conduct sets out the
professional and ethical standards that registered tax practitioners are required
to comply with. It outlines the duties that registered tax practitioners owe to
their clients, the TPB and other registered tax practitioners in their professional
capacity.
3.80 The amendments implementing Recommendation 5.1, enable the Minister to
specify, in a legislative instrument, additional obligations that registered tax
agents and BAS agents must comply with. The Minister can specify additional
obligations on subjects that are already referred to in the Code of Professional
Conduct in the TAS Act as well as obligations on new subjects relating to the
personal and professional conduct of registered tax agents and BAS agents.
[Schedule 1, items 2 and 3, subsections 30-10(17) and 30-12(1) of the TAS
Act]
3.81 This provision cannot be used to reduce any existing obligations under the
Code of Professional Conduct in the Act. To the extent that a determination
made by the Minister conflicts with the Code, the conflicting provisions have
no effect.
[Schedule 1, item 3, subsection 30-12(2) of the TAS Act]
3.82 The purpose of the power is to create a proactive regime where changes to the
tax profession environment can be promptly adapted to by the Minister through
regulations. The Code of Professional Conduct is to be a more dynamic
instrument that can adjust to changes in a more contemporary manner than is
permitted in the TAS Act.
3.83 The legislative instrument process also ensures appropriate consultation with
key stakeholders and parliamentary oversight, while also creating a proactive
regime where emerging changes to behaviours and practice can be promptly
adapted to by the regulator.
Further amendments
3.84 This instrument extends the definition of a BAS service under section 90-10 of
the TAS Act, to also include services related to the superannuation guarantee
charge which is listed at section 5 of the Tax Agent Services (Specified BAS
36
Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
Services No. 2) Instrument 2020. This ensures consistency as the definition
has been moved into the primary law and clarifies the definition of a BAS
service.
[Schedule 3, item 8, subsection 90-10(1) of the TAS Act]
Commencement, application, and transitional
provisions
3.85 The amendments for Part 1, which includes Recommendations 2.1, 4.6 and 5.1
commence from the first 1 January, 1 April, 1 July or 1 October to occur after
the day the Bill receives the Royal Assent.
3.86 The amendments implementing Recommendations 2.1 and 5.1 apply in
accordance with the commencement date set for Part 1.
3.87 The amendments implementing Recommendation 4.6 apply in accordance with
the rules set out above.
3.88 The amendments for Part 3, including those implementing Recommendation
3.1, commence on 1 July 2023.
3.89 The amendments implementing Recommendation 4.7 apply in accordance with
the commencement date set for Part 2, namely 1 July 2024.
3.90 The amendments implementing Recommendation 3.1 apply in accordance with
the commencement date set for Part 3, namely 1 July 2023.
37
Off-market share
buy-backs
Table of Contents:
Outline of chapter ................................................................................ 39
Context of amendments ....................................................................... 39
Comparison of key features of new law and current law ...................... 41
Detailed explanation of new law .......................................................... 42
Commencement, application, and transitional provisions .................... 46
Outline of chapter
4.1 Schedule 4 to the Bill improves the integrity of the income tax system by
aligning the tax treatment of off-market share buy-backs undertaken by listed
public companies with the tax treatment of on-market share buy-backs. It also
inserts new provisions into the income tax law in respect of selective share
cancellations to ensure the income tax treatment across capital management
activities for listed public companies are aligned.
Context of amendments
4.2 The share buy-back provisions provide different income tax treatment for
shareholders who participate in share buy-backs undertaken by companies
off-market compared with those undertaken on-market. Part of the purchase
price in respect of an off-market share buy-back can be taken to be a dividend
in the hands of the shareholder. For on-market buy-backs, no part of the
purchase price is taken to be a dividend for shareholders.
4.3 References in this Chapter to legislation are to the ITAA 1936 unless otherwise
stated.
4.4 For both off-market and on-market share buy-backs, the buy-back and any
subsequent share cancellation is disregarded for the purposes of determining
whether an amount is assessable income, deductible, or gives rise to a capital
gain or loss for the company. This ensures a buy-back is tax neutral for the
company.
39
Off-market share buy-backs
4.5 The share buy-back provisions apply equally to non-share equity interests in
the same way as they apply to shares. A shareholder who participates in a
buy-back is therefore referred to as the seller.
Current tax treatment of off-market buy-backs
4.6 For off-market buy-backs generally, the part of the purchase price in respect of
the buy-back that is not debited against the company's share capital account or
non-share capital account is treated as a dividend paid to the seller as a
shareholder (or equity holder) by the company out of profits on the day that the
buy-back occurs (see subsection 159GZZZP(1)).
4.7 The seller is treated as having received the full purchase price as consideration
for the sale of the share or non-share equity interest for the purposes of
determining whether an amount is assessable income, deductible, or gives rise
to a capital gain or loss for the seller (see subsection 159GZZZQ(1)). The
purchase price that the seller is taken to have received as consideration for the
sale of the share or non-share equity interest is increased to market value (as if
the buy-back had not occurred) if the buy-back was undertaken at a discount
(see subsection 159GZZZQ(2)).
4.8 That increased purchase price is adjusted to exclude any amount that
constitutes an assessable dividend for the seller and may be further adjusted to
prevent a seller (that is a corporate tax entity) from making or increasing a loss
as result of the seller being entitled to a tax offset under Division 207 of the
ITAA 1997 (see subsections 159GZZZQ(3) to (9)).
4.9 This results in the seller being assessed on the deemed dividend, typically
under section 44, and on either the revenue gain or loss, or capital gain or loss,
the seller makes from selling the share or non-share equity interest under the
buy-back.
Current tax treatment of on-market buy-backs
4.10 For on-market buy-backs, no part of the purchase price in respect of the
buy-back is taken to be a dividend (see section 159GZZZR). The seller is taken
to have received the purchase price in respect of the buy-back as consideration
for the sale of the share or non-share equity interest for the purposes of
determining whether an amount is assessable income, deductible, or gives rise
to a capital gain or loss for the seller (see section 159GZZZS).
4.11 To improve the integrity of the imputation system, a franking debit arises in
the franking account of the company that undertakes an on-market buy-back.
The amount of the franking debit is equal to the franking debit that would have
arisen for the company if the buy-back had been undertaken off-market. This
ensures that shareholders continue to benefit from imputation credits
proportionate to their shareholding in the company after the buy-back occurs
(see item 9 of the table in subsection 205-30(1) of the ITAA 1997).
40
Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
Non-alignment of off-market and on-market buy-backs
4.12 The buy-back provisions in Division 16K were inserted into the income tax
law in 1990. Changes to the income tax laws law since the commencement of
Division 16K now makes the distinction between off-market and on-market
buy-backs for listed public companies inappropriate.
Comparison of key features of new law and
current law
Table 4.1 Comparison of new law and current law
New law Current law
Where a listed public company undertakes Where a company undertakes an off-market
an off-market buy-back of a share or buy-back of a share or non-share equity
non-share equity interest, no part of the interest, part of the purchase price in respect
purchase price in respect of the buy-back is of the buy-back may be treated as a dividend
taken to be a dividend. in the hands of shareholders depending on
whether the company debits any part of the
purchase price to its share capital account or
non-share capital account.
If a listed public company undertakes an If any part of the purchase price in respect of
off-market buy-back, a franking debit may an off-market buy-back undertaken by a
arise in the company's franking account. company is taken to be a dividend and the
The amount of the debit is equal to the company chooses to frank that dividend, a
debit that would have arisen if the company franking debit arises in the company's
were not a listed public company and the franking account. The purchase price will be
purchase were a frankable distribution taken to be a dividend to the extent that is not
(because the whole or part of the purchase debited to the share capital account or
price were not debited to the company's non-share capital account of the company,
share or non-share capital account) that was which will constitute a frankable distribution.
franked at the company's benchmark The amount of debit is equal to the frankable
franking percentage, or at a franking distribution franked to the company's
percentage of 100% if the company doesn't benchmark franking percentage for the
have a benchmark franking percentage for franking period.
the franking period.
A distribution by a listed public company A distribution by a company that is
that is consideration for the cancellation of consideration for the cancellation of a
a membership interest in itself as part of a membership interest in itself as part of a
selective reduction of capital is selective reduction of capital is a dividend to
unfrankable. the extent that it is not debited to the share
capital account or non-share capital account
of the company. This dividend is a frankable
distribution.
41
Off-market share buy-backs
New law Current law
If a listed public company makes a If a company makes a distribution that is
distribution that is consideration for the consideration for the cancellation of a
cancellation of a membership interest in membership interest in itself as part of a
itself as part of a selective reduction of selective reduction of capital, that
capital, a franking debit may arise in the distribution constitutes a dividend to the
company's franking account. The amount extent that the distribution is not debited to
of the debit is equal to the debit that would the company's share or non-share capital
have arisen if the company were not a listed account. This dividend is a frankable
public company and the distribution were a distribution, and a franking debit arises in the
frankable distribution (because the whole company's franking account if the company
or part of the purchase price were not chooses to frank that dividend. The amount
debited to the company's share or of the debit is equal to the frankable
non-share capital account) that was franked distribution franked to the company's
at the company's benchmark franking benchmark franking percentage for the
percentage, or at a franking percentage of franking period.
100% if the company doesn't have a
benchmark franking percentage for the
franking period.
Detailed explanation of new law
4.13 Schedule 4 to the Bill amends the share buy-back provisions in Division 16K
of the ITAA 1936 to align the income tax treatment of off-market share
buy-backs undertaken by listed public companies with on-market share
buy-backs. Such alignment ensures listed public companies can no longer use
off-market purchases and selective reductions of capital to take advantage of
the concessional tax status of shareholders as part of their capital management
activities. Schedule 4 to the Bill also amends the income tax treatment for
selective reductions of capital which may be used to achieve similar outcomes.
4.14 The amendments apply in respect of buy-backs undertaken by 'listed public
companies' using the definition of that term in subsection 995-1(1) of the
ITAA 1997. [Schedule 4, item 10, subsection 6(1) of the ITAA 1936
definition of 'listed public company']
4.15 As Division 16K of the ITAA 1936 applies in respect of buy-backs of both
shares and non-share equity interests, the amendments also cover such
interests. Shareholders and non-share equity holders are referred to in the
existing provisions as 'sellers'.
42
Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
Tax treatment of off-market buy-backs
4.16 Similar to on-market buy-backs, the amendments ensure that no part of the
purchase price in respect of an off-market buy-back undertaken by a listed
public company is taken to be a dividend. [Schedule 4, items 2 and 3, sections
159GZZZP and 159GZZZPA of the ITAA 1936]
4.17 Under subsection 159GZZZQ(1), sellers who participate in an off-market
buy-back are taken to have received (or to be entitled to receive) as
consideration for the sale of the share, or non-share equity interest, an amount
equal to the purchase price in respect of the buy-back. This treatment applies
for the purposes of determining whether an amount is assessable income,
deductible or gives rise to a capital gain or capital loss for the seller.
4.18 Where the buy-back is undertaken at a discount, subsection 159GZZZQ(2)
increases the amount of consideration that the seller is taken to have received
(or to be entitled to receive) in respect of the sale of the share or non-share
equity interest to what the market value would have been disregarding the
buy-back.
4.19 As no part of the purchase price in respect of an off-market buy-back
undertaken by a listed public company is taken to be a dividend, subsections
159GZZZQ(3) to (9) do not apply. These subsections adjust the amount of
consideration the seller is taken to have received (or to be entitled to receive)
for the sale of the share or non-share equity interest under the buy-back to
exclude that part of the purchase price that constitutes an assessable dividend
(disregarding dividends that are non-assessable non-exempt income under the
withholding tax provisions and the conduit foreign income provisions). That
amount of consideration the seller is taken to have received (or to be entitled to
receive) may be further adjusted to prevent a seller that is a corporate tax entity
from making a loss as result of the seller being entitled to a tax offset under
Division 207 of the ITAA 1997. Schedule 4 to the Bill ensures these provisions
have no application given no part of the buy-back purchase price for an
off-market buy-back undertaken by a listed public company constitutes a
dividend.
[Schedule 4, items 4 and 5, subsections 159GZZZQ(3) and (3A) of the ITAA
1936]
4.20 As a result, sellers who participate in an off-market buy-back undertaken by a
listed public company are not assessed on any part of the purchase price as a
dividend. Rather, each seller will be assessed on any revenue gain or loss, or
capital gain or loss, that results on the sale of the share or non-share equity
interest.
43
Off-market share buy-backs
Franking debit for off-market buy-backs undertaken by listed public
companies
4.21 To improve the integrity of the imputation system, and to align the income tax
treatment of off-market share buy-backs undertaken by listed public companies
with that of on-market share buy-backs, listed public companies that
undertake an off-market buy-back are required to debit their franking account
by an amount equal to the part of the buy-back price not debited to the
company's share capital account.
[Schedule 4, item 8, item 9A of the table in subsection 205-30(1) of the
ITAA 1997]
4.22 The amount of the debit is worked out by assuming that the company were not
a listed public company and the purchase were a frankable distribution because
the whole or part of the purchase price was not debited to the company's share
or non-share capital account. The amount of the debit is equal to debit that
would arise if that frankable distribution were franked at the company's
benchmark franking percentage, or at a franking percentage of 100% if the
company doesn't have a benchmark franking percentage for the franking
period.
[Schedule 4, item 8, item 9A of the table in subsection 205-30(1) of the
ITAA 1997]
4.23 This rule improves the integrity of the imputation system by ensuring that
shareholders continue to benefit from imputation credits proportionate to their
shareholding in the company after the buy-back occurs.
Franking debit for on-market buy-backs
4.24 The amount of the franking debit that arises in the franking account of a
company that undertakes an on-market share buy-back is equal to the franking
debit that would have arisen for the company if the on-market buy-back had
instead been an off-market buy-back and all or part of the purchase price was
subsequently treated as a dividend that is franked to the company's benchmark
franking percentage for the franking period, or to 100% if the company does
not have a benchmark franking percentage for the period (see item 9 in the
table in subsection 205-30(1) of the ITAA 1997). As section 159GZZZPA
precludes any part of the off-market purchase price being treated as a dividend
for buy-backs undertaken by listed public companies, in determining the
franking debit that would have arisen in the franking account of a listed public
company had the buy-back instead been off-market, it is necessary to assume
that the company were not a listed public company, otherwise no franking
debit could arise.
[Schedule 4, items 3, 6, and 7, subsection 159GZZZPA of the ITAA 1936,
item 9 of the table in subsection 205-30(1) of the ITAA 1997]
44
Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
Selective share cancellations
4.25 To ensure alignment across the capital management activities of listed public
companies, Schedule 4 to the Bill inserts a new paragraph in the list of
unfrankable distributions in section 202-45 of the ITAA 1997. This is an
integrity measure designed to prevent companies using selective reductions of
capital as an alternative way to take advantage of the concessional tax status of
shareholders as part of their capital management activities, as a consequence of
these amendments.
4.26 A distribution by a listed public company that is consideration for the
cancellation of a membership interest in itself, as part of a selective reduction
of capital, is unfrankable.
[Schedule 4, item 19, paragraph 202-45(k) of the ITAA 1997]
4.27 The reference to a 'selective reduction of capital' is intended to be broad and to
take its ordinary meaning, so as to include reductions of capital effected
through selective cancellations of non-share equity interests and other
reductions of capital that in substance result in a disproportionate cancellation
of membership interests.
[Schedule 4, item 19, paragraph 202-45(k) of the ITAA 1997]
Franking debit for selective share cancellations
4.28 Similar to the amendments to off-market buy-backs undertaken by listed public
companies, Schedule 4 to the Bill inserts a new item in the franking debit table
in subsection 205-30(1) of the ITAA 1997 to impose a franking debit in a
listed public company's franking account in respect of selective reductions of
capital.
4.29 If a listed public company makes a distribution that is consideration for the
cancellation of a membership interest in itself, as part of a selective reduction
of capital, a franking debit arises in the company's franking account. The
amount of the debit is equal to the debit that would have arisen if the company
were not a listed public company and the distribution were a frankable
distribution (because the whole or part of the purchase price were not debited
to the company's share or non-share capital account) that was franked at the
company's benchmark franking percentage, or at a franking percentage of
100% if the company doesn't have a benchmark franking percentage for the
franking period.
[Schedule 4, item 20, item 9B of the table in subsection 205-30(1) ITAA
1997]
4.30 This rule ensures alignment of tax treatment for capital management activities
undertaken by listed public companies and further improves the integrity of the
imputation system by ensuring that imputation credits flow to members of
listed public companies proportionate to their membership interests.
45
Off-market share buy-backs
Other amendments
4.31 Schedule 4 to the Bill also makes minor technical amendments to related
provisions in the ITAA 1997.
4.32 Specifically, Schedule 4 to the Bill inserts the definition of 'listed public
company' in subsection 6(1) to refer to the definition of that term in subsection
995-1(1) of the ITAA 1997. Consequential amendments are made to remove
references in the ITAA 1936 to the definition of 'listed public company' in the
ITAA 1997.
[Schedule 4, items 10, 11 and 12, subsection 6(1) definition of 'listed public
company', paragraph 6BA(6)(a) and subsection 45D(2) of the ITAA 1936]
4.33 Schedule 4 to the Bill also amends paragraph 202-45(c) of the ITAA 1997 to
clarify that the reference to 'that Act' in that paragraph, and subsequently in
paragraphs 202-45(g) and (h), is a reference to the ITAA 1936. While these
provisions have always referred to the ITAA 1936 the repeal of the preceding
paragraphs in section 202-45 of the ITAA 1997 resulted in this reference
becoming inaccurate.
[Schedule 4, item 13, 16 and 17 paragraph 202-45(c) and subparagraphs
202-45(g)(i) and 202-45(h)(i) of the ITAA 1997]
4.34 Schedule 4 to the Bill also amends paragraph 202-45(f) and (j) of the ITAA
1997 to clarify that the references in those sections are to sections of the ITAA
1997. Schedule 4 to the Bill also amends 202-45(d) to clarify the reference to
distribution in paragraph 202-45(d).
[Schedule 4, items 14, 15 and 18 paragraphs 202-45(d), 202-45(f) and 202-
45(j) of the ITAA 1997]
Commencement, application, and transitional
provisions
4.35 The amendments commence on the first 1 January, 1 April, 1 July or 1 October
to occur after the day this Bill receives the Royal Assent.
4.36 The amendments made by Schedule 4 to the Bill apply to buy-backs and
selective share cancellations undertaken by listed public companies that are
first announced to the market after 7:30pm, by legal time in the Australian
Capital Territory, on 25 October 2022 (Budget Time).
4.37 A buy-back or selective share cancellation is announced to the market (if the
announcement is made before the buy-back or cancellation occurs) when the
buy-back or cancellation has been disclosed to the approved stock exchange,
on which the shares or membership interests are listed, and that notification has
been released to the market as required by the rules of that stock exchange.
46
Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
4.38 For buy-backs and selective share cancellations undertaken by listed public
companies that are not announced to the market, or the announcement is made
after the buy-back or the cancellation, the amendments apply to those buybacks
that occur after Budget Time.
47
Franked distributions
funded by capital raisings
Table of Contents:
Outline of chapter ................................................................................ 49
Context of amendments ....................................................................... 50
The imputation system .................................................................. 50
The effect on a member of an entity receiving a franked or
unfranked distribution .................................................................... 50
Summary of new law............................................................................ 51
Detailed explanation of new law .......................................................... 51
Established practice ...................................................................... 52
Issue of equity interests................................................................. 54
Effect and purpose of the issue of equity interests ........................ 54
Considerations in determining effect and purpose ........................ 56
Commencement, application, and transitional provisions .................... 60
Outline of chapter
5.1 Schedule 5 to the Bill amends the taxation law to prevent certain distributions
that are funded by capital raisings from being frankable. This ensures that
arrangements cannot be put in place to release franking credits that would
otherwise remain unused where they do not significantly change the financial
position of the entity.
49
Franked distributions funded by capital raisings
Context of amendments
The imputation system
5.2 The imputation system has the effect of allowing income tax paid by
Australian corporate tax entities to be taken into account when determining the
taxation of their Australian tax resident members on the distributed profit of
the entity. When an Australian corporate tax entity distributes profits to its
Australian tax resident members, it can also pass on a credit for income tax it
has paid. This is done by franking the distribution. Most Australian tax resident
members that are individuals or superannuation funds can then claim a
refundable tax offset equal to the amount of the franking credit.
5.3 A corporate tax entity is a company, a corporate limited partnership, or a
public trading trust (see section 960-115).
5.4 Distribution is defined in section 960-120, and generally includes:
• for a company, a dividend;
• for corporate limited partnership, a distribution to a partner in the
partnership; and
• for a public trading trust, a unit trust dividend.
5.5 A franking entity is the entity that is generally entitled to frank a frankable
distribution (see sections 202-5 and 202-40). However, a franking entity
cannot frank a distribution if it is an unfrankable distribution under section
202-45. The object of the frankable distribution rules is to ensure that only
distributions equivalent to realised profits can be franked (see section 202-35).
The effect on a member of an entity receiving a
franked or unfranked distribution
5.6 The rules about the effect of receiving a franked distribution are in
Division 207.
5.7 Broadly, Australian tax resident individuals, complying superannuation funds
and certain trusts that directly or indirectly receive a franked distribution must
include the amount of the franking credit and distribution in their assessable
income and are entitled to a tax offset equal to the amount of the franking
credit (see section 207-20). Other entities that receive franked distributions
must also gross up the amount of the distribution, but rather than directly
receiving a tax offset are instead able to pass this offset to their shareholders,
partners or trustees. For corporate tax entities the tax offset can be passed on as
the entity receives an equivalent credit in their own franking account and for
50
Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
trusts and partnerships the credit is received via the rules for distributions
flowing indirectly to entities.
5.8 If an entity makes a franked distribution in certain circumstances associated
with tax avoidance or manipulation of the franking system, the distribution
does not receive the benefits of franking (i.e. it does not entitle any entity to a
franking credit or to a tax offset - see section 207-145).
5.9 If an entity is unable to frank a distribution and makes an unfranked
distribution instead, the receiving entity includes the amount of the distribution
in its assessable income, but it is not entitled to a tax offset.
Summary of new law
5.10 Schedule 5 to the Bill adds distributions funded by capital raising to the list of
distributions that are unfrankable.
5.11 A distribution by an entity is funded by capital raising if, broadly:
• the distribution is not consistent with an established practice of the
entity of making distributions of that kind on a regular basis;
• there has been an issue of equity interests in the entity or another
entity; and
• it is reasonable to conclude in the circumstances that:
- the principal effect of the issue of any of the equity interests
was to directly or indirectly fund all or part of the distribution;
and
- any entity that issued or facilitated the issue of any of the
equity interests did so for a purpose (other than an incidental
purpose) of funding the distribution or part of the distribution.
Detailed explanation of new law
5.12 Schedule 5 to the Bill amends the ITAA 1997 to include a new item to make
certain distributions funded by capital raising unfrankable.
[Schedule 5, items 1 and 2, paragraph 202-45(ea) and section 207-159 of the
ITAA 1997]
5.13 Direct or indirect recipients of affected distributions are not entitled to a tax
offset and the amount of the franking credit is not included in the assessable
income of the recipient. The distribution is also not exempt from withholding
tax under section 128B of the ITAA 1936.
5.14 The amendments provide that a distribution by an entity is funded by capital
raising if:
51
Franked distributions funded by capital raisings
• the distribution is not consistent with an established practice of the
entity of making distributions of that kind on a regular basis;
• there is an issue of equity interests in the entity; and
• it is reasonable to conclude, having regard to all relevant
circumstances, that:
- the principal effect of the issue of any of the equity interests
was to directly or indirectly fund all or part of the distribution;
and
- an entity that issued or facilitated the issue of the interests did
so for a purpose of funding all or part of the distribution.
[Schedule 5, item 2, subsection 207-159(1) of the ITAA 1997]
5.15 These amendments are an integrity measure. They prevent entities from
manipulating the imputation system to facilitate the inappropriate release of
franking credits. They prevent the use of artificial arrangements under which
capital is raised to fund the payment of franked distributions (including by way
of non-share dividends) to shareholders to enable the accelerated release of
franking credits. This addresses concerns raised in Taxpayer Alert TA2015/2
issued by the Commissioner.
5.16 The imputation system has long had integrity rules to protect the imputation
system from schemes entered into for a more than incidental purpose for
someone to receive an inappropriate imputation benefit. This measure
addresses arrangements that are entered into for a purpose (other than an
incidental purpose) and with the principal effect of accelerating the release of
franking credits to members of entities in circumstances that cannot be
explained by existing distribution practices, and which are typically artificial or
contrived. The absence of any meaningful change to the financial position of
the entity will usually be a feature of such arrangements. Under these
arrangements, the flow of franking credits to shareholders does not align with
the ordinary commercial and normal profit distribution policies of entities. The
arrangements may involve entities with significant franking credit balances
relative to their recent or accumulated earnings or share capital that utilise
capital raisings to fund unusually large franked distributions compared to their
usual practice.
Established practice
5.17 The first requirement for the amendments to apply to make a distribution
unfrankable is that the distribution must not be consistent with an established
practice of the entity of making distributions of that kind on a regular basis.
[Schedule 5, item 2, paragraph 207-159(1)(a) of the ITAA 1997]
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
5.18 This requirement can be satisfied either if the entity has no established practice
of making distributions of that kind, or if it does have such a practice, the
distribution is not made at a time or in a manner that accords with that practice.
In determining whether an established practice of making distributions exists
and what it involves, regard must be had to the nature, timing and amount of
past distributions, any explanations made by the entity for making
distributions, as well as the franking credits attached to them and the extent to
which past distributions are franked. Any other relevant factors can also be
taken into account. Both existing entities and new entities that begin operation
on or after 15 September 2022 can demonstrate an established practice of
distributions.
[Schedule 5, item 2, subsection 207-159(2), subitem 3(2) of the ITAA 1997]
5.19 In many circumstances these factors are likely to be conclusive of the existence
of an established practice. For example, if an entity has paid a dividend of the
same amount to the same class of shareholders at the same time each year for
many years, then the entity will have a practice of making such distributions
and the next annual payment on the same basis will be part of the practice.
Similarly, if an entity has never previously made a distribution, then the entity
will not have a practice of making distributions.
5.20 Any practice involving the sort of mischief the amendments seek to prevent
does not protect future distributions even if the practice existed prior to the
date of application of these amendments. This is achieved by providing that the
past distribution practice of an entity cannot be established from a franked
distribution or a distribution that would be franked made either before on or
after 15 September 2022 if these amendments do not apply to treat it as
unfrankable.
[Schedule 5, item 2, subsection 207-159(3) and subitem 3(2) of the ITAA
1997]
5.21 Broadly, this requirement ensures that this integrity rule does not affect
ordinary established distributions that have been made on a regular basis and
are not made as part of artificial arrangements designed to accelerate the
distribution of franking credits to shareholders.
5.22 Regard must also be had to any explanation for the previous distribution put
forward by the entity. This includes guidance and commitments made to
markets or shareholders about those distributions in addition to public
statements or statements to third parties explaining the amount, timing or
commercial rationale for past distributions. This will require an evaluation of
the plausibility of the statement or representation in all the circumstances to
ensure that it does not form part of an arrangement designed to accelerate the
release of franking credits from an entity without changing its financial
position.
5.23 An examination of statements and other disclosures and representations is most
likely to be relevant when considering if past distributions are sufficiently
connected to constitute an established practice, or in seeking to determine if
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Franked distributions funded by capital raisings
changes are sufficiently significant to represent a break from established
practice.
5.24 The matters referred to above such as explanations, guidance and commitments
are not exhaustive. Any other relevant statements and representations must be
taken into account in determining if this requirement concerning established
practice is satisfied.
Issue of equity interests
5.25 The second requirement for a distribution to be unfrankable as a result of the
amendments is that there must have been an issue of equity interests (i.e. a
capital raising) by the entity or any other entity.
[Schedule 5, item 2, paragraph 207-159(1)(b) of the ITAA 1997]
5.26 This requirement is broad. The issue of equity interests can occur before or
after the distribution. The entity issuing the equity interests does not need to be
a company for income tax purposes. The nature and extent of the relationship
between the entity that makes the distribution and the entity that issues the
equity interests (if different) must be taken into account when considering
whether the capital raising has funded the distribution. Typically in
arrangements to which the amendments apply there will be a significant level
of connection between the entities. Despite its broad scope it is necessary for
the other requirements to be met before the integrity rule applies.
Effect and purpose of the issue of equity interests
5.27 The final requirement for a distribution to be unfrankable is that it must be
reasonable to conclude that, having regard to all of the relevant circumstances,
the issue of an equity interest or interests must have (whether directly or
indirectly):
• had the principal effect of funding the distribution or part of a
distribution; and
• been undertaken or facilitated by at least one entity for the purpose of
achieving that result.
[Schedule 5, item 2, paragraph 207-159(1)(c) of the ITAA 1997]
5.28 This is the key requirement that tests whether the capital raising by the issue of
equity interests has funded the distribution.
5.29 The 'purpose' test is based on similar tests in the anti-avoidance rules in the
ITAA 1936 (including in section 177EA of that Act). The principal effect test
is based on the similar test in the general anti-avoidance rule in Division 165 of
the GST Act.
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
5.30 The principal effect test is satisfied if, having regard to all of the relevant
circumstances, it is reasonable to conclude that the principal effect of the issue
of equity interests was funding the making of all or part of the distributions.
5.31 If an issue of equity interests has a number of effects, one of which is directly
or indirectly funding all or part of a franked distribution, then this test will only
be satisfied if this was the principal effect of the issue of equity interests.
5.32 The purpose test is satisfied if, in all the relevant circumstances, it is
reasonable to conclude the entity that issued the shares or an entity that
facilitated the issue of the shares did so for a purpose of generating funds for
the making of all or part of the distribution.
5.33 It is not necessary that the relevant purpose be the sole, dominant or primary
purpose of the entity, only that it was more than incidental to some other
purpose. Further, it is not necessary that the purpose is a purpose of the entity
that issued the equity interest. It is only necessary that an entity that was
involved in facilitating the issue of the equity interests did so with such a
purpose. This ensures that, for example, while it is unlikely to apply where
there is no connection or relationship with another entity, the purposes of
advisers and related parties can be taken into account. It ensures there is no
incentive to engage in artificial arrangements on behalf of other entities.
5.34 In many cases the outcome of these tests would be expected to be the same.
Generally, if equity interests are issued as part of an artificial arrangement
designed to distribute franking credits, the arrangement would both be entered
into for the purpose, and have the principal effect, of funding a franked
distribution. The difference between the two tests is that the 'principal effect'
test looks at the outcome, while the 'purpose' test looks at the intention. The
inclusion of the two tests ensures the provisions apply in a targeted way and
require that both the intention and the effect of a capital raising is to fund a
distribution.
5.35 In some circumstances entities may seek to conceal artificial arrangements by
combining them with activities undertaken for legitimate purposes. For
example, an entity may combine a distribution funded by capital raising with
an ordinary dividend or, alternatively, issue equity interests to both raise
capital for genuine commercial or regulatory purposes and to fund a
distribution. To address such arrangements, the tests are satisfied where the
equity only partly funds the distribution.
5.36 Even if the test is satisfied only in relation to some of the capital raised from an
issue of equity interests or part of a franked distribution, the entire distribution
ceases to be able to be franked. This is to deter entities entering into these
arrangements.
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Franked distributions funded by capital raisings
Considerations in determining effect and purpose
5.37 Schedule 5 to the Bill identifies a number of matters that must be taken into
account when determining the principal effect of the issue of equity interests
and the purpose of an entity involved in an issue of equity interests.
[Schedule 5, item 2, subsection 207-159(4) of the ITAA 1997]
5.38 These matters include the time or times at which the equity interests were
issued relative to the time of the franked distribution, the amount of the equity
interest compared to the distribution and any other distributions made before or
after the franked distribution by the same entity.
[Schedule 5, item 2, subsection 207-159(4)(a), (b) and (j) of the ITAA 1997]
5.39 Each matter on its own may not be determinative--merely delaying a
distribution or capital raising, or raising a different amount will not prevent a
distribution being funded or partly funded by a capital raising where other
factors make clear it was undertaken for this purpose and it has had this effect.
However, alignment between the timing or amount is a matter that supports the
existence of the required effect and purpose. Likewise, the making of other
distributions may provide important context in evaluating the effect and
purpose of the distribution in question.
5.40 One of the matters is the extent to which, following the issue of equity interests
and making of the distributions, there has been a net change in the financial
position of the entity making the distribution and any related parties.
[Schedule 5, item 2, paragraph 207-159(4)(c) of the ITAA 1997]
5.41 If there has been no substantial net change in the financial position of the entity
following the distribution, then this strongly supports the conclusion that the
effect and purpose of the issue of equity interests was to fund the distribution.
5.42 The matters to be considered also include the use of the funds raised by the
issue of equity interests and the reasons for the issue of equity interests.
Having regard to these matters ensures that the context surrounding the issue
of equities is taken into account.
5.43 For example, where the issue of equity interests and the distribution both took
place in the context of a sale or acquisition of a significant part of the business
carried on by an entity, then a closer examination of the facts and
circumstances would be required which may suggest a clear commercial
motivation unrelated to the franking of distributions.
[Schedule 5, item 2, paragraphs 207-159(4)(d) and (e) of the ITAA 1997]
5.44 How the funds raised are used will often be significant in determining the
effect and purpose of the issue of equities. In cases where the funds raised are
used to make a distribution, it is likely that the effect and purpose of the issue
would be to fund the distribution unless there is a clear commercial purpose
such as raising capital to fund an acquisition that is ultimately unsuccessful.
However, the immediate use of the funds is not determinative. Even if all of
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
the funds raised by an issue of equity interests are quarantined and used for a
specific purpose, this may serve to free other funds to be distributed that would
otherwise have been required to be used for that purpose. In such cases both
the effect and purpose tests may be satisfied.
5.45 Similarly, the reasons for the issue of equity interests will also often be
significant, particularly when determining the purpose of an entity involved in
an issue of equity interests. Where there are clear commercial reasons for
issuing equity (other than access to franking credits) that explain the features
and manner of the issue, then it is not likely that the purpose of the issue is to
fund a franked distribution.
5.46 The measure can apply if there has been an equity issue by the entity making
the distribution or another entity. Accordingly, the amendments ensure that the
nature and extent of the relationship between the entities must be taken into
account in deciding if the measure applies. Subject to other factors, the
measure potentially applies where the equity issue by another entity was
undertaken so as to facilitate the making of the distribution.
[Schedule 5, item 2, paragraph 207-159(4)(h) of the ITAA 1997]
5.47 The matters to be considered also include how the history of the amount of
franking credits in the franking account maintained by the entity making the
distribution compares to the history of profits and share capital of the entity.
[Schedule 5, item 2, paragraph 207-159(4)(g) of the ITAA 1997]
5.48 Where the entity has a large amount of franking credits relative to its profits
and/or share capital then this would suggest that the arrangement to make
special distributions to shareholders that require capital raising from
shareholders is artificial in nature and may attract the operation of the measure.
5.49 A further matter to be considered is the extent to which there is correspondence
between the parties that were entitled to participate in the issue of equity
interests mentioned and the parties that were entitled to receive the relevant
distribution. Where the arrangement involves the raising of equity from the
same or substantially the same members receiving the franked distributions,
this suggests that the arrangement may be artificial in nature. This is because it
does not materially change the economic position of the entity or its members
other than to release the franking credits. However, all factors must be
considered including if capital was raised for a genuine commercial purpose.
[Schedule 5, item 2, paragraph 207-159(4)(i) of the ITAA 1997]
5.50 The matters also include the extent to which the capital raising is underwritten.
5.51 The extent and nature of underwriting arrangements for an issue of equity
interests is an important indication of whether the capital raised from the issue
is guaranteed either by express written agreement or by an agreed
understanding between the parties, which may inform its effect and purpose.
[Schedule 5, item 2, paragraph 207-159(4)(f) of the ITAA 1997]
5.52 The specifically listed matters are not exhaustive. Any other relevant
considerations must also be taken into account in determining if the
57
Franked distributions funded by capital raisings
requirement is satisfied.
[Schedule 5, item 2, paragraph 207-159(4)(k) of the ITAA 1997]
Example 5.1 - Capital raising funds special dividend
A company raises new capital of $7m from shareholders via a share
issue. A special dividend of $7m is made to the company's
shareholders a month later, being a distribution outside of the
ordinary dividend cycle of the company and significantly larger
than normal dividends payments despite no significant change in
profits for the company. There has not been any significant change
in shareholders during this period. The dividend is paid out of
profits and is fully franked.
It would be reasonable to conclude that the principal effect and
purpose tests are satisfied in relation to the arrangement because:
• the financial position of the company is largely unaffected,
other than the change to the franking account balance of
the company, as an amount equivalent to the cash raised is
paid as dividends;
• there is close correspondence between the parties that
contributed to the capital and the parties receiving the
benefit of the franked dividends;
• the dividend per share is significantly larger than normal
dividends despite no significant change in the profits of the
company; and
• the capital raising and distribution are temporally close.
Example 5.2 - Underwritten dividend reinvestment plan funds special
dividend
Company A has a large balance of franking credits in its franking
account. It announces a once off fully franked special dividend.
Shareholders in Company A are given the option of opting into the
company's dividend reinvestment plan in respect of the special
dividend. Under the dividend reinvestment plan, shares are issued
by Company A at a discount of 2.5% of the market price of
Company A's shares. The dividend reinvestment plan is fully
underwritten by Company B (in the event of a shortfall if
shareholders elect to receive cash rather than additional shares).
The company pays out $40m in fully franked dividends. Just over
half of Company A's shareholders elect to receive the special
dividend in additional shares. Accordingly, Company A raises
$40m through the take-up of the dividend reinvestment plan by
those shareholders choosing additional shares and the issue of the
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
remainder of shares to Company B representing the dividend
reinvestment plan participation shortfall (the portion of the special
dividend paid to shareholders in cash) as part of the arrangement as
underwriter.
In the absence of evidence that the capital raising was for a purpose
other than to fund the special dividend it would be reasonable to
conclude that the principal effect and purpose tests are satisfied in
relation to the arrangement because:
• the company paid a fully franked dividend to its
shareholders without materially changing its financial
position (the outgoing funds from the dividend payment
being offset by the income funds from the capital raising)
and the only impact was the reduction in its franking
account balance;
• the dividend reinvestment plan is fully underwritten which
ensures that no change in financial position occurs; and
• the capital raising and distribution are temporally close.
Example 5.3 - Return of surplus cash after unsuccessful acquisition
A company makes an offer to shareholders to subscribe for 1 new
share for every 100 shares currently held to raise capital with the
express intention of funding a proposed acquisition. The acquisition
does not go ahead and the funds raised contribute to the general
pool of funds available to the company. After 12 months the
company pays a special fully franked dividend to its shareholders,
being a distribution outside of its ordinary dividend cycle and
funded by the surplus cash resulting from the acquisition not going
ahead.
There is no significant change in the resulting financial position of
the company from the capital raising and the payment of a special
fully franked dividend other than in relation to franking credits.
However, it is clear in all the circumstances that there is a genuine
commercial purpose for the capital raising to make an acquisition
and when this was unsuccessful, the surplus cash was returned to
shareholders. Accordingly, there is an insufficient linkage between
the capital raising and the special dividend for the purpose test to
be satisfied in relation to this arrangement.
Example 5.4 - Arrangement in accordance with established practice
An APRA regulated body issues $10,000,000 in hybrid instruments
(equity interests) to investors to ensure its regulatory capital
requirements are satisfied. The funds raised contribute to the
general pool of funds available to the company.
59
Franked distributions funded by capital raisings
After six months, the company pays a distribution of $3,000,000
with franking credits attached on existing shares and other equity
interests. The company regularly pays such dividends and has a
longstanding practice of paying such distributions to its members
generally every six months.
The company's capital increased by $10,000,000. After six months,
its cash position is reduced by $3,000,000 as a result of the
dividend.
The measure does not apply as the company has a longstanding
established practice of paying such dividends to its members.
Regardless, it is clear that there is a genuine commercial purpose
for the capital raising to meet capital regulatory requirements.
Accordingly there is an insufficient linkage between the capital
raising and the payment of the dividend for the purpose test to be
satisfied in relation to this arrangement.
Commencement, application, and transitional
provisions
5.53 Schedule 5 to the Bill commences on the first 1 January, 1 April, 1 July or
1 October to occur after the day the Bill receives Royal Assent.
[Clause 2]
5.54 The amendments made by Schedule 5 apply to distributions made on or after
15 September 2022. This aligns with the release of the exposure draft for the
measure for public consultation on 14 September 2022.
[Schedule 5, subitem 3(1) of the ITAA 1997]
5.55 The amendments clarify that in determining if an established pattern of
distribution exists both past practice before 15 September 2022 and on and
after this date may be taken into account. This confirms that both entities that
have been in operation prior to 15 September 2022 and those new entities that
are established on or after this date can establish a pattern of distributions that
can be taken into account in considering if the amendments apply.
[Schedule 5, subitem 3(2) of the ITAA 1997)]
5.56 The amendments apply retrospectively, broadly in line with the release of the
exposure draft for public consultation. This affects those entities that have
made or received affected distributions, contrary to the measure.
5.57 Retrospective application from 15 September 2022 is necessary because the
measure prevents artificial and contrived arrangements set up to
inappropriately access franking credits that were not intended under the
imputation system. Allowing such activity to be entered into before the
passage of the legislation without any consequences under the law would
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
encourage the implementation of such arrangements during this period.
Although the measure applies retrospectively, affected parties were generally
aware of how the measure would apply following the release of the exposure
draft law on 14 September 2022. Changes to the amendments following release
of the exposure draft law clarify the scope of the measure to address a number
of issues raised in consultation that the measure could be argued to apply more
widely than intended.
61
Statement of
Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny)
Act 2011.
Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
Table of Contents:
Schedule 1 - Registration of providers and assisted decision making 64
Overview ....................................................................................... 64
Human rights implications ............................................................. 65
Conclusion .................................................................................... 65
Schedule 2 - Sustainability standards ................................................. 65
Overview ....................................................................................... 65
Human rights implications ............................................................. 65
Conclusion .................................................................................... 66
Schedule 3 - Government response to the Review of the Tax
Practitioners Board .............................................................................. 66
Overview ....................................................................................... 66
Human rights implications ............................................................. 66
Conclusion .................................................................................... 72
Schedule 4 - Off-market share buy-backs ........................................... 72
Overview ....................................................................................... 72
Human rights implications ............................................................. 73
Conclusion .................................................................................... 73
Schedule 5 - Franked distributions funded by capital raisings ............ 73
Overview ....................................................................................... 73
Human rights implications ............................................................. 73
Conclusion .................................................................................... 73
63
Statement of Compatibility with Human Rights
Schedule 1 - Registration of providers and
assisted decision making
Overview
6.1 Schedule 1 is compatible with the human rights and freedoms recognised or
declared in the international instruments listed in section 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011.
6.2 Schedule 1 to the Bill amends the Corporations Act to:
• allow ASIC to approve applications from one or more licensees to
register on the Financial Advisers Register the same relevant provider
in circumstances where the relevant provider has a registration in
force; and
• allow assisted decision-making to be used for any purpose for which
ASIC may make decisions in the performance or exercise of ASIC
functions or powers to register a relevant provider.
6.3 These amendments are technical in nature and intended to ensure the
requirement for a relevant provider to be registered operates efficiently, while
reducing the risk of inadvertent breaches of the law.
6.4 The amendments further provide transitional arrangements to ensure any
existing registrations, or applications for registration, that are made before the
commencement of the amendments will continue in force and may be dealt
with in accordance with the provisions as amended. Transitional arrangements
also provide that any registration suspension orders, registration prohibition
orders or action by the Financial Services and Credit Panels continue in force
and have effect as if the orders were made having regard to the provisions as
amended.
6.5 In addition, minor technical amendments are made to a transitional provision
in Part 10.57 of the Corporations Act to align with the provisions policy intent
introduced in the Financial Sector Reform (Hayne Royal Commission
Response--Better Advice) Act 2021. The amendment will ensure that relevant
providers who had a pending application before 1 January 2022, and whose
registration was subsequently granted by the TPB are recorded as registered on
the Financial Advisers Register. The amendment has a necessary and
appropriate retrospective application to on or after 1 January 2022 to allow
relevant providers granted registration after 1 January 2022 to be smoothly
transitioned and recorded on the Financial Advisers Register. This application
provision is beneficial and necessary to achieve the original intent as explained
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
in the Explanatory Memorandum to the Financial Sector Reform (Hayne Royal
Commission Response--Better Advice) Bill 2021, and will minimise the
administrative burden for relevant providers and ASIC.
Human rights implications
6.6 This Schedule does not engage any of the applicable rights or freedoms.
Conclusion
6.7 This Schedule is compatible with human rights as it does not raise any human
rights issues.
Schedule 2 - Sustainability standards
Overview
6.8 This Schedule is compatible with the human rights and freedoms recognised or
declared in the international instruments listed in section 3 of the Human
Rights (Parliamentary Scrutiny) Act 2011.
6.9 This Schedule amends the ASIC Act to provide the AASB with functions to
develop and formulate sustainability standards. It clarifies the AUASB's
function to develop and maintain relevant auditing and assurance standards for
sustainability purposes. It also empowers the FRC to provide strategic
oversight and governance functions in relation to the AASB's and AUASB's
sustainability standards functions. The amendments leverage the existing
bodies' experience to facilitate the development of sustainability standards
while longer-term governance arrangements for sustainability-related financial
reporting, including climate disclosure, are developed and implemented. This
allows the AASB to establish, in the first instance, non-binding reporting
requirements for sustainability that will, as far as is practicable, align with
significant international developments, including the standards under
development by the ISSB.
Human rights implications
6.10 This Schedule does not engage any of the applicable rights or freedoms.
65
Statement of Compatibility with Human Rights
Conclusion
6.11 This Schedule is compatible with human rights as it does not raise any human
rights issues.
Schedule 3 - Government response to the
Review of the Tax Practitioners Board
Overview
6.12 Schedule 3 to the Bill is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011.
6.13 Schedule 3 to the Bill amends the TAS Act to ensure that tax agent services
and BAS services provided to the public are of an appropriate ethical and
professional standard and to enhance the financial independence of the TPB
from the ATO. To achieve this, Schedule 3 to the Bill implements the
following recommendations of the TPB Review to:
• update and modernise the objects clause of the TAS Act
(Recommendation 2.1);
• create financial independence for the TPB from the ATO
(Recommendation 3.1);
• require tax practitioners to not employ or use a disqualified
entity without the TPB's approval, or enter an arrangement with a
disqualified entity (Recommendation 4.6);
• convert to an annual registration period (Recommendation 4.7); and
• enable the Minister to supplement the existing Code of Professional
Conduct to ensure that emerging or existing behaviours and practices
by tax practitioners are properly addressed (Recommendation 5.1).
6.14 The implementation of these recommendations is intended to improve the
effectiveness and independence of the TPB, enhance community confidence,
and support high standards in the tax profession whilst streamlining the
regulation of tax practitioners.
Human rights implications
6.15 In addition to the other recommendations, Schedule 3 to the Bill implements
Recommendation 4.6 which introduces new Code of Professional Conduct
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
obligations on tax practitioners and civil penalties on disqualified entities who
fail to disclose their status to tax practitioners they are engaged with.
6.16 Recommendation 4.6 is anchored in concerns in relation to insufficient internal
governance practices leading to tax practitioners employing or using people
who are unsuitable to provide tax services on their behalf. This increases the
risk of sub-standard tax advice and tax fraud by or on behalf of taxpayers
which diminishes the integrity of the tax system.
6.17 Recommendation 4.6 aims to close this identified gap in the regulation of tax
services by introducing the following obligations:
• an entity who meets the definition of a 'disqualified entity' must
disclose their disqualified status to the tax practitioner if:
- they are being employed or used to provide tax agent services
on behalf of the tax practitioner; or
- they are entering an arrangement with a tax practitioner in
connection with providing tax agent services; and
• tax practitioners have obligations under the Code of Professional
Conduct to ensure that:
- they do not employ or use individuals who meet the definition
of a 'disqualified entity' to provide tax agent services on their
behalf, unless approved by the TPB; and
- they do not enter an arrangement with a disqualified entity in
connection with providing tax agent services.
6.18 The amendments are intended to facilitate compliance with, and preserve the
integrity of, the taxation system. They are designed to reduce the possibility of
tax fraud and evasion by or on behalf of taxpayers (e.g., claiming
unsubstantiated deductions) in response to the identified gap in the law, as well
as protecting consumers from services being provided by entities
inappropriately.
6.19 As a result of these provisions implementing Recommendation 4.6, Schedule 3
to the Bill engages with the following rights:
• the right to work under Article 6(1) of the ICESCR;
• the right to a fair trial and presumption of innocence under Articles 14
and 15 of the ICCPR; and
• the right to privacy under Article 17 of the ICCPR.
Right to work
6.20 Schedule 3 to the Bill engages the right work under Article 6(1) of the
ICESCR.
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Statement of Compatibility with Human Rights
6.21 The right to work provides that everyone must be able to freely accept or
choose their work and includes a right not to be unfairly deprived of work.
6.22 The right to work is engaged in Schedule 3 to the Bill as it may affect the
ability of individuals and entities to gain or continue employment in the
provision of tax agent services. The concept of disqualified entities is
introduced by Schedule 3 to the Bill in subsection 45-5(2) and includes any
individuals or entities who have been convicted of serious offences, had
sanctions applied to them for breach of the Code of Professional Conduct or
had their application for registration or renewal rejected. Schedule 3 to the Bill
may limit the potential for these disqualified entities to continue providing tax
agent services on behalf of a tax practitioner or under an arrangement with a
tax practitioner. In particular, the requirement for tax practitioners to seek
approval from the TPB prior to employing or engaging a disqualified entity,
may prevent a disqualified entity from providing tax agent services on a tax
practitioner's behalf.
6.23 The objective of Recommendation 4.6 is to ensure that all individuals and
entities who are responsible in the provision of tax agent services, are subject
to similar ethical and professional standards applied to registered tax and BAS
agents. This closes the regulatory gap currently existing within the tax industry
and protects the integrity of the tax system.
6.24 Schedule 3 to the Bill is an effective way to achieve this object as it places on
ongoing obligation on tax practitioners to be aware of the risks associated with
the employment and engagement of disqualified entities. Additionally, the
disqualified entity themselves is also required to remain transparent about their
status to tax practitioners and ensure both their employer and the TPB is aware
of their status.
6.25 Schedule 3 to the Bill is a proportionate response to the current regulatory gap
in the tax industry as although it imposes ongoing obligations on the tax
practitioner and notification requirements on the disqualified entity, the
disqualified entity may still be employed or engaged to provide tax agent
services on behalf of the tax practitioner if they receive approval from the TPB.
Schedule 3 to the Bill imposes a barrier for disqualified entities which they can
overcome if they remain transparent with the tax practitioner and in turn, the
TPB.
6.26 Based on the TPB's assessment, which requires a fair consideration of the
circumstances surrounding the entity's disqualification, a decision is made
based on whether they are suitable to continue employment or engagement to
provide tax agent services. If they are, the right to work under Article 6(1) of
the ICESCR will not be infringed. Alternatively, if they are deemed a concern
to the tax industry following assessment by the TPB, the disqualified entity's
inability to freely work is only limited in relation to the provision of tax agent
services. They are still able to be employed under a different capacity and can
seek work in another role.
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6.27 Any potential limitations on the right to work are reasonable and proportionate
as the exclusion of these disqualified entities from the tax system is necessary
to protect the public from potential dishonesty, misconduct or fraud and
maintain high standards in the tax industry.
6.28 Similarly, in relation to the ongoing obligation and notification requirement
preventing tax practitioners and disqualified entities from entering
arrangements in which the disqualified entity is able to operate through the
registered agent's credentials, the strict prohibition of these arrangements is
reasonable and proportionate to any limitation on the right to work. The
integrity of the tax system is severely jeopardised in these circumstances as
these arrangements are purely undertaken for a disqualified entity to continue
acting in a dishonest or fraudulent manner by controlling the actions of a
registered tax practitioner.
6.29 To the extent that Schedule 3 to the Bill engages with the right to work, any
limitations on an individual's right are necessary and proportional to maintain
a high quality of tax agent services and close the regulatory gap currently
existent in the tax industry.
Civil penalty
6.30 Schedule 3 to the Bill introduces new civil penalty provisions which may
engage the right to a fair trial, as well as the presumption of innocence in
Articles 14 and 15 of the International Covenant on Civil and Political Rights
(ICCPR). Article 14(2) of the ICCPR recognises that all people have the right
to be presumed innocent until proven guilty according to the law. Articles 14
and 15 apply only in relation to the rights of natural persons, not legal persons,
such as companies.
6.31 Civil penalty provisions may engage criminal process rights under Articles 14
and 15 of the ICCPR. Although there is a domestic law distinction between
criminal and civil penalties, 'criminal' is separately defined in international
human rights law. Therefore, when a provision imposes a civil penalty, it is
necessary to determine whether or not the penalty amounts to a 'criminal'
penalty for the purposes of Articles 14 and 15 of the ICCPR.
6.32 Schedule 3 to the Bill introduces new civil penalty provisions which may apply
if written notice of the entity's disqualified status is not provided to the tax
practitioner in the following circumstances:
• disqualified entity seeking or continuing to provide tax agent services
under a tax practitioner;
• entity that becomes disqualified and is providing tax agent services
under a tax practitioner;
• disqualified entity seeking or continuing an arrangement with a tax
practitioner in connection with the provision of tax agent services; and
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• entity that becomes disqualified and is under an arrangement with a tax
practitioner in connection with the provision of tax agent services.
6.33 The civil penalty provisions contained in Schedule 3 to the Bill are not
'criminal' for the purposes of human rights law. While a criminal penalty is
deterrent or punitive, these provisions are regulatory and disciplinary, and they
aim to encourage compliance with Schedule 3 to the Bill. The new civil
penalty provisions will apply in line with the current operation of the TAS Act,
which provides that if a civil penalty provision is breached, the TPB has the
option to apply to the Federal Court for an order to pay a pecuniary penalty.
The penalties represent a maximum potential penalty which will only be
applied in the most serious cases, as determined by the court.
6.34 Further, the provisions do not apply to the general public, but to a sector or
class of people, namely disqualified entities who provide tax agent services on
a tax practitioner's behalf or under an arrangement with a tax practitioner, who
should reasonably be aware of their obligations under the TAS Act. Therefore,
imposing these civil penalties will enable an effective disciplinary response to
non-compliance.
6.35 While these civil penalties are large, they are appropriate in size. A lesser
penalty of 250 penalty units is applicable to individuals who breach these
provisions and a higher penalty of 1,250 penalty units is applicable to body
corporates. This is in line with the body corporate multiplier rule established in
the Guide to Framing Commonwealth Offences, Infringement Notices and
Enforcement Powers. This Guide notes that larger penalties are more
appropriate for bigger companies, as they provide an adequate deterrent.
6.36 Further, the judiciary continues to have discretion to consider the seriousness
of the contravention and impose a penalty that is appropriate in the
circumstances. The courts are experienced in making civil penalty orders at
appropriate levels having regard to the maximum penalty amount, taking into
account a range of factors including the nature of the contravening conduct and
the size of the organisation involved.
6.37 Therefore, a relevant consideration in setting a civil penalty amount is the
maximum penalty that should apply in the most egregious instances of non-
compliance with Schedule 3 to the Bill.
6.38 The maximum civil penalty amounts that can be imposed under Schedule 3 to
the Bill are intentionally significant and are in line with the penalties for other
provisions in the TAS Act.
6.39 Finally, there is no sanction of imprisonment for non-payment of these civil
penalties.
6.40 These civil penalty provisions apply prospectively for conduct that occurs on
or after commencement of the legislation and therefore upholds Article 15 of
the ICCPR. Transitional rules have also been put in place for disqualified
entities who are currently providing tax agent services on behalf of a tax
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
practitioner, or under an existing arrangement with a tax practitioner in
connection with providing tax agent services. These individuals have an
additional 12 months and 30 days to notify the tax practitioner of their
disqualified status, meaning the civil penalties will also not be applicable for
one year after commencement.
Privacy
6.41 Schedule 3 to the Bill engages the right to protection from unlawful or
arbitrary interference with privacy under Article 17 of the International
Covenant on Civil and Political Rights (ICCPR) because it involves the
disclosure of personal information about disqualified entities by the tax
practitioner to the TPB. Specifically. subsection 45-5(3) requires tax
practitioners to submit an application and any required documents to the TPB,
which may contain personal information about a disqualified entity, if they
wish to seek approval to employ or use a disqualified entity to provide tax
agent services on their behalf.
6.42 The right in Article 17 may be subject to permissible limitations, where these
limitations are authorised by law and are not arbitrary. In order for an
interference with the right to privacy to be permissible, the interference must
be authorised by law, be for a reason consistent with the ICCPR and be
reasonable in the particular circumstances. The UN Human Rights Committee
has interpreted the requirement of 'reasonableness' to imply that any
interference with privacy must be proportional to the end sought and be
necessary in the circumstances of any given case.
6.43 The amendment allows the registered tax practitioner to disclose confidential
information to the TPB. It will improve the TPB's ability to investigate and
assess disqualified entities, and ultimately determine whether they are able to
provide tax agent services on behalf of a tax practitioner. This is essential to
better protect the integrity of Australia's tax system.
6.44 The amendment is a reasonable change as it is necessary for the TPB to
commence an assessment of the disqualified entity and establish whether they
can be employed or used to provide tax agent services. Importantly, this
information would only be disclosed if the disqualified entity wanted to
continue to pursue a position in the tax industry and is not required in any other
circumstance. Overall, this allows the TPB and tax practitioners to work
together more effectively to ensure compliance with taxation laws.
6.45 This new provision is appropriate as it will ensure that the process for sharing
information is consistent with other existing provisions in the TAS Act. The
current registration process for tax practitioners requires them to provide any
relevant documents and complete the application form required by the TPB.
The process included in this amendment operates in an identical manner.
6.46 Schedule 3 to the Bill engages the 'authorised by law' exemption in Australian
Privacy Principle (APP) 6.2(b), which allows for use and disclosure of
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Statement of Compatibility with Human Rights
personal information where required or authorised by law. Due to the similar
information sharing process existent in the TAS Act and the necessity of this
information to achieve the overall objective of the amendments to protect the
tax system's integrity, the amendments are reasonable, necessary, and
proportionate to achieving a legitimate aim, paying due regard to the nature of
the information disclosed and the particular public policy objective.
6.47 Any information that is shared between the tax practitioner and the TPB will
remain subject to strict confidentiality protections. The TPB will remain
subject to the requirement to take all reasonable measures to protect
confidential information from any unauthorised disclosure. The Board is
subject to the APPs under the Privacy Act 1988, which regulate how
information is collected, disclosed, and stored. Personal information used only
by the Board for the purpose in which it was given, or for purposes directly
related to one of its functions under the Act, such as maintaining a register.
Conclusion
6.48 To the extent that Schedule 3 to the Bill engages the right to work under
Article 6(1) of the ICESCR and the right to privacy, fair trial, and presumption
of innocence under Articles 14, 15 and 17 of the ICCPR, it is compatible with
the human rights and freedoms recognised or declared in the international
instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny)
Act 2011 as the limitations are appropriate, proportionate and achieve a
legitimate objective.
Schedule 4 - Off-market share buy-backs
Overview
6.49 Schedule 4 to the Bill is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011.
6.50 Schedule 4 to the Bill aligns the treatment of off-market share buy-backs
undertaken by listed public companies with that currently applied to on-market
share buy-backs. It does this so that no part of the purchase price is taken to be
a dividend in an off-market share buy-back undertaken by a listed public
company.
6.51 It also treats any distribution received as part of a share capital reduction as
unfrankable.
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Human rights implications
6.52 Schedule 4 to the Bill does not engage any of the applicable rights or freedoms.
Conclusion
6.53 Schedule 4 to the Bill is compatible with human rights as it does not raise any
human rights issues.
Schedule 5 - Franked distributions funded by
capital raisings
Overview
6.54 Schedule 5 to the Bill is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011.
6.55 This Schedule amends the ITAA 1997 to include a new item to make certain
distributions funded by capital raising unfrankable.
6.56 The purpose of the amendments is to ensure that direct or indirect recipients of
affected distributions are not entitled to a tax offset and the amount of the
franking credit is not included in the assessable income of the recipient. The
distribution is also not exempt from withholding tax under section 128B of the
ITAA 1936.
6.57 The amendments are an integrity measure. They prevent entities from
manipulating the imputation system to facilitate the inappropriate release of
franking credits. They are designed to specifically prevent the use of artificial
arrangements under which capital is raised to fund the payment of franked
distributions to shareholders and enable the distribution of franking credits.
Human rights implications
6.58 Schedule 5 to the Bill does not engage any of the applicable rights or freedoms.
Conclusion
6.59 Schedule 5 to the Bill is compatible with human rights as it does not raise any
human rights issues.
73
74
Attachment 1: Independent Review
of the Tax Practitioners Board - Final
Report
Foreword
The Terms of Reference for this Review (Appendix A) provide that a major
focus should be how the tax practitioner regulatory regime should be structured.
The tax practitioner landscape has unique features. First, tax practitioners have a
responsibility to assist taxpayers to ensure that their taxation affairs comply with
the law, particularly in a self-assessment environment. Secondly, they play an
important role of mediating the relationship between those paying tax and those
collecting tax1.
Compliance with Australian taxation law by all participants is by no means easy
given the wide tax base and the ever-changing complexity of a modern
economy. As a result of this complexity, taxpayers more often than not rely on
appropriate professional and ethical assistance and advice for their dealings with
the Australian Taxation Office (ATO).
It has long been accepted that what are appropriate professional and ethical
standards for tax professionals interacting with the ATO should not be set by the
ATO.
In this context, the Review focuses on three key issues:
• the setting of appropriate professional and ethical standards (see Chapter 5);
• the importance of an independent Tax Practitioners Board (TPB) (see
Chapter 3); and
• whether the legislation appropriately equips the TPB to effectively perform
its task, including appropriate sanctions and enhancing the ongoing
registration requirements (see Chapters 4 and 6).
In the opinion of the Review, independence and the appropriate regulatory
framework is not the complete answer to the question of whether we have a fit
for purpose regulatory regime.
In administering the tax legislation, the ATO collects extensive data about
taxpayers. This data is relevant in decisions concerning, for example, reviewing
1
The Ethics Centre advice, see Appendix B.
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Independent Review of the Tax Practitioners Board - Final Report
tax returns and compliance more generally. The collected data also enables the
ATO to analyse returns lodged by tax practitioners.
The appropriate use of this data has to acknowledge a taxpayer's expectation of
access to independent, professional and ethical advice. Its use must respect the
independence of the TPB and the ATO, and importantly, the ATO's
responsibility to administer the tax laws.
This is a unique position, being that the same information, or source of it, has to
be used by both the ATO and the TPB for them to administer their different
functions.
It is our opinion that the dual use of taxpayer information by both the ATO and
the TPB cannot be solved by regulation alone. Nor can participants in the
Australian tax system operating in independent silos, acting on behalf of
different sectors of the tax community, resolve it. It can be resolved by those
participants working together with a transparent plan of who is doing what and
with respective responsibility.
An outstanding feature of this Review has been that all levels of participants
have approached the review with the objective of seeking a much better outcome
for Australia's taxation system.
To build on this engagement, we have recommended in this Report that the TPB
convene and sponsor a Tax Practitioner Governance and Standards Forum. This
Forum will have the objective of providing input into a transparent set of
memoranda of understandings between relevant participants and the
development of a charter in concept similar to the Taxpayers' Charter. This
Forum would also assist in the breaking down of silos and ensuring that key
participants in the tax community work together, leading to a greater level of
trust in the integrity of the tax system by the Australian community.
The underlying policy behind the Tax Agent Services Act 2009 (TASA) was to
ensure the ATO was not responsible for regulating the profession and
determining the appropriate standards of professional and ethical behaviours for
tax practitioners. Instead, these tasks are undertaken by an independent and
effective regulator.
Our Review, coupled together with the report of the Black Economy Taskforce
and the ongoing discussion about various tax gaps shows that there is room for
improvements to be made.
This Review, together with the earlier 1994 National Review of Standards of the
Tax Profession initiated by the National Tax Liaison Group, suggest that the best
outcome is not just a tinkering with legislative solutions but a coming together
where all stakeholders agree on a set of common objectives.
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Executive Summary
The regulation of the tax profession by the Tax Practitioners Board (TPB) has
continued since 2010, shortly after the Tax Agent Services Act 2009 (TASA) was
introduced.
Nine years is more than enough time to ascertain the effectiveness and efficiency
of both the TPB and the TASA. While submissions and consultation have
overall been positive in their assessment of the performance of the TPB, it is
clear that there are some areas that need to be addressed, not just from the
perspective of legislative change but also in terms of the structural framework
that underpins the TPB and the culture that has developed among (a) those that
regulate the tax profession and (b) some elements of the tax profession.
One of the most significant changes being proposed is a significant expansion of
the sanctions available to address misconduct by tax practitioners. To give this
proposal some context it is necessary to provide some background detail. The
TPB's focus in its early years of formation was, generally speaking, an educative
approach. When tax (financial) advisers (TFAs) were subsequently introduced
into the TPB's regime this required significant resources to register a population
of what was, at the time, approximately 15,000 TFAs. It is only in more recent
times that the focus of the TPB has shifted, recognising that an important part of
its function is to also regulate the behavioural standards of tax practitioners.
In 2018 the Commissioner of Taxation published for the first time his estimate
of the tax gap for individuals, estimated at approximately $8.7 billion for
2014-15. Earlier this year the tax gap for small business for 2015-16 was
estimated to be approximately $11.1 billion. The vast majority of small
businesses use tax agents, and the Commissioner of Taxation has been quite
outspoken that he considers there are egregious tax practitioners who are
contributing to the size of the tax gaps for both individuals and small business.
Similarly the "safe harbour" that was introduced into the Taxation
Administration Act 1953 at the same time that the TASA was introduced needs
revisiting. The concept of the safe harbour is straightforward, if a taxpayer
provides their registered tax practitioner with all the information necessary to
complete their tax return or activity statement, they should not be at risk of any
penalty if errors are made by the tax practitioner. They do however remain liable
to pay the primary tax and any interest that has accrued.
The safe harbour has however created an environment where agents can operate
in an almost risk-free zone as long as they can establish that they have taken
reasonable care. This (almost) risk-free environment has encouraged
over-claiming by those agents willing to push the boundaries.
This in turn has led to large tax gaps which of course are a cost to the
community. The Review has proposed solutions which, if implemented should
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Independent Review of the Tax Practitioners Board - Final Report
help to reduce these tax gaps. These solutions include agents being held to
account when they have not met the expected standards and, in the most
egregious cases penalties being able to be imposed by the Commissioner of
Taxation.
A broader range of sanctions will help facilitate this. However, in providing a
broader range of powers it is important that this is balanced by providing a level
of comfort to the tax profession and the community that the significant increase
in sanction powers now available to the TPB will be imposed in accordance with
due process. Responsibility and accountability for the exercise of these sanction
powers should clearly lie with the TPB with no inferences being able to be made
that the ATO has any influence. This means that it is important that the TPB is,
and is clearly seen as, being independent from the ATO.
While the Board has always been independent, from an administrative
perspective the TPB was originally set up as part of the ATO. That was intended
to be an interim arrangement. The failure to change this over a period of nine
years has not been helpful. Much clearer lines of demarcation are required. This
can be achieved by ensuring the TPB receives its own appropriation from
Government and becomes a Commonwealth entity (rather than be part of the
ATO).
Furthermore, everyone should understand what they are meant to do and what
others are meant to do. With improved clarity on roles and accountabilities it is
expected that other improvements will follow.
With that in mind, the Review has proposed the establishment of a Tax
Practitioner Governance and Standards Forum. Members would include not just
the TPB and ATO, but also representatives of some of the major professional
associations and also the Professional Standards Councils (PSC) as an ex-officio
member. It is expected this Forum will foster a more collaborative culture.
The Forum is intended to become the peak consultative body for matters
involving the provision of tax agent services and ensuring they are provided to
the public in accordance with appropriate standards of professional and ethical
conduct.
Similar in concept to the ATO's National Tax Liaison Group (NTLG), this
Forum would identify significant and strategic issues and drive improvements in
relation to a number of aspects, including:
• public confidence in regulation of the tax profession
• compliance with the tax practitioner regulatory system
• tax agent services law interpretation, administration, design and policy
(including technical issues)
• the memorandum of understanding between the TPB and the ATO, to the
extent it impacts on the TPB and ATO's service delivery to tax practitioners
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
• the legislated Code of Professional Conduct
Another significant change proposed in this Review concerns TFAs. When
TFAs became required to register with the TPB their regulatory requirements
with Australian Securities and Investments Commission (ASIC) were not
reduced. Instead a regulatory overlap was created with additional fees and red
tape. Other changes have further contributed to the regulatory burden, with the
TPB, ASIC, Financial Adviser Standards and Ethics Authority (FASEA), ATO
and Australian Financial Complaints Authority (AFCA) all having roles in
regulating TFAs.
The regulatory burden on financial planners and accountants was commented
upon in many of the submissions and was also the subject of a very recent report
by the CPA titled "CPA Australia's Regulatory Burden Report, The Impact of
Complex Regulatory Frameworks".
The Review believes this regulatory burden can and should be simplified,
though it will need to be done in a manner that aligns with implementing
recommendations from the Financial Services Royal Commission.
In considering options to improve the regulatory landscape for TFAs the
Review's Discussion Paper raised as a possible option the re-introduction of the
accountants' exemption, an exemption that previously allowed accountants to
provide basic self-managed super fund advice and services without having to
operate in the financial licensing regime administered by ASIC.
The Review acknowledges that what advice accountants can and cannot give in
respect of superannuation is a complex issue and, in accordance with some of
the submissions received, worthy of more thorough analysis than this review has
capacity for, perhaps in a subsequent review.
The Review has also looked at the education and registration requirements for
tax practitioners and made a range of recommendations that should improve
these processes and better align them with the requirements of other Government
regulators such as ASIC and the Australian Prudential Regulation Authority.
All of the recommendations made by the Review are set out on the following
pages.
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Independent Review of the Tax Practitioners Board - Final Report
List of Recommendations
Recommendation 1.1
The Review recommends the Government retain the TPB as the statutory authority
responsible for regulating tax practitioners, noting that the disciplinary model for tax
(financial) advisers may be reviewed, with effect from 2021, as part of the process of
establishing a new central disciplinary body further to Recommendation 2.10 of the
Final Report of the Financial Services Royal Commission (see also Recommendation
7.1 in Chapter 7).
Recommendation 2.1
The Review recommends the object clause of the TASA (section 2-5) should be
updated to:
Include wording to the effect that there should be community confidence in
the integrity of the tax system.
Remove reference to tax (financial) advisers, subject to the adoption of
Recommendation 7.1 in Chapter 7.
Include reference to unregistered agents.
Rephrase the wording to reflect that the TPB is a more mature organisation
that is no longer in a start-up phase.
Recommendation 3.1
The Review recommends the TPB should become a separate agency and receive its
own specific appropriation from the Government rather than as an allocated
proportion of a broader ATO budget (which will require accompanying law
changes). This will represent a TPB that is independent from the ATO.
Recommendation 3.2
The Review recommends, in addition to Recommendation 3.1, the following changes
should be made to improve the level of independence the TPB has from the ATO:
The position of the CEO of the TPB should be accountable to the Board and
become a statutory appointment rather than, as at present, an ATO employee on
secondment to the TPB.
If the TPB seconds staff from the ATO, there should be formal secondment
arrangements put in place for those ATO staff on secondment to the TPB.
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Recommendation 3.3
The Review recommends:
The TPB and ATO should maintain and publish a plan that sets out how they
will work together, encouraging early engagement, strengthening information sharing,
providing clear responsibilities and accountabilities and setting agreed strategic goals.
The creation of a Tax Practitioner Governance and Standards Forum and
corresponding Charter of Tax Practitioner Governance.
Recommendation 3.4
The Review recommends:
i) The law should be amended to oblige each of the TPB and ATO to:
co-operate with the other;
share information to the maximum extent practicable; and
notify the other whenever it forms the belief that a breach in respect of which
the other has enforcement responsibility may have occurred.
ii) The law should be amended to oblige each of the TPB and ASIC to:
co-operate with the other;
share information to the maximum extent practicable; and
notify the other whenever it forms the belief that a breach in respect of which
the other has enforcement responsibility may have occurred.
Recommendation 3.5
The Review recommends that the whistleblower laws be amended such that the TPB
is legislatively defined as an 'eligible recipient'. This would ensure that the TPB is
able to:
receive information from an eligible whistleblower and eligible recipient; and
disclose information received to other eligible recipients.
Recommendation 3.6
The Review recommends:
The Tax Agent Services Act 2009 is amended to mandate that at least one
member of the Board is a community member. Consideration will need to be given as
to how this term is defined but it should be expected they would provide community
focused input and have a high level of experience in regulating professional activities
outside of the tax profession.
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Independent Review of the Tax Practitioners Board - Final Report
Subsection 70-30(2) of the Tax Agent Services Act 2009 is amended so that
only two members of a committee, that is making appellable decisions, have to be
Board members and the third member can be a person chosen at the Board's discretion
so long as that person has the appropriate skills and knowledge.
Recommendation 4.1
The Review recommends in relation to the primary qualifications (education and
experience requirements), that:
The TPB, in collaboration and consultation with other regulators, professional
associations, education providers, the tax profession and other key stakeholders,
undertake a review to determine if the primary qualification level itself has been set at
the right level and what grandfathering arrangements would be appropriate (if
required).
The Treasury and the TPB, with input from key stakeholders, determine
whether an amendment to the Tax Agent Services Regulations 2009 is appropriate to
give the TPB greater flexibility to accept other qualifications that may not fall within
the traditional tax practitioner course of study.
Recommendation 4.2
The Review recommends that the TPB should no longer accredit professional
associations as a 'recognised professional association'. The consequence of this is that
the registration entry pathway based on being a voting member of a TPB recognised
professional association (items 102, 206 and 304 of Schedule 2 to the Tax Agent
Services Regulations 2009), will no longer be required. However, it is recommended
that these items are removed prospectively with appropriate permanent grandfathering
arrangements in place.
Recommendation 4.3
The Review recommends:
The Tax Agent Services Regulations 2009 being amended to give the TPB
greater flexibility to accept different types and periods of experience as being relevant.
This would allow the TPB to take into account individual circumstances such as
maternity leave or other absences from the profession.
As part of (a), The Treasury and the TPB, with input from key stakeholders,
determine whether an amendment to the TASR is appropriate to amend the amount of
relevant experience (and nature of experience) required to be registered as a BAS agent.
Recommendation 4.4
The Review recommends that the eligibility requirements for company and
partnership tax practitioners in the Tax Agent Services Act 2009 be amended to
include a requirement that the entity has appropriate governance arrangements in
place that demonstrate who is accountable for the delivery of tax agent services.
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
Whether arrangements are appropriate will be a matter for the TPB to determine,
noting that the TPB will need to provide guidance on what appropriate arrangements
are, in consultation with key stakeholders, including the professional associations.
Recommendation 4.5
The Review recommends that:
The Treasury, with input from key stakeholders (in particular the TPB) amend
the fit and proper person test in the Tax Agent Services Act 2009 to ensure greater
consistency with the requirements of other Government regulators, such as ASIC and
APRA.
The current 5-year period in the Tax Agent Services Act 2009 in which the
TPB must consider certain conduct that may contravene the fit and proper person test
should be increased or removed entirely, with guidance from other regulators.
Those applying for registration with the TPB, including renewal, must
disclose any spent convictions.
Recommendation 4.6
The Review recommends that the Tax Agent Services Act 2009 be amended to include
as part of a tax practitioner's eligibility for registration a requirement to declare:
i) a) any close associates relevant in the provision of tax agent services; and/or
b) employees involved in the provision of tax agent services;
who are affected by any of the fit and proper events in the Tax Agent Services Act
2009; and
ii) if they have engaged anyone listed in the proposed unregistered practitioners
register.
Recommendation 4.7
The Review recommends that:
The registration period be converted to an annual period, subject to the TPB
being able to make the necessary system and IT enhancements to reduce the regulatory
burden on tax practitioners that are renewing their registration.
The annual registration fee should be pro-rated, in comparison to the current
fee payable for a three year registration period.
Recommendation 4.8
The Review recommends that following completion of the trial of tax clinics and
decisions of Government to either cease or extend the program, the issue of tax clinics
and the TPB be reviewed to determine if any longer term amendments may be
required.
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Independent Review of the Tax Practitioners Board - Final Report
Recommendation 4.9
The Review recommends that:
Only those tax intermediaries that are not regulated by any other Government
body should require registration with the TPB, despite otherwise being required to be
registered with the TPB.
The TPB should have the power, through the legislative instrument process,
to exclude certain other services from having to register with the TPB.
Recommendation 5.1
The Review recommends that the relevant Minister be given a legislative instrument
power to be able to supplement the Code of Professional Conduct to address emerging
or existing behaviours and practices. The legislative instrument process would also
ensure appropriate consultation with key stakeholders and parliamentary oversight.
Recommendation 5.2
The Review recommends that a provision concerning legal professional privilege
(LPP) such as that in section 70 of the Australian Securities and Investments
Commission Act 2001 be enacted in the Taxation Administration Act 1953.
Further, a similar protocol to that being developed between the Law Council of
Australia and the ATO in relation to LPP claims should be developed for tax
practitioners generally. This item should be something for the proposed forum (at
Recommendation 3.3) to consider.
Recommendation 6.1
The Review recommends that the Board's sanctions powers need to be increased,
including introducing the following sanctions into the Tax Agent Services Act 2009,
which could be applied to registered and unregistered practitioners:
infringement notices
enforceable undertakings
quality assurance audits
interim suspensions
permanent disbarment
external intervention.
Recommendation 6.2
The Review recommends that:
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Investigations are able to commence and/or continue once a registered tax
practitioner either has their registration terminated, chooses not to re-register, or is
seeking to surrender their registration.
The limitation on the TPB formally gathering information prior to
commencing and notifying a tax practitioner of an investigation be removed.
The six month timeframe to conduct an investigation be removed.
Recommendation 6.3
The Review recommends that the Tax Agent Services Regulations 2009 be amended
to enable the TPB to publish more detailed reasons for tax practitioner sanctions,
including terminations, on the TPB Register (which is publicly available). See also
Recommendation 8.1.
Recommendation 6.4
The Review recommends that an administrative penalty regime, administered by the
ATO, be introduced to impose penalties on tax practitioners who demonstrate an
intentional disregard of the taxation laws in making, or being involved in making, a
statement to the Commissioner of Taxation.
Recommendation 6.5
The Review recommends the safe harbour protection as it applies both to false or
misleading statement penalties and failure to lodge penalties, be extended to cover
instances where the tax agent or BAS agent has demonstrated recklessness or
intentional disregard with respect to a taxation law.
Recommendation 7.1
The Review recommends, in alignment with implementing Recommendation 2.10 of
the Final Report of the Financial Services Royal Commission, a new model be
developed for regulating tax (financial) advisers in consultation with ASIC, FASEA,
the TPB and Treasury. This new model should incorporate the following features:
single point of registration for individuals;
requirement to abide by only the one code of conduct; and
any disciplinary action involving the provision of tax advice is decided by
experts from the tax profession.
Until the new model is developed the status quo should be retained.
Recommendation 7.2
Having recommended the regulatory burden on tax (financial) advisers is to be
reduced, the Review believes it is reasonable that a similar level playing field should
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be considered for accountants. The Review therefore recommends the Government
initiate a specific review of what advice accountants can and cannot give in respect of
superannuation and which accountants that might apply to. Such a review could
perhaps be undertaken by the Productivity Commission.
Recommendation 8.1
The Review recommends that:
Details of tax practitioners that are currently included on the TPB Register
should be expanded. This could include publishing a wider range of information,
decisions and outcomes on the TPB Register.
A register of unregistered tax practitioners be made available. This register
would include those entities that receive a notice by the TPB to 'cease and desist'
providing tax agent services for a fee and publication of details relating to renewal
application rejections (in certain circumstances, such as not being fit and proper).
The time limits on how long certain information appears on the Register be
removed.
Recommendation 8.2
The Review recommends that details of tax practitioners that are included on the TPB
Register should ultimately be included on the Modernising Business Register.
Preface
This is the final report of the review into the effectiveness of the Tax
Practitioners Board (TPB)2 and associated legislation. The report arises as a
result of an announcement by the then Assistant Treasurer Stuart Robert MP on
5 March 2019. The Terms of Reference are attached as Appendix A.
Mr Keith James (former member of the Board of Taxation for 10 years and
Deputy Chair for four years) was appointed as Head of the review and was
assisted by Mr Neil Earle (former President of the Tax Institute of Australia). Mr
James and Mr Earle were assisted by Michael Buscema from the Australian
Taxation Office, Janette Luu from the Tax Practitioners Board, and Suzanne
Taylor and Nick Westerink from the Department of the Treasury.
We published a Discussion Paper in July 2019 setting out our initial
consultations. Further consultation occurred in August 2019 with major
professional associations and stakeholders attending roundtables held in Sydney
2
References in this paper to the TPB are to the entity. References to the Board
are to the board members, headed by the Chair.
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and Melbourne. In this phase of the review, we also consulted with various
agencies including the TPB, Australian Taxation Office (ATO), Australian
Securities and Investment Commission (ASIC), the Inspector-General of
Taxation and Taxation Ombudsman (IGTO) and the Financial Adviser
Standards and Ethics Authority (FASEA).
Much of this report could not have been written without the benefit of the
submissions received and consultation with the various agencies, professional
associations and other interested stakeholders. We would like to thank them for
their time and effort.
We are also grateful for the assistance of The Ethics Centre. The Centre's advice
guided much of the preliminary views in the Discussion Paper and likewise
many of the recommendations in this final report are based on the concepts of
'fit for purpose' and 'independence' that form the constructs of the Centre's
advice. That advice was reproduced in full in the Discussion Paper with the
Centre's permission and is attached at Appendix B.
All non-confidential submissions are listed at Appendix C. A copy of those
submissions can be found via the review website at Second round of
consultation. Several submissions were marked as confidential and are not listed
nor published on the review's website. The review considered the points made in
each submission regardless of whether the submission was confidential or not.
Where individuals provided submissions in their capacity as an impacted tax
agent, BAS agent or tax (financial) adviser (TFA), the Review has taken the step
of deleting the submitters name and contact details (and agent number where
provided).
1. INTRODUCTION
1.1 The environment that tax practitioners operate in is an integral
component of Australia's economy. There are approximately 43,000
registered tax agents, 20,000 registered tax financial planners and
15,000 registered BAS3 agents. Last financial year $426 billion was
collected by the Australian Taxation Office (ATO). Much of that was
reconciled via tax returns and BAS prepared by tax agents and BAS
agents. With 74 per cent of individual income tax returns prepared by
tax agents, and 53.7 per cent of BAS by BAS agents4 it is clear that
community confidence in the tax profession is essential for the
integrity of the tax system.
3
Business Activity Statement.
4
Source: ATO 2018-19 Annual Report.
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1.2 As was explained in our Discussion Paper5, the Tax Agent Services Act
2009 (TASA) has its origins in the transition in Australia to a
self-assessment system that formally began in 1986 when taxpayers
became responsible for assessing their own income tax returns. It is not
necessary to repeat the historical background that led to the TASA that
we provided in the Discussion Paper, though it is worthwhile restating
the principles that underpinned the transition to a self-assessment
regime.
1.3 The tax system in place prior to self-assessment required a taxpayer to
provide the Commissioner of Taxation (Commissioner) with the
necessary facts relevant to the income period6 and the Commissioner
then assessed the application of the income tax law to those facts and
issued an assessment. If a taxpayer failed to provide all of the facts
honestly and accurately then the Commissioner could impose a penalty
for the making of a false and misleading statement.
1.4 With the introduction of self-assessment this changed and taxpayers
became responsible not just for providing all of the relevant facts but
they were now required to apply the tax law to those facts.
Understandably many taxpayers do not have those skills and so they
rely on the services of a tax practitioner to assist them with the
preparation of their income tax return and to help them manage their
tax affairs.
1.5 This increased reliance on tax agents (and subsequently BAS agents
with the introduction of a Goods and Services Tax (GST) in 2000)
made it important that appropriate standards should be put in place for
tax and BAS agents to safeguard the community and provide them
with the confidence to engage a tax or BAS agent should they so
choose.
1.6 The legislative regime that was introduced in 2009 to address this
transformational change, namely the TASA and Tax Agent Services
Regulations 2009 (TASR) was intended to ensure that tax agent and
BAS services provided to the public were of an appropriate ethical and
professional standard. It sought to do so by:
1.6.1 requiring tax and BAS agents to be registered and to comply
with a nationally consistent and enforceable professional
code of conduct;
1.6.2 creating appropriate sanctions for misconduct by tax
practitioners and safe harbours for taxpayers; and
5
Review of the Tax Practitioners Board -- Discussion Paper p. 9.
6
Generally from 1 June to 30 July.
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1.6.3 establishing an independent national board to register tax and
BAS agents and to monitor and enforce compliance with
those standards.
1.7 Now that the TASA and TASR have been in operation for just over 10
years it is overdue that this review has now been undertaken. This is
supported by wording in the Explanatory Memorandum7 to the Tax
Agent Services Bill 2008 (EM) which, paraphrased below, provided
that:
1.7.1 The arrangement of the Board sitting within the ATO is
intended to be the subject of a post-implementation review to
be conducted three years after commencement of the Bill.
1.7.2 The key focus of the review will be to assess whether this
arrangement remains appropriate and satisfactory. The
review will consider whether the independence of the Board
is impaired in any way because of its continued connection
with the ATO, and whether an alternative arrangement
should be considered.
1.7.3 The Government intends that the operation of the legislation
will be reviewed within three years of implementation, with
particular emphasis on (but not being limited to) the
governance arrangements for the Board and the operation of
the 'safe harbour' from penalties in certain circumstances for
failing to lodge a return, notice, statement or other document
in the approved form and on time.
1.7.4 In any case, the legislation will be reviewed under the
Government's five-yearly review requirements.
1.8 It is also noted that in the Australian National Audit Office's report,
'The Regulation of Tax Practitioners by the Tax Practitioners Board',
published in May 2013, the ANAO commented that the EM notes that
the Government may conduct a post-implementation review of the
TASA and the TPB during 2013. For this reason, the ANAO audit
excluded matters that were likely to be included in such a review,
including the operation of the legislation, and consideration of the
appropriateness of the ATO's administrative support.8
1.9 As was set out in the Opening Comments of our Discussion Paper9, a
post-implementation review should take into account certain
fundamental principles as outlined in the Board of Taxation's
foundation report in 2002 titled Government Consultation with the
7
See paragraphs 5.32, 5.33, 6.70 and 6.71.
8
Paragraph 15 of the ANAO report.
9
Above n 5, p. 6.
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Community on the Development of Taxation Legislation. We have
adopted the principles of the Board of Taxation that a
post-implementation should "have regard to the extent to which the
legislation:
1.9.1 gives effect to the Government's policy intent;
1.9.2 is expressed in a clear, simple, comprehensible and workable
manner;
1.9.3 avoids unintended consequences of a substantive nature;
1.9.4 reflects actual taxpayer circumstances and commercial
realities;
1.9.5 results in compliance and administration costs commensurate
with the legislation's significance to the tax system;
1.9.6 is consistent with other tax legislation; and
1.9.7 provides certainty."10
1.10 In each of the subsequent chapters of this report we reflect on these
principles while taking into account the submissions provided to us.
We have chosen to follow a different format to the Discussion Paper
with separate chapters on each of the following topics:
• Object of the TASA
• Independence and governance
• Registration and education
• The Code of Professional Conduct
• Sanctions
• Tax services and financial advice
• Other issues
1.11 Some ancillary issues that have been raised during the course of the
review are discussed at the end of this report under "Other Issues"
(Chapter 8). These include issues such as increasing community
awareness of the TPB and issues concerning the TPB Register.
1.12 There are other Government sanctioned reports that have been written
in the last few years that have relevance for this review. They are:
1.12.1 Final Report of the Financial Services Royal Commission
released in February 2019.
10
Board of Taxation's report Government Consultation with the Community on
the Development of Taxation Legislation, p. 18.
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1.12.2 Black Economy Taskforce Final report released in October
2017.
1.12.3 The IGTO's report The Future of the Tax Profession released
in April 2019.
1.13 The recommendations made in this report are consistent with those
made in all three of these reports.
1.14 Before embarking on an analysis of the many issues raised during
consultation it is appropriate that we begin with a consideration of one
major, underlying fundamental question:
"Do we need the TPB?"
Do we need the TPB?
1.15 This question was raised in some submissions, though more from a
theoretical perspective than from a suggestion that the TPB is not
necessary. A useful commentary on the regimes currently in existence
in numerous other countries11 has been provided by the IGTO in their
report "The Future of the Tax Profession".
1.16 Having a separate statutory authority that regulates tax practitioners is
unique to Australia12. In many of the countries considered by the
IGTO, the revenue agency and/or the profession also regulate tax
practitioners. A fact worth noting later in this report when we consider
governance issues in Chapter 3.
1.17 We agree with submissions that observe that having a separate
statutory authority does not automatically mean that this is the best
model for governing the profession. However, as none of the
submissions suggested replacing the TPB, and indeed most
submissions were supportive of the role performed by the TPB to date,
there seems little to no evidence that would warrant replacing the TPB
with another authority or integrating it into the ATO.
1.18 This observation does need to be balanced by recognising
Recommendation 2.10 of the Final Report of the Financial Services
Royal Commission which recommends the establishment of a single,
central disciplinary body for financial advisers. The Government has
11
New Zealand, United Kingdom, Canada, the Netherlands, Sweden, Finland,
Estonia, Singapore, Russia, USA, South Africa, (Chapter 3 The Future of the Tax
Profession).
12
An exhaustive analysis of all countries has not been undertaken but we are
unaware of a similar statutory regime elsewhere in the world.
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announced13 that legislation will be introduced for this disciplinary
body by the end of 2020 and the body will be set up by early 2021.
Recommendation 1.1
The Review recommends the Government retain the TPB as the statutory authority
responsible for regulating tax practitioners, noting that the disciplinary model for tax
(financial) advisers may be reviewed, with effect from 2021, as part of the process of
establishing a new central disciplinary body further to Recommendation 2.10 of the
Final Report of the Financial Services Royal Commission (see also Recommendation
7.1 in Chapter 7).
The future of the tax profession
1.19 It is appropriate that some initial thoughts on this topic are made up
front as an important element of this review is setting the framework
for the future.
1.20 Keeping pace with technology has become a constant challenge for not
just Government but also business and individuals. The tax profession
is no different. Digital service providers continue to expand the range
of services available and more and more of the process of lodging tax
returns is becoming automated, particularly for the more standard or
routine type return lodged by many individuals.
1.21 As is recognised by the IGTO, the potential for technology to enable
the provision of tax-related services in the gig economy to go
undetected is another risk that must be considered.14
1.22 Changes in technology and changes in the tax law also mean that there
has been an ongoing expansion of what we refer to as "tax
intermediaries". Digital service providers are but one example. The
Review refers to others in the Discussion Paper such as conveyancers,
payroll service providers, quantity surveyors and research and
development specialists15. There will be others as new tax initiatives
are introduced. It is therefore important that any changes introduced as
part of this review are future proofed such that they can be readily
accommodated within the regulatory regime if need be.
1.22 Education standards are also changing. The Final Report of the
Financial Services Royal Commission recognises the importance of
13
Treasurer's Press Release dated 11 October 2019.
14
The IGTO's report The Future of the Tax Profession at [6.66].
15
Above n 5 at p. 38.
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having suitable education and training16. The lifting of standards in the
financial adviser profession necessitates that standards in the tax
profession are of a similar standard. This is examined in Chapter 4 of
this report.
2. OBJECT OF THE TAX AGENT
SERVICES ACT
2.1 Section 2-5 of the TASA sets out its object:
Object
The object of this Act is to ensure that tax agent services are provided
to the public in accordance with appropriate standards of professional
and ethical conduct. This is to be achieved by (among other things):
a) establishing a national Board to register tax agents, BAS agents
and tax (financial) advisers;
b) introducing a Code of Professional Conduct for registered tax
agents, BAS agents and tax (financial) advisers; and
c) providing for sanctions to discipline registered tax agents, BAS
agents and tax (financial) advisers.
2.2 The Review's Discussion Paper17 suggested that a further component
of this is that, in addition to the TASA providing consumer protection
to clients of tax practitioners it should also be ensuring that the
integrity of the tax system is upheld. Reference was made to the
1932-1934 Royal Commission on Taxation, the National Review of
Standards for the Tax Profession (Australia) 1994 and the EM to
support this suggestion.
2.3 This issue has been the subject of considerable debate at the
consultation roundtables and also in many of the submissions. The
inference was made by some that in suggesting that tax practitioners
have a role in ensuring that the integrity of the tax system is upheld
that this means that they have a role in collecting the revenue.
2.4 The Review accepts that the Discussion Paper left this issue open to
such inference. However, this was not the intent. Tax practitioners do
not have a duty to the ATO. The core object is the appropriate
16
Final Report of the Financial Services Royal Commission at pp. 170 -- 171.
17
At paragraphs 3.51 and 3.52.
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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.
2.5 The Ethics Centre has advised:
The system -- as a whole -- encompasses those who levy taxes
(the Parliament), those who collect taxes (the Australian
Taxation Office), those who pay taxes and those who mediate
the relationship between those who pay and those who
collect tax.
The Tax Practitioners Board (TPB) is responsible for regulating
the conduct of the latter group; those who mediate the
relationship between those paying and those collecting taxation.
As such, the TPB forms part of the taxation system as a whole --
standing alongside other elements of the system, like the ATO.
The taxation system is only efficient and effective if it is trusted
by all concerned to serve the public interest through means that
are lawful, fair and in accordance with the highest standards of
integrity.18
2.6 As previously noted, the Review agrees with this overview. Tax
practitioners play an integral role in the tax system and it is important
that the community has confidence that this role is being performed by
all tax practitioners for the benefit of all taxpayers, in accordance with
appropriate standards of professional and ethical conduct (as per
section 2-5 of the TASA).
2.7 The ATO has been quite outspoken in the last couple of years that one
of the contributors to the size of the tax gaps is the role of some tax
agents and that this has led to growing concerns in the community
about the integrity of the tax system. Clearly one means of addressing
this is to have appropriate sanctions in place and this is discussed
elsewhere in this report. The Review considers that this should be
supplemented by also updating the objects clause in the TASA.
2.8 An objects clause is used in legislation to underlie the purpose of the
legislation and to resolve any uncertainty or ambiguity that may
arise.19
18
See Appendix B.
19
Australian Law Reform Commission Report 108, last modified 16 August
2010, paragraph 5.90.
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2.9 Further guidance is provided by the Office of Parliamentary Counsel
who advise that:
Some objects provisions give a general understanding of the
purpose of the legislation ... Other objects provisions set out
general aims or principles that help the reader to interpret the
detailed provisions of the legislation.20
2.10 A useful summary of the policy objectives of the TASA was provided
at paragraph 6.25 of the Explanatory Memorandum (EM) that
accompanied the legislation when it was introduced in 2009. It is
convenient to replicate that paragraph here:
For tax agents and BAS agents -- to improve consistency in
registration and to regulate the provision of tax agent services
in an appropriate, but flexible, way;
For taxpayers -- to enhance the protection of consumers of tax
agent services, thereby reducing the level of uncertainty for
taxpayers and the risks associated with the self-assessment
system21; and
For the system -- to strengthen the integrity of the tax system
and the tax industry.
2.11 The Review sees merit in making the objects clause of the TASA more
contemporary. There is value in clearly expressing that the community
should have confidence in the integrity of the tax system. This is not a
controversial statement and both underlies and affirms the principle
that the tax system is only effective if it is trusted by the community.
This is particularly so in a self-assessment regime as is recognised in
the second point in paragraph 2.10 above.
2.12 Furthermore, including a specific statement that the community should
have confidence in the integrity of the tax system goes no further than
what was originally envisaged as one of the policy objectives of the
TASA as is recognised in the third point at paragraph 2.10 above.
2.13 As was also noted in the Review's Discussion Paper, the objects clause
should also be rephrased to acknowledge that the TPB and TASA are
no longer new creations and that the Government is no longer in the
20
Office of Parliamentary Counsel, Working with the Office of Parliamentary
Counsel: A Guide for Clients (3rd ed, 2008), [125].
21
The EM dealt with the alteration of the law beyond the TASA and the TASR, in
particular the "safe harbour" provisions inserted into the taxation Administration Act
1953. The safe harbour provisions serve a direct purpose of protecting
consumers/taxpayers/clients.
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process of establishing a national Board as this has now been in
operation for over nine years.
2.14 For illustrative purposes this could be achieved by words such as the
following:
Object
The object of this Act is to ensure that tax agent services are provided
to the community in accordance with appropriate standards of
professional and ethical conduct.
This is achieved by (among other things):
a) an independent Board which regulates tax agents and BAS
agents;
b) a Code of Professional Conduct for registered tax agents and
BAS agents and; and
c) sanctions to discipline registered and unregistered tax agents
and BAS agents.22
22
As stated, this wording is provided for illustrative purposive only. It should also
be noted that references to tax (financial) advisers in the current clause have been deleted
in order to align this wording with the recommendation in this report that a new model
should be developed for the regulation of TFAs. Unregistered agents have also been
included in accordance with Recommendation 6.1 of this report.
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Recommendation 2.1
The Review recommends the object clause of the Tax Agent Services Act 2009
(section 2-5) should be updated to:
Include wording to the effect that there should be community confidence in
the integrity of the tax system.
Remove reference to tax (financial) advisers, subject to the adoption of
Recommendation 7.1 in Chapter 7.
Include reference to unregistered agents.
Rephrase the wording to reflect that the TPB is a more mature organisation
that is no longer in a start-up phase.
3. INDEPENDENCE AND GOVERNANCE
3.1 A key theme of this review has been the relationship between the TPB
and the ATO. There are many aspects of this relationship that are
covered throughout this report and one of the most significant is the
extent of the independence of the TPB from the ATO.
3.2 In the early stages of this review 'The Ethics Centre' was consulted
and its views sought on independence. The Centre's advice was
reproduced in full in the Review's Discussion Paper and is again
reproduced in this report as Appendix B. In short, the Centre advised
that:
3.2.1 The taxation system is only efficient and effective if it is
trusted by all.
3.2.2 The TPB must be entirely independent and be accountable
and responsible for its own budget.
3.2.3 It should also have the formal power of appointment of its
executive and staff who should work exclusively under the
Board's direction.
3.2.4 Any staff (whether employed directly or by secondment)
should not have any residual obligation to any other
organisation.
3.2.5 The TPB should have an appropriate means of induction for
its staff such that they understand the importance of being
independent.
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3.3 The Review agrees with these underlying principles. There must be a
clear understanding of responsibilities and accountabilities between the
TPB and the ATO.
3.4 The need for the TPB to be seen as independent from the ATO was
recognised at the time the TPB was established in 2009-10, as is
reflected in paragraphs 5.28 -- 5.32 of the EM23 (see also paragraph
1.7).
3.5 The intent at the time was for the Board to operate with
decision-making independence from the ATO but would rely on the
ATO for administrative support24. It was also expected that this would
be an interim position subject to review25. It is therefore appropriate
that this review examines this issue. This is done under three main
headings:
3.5.1 Funding
3.5.2 Staffing
3.5.3 Working together
3.6 Submissions have not identified the TPB failing to act independently
nor with the ATO directly interfering in the operation of the TPB.
However, on reviewing the submissions and taking into account the
matters listed in paragraph 3.2 above, the Review has formed the view
that the governance arrangements and structural framework that
underpin the TPB are no longer fit for purpose. The lack of
independence from the ATO is considered to have impaired the TPB's
functionality in some vital areas. These are discussed below.
Funding
3.7 Regulation 11 of the TASR states (as relevant):
1) For section 60-80 of the Act:
...
c) the Commissioner is to determine the number of
persons having regard to:
i) the number of persons who would be
required to enable the Board to perform
its functions and exercise its powers under
the Act; and
23
Extract from the EM copied at Appendix D.
24
Paragraph 5.30 of the EM.
25
Ibid at paragraphs 5.33 and 6.71.
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ii) the funding that has been allocated, as
agreed between the Commissioner and the
Board, for the purpose of allowing the
Board to perform its functions and
exercise its powers under the Act.
3.8 It is the Review's understanding that until recently this has not worked
as well as originally envisaged. While budget negotiations are often a
challenge, the aim set out in the legislation of having both parties reach
agreement has not always been achieved.
3.9 In part, this is because of the size of the ATO and its myriad of
responsibilities. The ATO commenced 2018-19 with an operating
expense budget, excluding depreciation, of $3.4 billion in 2018-1926
compared to the TPB's 2018-19 operating budget of $19.7 million27.
Therefore, it is clearly evident that the TPB's responsibilities are a
very small part of the picture from the ATO's perspective.
3.10 It was intended that this disparity in negotiating strength was to be
addressed by the creation of a Special Account with the Board's annual
appropriation to be quarantined within the ATO's funding28.
3.11 This is not however how the funding has occurred. A Special Account
was never created. Monies for the TPB were never quarantined. Rather
the ATO would hold discussions with the TPB and would then
determine what was an appropriate allocation for the TPB taking into
account its many other responsibilities.
3.12 Almost every submission that addressed the issue of independence,
including those received from the TPB and the ATO, has stated that
the TPB needs to be independent of the ATO. While overall,
submissions were supportive of the way the TPB has been operating, it
is clear that there is ongoing concern regarding independence. This can
be addressed by providing for the TPB to receive its own specific
appropriation from the Government rather than as an allocated
proportion of a broader ATO budget.
3.13 Such changes could be achieved if the TPB were to become its own
separate agency. Ultimately this would require the approval of
Government as to the manner in which it is implemented.
3.14 Without going into the mechanics of how such a change would occur,
it is recommended by the Review that whatever change is made it
should be such that:
26
ATO's Annual Report 2018-19, p. 34.
27
TPB's Annual Report 2018-19, p. 60.
28
At paragraph 5.30 of the EM
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3.14.1 The TPB receives its own separate appropriation from the
Government.
3.14.2 The TPB Chair, rather than the Commissioner of Taxation,
would be responsible for signing off on key governance
documents including the annual report, annual performance
statement, corporate plan, regulator performance framework
submission and the cost recovery implementation statement.
3.14.3 From a whole of Government perspective, it is expected that
these additional responsibilities should only lead to some
minor cost increases.
3.15 The benefits of a stand-alone agency would be:
3.15.1 Increased tax practitioner and community confidence in the
regulation of tax practitioners.
3.15.2 Control of a budget with accountability against priorities and
clear responsibility to the public and Government.
3.15.3 Clear distinction that the TPB has a role to supervise/regulate
the tax profession as a stand-alone agency and to work with
professional bodies (among others) in upholding the
professional and ethical standards of tax practitioners.
3.15.4 It would assist with allowing the TPB to receive and disclose
information under the new whistleblower laws. This is
discussed below at paragraphs 3.52 -- 3.55.
3.15.5 It would provide comfort to the tax profession and the
community that the significant increase in sanction powers
now available to the TPB are being imposed in accordance
with due process. Responsibility and accountability for the
exercise of these sanction powers should clearly lie with the
TPB with no inferences able to be made that the ATO has
any influence.
3.15.6 More timely and responsive engagement with industry on
items like the dynamic Code of Professional Conduct.
3.16 This review is an ideal policy opportunity to address the tax gaps
identified by the ATO and, more specifically to strengthen the
standards of behaviour expected by the community of tax practitioners,
especially when the current standards (and consequences of breaching
them) have proven themselves inadequate.29 Making the TPB a
29
Similar comments received from Mr Neil Olesen, former Second
Commissioner, Australian Taxation Office.
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stand-alone agency is a fundamental component of improving these
standards and as a consequence assisting to reduce the tax gaps.
Recommendation 3.1
The Review recommends the TPB should become a separate agency and receive its
own specific appropriation from the Government rather than as an allocated
proportion of a broader ATO budget (which will require accompanying law changes).
This will represent a TPB that is independent from the ATO.
Staffing
3.17 In 2018-19 the TPB had 133 staff who were all ATO employees.30
While technically all of the 133 are ATO employees it should be noted
that a significant percentage31 were recruited by the TPB advertising
for positions and they did not work for the ATO prior to working for
the TPB.
3.18 Under the terms of the Public Governance Performance and
Accountability Act 2013 (PGPA Act), in particular Schedule 1 of the
PGPA Rule32, the following persons are officials of the ATO:
3.18.1 Members of the Tax Practitioners Board (including the
Chair).
3.18.2 ATO employees whose services are made available to the
TPB (including the CEO of the TPB).
3.19 This needs to change. Having Board members and the CEO as paid
officials of the ATO does not achieve an acceptable level of
independence. The Board should be accountable directly to the
Government and the CEO should be accountable to the Board.
3.20 The advertising of the role of the position of CEO, which occurred in
May 2018, illustrates the difficulties of achieving an acceptable level
of independence within the structural framework that was created. The
advertisement was published on 28 May 2018 and begins:
The ATO and Tax Practitioners Board is seeking an experienced
and successful professional to lead and oversee the operations
and resources of the Tax Practitioners Board and provide
30
As at 30 June 2019: TPB's Annual Report 2018-19, p. 16.
31
As advised by the TPB, who were unable to provide an exact figure.
32
Excerpt attached at Appendix E.
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strategic leadership and guidance to Board members and the
Board's workforce.33
3.21 There was no avoiding language to this effect as from a legal
perspective it had to be the Commissioner of Taxation (or his delegate)
who was the person responsible for making the appointment, though in
hindsight and from a perception viewpoint it might have been
preferable to have given the ATO and the Commissioner of Taxation
less prominence in the advertisement than was the case.
3.22 Adopting the suggestion in 3.13 above of making the TPB a
Commonwealth entity and also making the position of the CEO a
statutory appointment would resolve this situation and make it
abundantly clear that the CEO is accountable to the Board, and only
the Board.
3.23 Another change that should also occur is improving the secondment
arrangements currently in operation whereby ATO employees are
seconded to work for the TPB. There are clearly benefits for the TPB
in obtaining well qualified staff under this arrangement and
conversely, benefits for the staff in obtaining a broader range of
experience from working for the TPB. There are also benefits for the
ATO when the staff return to work for the ATO at the end of their
secondment, now well versed in the strategies, policies and operations
of the TPB.
3.24 However the current secondment arrangements are not sufficiently
formal to reflect an appropriate level of independence. This could be
rectified by having ATO staff who are seconded to the TPB sign a
formal Secondment Agreement that clearly sets out their rights and
obligations. Such an agreement should make it clear that these officers
are engaged by the TPB and can be released by the TPB.
3.25 Consideration could also be given to having those staff who report
directly to the CEO being employees of the TPB rather than ATO
secondees. This idea was raised in the Review's Discussion Paper34
and some submissions raised concerns as to how this would be done in
an equitable manner35. The Review recognises the unions'
submissions, which say that there are concerns for staff and that these
should be properly addressed in accordance with established
33
Public Service Gazette PS22, published 28 May 2018 by the Public Service
Commission.
34
At paragraph 3.25.
35
For instance if a TPB employee (who was not an ATO secondee) was to go on
leave and there was an opportunity for higher duties, could the TPB employee be
replaced on a short term basis by an ATO secondee?
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consultative processes before any decisions on this particular issue are
made.
3.26 The suggestion by 'The Ethics Centre' of ensuring that the TPB's
induction process for all new staff includes a component that explains
the importance of being independent is also worthwhile.
Conclusion
3.27 The Review does not think that the current arrangements can be
maintained going forward. They do not meet the standards set out by
The Ethics Centre, are not supported by either the TPB, ATO and
those submissions that commented on this point (apart from those
referred to in paragraph 3.32).
Recommendation 3.2
The Review recommends, in addition to Recommendation 3.1, the following changes
should be made to improve the level of independence the TPB has from the ATO:
The position of the CEO of the TPB should be accountable to the Board and
become a statutory appointment rather than, as at present, an ATO employee on
secondment to the TPB.
If the TPB seconds staff from the ATO, there should be formal secondment
arrangements put in place for those ATO staff on secondment to the TPB.
Working together
3.28 Section 60-80 of the TASA states:
The Board is to be assisted by APS employees whose services
are made available to the Board by the Commissioner.
3.29 Currently all TPB staff are co-located with ATO staff in ATO
premises. This creates significant savings in terms of infrastructure
costs and also encourages and facilitates a close working relationship
optimising the advantages of being able to effectively collaborate and
consult.
3.30 Both the TPB and the ATO understand the importance of working
together, engaging early to identify high risk tax practitioners,
collaborating on strategies to address egregious conduct, sharing
information and communicating in an effective and timely manner.
This is well illustrated by the attached diagram at Appendix F which
was recently developed jointly by the ATO and TPB.
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3.31 This close working relationship is guided by a Memorandum of
Understanding (MOU), to all intents and purposes a plan enabling both
parties to work together with a mutual understanding, common goals
and clear accountabilities. The MOU is not a legal agreement but it is a
formal agreement signed by the Chair of the TPB and the
Commissioner of Taxation with the expectation that the respective
staff of both organisations abide by it.
3.32 The MOU was signed in 2010 and is currently in the process of being
re-drafted.
3.33 The fact that the MOU has not been updated since 2010 is
symptomatic of an underlying, and now deeply rooted problem;
namely that the structural framework that was developed as a
transitional phase with the TPB established as part of the ATO is, in
the Review's opinion, no longer sustainable. The Review does not seek
to attribute blame for this. Indeed, the current situation has developed
not so much due to the actions of either the TPB or ATO, but more so
because of the way the TPB was established in the first place and the
lack of a timely review taking place.
3.34 Nonetheless, a contemporary MOU supplemented by a plan as to how
the TPB and ATO would work together would have assisted in
identifying areas of strategic mutual significance and how they might
be best addressed. A plan should encourage early engagement,
strengthen information sharing (discussed further below), provide clear
responsibilities and accountabilities and set agreed strategic goals. The
Review also sees merit from a transparency perspective in having this
document published on the websites of both the TPB and the ATO and
reviewing and updating it on a regular basis.
3.35 With one party to the relationship (the ATO) so much larger than the
other (the TPB), it was almost inevitable that without a clear structural
independence between the two that over time inequities would arise.
These inequities are especially noticeable when it comes to staffing
and funding.
Tax Practitioner Governance and Standards
Forum
3.36 In order to safeguard the independent role of tax practitioners in the tax
system the Review recommends the creation of a forum for tax
practitioner governance. The forum, to be called something like the
"Tax Practitioner Governance and Standards Forum", would meet to
ensure that any significant proposals affecting tax practitioners, such as
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changes to the Code of Professional Conduct, are made with
appropriate consultation.
3.37 The established Forum would initially create a Charter of Tax
Practitioner Governance, and once created oversee its implementation
and ongoing application. In addition to the Forum being comprised of
senior officers from the TPB, the ATO, and a representation of
professional organisations who are part of the Professional Standards
Councils (PSC) framework36, the Review considers that the PSC
should be an ex-officio member.
3.38 Having the PSC as an ex-officio member will help in the development
of harmonised professional standards for tax practitioners, help foster
appropriate information sharing between the TPB, ATO, professional
associations and PSC and provide valuable co-ordination into the
regulation of the tax practitioner profession.
3.39 The Review also recommends that the Forum would be co-chaired by
the TPB and a member of the Forum representing the professional
associations.
3.40 The Charter, in a similar vein to the Taxpayers' Charter37, would not
be enshrined in legislation. Rather it would be a document endorsed by
the TPB, the ATO, and a member of the Forum representing the
professional associations, that would set out the rights and obligations
of tax practitioners. The Charter would also set out the respective roles
of the TPB, the ATO, and the main professional associations and how
they should interact with each other.
3.41 Each participant's independent role would be acknowledged and
respected. Without prescribing outcomes, the memorandum of
understanding would aspire to:
3.41.1 recognise what each other's role and responsibilities are and
are not;
3.41.2 enable bodies to exchange information to assist the
appropriate entity to take the appropriate action;
3.41.3 advise the TPB on appropriate best practice professional and
ethical standards;
3.41.4 advise on what and where appropriate resources are best
allocated; and
3.41.5 conduct appraisals from time to time of wider regulatory
outcomes.
36
These are the professional associations that are also members of the NTLG.
37
Taxpayers' Charter.
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3.42 The role of this new Forum is discussed further in Chapter 5 which
discusses having a dynamic Code of Professional Conduct (Code). The
Review sees this Forum as playing an integral role in ensuring the
Code becomes dynamic.
Recommendation 3.3
The Review recommends :
The TPB and ATO should maintain and publish a plan that sets out how they
will work together, encouraging early engagement, strengthening information sharing,
providing clear responsibilities and accountabilities and setting agreed strategic goals.
The creation of a Tax Practitioner Governance and Standards Forum and
corresponding Charter of Tax Practitioner Governance.
Information sharing
With other Government bodies
3.43 The current legislative provisions require the exchange of information
between the TPB and a number of other organisations including the
ATO.38 For example, if the TPB registers or terminates the registration
of a tax practitioner, the TPB must notify the ATO, ASIC and/or the
recognised professional association. The TASA also allows the TPB to
request information from any other entity, including the ATO, as part
of the process of conducting investigations and the ATO may refer
matters to the TPB for investigation. Nonetheless, it was the view of
the Black Economy Taskforce that the regulators could communicate
better.39 Furthermore, it appears that there is no reciprocity for the
ATO, ASIC or the professional associations to share information with
the TPB.
3.44 The TPB is also required to provide information to law enforcement
agencies, and there are MOUs in place between both the TPB and
ASIC, and the TPB and the ATO. As stated above40, the MOU
between the ATO and the TPB is now quite dated having been signed
back in 2010. The creation of an updated MOU (with input from the
proposed "Tax Practitioner Governance and Standards Forum") is
38
Division 355 of Schedule 1 to the Taxation Administration Act 1953 and
Sub-division 70-E of the TASA. Attached as Appendix G is a list of the TPB's specific
information sharing obligations.
39
Black Economy Taskforce Final Report at p. 164.
40
At paragraph 3.32.
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however well underway and that plus a strategic plan as to how the
TPB and the ATO will work together should make a substantial
difference.
3.45 On its own though this will not be sufficient. Both the ATO and the
TPB have access to a vast range of information and documents that no
doubt would be of assistance to the other. The sharing of that
information may be made but is not required to be made. A similar
situation occurs as between the TPB and ASIC.
3.46 The Financial Services Royal Commission examined the issue of
information sharing between Government regulators (ASIC and
APRA) and recommended that a model be developed that required the
mandatory sharing of information rather than relying on the exercise of
discretion in determining what information should be shared41. While
recognising that the environment and issues examined by
Commissioner Hayne are different to those considered by this review,
nonetheless many of his findings about information sharing are quite
apposite.
3.47 For instance, his comments that "a new statutory scheme for the
sharing of information ... is required. The detail of the scheme will
need to be carefully worked through. But it should be founded on the
premise that joint responsibility and co-operation necessitates
substantial commonality of information."42
3.48 And later, his comments that information should be shared when it is
"information concerning entities in respect of which both regulators
have regulatory responsibilities and which is relevant to the exercise,
or possible exercise, of a power or function of the other regulator. I
suspect the most efficient way of storing that information will be in a
shared database. But consideration will need to be given to the
mechanics of the system, including how each regulator can be best
made aware that documents have been uploaded to the database."43
3.49 Such a process has of course the clear advantages of receiving
information in close to real time. It is also aligned with the
Government's Digital Technology Taskforce's aims of promoting an
integrated approach across Government on policies relating to digital
technologies that will help drive productivity and innovation while
ensuring an appropriate balance with security, safety and privacy
concerns.
41
Above n 16, pp. 461 -- 464.
42
Ibid at p. 462.
43
Ibid at p. 463.
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Recommendation 3.4
The Review recommends:
i) The law should be amended to oblige each of the TPB and ATO to:
co-operate with the other;
share information to the maximum extent practicable; and
notify the other whenever it forms the belief that a breach in respect of which
the other has enforcement responsibility may have occurred.
ii) The law should be amended to oblige each of the TPB and ASIC to:
co-operate with the other;
share information to the maximum extent practicable; and
notify the other whenever it forms the belief that a breach in respect of which
the other has enforcement responsibility may have occurred.
Information sharing with professional associations
3.50 The Discussion Paper also canvassed the exchange of information with
the professional associations. Improved sharing of intelligence and risk
assessments, consultation on education pathways and ethical standards,
earlier engagement in investigations, coordination on the imposition of
sanctions and a joint approach to the conduct of practice reviews are
all areas that can be improved; as long as the sharing of information is
done in accordance with secrecy and privacy laws.
3.51 These issues are discussed elsewhere in this report, but it is worth
noting here that the Review does see that there are many benefits in
strengthening the relationships between the TPB and the various
professional associations. The Tax Practitioners Governance and
Standards Forum that has been proposed44 should go a long way to
achieving this.
Whistleblower laws
3.52 New whistleblower laws45 came into effect on 1 July 2019. However
the TPB is not considered to be an "eligible recipient"46 for the
purposes of these laws. This means that the TPB is unable to receive
44
See paragraphs 3.36 to 3.42.
45
Treasury Laws Amendment (Enhancing Whistleblower Protections) Act 2019.
46
As defined in section 1317AAC of the Corporations Act 2001.
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information from an eligible whistleblower and/or an eligible recipient
(such as the ATO) unless consent is provided by the whistleblower.
3.53 The Review agrees with the TPB's submission that this is an
anomalous outcome. As a regulator of the tax profession with a
legislative role to protect consumers of tax services it is clear that the
TPB should be entitled to receive such information.
3.54 There are a number of facets to this issue:
3.54.1 a whistleblower should be able to provide information to the
TPB and obtain whistleblower protection;
3.54.2 the ATO, where appropriate should be able to disclose
whistleblower information to the TPB; and
3.54.3 the TPB, where appropriate should be able to disclose this
information to the ATO.
3.55 Providing the TPB with the legislative power to receive information
about individuals who are eligible whistleblowers is also consistent
with wider Government policy to combat crime and misconduct
through corporate, financial and tax law enforcement.
Recommendation 3.5
The Review recommends that the whistleblower laws be amended such that the TPB
is legislatively defined as an 'eligible recipient'. This would ensure that the TPB is
able to:
receive information from an eligible whistleblower and eligible recipient;
and
disclose information received to other eligible recipients.
Membership of the Board
3.56 Currently there are 8 part-time members, one of whom is the Chair.
3.57 Section 60-10 of the TASA requires that there must be at least 7
members of the Board, one of whom is the Chair (appointed by the
relevant Minister). There are no stipulations in either the TASA or the
TASR as to whether the Chair or the members are full-time or
part-time, nor are there any stipulations as to the experience necessary
to be a Board member. It is important to note that the Board of the
TPB is not just a traditional strategic or oversight Board, instead the
Board has the additional responsibility of being an operational board in
that it is also required to make appellable decisions that impact on a tax
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practitioner, for example, a decision to terminate a tax practitioner's
registration.
3.58 A board operates most effectively when its members have different
skills, knowledge and experience. It is good governance for a board to
regularly evaluate the mix of skills, knowledge and experience that
will best complement board effectiveness with a view to ensuring it
has a proper understanding of, and the competence to deal with, the
current and emerging issues of the public sector body it oversees.
3.59 Clearly there is benefit in a model that has "peers judging peers" and
the current Board, with a wealth of tax experience satisfies that, though
consideration could be given to broadening the experience of the
Board.
3.60 The Review's Discussion Paper suggested a number of possible
changes including mandating having a Board member as:
3.60.1 A community member.
3.60.2 An IT expert with experience introducing innovation and
change.
3.60.3 An ATO officer.
3.61 Submissions were generally supportive of the first option and opposed
to the last option. The Review agrees in both regards.
3.62 The EM highlighted that the Minister may appoint a community
representative. This is a common feature of many Government
Boards47 and provides many of the advantages outlined above about
having a broad range of skills and experience on the Board.
3.63 There were a number of submissions that also suggested that
mandating specific skills (eg IT skills, BAS experience, bookkeeping
skills) would be of benefit to the Board. The Review can see the
benefit of the Board being able to access these skills from time to time
but is not of the view that it follows that it should be mandated that
there should be some Board members with these attributes.
3.64 Section 60-85 of the TASA already enables the Board to establish
committees that consist "of such persons (whether Board members or
not) as the Board determines." The Board having the power to co-opt
persons with a range of skills as required provides the Board with
significantly more flexibility than mandating that Board membership
should require certain specified skills.
47
For instance Qld Legal Practice Committee, Dental Board of Australia,
Victorian Board of the Medical Board of Australia.
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3.65 The above point does need to be qualified however. At the moment the
ability of the Board to co-opt persons who are not Board members is
limited to decisions which are not appellable to the Administrative
Appeals Tribunal (AAT).48
3.66 The Review is of the view that this is unnecessarily restrictive and
could contribute to delays in progressing some matters. That is
understandable when it is borne in mind that there are only eight Board
members, so having to have three Board members (who are all
part-time) available at the same time may lead to some delays.
3.67 The law should be amended so that the Board has the flexibility to be
able to co-opt other persons, even if the decision is appellable to the
AAT. Noting that such decisions have the potential to impact on a
person's livelihood49 the Review recommends that such decisions
should still be made by a committee of at least 3 members and at least
2 of those members should be Board members. This is considered to
still provide adequate protection but will also provide the Board with
more flexibility in allocating and utilising its resources and should also
mean such decisions are able to be made in a timelier manner.
3.68 The third member could be an experienced person from the tax
profession, an academic, a person with expertise in a particular field of
relevance, or a TPB executive (eg the CEO) with an appropriate
delegation if that person had, in the Board's opinion, the requisite
skills and knowledge.
3.69 The TASA should also empower the Board to decide who can issue
sanctions, such as an infringement notice. This will allow the TPB to
delegate such decision making where appropriate, which facilitates a
more streamlined process.
48
Section 70-30 of the TASA
49
Similar concerns were noted in the EM at paragraph 5.45.
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Recommendation 3.6
The Review recommends that:
The Tax Agent Services Act 2009 is amended to mandate that at least one
member of the Board is a community member. Consideration will need to be given as
to how this term is defined but it should be expected they would provide community
focused input and have a high level of experience in regulating professional activities
outside of the tax profession.
Subsection 70-30(2) of the Tax Agent Services Act 2009 is amended so that
only two members of a committee, that is making appellable decisions, have to be
Board members and the third member can be a person chosen at the Board's
discretion so long as that person has the appropriate skills and knowledge.
4. REGISTRATION AND EDUCATION
Requirements for individual practitioners
Background information
4.1 For individuals seeking registration as a tax practitioner, an individual
will need to satisfy one of the entry pathways relevant to registration as
a tax agent, BAS agent or TFA, as contained in the TASR.
4.2 The different pathways reflect a combination of primary qualifications,
Board approved courses and relevant experience and are summarised
as follows:
Table 1: BAS agent entry pathways
Item 101 2. At least a Certificate IV Financial Services in bookkeeping or
accounting.
3. Board approved course in GST/BAS taxation principles.
4. 1,400 hours of relevant experience in the past four years.
Item 102 5. At least a Certificate IV Financial Services in bookkeeping or
accounting.
6. Board approved course in GST/BAS taxation principles.
7. Voting member of a recognised tax or BAS agent association.
8. 1,000 hours of relevant experience in the past four years.
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Table 2: Tax agent entry pathways
Item 201 9. Tertiary qualifications in accountancy (degree or post-graduate
award).
10. Board approved course in Australian taxation law.
11. Board approved course in commercial law.
12. 12 months of relevant experience in the past five years.
Item 202 13. Tertiary qualifications in another discipline (degree or post-graduate
award).
14. Any combination of the following may be required:
a. Board approved course in Australian taxation law.
b. Board approved course in commercial law.
c. Board approved course in basic accountancy principles.
15. 12 months of relevant experience in the past five years.
Item 203 16. Diploma or higher award in accountancy.
17. Board approved course in Australian taxation law.
18. Board approved course in commercial law.
19. Two years of relevant experience in the past five years.
Item 204 20. Tertiary qualifications in law.
21. Board approved course in Australian taxation law.
22. Board approved course in basic accountancy principles.
23. 12 months of relevant experience in the past five years.
Item 205 24. Board approved course in Australian taxation law.
25. Board approved course in commercial law.
26. Board approved course in basic accountancy principles.
27. Eight years of relevant experience in the past 10 years.
Item 206 28. Voting member of a recognised tax agent association.
29. Eight years of relevant experience in the past 10 years.
Table 3: Tax (financial) adviser entry pathways
Item 301 30. Tertiary qualifications in a relevant discipline (degree or
post-graduate award).
31. Board approved course in Australian taxation law.
32. Board approved course in commercial law.
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33. 12 months of relevant experience in the past five years.
Item 302 34. Diploma or higher award in a relevant discipline.
35. Board approved course in Australian taxation law.
36. Board approved course in commercial law.
37. 18 months of relevant experience in the past five years.
Item 303 38. Board approved course in Australian taxation law.
39. Board approved course in commercial law.
40. Three years of relevant experience in the past five years.
Item 304 41. Voting member of a recognised tax agent or tax (financial) adviser
association.
42. Six years of relevant experience in the past eight years.
Primary qualification
4.3 The primary qualifications for tax agents have been in place for a
number of decades, well before the TPB commenced in 2010. For BAS
agents, who were previously unregulated, qualification requirements
were put in place for the first time in 2010. For TFAs, these
requirements were set in 2014, when TFAs were first introduced into
the TPB regime.
4.4 Given the period of time that has elapsed since these requirements
were set and the significant changes in the financial adviser profession,
it is appropriate that the tax practitioner primary qualification
requirements are reviewed to ascertain whether they can better align
with existing government initiatives to lifting standards and ensuring
consistency across different professions. For example, new education
standards apply to new and existing financial advisers requiring an
approved bachelor degree qualification. Consideration ought to be
undertaken in relation to whether there should be a similar lifting of
educational requirements for tax and BAS agents.
4.5 The submissions provided mixed feedback on this point. There was
some support, with appropriate grandfathering arrangements in place,
to lift the tax agent primary qualification requirement to a degree
minimum level and the BAS agent primary qualification requirement
to a diploma minimum level. Minimal feedback was received in
relation to TFAs -- this is most likely a reflection of the other changes
affecting financial advisers which essentially override the TPB's
requirements. This is because those other changes are set at a higher
level than what is currently required by the TASR. A number of
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submissions proposed that there was no need for change, while others
suggested that there might be a case to lift the qualification level, after
a separate review is undertaken.
4.6 On a separate but related issue, it is important to note that the primary
qualifications are set out in the TASR and therefore the TPB has no
flexibility to accept another primary qualification that is not
prescribed, even if the qualification is otherwise relevant and
appropriate. This has been an issue for some emerging tax
intermediary groups, such as payroll service providers, who may have
qualifications that do not necessarily fit within the structure as
contained in the TASR.
Recommended solution
4.7 There are two issues that need to be considered when reviewing the
primary qualification requirements, noting that the education levels
were set for tax agents as far back as the 1980s and in 2010 for BAS
agents, it is now timely for there to be a review. The first is whether
the qualification level itself has been set at the right level and secondly,
whether the TPB should have greater flexibility to accept other
qualifications that may not fall within the traditional tax practitioner
course of study.
4.8 Any decision to lift the primary qualification level should not be taken
lightly and without careful analysis and consideration. As such, the
recommended solution to this issue is to:
4.8.1 Confirm what learning outcomes the TPB is seeking to
achieve.
4.8.2 Review the existing qualification requirements to determine
if they are fit for purpose and consistent with the learning
outcomes that the TPB is seeking.
4.8.3 Once complete, determine if the qualification levels for each
tax practitioner category are set at the right level or whether
an amendment is required, including any grandfathering
arrangements that may be appropriate.
4.8.4 Determine if there are any gaps arising in relation to course
and education providers.
4.9 Importantly, the recommended solution is not a task simply for the
TPB. Rather, the task needs to be a TPB led joint exercise with other
regulators, professional associations, education providers, the tax
profession and other key stakeholders. This combined and consultative
process will best ensure that the right outcome is achieved.
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4.10 Further, the Review is of the view that if there was to be a lifting of
education standards (with grandfathering arrangements in place), there
needs to be an assessment to ensure that the quality of tax services
provided from all tax practitioners (grandfathered or not) remains at an
appropriate level. Should there be any differences in the quality of tax
services being provided, the Board needs to be equipped with
mechanisms to ensure that those differences can be addressed and dealt
with. A number of the sanction powers proposed in Chapter 6 of this
report will assist in equipping the TPB with those mechanisms, for
example, the introduction of an enforceable undertakings regime.
4.11 On the issue of grandfathering and determining its appropriateness, it
is important to recognise that there is no underlying evidence to
suggest that the current education levels are resulting in the widespread
provision of incompetent tax services.
4.12 In relation to the issue of giving the TPB greater flexibility to accept
other qualifications that may not fall within the traditional tax
practitioner course of study, the Review is of the view that this should
be reviewed by Treasury and the TPB, with input from key
stakeholders and a determination is made as to whether an amendment
to the TASR would be appropriate. This will ensure that the
registration framework is future proofed and is able to address and
accommodate any new tax intermediary groups as they emerge.
Recommendation 4.1
The Review recommends in relation to the primary qualifications (education and
experience requirements), that:
The TPB, in collaboration and consultation with other regulators, professional
associations, education providers, the tax profession and other key stakeholders,
undertake a review to determine if the primary qualification level itself has been set at
the right level and what grandfathering arrangements would be appropriate (if
required).
The Treasury and the TPB, with input from key stakeholders, determine
whether an amendment to the Tax Agent Services Regulations 2009 is appropriate to
give the TPB greater flexibility to accept other qualifications that may not fall within
the traditional tax practitioner course of study.
Voting member entry pathway
4.13 The Review's Discussion Paper flagged that, in light of the lifting of
standards in the financial adviser profession, which now mandates that
all individual financial advisers have a baseline educational
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qualification, the appropriateness of individuals becoming registered
through their voting membership with a TPB recognised professional
association needs to be considered. For the purposes of Tables 1, 2 and
3, this refers to items 102, 206 and 304.
4.14 Further, the Review's preliminary view in the Discussion Paper stated
that the TPB should cease to accredit the professional bodies who are
seeking recognition for TPB purposes and this would then allow the
professional bodies to take on a co-regulatory function with the TPB.
4.15 A number of submissions received on this point did not support this
proposal, noting that there are many individuals who operate as
effective tax practitioners despite not having certain designated
educational qualifications.
Recommended solution
4.16 The Review appreciates the counter argument that has been raised,
however the Review maintains its earlier position and recommends
that items 102, 206 and 304 be removed on a prospective basis and
with appropriate permanent grandfathering arrangements in place. The
key reasons for removing these items are as follows:
4.16.1 The TPB has limited capacity/capability to test and assess
whether a professional association complies, both initially
and in an ongoing sense, with the requirements to become
recognised.
4.16.2 Where the association is subject to little oversight, the TPB
could be seen as a regulator and thereby carry substantial
reputational risk.
4.16.3 Better alignment with existing government approaches to lift
education standards and ensuring consistency across different
professions.
4.17 If this recommendation was to be accepted, the Review does not
envisage a dilution of the relationships between the TPB and
professional associations. In fact, the Review expects that the
relationships would be strengthened through a shared co-regulatory
focus, based on strong two-way information sharing arrangements and
the development of the Tax Practitioner Governance and Standards
Forum.
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Recommendation 4.2
The Review recommends that the TPB should no longer accredit professional
associations as a 'recognised professional association'. The consequence of this is that
the registration entry pathway based on being a voting member of a TPB recognised
professional association (items 102, 206 and 304 of Schedule 2 to the Tax Agent
Services Regulations 2009), will no longer be required. However, it is recommended
that these items are removed prospectively with appropriate permanent grandfathering
arrangements in place.
Relevant experience
4.18 In order to register as an individual tax practitioner, all individuals
must have an appropriate amount and type of relevant experience (see
Tables 1, 2 and 3 above). The amount of relevant experience varies
based on the tax practitioner registration type and what primary
qualification the individual is relying on. The amount, and what
constitutes, relevant experience is defined in the TASR. Essentially,
relevant experience can include work:
4.18.1 as a registered tax practitioner;
4.18.2 under the supervision and control of a registered tax
practitioner;
4.18.3 as a legal practitioner; and
4.18.4 of another kind.
4.19 Further, for experience to count as relevant experience it must include
substantial involvement in one or more types of tax agent services, or
substantial involvement in an area of taxation law to which one or
more of those types of tax agent services relate.
4.20 In relation to work of another kind, the TPB can accept work other
than as a registered tax practitioner, under the supervision and control
of a registered tax practitioner or as a legal practitioner. To be
accepted, the TPB requires that the work of another kind demonstrates
that experience includes substantial involvement in one or more types
of tax agent service or a particular area of taxation law.
4.21 The Review in the Discussion Paper noted that there is a need for the
relevant experience requirements to reflect the modern landscape,
recognising that there is a growing number of specialist practitioners
and a move away from traditional 'tax return work' towards tax advice
work (which is occurring in a highly digitised environment).
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4.22 The Review agrees with the TPB and many other submissions that the
concept of relevant experience is a sound model and in the best
interests of consumers, however, due to the prescriptive nature of the
relevant experience requirements (type and period) in the TASR, the
TPB currently has limited flexibility to take into account special
circumstances, such as a career breaks, maternity leave or
non-traditional tax intermediaries.
Recommended solution
4.23 To address these situations, the Review recommends that, similar to
the issue of primary qualifications, the definition and amount of
relevant experience should be reviewed by Treasury and the TPB, with
input from key stakeholders and a determination is made as to whether
an amendment to the TASR would be appropriate to give the TPB the
flexibility to accept different types and periods of experience as being
relevant. This will ensure that the registration framework is sufficiently
flexible to remain current and appropriate in the future and is able to
respond to situations on a case by case basis.
4.24 In addition to the above, one submission raised that the amount of
relevant experience for a registration as a BAS agent was inappropriate
and needed to be increased. While the Review does not express a view
as to whether it agrees with this proposition, the Review is of the view
that this aspect of BAS agent registration should be reviewed, noting
that:
4.24.1 The relevant experience requirements were set in 2010, at a
time when the focus was to transition in a new group. Now
that that transition is completed, a holistic review would be
appropriate.
4.24.2 The scope of the services BAS agents are now providing,
compared to 2010, has increased, and therefore this needs to
be considered as part of the relevant experience requirement.
4.24.3 There appears to be barriers to obtain relevant experience due
to the business models in which the BAS agent profession
operates, which are predominately made up of sole traders or
businesses that employ very few staff. These characteristics
may be an impediment for a potential BAS agent to be able
to gain the relevant experience. The solution may be to
develop a strong training program that is a substitute for
work experience (this would be similar in concept to the
College of Law programs available to students who are
completing their legal qualifications).
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Recommendation 4.3
The Review recommends:
The Tax Agent Services Regulations 2009 being amended to give the TPB
greater flexibility to accept different types and periods of experience as being relevant.
This would allow the TPB to take into account individual circumstances such as
maternity leave or other absences from the profession.
As part of (a), The Treasury and the TPB, with input from key stakeholders,
determine whether an amendment to the Tax Agent Services Regulations 2009 is
appropriate to amend the amount of relevant experience (and nature of experience)
required to be registered as a BAS agent.
Registration requirements for companies
and partnerships
4.25 The eligibility requirements for registration as a tax practitioner or
company or partnership are contained in the TASA. Generally, a
company or a partnership seeking registration, including renewal of
registration, as a tax practitioner, must satisfy the TPB that:
4.25.1 each director or individual partner is at least 18 years of age;
4.25.2 each director or individual partner is a fit and proper person;
4.25.3 the company or partnership maintains, or will be able to
maintain once registered, professional indemnity insurance
that meets the TPB's requirements;
4.25.4 the company or partnership has a sufficient number of
registered individual tax agents to provide tax agent services
and supervision on behalf of the entity;
4.25.5 the company is not under external administration;
4.25.6 the company has not been convicted of a serious offence
involving fraud or dishonesty during the previous five years;
and
4.25.7 if there is a company partner in the partnership:
4.25.7.1 each director of the company partner must be at
least 18 years of age;
4.25.7.2 each director of the company partner must be a fit
and proper person;
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4.25.7.3 the company partner must not be under external
administration; and
4.25.7.4 the company partner must not have been convicted
of a serious taxation offence or an offence
involving fraud or dishonesty during the previous
five years.
4.26 The submissions provided minimal but mixed feedback on this issue.
Some submissions indicated that the current framework is appropriate,
while another submission called for reduced complexity and greater
clarity in relation to the registration of Australian Financial Services
(AFS) licensees and corporate authorised representatives who are
registered with the TPB.
Recommended solution
4.27 In relation to the first point, the Review agrees that the current
registration criteria to register as a company or partnership are
appropriate. However, the Review considers that the criteria could be
strengthened to also include an entity's governance arrangements as an
eligibility requirement (such as having actual governance and control
structures in place). Such an inclusion, in the view of the Review,
would ensure that there is clear line of sight for the TPB, ATO and the
public as to who is accountable for the delivery of tax agent services
-- all of which support the object of the TASA.
4.28 On the second issue raised, regarding complexities for AFS licensees
and corporate authorised representatives, the Review appreciates that
there is a disconnect between the TPB regime and the regime
administered by ASIC. Under the TPB, registration is based on an
individual and entity level, whereas under the ASIC regime,
registration is focused on the entity level, namely the AFS licensee.
Chapter 7 of this report addresses the future regulation of TFAs and
this issue is more appropriately addressed as part of that section.
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Recommendation 4.4
The Review recommends that the eligibility requirements for company and
partnership tax practitioners in the Tax Agent Services Act 2009 be amended to
include a requirement that the entity has appropriate governance arrangements in
place that demonstrate who is accountable for the delivery of tax agent services.
Whether arrangements are appropriate will be a matter for the TPB to determine,
noting that the TPB will need to provide guidance on what appropriate arrangements
are, in consultation with key stakeholders, including the professional associations.
Fit and proper person test
4.29 For an individual to be eligible to register as a tax practitioner, the TPB
must be satisfied that they are a fit and proper person. For partnerships
and companies, the TPB must be satisfied that each partner or director
is a fit and proper person.
4.30 In deciding whether an individual is a fit and proper person, the TPB
must consider:
4.30.1 whether the individual is of good fame, integrity and
character;
4.30.2 whether any of the following events have occurred during the
previous five years:
4.30.2.1 the individual has been convicted of a serious
taxation offence;
4.30.2.2 the individual has been convicted of an offence
involving fraud or dishonesty;
4.30.2.3 the individual has been penalised for being a
promoter of a tax exploitation scheme;
4.30.2.4 the individual has been penalised for implementing
a scheme that has been promoted on the basis of
conformity with a product ruling in a way that is
materially different from that described in the
product ruling;
4.30.2.5 the individual has had the status of an undischarged
bankrupt; and
4.30.2.6 the individual has been sentenced to a term of
imprisonment, or served a term of imprisonment in
whole or in part.
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4.31 If a registered tax practitioner ceases to meet the fit and proper
person requirement, The TPB may decide to terminate their
registration for not meeting an ongoing registration requirement.
4.32 The Review's preliminary view in the Discussion Paper stated that
guidance could be taken from the fit and proper person requirements of
other Government agencies. The fit and proper person requirement
under the TASA could be expanded to require consideration of
conflicts of interest, disqualification from managing corporations, or
whether the individual was involved in the business of a terminated or
suspended tax practitioner.
4.33 On the issue of taking guidance from the fit and proper person
requirements of other Government agencies, the TPB usefully
articulated in the Discussion Paper that there should be modifications
made to the fit and proper test to include:
4.33.1 Incorporating the matter of conflicts of interest as part of its
consideration as to whether an individual is a fit and proper
person including a specific reference to ensuring all personal
tax obligations are up to date (for the renewal of registration
only).
4.33.2 Bolstering the management of personal income tax
obligations to include a consideration of the management of
the income tax obligations of an individual and the
individual's associated entities.
4.33.3 Whether a company or partnership has appropriate
governance arrangements in place.
4.33.4 Any other relevant matters that the Board considers
appropriate.
4.34 These modifications drew upon the current fit and proper test in the
TASA as well as the approach of other regulators, including ASIC and
APRA, who have a statutory power to set fit and proper requirements.
Appendix H provides further details of each regulator's fit and proper
requirements.
4.35 Further to this, reproducing what was in the Discussion Paper, the
ATO identified a number of potential reforms to the fit and proper
person test:
4.35.1 The TASA does not have a mechanism to treat close
associates of egregious tax practitioners as the tax
practitioner. This is to be contrasted with the tax and
corporations legislation, which provide for the actions of
close associates. The ATO has suggested that the fit and
proper person test could be amended to include consideration
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by the TPB of the actions undertaken by close associates of
the registered tax practitioner in certain circumstances, akin
to the related party provisions in the Corporations Act 2001.
4.35.2 The TASA allows serious previous criminal convictions and
imprisonment to be withheld in an application for registration
as a tax practitioner. The TASA could mandate the disclosure
of spent convictions and relevant information to be
considered for the fit and proper person test.
4.35.3 The TASA applies a 'shall register' regime, so that if a
behaviour is not listed in the TASA, the TPB has limited
discretion to reject an application for registration.
4.36 A number of submissions were received on this consultation question.
Submissions ranged from zero to full support. Some important points
made in the submissions were that if the fit and proper test was to be
expanded, it is vital that the level of a tax practitioner's involvement be
scrutinised so that mere association does not give rise to a breach of
the fit and proper test. Further, it is important that any expansion of the
fit and proper test be limited to consideration of behaviour that is
genuinely under the control of the tax practitioner. Another submission
raised concerns that not all conflicts of interest that arise impair a tax
practitioner's professionalism.
Recommended solution
4.37 Having considered all the input and feedback, the Review recommends
that the fit and proper test be extended as per the Review's preliminary
view in the Discussion Paper. However, it is important that there is a
clear and strong nexus between a tax practitioner's involvement and
the breach in question.
4.38 The Review notes that the effect of being a registered tax practitioner
is that you can practice in a limited area of law and not be in
contravention of the Legal Professional Act 2007 and hence the rules
that apply to the regulation of tax practitioners should not be less than
those that apply to lawyers.
4.39 On the issue of mandatory disclosure of spent convictions, the Review
agrees that the TASA should mandate the disclosure of spent
convictions. This approach would align with the requirements of other
regulated professions, including those that apply to lawyers. By way of
example:
4.39.1 Under the Legal Profession Uniform Admission Rules 2015,
in determining if someone is a fit and proper person, the
relevant Legal Services Board must have regard to whether
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the person has been found guilty of an offence including a
spent offence in Australia or in a foreign country. Where this
has occurred, the Board must have regard to the nature of the
offence, how long ago the offence was committed, and the
person's age when the offence was committed.
4.39.2 The Superannuation Industry (Supervision) Act 1993
specifically provides that the law on spent convictions does
not apply, and therefore spent convictions must be disclosed,
in determining the eligibility of an entity to be a trustee,
custodian or investment manager of a superannuation entity.
4.40 In addition to reviewing the fit and proper test in the Discussion Paper,
the Review suggested that there may also be scope to adjust the
five-year time period built into the fit and proper person requirement
under the TASA. The Review recommends removal of the five-year
period referred to in section 20-15 of the TASA and to either increase,
or remove entirely, the timeframe within which matters can be taken
into consideration
Recommendation 4.5
The Review recommends that
The Treasury, with input from key stakeholders (in particular the TPB) amend
the fit and proper person test in the Tax Agent Services Act 2009 to ensure greater
consistency with the requirements of other Government regulators, such as ASIC and
APRA.
The current 5-year period in the Tax Agent Services Act 2009 in which the
TPB must consider certain conduct that may contravene the fit and proper person test
should be increased or removed entirely, with guidance from other regulators.
Those applying for registration with the TPB, including renewal, must
disclose any spent convictions.
Close associates
4.41 The Review recommends changes are made to the eligibility for
registration requirements contained in section 20-5 of the TASA to
deal with the issue of close associates.
4.42 Some submissions highlighted the need to keep any definition of
associates limited and relevant to the provision of tax agent services. It
is important that any mechanism to deal with associates does not
capture the whole profession and require the 'good practitioners' to get
out.
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4.43 The review proposes that the TASA could, as part of the eligibility for
registration, require tax practitioners to declare whether they have:
4.43.1 any close associates relevant in the provision of tax agent
services; and/or
4.43.2 employees involved in the provision of tax agent services;
who, for example, have had their tax practitioner registration
terminated by the TPB or have committed a serious criminal offence.
In this regard, the list of events affecting continued registration in
section 20-15 and section 20-45 of the TASA could be used. The fit
and proper requirements are contained in these two sections of the
TASA.
4.44 In terms of legislative design, guidance could be taken from the Legal
Profession Uniform Law in Victoria and NSW, which imposes
legislative restraints on employing certain persons. Section 121
provides that a law practice must not have a 'lay associate' whom any
principal or legal practitioner associate of the law practice knows to be
a 'disqualified person' or 'a person who has been convicted of a
serious offence', unless the lay associate is approved by the relevant
authority.
4.45 As was stated above at paragraph 4.38, the Review considers that the
same standards that apply to lawyers should also apply to tax
practitioners.
4.46 In this context, a 'lay associate' is any associate who is not a legal
practitioner and includes agents, employees, and persons who share
receipts, revenue or other income arising from the law practice. A
person is considered to be a 'disqualified person' if:
4.46.1 their name has been removed from the Australian Roll of
Lawyers;
4.46.2 their practising certificate has been suspended or cancelled,
or their renewal has been refused; or
4.46.3 they are subject to an order prohibiting them from working
for, or in, a law practice, managing an incorporated legal
practice, or being a partner in a multi-disciplinary
partnership.
4.47 Additionally, the TASA should require, as part of the eligibility for
registration, tax practitioners to declare if they have engaged anyone
listed in the proposed unregistered practitioners register (see discussion
in paragraphs 6.32.2.3 and 6.40.2 of Chapter 6 on proposed TPB
sanctions). Similarly to the legal profession's treatment of lay
associates, the TPB would then be provided with the discretion to
approve the engagement.
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4.48 These amendments would enable the TPB to consider the misconduct
of close associates and how, if it all, it impacts an applicant's
eligibility for registration. Should a registered tax practitioner seek to
engage such an entity post-registration, they would then be obligated to
notify the TPB of a change of circumstances.50 Failure to do so would
then be a breach of the Code of Professional Conduct.
4.48.1 Guidance could be taken from ASIC's legislated breach
reporting requirement, which provides that AFS licencees
must notify ASIC in writing of an 'significant' breach (or
likely breach) of their obligations as soon as practicable, and
in any event within ten business days of becoming aware of
the breach or likely breach.
4.49 Once a practitioner declares their proposed engagement, the TPB may
approve of the engagement or impose certain conditions on the
engagement. Should the TPB not approve the engagement,
conditionally or otherwise, the practitioner would be unable to engage
that person.
4.50 Engaging such an entity without approval from the TPB should then
become an event affecting a practitioner's continuing registration.51
Recommendation 4.6
The Review recommends that the Tax Agent Services Act 2009 be amended to include
as part of a tax practitioner's eligibility for registration a requirement to declare:
i) a) any close associates relevant in the provision of tax agent services; and/or
b) employees involved in the provision of tax agent services;
who are affected by any of the fit and proper events in the Tax Agent Services Act
2009; and
ii) if they have engaged anyone listed in the proposed unregistered practitioners
register.
Registration period
4.51 In the Discussion Paper the TPB articulated a view that, in the interests
of tax practitioners, the TPB and Government, it would be beneficial if
the registration period (which is currently three yearly) was converted
50
See section 30-35 of the TASA.
51
Section 20-45 of the TASA.
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to an annual basis. There are a number of reasons to justify this
approach including:
4.51.1 This approach would align with most other requirements
affecting tax practitioners, including professional indemnity
insurance and association membership.
4.51.2 This annual registration would replace the current TPB
administrative 'Annual Declaration' process.
4.51.3 It would ensure that the TPB has ongoing and regular
visibility as to whether it is appropriate for a tax practitioner
to remain registered and therefore creating a level playing
field.
4.51.4 It would increase consumer confidence that those registered
meeting the ongoing registration requirements.
4.52 Mixed views in the submissions were received on this point, with a
number of submissions suggesting that the status quo should remain,
while some recognised that there are benefits of moving to an annual
basis, so long as the application fees are appropriately pro-rated and
the process itself is simplified.
4.53 This approach is in contrast to the National Review of Standards for
the Tax Profession (Australia) 1994 where a five year registration
period was recommended. At that time, a longer registration period
was appropriate, but given the advancements in technology and online
services (and the now non-lodgement of paper applications), such an
approach is arguably inappropriate.
Recommended solution
4.54 The Review recommends that the registration period be converted to
an annual period, subject to the following pre-conditions:
4.54.1 An annual renewal process would remove the need for the
TPB's annual declaration process; and
4.54.2 To make the annual renewal process work efficiently, the
TPB would need to ensure that its forms and processes are
appropriately streamlined to make it a seamless and
electronic process for the renewal process to take place. The
Review appreciates that funding may be required to achieve
this, however such funding is justified in the interests of
reducing the regulatory burden on tax practitioners when it
comes time to renew their registration.
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4.55 The application fee payable, if registration was an annual basis, instead
of three yearly, should be pro-rated.
Recommendation 4.7
The Review recommends that:
The registration period be converted to an annual period, subject to the TPB
being able to make the necessary system and IT enhancements to reduce the regulatory
burden on tax practitioners that are renewing their registration.
The annual registration fee should be pro-rated, in comparison to the current
fee payable for a three year registration period.
Tax clinics
4.56 The Discussion Paper discussed the role of tax clinics and that the
services that they offer are intended for individuals and small
businesses who do not have a tax agent. These tax clinics commenced
in late 2018 when the Government announced that they would fund a
pilot of 10 tax clinics for 12 months.
4.57 Under the TASA, tax clinics do not need to register with the TPB
because they do not provide a tax agent service for a fee or reward.
Further, through a Gazette notice, the Commissioner of Taxation has
provided an exemption to allow these tax clinics to advertise or market
the provision of tax agent services, despite not being registered with
the TPB. For those tax clinics that choose not to register after the 12
month trial period, access to the ATO's Tax Agent portal will be
unavailable which will limit the tax services these tax clinics are able
to provide to their clients.
4.58 The submissions on this issue of tax clinics raised two key issues:
4.58.1 As there is not a requirement to be registered with the TPB,
tax clinics are able to operate outside of the TASA, including
the Code of Professional Conduct.
4.58.2 The eligibility requirements to become registered should be
amended to allow universities and not-for-profit
organisations to be able to register in their own right.
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Recommended solution
4.59 At this time, the Review recommends that no further action is required
to either require tax clinics to be registered with the TPB or to amend
the eligibility requirements to allow tax clinics to be registered in their
own right. However, in light of the current trial period of 12 months,
the Review recommends that following completion of the trial and
decisions of Government to either cease or extend the program, the
issue of tax clinics and the TPB be reviewed to determine if any longer
term amendments may be required.
4.60 The Discussion Paper posed a question of whether the TPB should also
be given the power to approve schemes for the purpose of paragraph
50-10(1)(e) of the TASA. On reflection, this power should remain only
with the ATO as the entity most affected by such schemes.
Recommendation 4.8
The Review recommends that following completion of the trial and decisions of
Government to either cease or extend the program, the issue of tax clinics and the
TPB be reviewed to determine if any longer term amendments may be required.
Tax intermediaries
4.61 Section 90-5 of the TASA defines what is meant by a tax agent
service. There are similar provisions at section 90-10 and 90-15 which
define a BAS service and a tax (financial) advice service respectively.
Collectively these are referred to in this report as agent services.
4.62 All three definitions are very broad and do not draw a distinction
between entities that solely provide agent services and entities for
which agent services form a small portion of their offered services.
4.63 As observed in the Review's Discussion Paper, the breadth of these
definitions has led to many other professions other than tax agents,
BAS agents and TFAs now being treated as providers of agent
services.
4.64 This Review does not propose to create a new registration system for
intermediaries. How the Review intends to deal with particular
intermediaries, however, is discussed below.
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Digital service providers
4.65 Digital Service Providers (DSPs) are those entities who produce
software that consume, either directly or indirectly, ATO provided
Application Programming Interfaces (APIs) and web services,
typically for a commercial purpose. This market may of course
increase in size in an environment where change is almost a constant.
4.66 Within the tax industry, DSPs build products that enable tax
professionals, businesses (sole traders and companies), superannuation
funds and individuals to more easily interact with the ATO. This
interaction with government services occurs through Application
Programming Interfaces, commonly referred to as APIs by the
industry. Within the ATO APIs allow the ATO's revenue systems to
digitally interact with other DSPs including banks, accounting software
providers and other government agencies. They allow connectivity
between systems, people and things without providing direct access.
This limits the risk of compromise to the system as opposed to if
someone was allowed direct access to the system and the underpinning
data stores. The ATO uses APIs to send and receive information, to
validate activities, to facilitate transactions and to even impose
behavioural nudges on an almost real time basis.52
4.67 For instance, there are software programs sold by DSPs that will
enable a registered tax practitioner to lodge with the ATO income tax
returns, Activity Statements and many other forms required by the
ATO. These programs are compliant with the ATO's practitioner
lodgement service (PLS) and are built to meet the ATO's
requirements.
4.68 In this regard, the ATO has created a "DSP Operational Framework"
which sets out the security requirements that DSPs must meet in order
to gain access to the ATO's services. The DSP Operational Framework
is designed to protect client data and in doing so maintain the integrity
of the tax system. DSPs wanting access, which brings with it access to
ATO systems, are required to register with the ATO's Digital
Partnership Office (DPO). The DPO serves as the first point of call for
DSPs wanting to interact with the ATO and partners with software
providers to design digital solutions to improve the Australian tax
system.53
52
Commissioner of the ATO Chris Jordan at the OECD Forum on Tax
Administration Unlocking the Digital Economy -- A Guide to Implementing Application
Programming Interfaces in Government, 26 -- -28 March 2019.
53
Above n 14, p. 128.
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4.69 In recognition of the continually changing digital environment these
requirements are, by necessity, constantly being updated and renewed
by the ATO. New innovations such as "Robo-advice"54 are likely to
become more prominent. Appropriate controls are however an
important feature of such innovation.
4.70 It is important to note that the ATO only checks the messaging
between the software and the ATO systems are correct from an IT
perspective and are not performing a comprehensive review of the
software to confirm its accuracy from a tax perspective.
4.71 That said, if a program does have errors in it from a tax perspective it
is highly likely that this will be noticed by the ATO as part of their
lodgement processing and compliance activities and the DSP notified.
4.72 Businesses do not have to use a registered tax practitioner to be able to
lodge their own tax returns or activity statements. They can if they so
choose lodge the return or BAS themselves through a range of secure
services including the ATO's Business Portal or through software
provided by a DSP.
4.73 There are different types of DSPs. Some, such as software companies
produce the types of software referred to above. Typically they will
also have "Customer Service Desks" that can be accessed by the client
by phone, email or submitting an online request form. These Service
Desks can assist with software functionality, software usage or
enhancement requests. None of these services, that is either the
development of the software or assisting with the software should
require the software company to register with the TPB. This is
discussed more fully below.
4.74 On the other hand, if the Customer Service Desk also provides
assistance for tax services or tax-related advice then the software
company would need to be registered with the TPB. If it is possible to
segregate the Customer Service Desk then it should be possible that
just that component of the software company needs to be registered
with the TPB.
4.75 Another type of DSP is an entity that provides a digital service to
clients and also lodges online tax returns with the ATO on behalf of
their clients. This sort of DSP is an entity that has registered itself with
the ATO as a DSP so as to be able to design and build their own
software products either as a practice management tool and/or as a
means for their clients to interact with them directly. This type of DSP
is currently required to register with the TPB and that requirement
should remain going forward.
54
Above n 14, [2.37] to [2.40]
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4.76 An additional aspect of software services not covered above is those
software products that by virtue of a set business rules or machine
learning/automation, provide advice through the software itself to users
that could be considered 'tax advice'. At present, developers of these
products are not required to be registered with the TPB directly but it is
noted that there are generally registered agents, engaged by the DSPs,
guiding the development of these products. In addition, the users of
these products are generally registered agents and are required to meet
their obligations as a registered agent accordingly. The prevalence of
these products at the moment is unknown although we expect to see
more into the future.
Conveyancers
4.77 Conveyancers55 and/or legal practitioners are usually engaged for
transactions relating to the sale and purchases of real property.
4.78 Over recent years, amendments to taxation laws now require parties to
a contract of sale for real property to 'turn their mind' to the tax system
at the time of purchase. These changes may require conveyancers to
consider tax matters such as residency or withholding obligations.
4.79 As part of the conveyancing process, conveyancers must now deal with
the Foreign Resident Capital Gains Withholding (FRGCW), the annual
vacancy fee for foreign owners of Australian residential property, and
GST withholding on supplies of new residential premises or potential
residential land, often referred to as GST at settlement.
4.79.1 FRGCW requires vendors of property56 to consider whether
they are an Australian resident for tax purposes. The annual
vacancy fee also requires owners, whose residential
dwellings are not occupied or rented for more than six
months a year, to consider whether they are an Australian
resident for tax purposes. For GST at settlement, purchasers
of new residential premises or potential residential land are
required to withhold GST from the contract price and remit
this to the ATO.
55
It is the Review's understanding that Queensland, unlike other states, requires
all paid conveyancing work to be undertaken by a Law Firm who must comply with the
rules and regulations of the relevant legal profession. Other states allow for registered
and regulated 'stand-alone' conveyancers to undertake conveyancing work.
56
Valued at more than $750,000. When introduced the threshold was set at $2
million or more.
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4.80 Conveyancers that are not registered with the TPB cannot provide tax
advice57, and generally speaking vendors and purchasers do not require
such advice in order to proceed with the purchase.
4.81 However, while dealing with taxation obligations at the time of
purchase or settlement assists vendors and purchasers comply with
their taxation obligations, it follows that some vendors or purchasers
may seek advice from their conveyancer about how to comply with
these obligations.
4.82 It is the provision of this advice during the conveyancing process,
particularly for FRGCW, that constitutes a tax agent service.
Resultantly, conveyancers have been required to register with the
TPB.58 Contrast this with lawyers, who are excluded from registration
as they already had a specific exemption from needing to be a
registered tax practitioner.
4.83 While it is necessary to ensure that tax agent services are provided in
accordance with professional standards, it is important to consider the
context in which certain services are provided. Conveyancers provide a
conveyancing service, part of which includes administering paperwork
and collecting money and information for the ATO. Advice provided
to their clients on tax matters is, and should be, limited to this process.
4.84 It is also important in considering the future state of the profession to
ensure that professionals are not subject to unnecessary or duplicative
regulatory burden. Licenced conveyancers are fully regulated in most
states and territories. Consumers of conveyancing services who are
dissatisfied with the service they receive can have their complaint
considered by the relevant State or Territory consumer body.59
4.85 Based on the particular role of conveyancers in the tax system, and the
existing regulatory framework for consumer protections (and subject to
a required law change) the TPB should exercise their discretion to
exempt conveyancers from registration if they determine that they are
merely inserting data into a form that is then transmitted to the ATO.
Lawyers
4.86 Legal practitioners are exempted under the TPB from registration with
the TPB provided they are not prohibited from providing tax agent
services under the State or Territory law that regulates their service/s
57
And if they are registered can only provide advice in their area of expertise (as
required under the Code of Professional Conduct).
58
Conveyancing and the TASA (from TPB's website).
59
See paragraph 4.102.
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and do not provide a service that consists of preparing, or lodging, a
return or a statement in the nature of a return.
4.87 This exemption existed prior to the enactment of the TASA and
recognises that legal practitioners are able to provide advice on the
operation of the law, which includes tax laws.
4.88 Legal practitioners are, like conveyancers, a regulated industry with
consumers able to access a review body should there be a complaint
about the service the consumer has received.
4.89 The relevant review body, generally the law society in each state, is
usually statutorily obligated to investigate complaints and where
required pursue (enforce) disciplinary action (sanctions).
4.90 It is therefore considered appropriate, to avoid regulatory overlap that
they are exempted.
Payroll service providers
4.91 Depending on the service provided by these providers there may not be
a requirement to register with the TPB. Information sheet TPB(I)
31/2016 outlines the circumstances where registration is required and
is not required.
4.92 Providers performing transmission of data to the ATO using approved
enabled software are usually exempt from TPB registration
requirements as are most 'in-house services' or data entry and
processing.
4.93 However, where the provider's services are beyond incidental services
it is appropriate that the payroll service provider is registered and the
guidance, including examples, provided by the TPB is appropriate.
4.94 Keeping with the theme of other intermediaries in this section of the
paper (and see paragraph 4.99 below), it is appropriate that the current
arrangements for payroll service providers are maintained. Not all
services need to be registered with the TPB and appropriate guidance
has been provided by the TPB. There were no submissions suggesting
any changes to the current arrangements for payroll service providers.
Quantity surveyors
4.95 The EM specifically provides an example to demonstrate that quantity
surveyors are required to be registered with the TPB. Example 2.2
states that:
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Jessica is a quantity surveyor who provides reports that detail
depreciable items in a building to enable her clients to calculate
deductions for decline in the values of depreciating assets.
Jessica is providing a tax agent service as she would need to
have certain knowledge of the relevant taxation laws to
determine the depreciable nature of the assets to provide the
service and it is reasonable to expect her clients to rely on the
service to claim an entitlement under the taxation laws.
4.96 Many quantity surveyors are members of a professional association
such as the Australian Institute of Quantity Surveyors and Royal
Institute of Chartered Surveyors. However, unlike other tax
intermediaries that have regulation (like conveyancers), professional or
industry association membership does not necessarily involve statutory
requirements regarding expected behaviour with a focus on protecting
consumers and the public.
4.97 In light of this it is appropriate to require quantity surveyors, to the
extent that they are providing tax advice, should continue to be
regulated by the TPB.
Novated lease providers and salary sacrifice
providers
4.98 Unlike conveyancers whose core activity involves the sale or purchase
of property and subsequent incidental taxation implications, the core
advice provided by these providers is likely to revolve around the tax
impact from entering into a novated lease arrangement or salary
sacrifice arrangement.
4.99 For similar reasons as outlined under quantity surveyors, novated lease
providers and salary sacrifice providers (to the extent that they are
providing tax advice) should continue to be required to register with
the TPB as there is no oversight body with statutory powers to
undertake investigations and sanctions (disciplinary action) against
these providers.
Research and development specialists
4.100 Research and development (R&D) tax advisory specialists or
consultants provide a service to businesses regarding activities that
may be eligible for tax incentives. Many R&D advisors also assist in
the completion of claims. The EM specifically recognises that advising
or assisting an entity on tax concessions for expenditure incurred on
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R&D activities are tax agent services, where the service involves the
application of the taxation laws.60
4.101 Similar to those intermediaries above that have a role linked to a tax
outcome as a primary factor of their services, R&D specialists should
be registered with the TPB.
The future
4.102 The above professions should not be considered as an exhaustive list of
those occupations/professions who might, in the future, be considered
as possibly falling within the TPB's regime. Indeed, there is every
prospect that there will be occupations/professions in the future that
currently do not exist and may not even be contemplated. 30 years ago
the internet and mobile phones barely existed. Today it is difficult to
imagine a world without them.
4.103 In order to future-proof this aspect of the report, the Review
recommends establishing a basic principle that if a tax intermediary is
regulated or monitored by a Government agency (other than the TPB)
then there should be no need to also register with the TPB.
4.104 It will need to be decided what is the most effective means of doing
this. While lawyers have a legislative exemption61 the Review
proposes that a more streamlined and real-time process might be more
appropriate than making changes to the TASA each time a profession
needs to be considered for exemption.
4.105 A possible solution might be that changes can be made by way of
Legislative Instrument. This would ensure appropriate consultative
processes occur before any changes occur.
4.106 For those that are exempted from registration due to regulation by
another disciplinary body, these professions are under an obligation
imposed by the TASR to provide a statement indicating that the
provider of the advice is not a registered tax agent and that obtaining
advice from a registered tax agent is suggested. This is similar to the
(now redundant) Regulation 13(2) of the TASR.
60
See paragraph 2.31 of the EM
61
Section 50-5 of the TASA.
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Recommendation 4.9
The Review recommends that:
Only those tax intermediaries that are not regulated by any other Government
body should require registration with the TPB, despite otherwise being required to be
registered with the TPB.
The TPB should have the power, through the legislative instrument process,
to exclude certain other services from having to register with the TPB.
5. THE CODE OF PROFESSIONAL
CONDUCT
Background information
5.1 Section 30-10 of the TASA establishes the legislated Code of
Professional Conduct (Code) for all registered tax practitioners. The
Code is legislated and sets out the professional and ethical standards
that registered tax practitioners are required to comply with. It outlines
the duties that registered tax practitioners owe to their clients, the
TPB and other registered tax practitioners.
5.2 The term 'professional conduct' refers to the way in which registered
tax practitioners act while in their professional capacity. When
providing services, it is expected that registered tax practitioners will
display an appropriate, professional standard of behaviour beyond that
which is expected of someone who is not acting in a professional
capacity.
5.3 The TPB has a range of options available to it under the TASA in
making findings about the conduct of registered tax practitioners. The
options open to the TPB include:
5.3.1 imposing sanctions for breach of the Code;
5.3.2 applying for a civil penalty for breach of the civil penalty
provisions; and
5.3.3 terminating a registered tax practitioner's registration on the
basis that the registered tax practitioner is no longer a fit and
proper person to be a registered tax practitioner.
5.4 The Code consists of a list of core principles which are grouped into
five categories:
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5.4.1 Honesty and integrity
5.4.2 Independence
5.4.3 Confidentiality
5.4.4 Competence
5.4.5 Other responsibilities.
5.5 Section 30-10 of the TASA contains the Code consisting of the
following 14 items:
Honesty and integrity
1) You must act honestly and with integrity.
2) You must comply with the taxation laws in the conduct of
your personal affairs.
3) If:
a) you receive money or other property from or on
behalf of a client, and
b) you hold the money or other property on trust;
you must account to your client for the money or other
property.
Independence
4) You must act lawfully in the best interests of your client.
5) You must have in place adequate arrangements for the
management of conflicts of interest that may arise in relation
to the activities that you undertake in the capacity of a
registered tax agent or BAS agent or tax (financial) adviser.
Confidentiality
6) Unless you have a legal duty to do so, you must not disclose
any information relating to a client's affairs to a third party
without your client's permission.
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Competence
7) You must ensure that a tax agent service that you provide, or
that is provided on your behalf, is provided competently.
8) You must maintain knowledge and skills relevant to the tax
agent services that you provide.
9) You must take reasonable care in ascertaining a client's state
of affairs, to the extent that ascertaining the state of those
affairs is relevant to a statement you are making or a thing
you are doing on behalf of a client.
10) You must take reasonable care to ensure that taxation laws
are applied correctly to the circumstances in relation to which
you are providing advice to a client.
Other responsibilities
11) You must not knowingly obstruct the proper administration
of the taxation laws.
12) You must advise your client of the client's rights and
obligations under the taxation laws that are materially related
to the tax agent services you provide.
13) You must maintain professional indemnity insurance that
meets the Board's requirements.
14) You must respond to requests and directions from the Board
in a timely, responsible and reasonable manner.
5.6 In the Discussion Paper, the TPB expressed a preliminary view that the
Code should become more dynamic in nature by providing the Board
with the power to amend and update the Code, noting that the current
process would require a law change. This would allow the TPB to deal
with any emerging and/or best practice behaviours, such as those in
relation to operating in a digital environment or the use of engagement
letters.
5.7 The ATO also supported the TPB's view and also noted that the Code
should be linked to a professional association's code, such that a
breach by a tax practitioner of its professional association's code could
result in a breach of the TASA Code of Professional Conduct.
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5.8 The consultation process led to feedback being received from the
Professional Standards Councils (PSC). The PSC are independent
statutory bodies established under professional standards legislation
administering the national system of professional standards regulation.
Councils exist in each Australian state and territory. The PSC assists
professional associations in the development of self-regulation of
professional standards and enable the creation of Professional Standard
Schemes. Such Schemes, if approved by the PSC allow limits to be
placed on the civil liability of professionals who are members of an
association covered by a scheme, and ensure there will be
compensation available to consumers up to that limit. The national
professional standards regulatory system is funded from statutory fees
paid by associations.
5.9 In addition to capping professional liability the PSC will also supervise
the performance of the association in the regulation of its members. It
is a form of meta-regulation in which the self-regulating association is
held to account by the PSC, at the risk of its members losing the
benefit of the liability cap if the association fails to properly regulate
its members.
5.10 Through the submission process, many stakeholders agreed generally
on the need for the Code to be more dynamic, however, the following
concerns have been raised:
5.10.1 The Code as it is currently drafted is principles based and
already captures a broad range of behaviour and therefore
there is concern with changing the Code to be too
prescriptive.
5.10.2 Any changes to the Code should be through a law or Act
change rather than giving the Board the power through a
legislative instrument. This is particularly important given
the consequences for a breach of the Code.
Recommended solution
5.11 Acknowledging the feedback received through the submission process,
the Review maintains its preliminary view that making the Code a
more dynamic instrument, that can adjust to changes in a more
contemporary manner than is permitted when it is enshrined in the Act,
is appropriate. Currently any changes to the Code require legislative
change. This can be time consuming and is not conducive to creating a
proactive regime where changes to the environment can be promptly
adapted to by the regulator.
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5.12 To address the concerns raised about the TPB having the legislative
instrument power to amend the Code, the following should occur:
5.12.1 The Code as it currently stands is considered appropriate but
any legislative instrument power should be given to the
Minister rather than the TPB and would not allow the
Minister to amend the existing Code and its 14 items.
Instead, the legislative instrument power will only allow the
Minister to supplement, and not modify, the existing
legislated Code.
5.12.2 It is critical that in developing any possible changes to the
Code that the TPB collaborates and consults with other
regulators, professional associations, tax practitioners
(including those that are members of an occupational
association that is regulated by the PSC) and other key
stakeholders, undertake a review to determine what other
Code items might be useful inclusions.
5.12.3 The legislative instrument process itself provides a number of
important safeguards, which include a consultation process
with the profession and appropriate controls through
Parliamentary oversight. In particular, section 17 of the
Legislative Instruments Act 2003 provides that:
17. Rule-makers should consult before making legislative
instruments
1) Before a legislative instrument is made, the
rule-maker must be satisfied that there has been
undertaken any consultation that is:
a) considered by the rule-maker to be
appropriate; and
b) reasonably practicable to undertake.
2) In determining whether any consultation that was
undertaken is appropriate, the rule-maker may have
regard to any relevant matter, including the extent
to which the consultation:
a) drew on the knowledge of persons having
expertise in fields relevant to the proposed
instrument; and
b) ensured that persons likely to be affected
by the proposed instrument had an
adequate opportunity to comment on its
proposed content.
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3) Without limiting, by implication, the form that
consultation referred to in subsection (1) might
take, such consultation could involve notification,
either directly or by advertisement, of bodies that,
or of organisations representative of persons who,
are likely to be affected by the proposed instrument.
Such notification could invite submissions to be
made by a specified date or might invite
participation in public hearings to be held
concerning the proposed instrument.
Note: Under subsection 15J(2), an explanatory statement relating to a
legislative instrument must include a description of
consultation undertaken or, if there was no consultation, an
explanation for its absence.
5.13 The Review in the Discussion Paper provided a number of examples of
how the legislative instrument making power could be utilised to
address emerging or existing behaviours and practices that may not
have been contemplated when the Code was developed in 2009. Those
examples included:
5.13.1 matters relating to those digital service providers who lodge
tax returns online and have received a code from the ATO
allowing them access to the ATO portal;
5.13.2 providing legal services, such as the drafting of legal
documents or matters relating to the maintenance of legal
professional privilege;
5.13.3 the appropriateness of using a contingency fee or guaranteed
refund arrangements;
5.13.4 ensuring that companies and partnerships have appropriate
corporate governance arrangements on place;
5.13.5 maintenance of trust accounts for client monies;
5.13.6 cybersecurity requirements; and
5.13.7 mandating letters of engagement.
5.14 Having reflected on those examples, the Review appreciates that some
of those matters may already be addressed under the existing Code or
through another mechanism. However, the Review recommends,
through collaboration and consultation with the relevant stakeholders,
the TPB will scope out behaviours and practices that could be
considered as possible items to be addressed under a dynamic Code.
5.15 There is also scope to standardise the various codes rather than having
tax practitioners having to ensure they abide by both the TPB's Code
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and, if they belong to an association, the association's code as well.62
The Review suggests that the PSC could play a role in this process.
5.16 The Board should liaise with the PSC to see if there is potential to
recognise the PSC's supervision of professional bodies with an
approved scheme. This could include reliance on the PSC's
supervision of the professional bodies' risk management and
self-regulation of their members in monitoring and enforcing insurance
standards, entry standards and qualifications, continuing professional
development, and occupational risk management. This would have the
added benefit of freeing up resources of the TPB to then focus on
compliance and disciplinary processes.
5.17 As discussed in Chapter 3, the Review has recommended the creation
of a Tax Practitioner Governance and Standards Forum. This Forum
would be the ideal vehicle to facilitate any changes to the Code and
ensure they are only introduced after a comprehensive consultative
process has occurred.
Recommendation 5.1
The Review recommends that the relevant Minister be given a legislative instrument
power to be able to supplement the Code of Professional Conduct to address emerging
or existing behaviours and practices. The legislative instrument process would also
ensure appropriate consultation with key stakeholders and parliamentary oversight.
Legal professional privilege
5.18 Legal Professional Privilege (LPP), also referred to as client legal
privilege, is a doctrine of the common law and a matter of statute.63 It
provides that, in both civil and criminal cases, confidential
communications between a lawyer and her or his client, which have
been made for the dominant purpose of seeking or being furnished
with legal advice or for the dominant purpose of preparing for actual or
contemplated litigation, need not be disclosed in evidence or otherwise
revealed. The ATO's formal information gathering powers are subject
to LPP. LPP applies only to some communications with lawyers acting
in the capacity as a lawyer. LPP does not apply to tax advice provided
62
TFAs have the additional complexity of also abiding by FASEA's Code of
Ethics.
63
In the form of the uniform Evidence Acts.
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by a tax practitioner acting as such.64 The privilege belongs to the
client. In practice, the claim will often be made by someone else on
behalf of the client. Unless that someone else is a tax practitioner, the
regulatory environment under which such claims are made is beyond
the scope of this review.
5.19 The ATO has expressed concerns that non-genuine LPP claims are
being made by some tax practitioners to frustrate investigations65 and
claims not being particularised in a timely manner. The ATO has
advised that it is seeing an increasing number of cases involving
blanket LPP claims. In two current cases, 13,000 and 19,000
documents are being respectively withheld. It is both the delay in
identifying, and unwillingness to identify, which documents are
subject to LPP that concerns the ATO. This is not a matter of
abrogating LPP in ATO investigations.
5.20 The Law Council of Australia and the ATO are developing a protocol
in relation to LPP claims. The protocol will provide a set of guidelines
for managing claims to LPP in response to information requests from
the Commissioner, including what information should be provided to
the ATO concerning the claim and context in which it has been made.
5.21 The Discussion Paper discussed as examples of what a dynamic Code
might contain, whether the Code might address some concerns with
LPP claims -- ensuring that maintaining a claim for privilege is within
the professional expertise of a particular practitioner, or providing a
requirement that claims should be particularised in a timely manner.
Submissions
5.22 Submissions in relation to LPP had two main themes. First, it was
argued that the Code should remain principle-based rather than, for
example, dealing with LPP issues at the level raised in the Discussion
Paper. This was said to be prescriptive, and inconsistent with the idea
of a dynamic code. Second, the submissions argued that the complex
area of LPP ought not to be addressed as part of this Review, but
separately. It was put that the protocol is the best way of addressing the
issues raised in relation to LPP.
64
Unless the communication is privileged as per paragraph 6.17 in the Discussion
Paper. There is also an administrative concession afforded by the Commissioner of
Taxation in appropriate cases to advice provided by appropriately qualified accountants.
This is commonly known as the 'Accountant's Concession'.
65
The ATO has emphasised that it sees LPP as an important part of the legal
system and it completely respects taxpayers making the LPP claims they are entitled to.
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5.23 A further submission was that it would be valuable for the TPB to
educate tax practitioners on their obligations to preserve a client's right
to claim LPP.
Discussion of submissions
5.24 The suggestion that the TPB has an opportunity to educate tax
practitioners of their obligations to preserve a client's right to claim
LPP is well made. There is also merit in the proposition that the Code
is better kept principle-based and that if it is too prescriptive, it will be
less effective.
5.25 Nevertheless the Code, in requiring competence, may already address
the issue of a tax agent purporting to provide legal advice where it is
not qualified to do so. An example of this could be in a particular
situation where continuing to maintain a claim of legal professional
privilege would be the provision of legal services. A dynamic Code
could deal with presenting issues which are sufficiently important to be
addressed and which are found not to be already addressed.
5.26 It is also submitted that the protocol will in itself address the LPP
issues raised by the ATO. The protocol is clearly an important part of
dealing with these issues. However, the Review has concluded that a
provision like that in section 70 of the Australian Securities and
Investments Commission Act 200166 would also assist in ensuring that
LPP claims can be made, and disputes in relation to such claims can be
resolved, in a timely manner. Such provisions, while maintaining
existing substantive LPP rights, provide a means of ensuring that
disputes can be brought before a Court in an appropriate timeframe.
Summary
5.27 There are probably various means of addressing the issues identified.
For instance, the Code could be modified or the definition of tax agent
services in the TASA could be amended. However, the Review has
formed the view that the enactment of new provisions in the Taxation
Administration Act 1953 is a better solution.
66
Reproduced at Appendix I.
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Recommendation 5.2
The Review recommends that a provision concerning legal professional privilege
(LPP) such as that in section 70 of the Australian Securities and Investments
Commission Act 2001 be enacted in the Taxation Administration Act 1953.
Further, a similar protocol to that being developed between the Law Council of
Australia and the ATO in relation to LPP claims should be developed for tax
practitioners generally. This item should be something for the proposed forum (at
Recommendation 3.3) to consider.
6. SANCTIONS AND SAFE HARBOURS
Introduction
6.1 As the regulator with responsibility for the tax profession, one of the
key roles of the TPB is to focus on those registered and unregistered
tax practitioners that are not meeting appropriate standards of
professional and ethical conduct.
6.2 The TPB recognises that many practitioners do the right thing and
provide excellent service to their clients.67 The Black Economy
Taskforce in its Final Report similarly found that most tax practitioners
work hard to provide good and correct advice and adhere to the Code
of Professional Conduct.68 This Review has observed similar feedback
as part of its consultation processes. However, it is vital that in
protecting and supporting those practitioners who act with integrity,
high-risk behaviour is addressed.
6.3 The actions of egregious tax practitioners reflect poorly on the tax
profession. As was identified in the Discussion Paper, the actions of
egregious practitioners can influence the behaviours within the
profession. Rather than retaining clients by providing high quality tax
agent services, honest practitioners must instead compete with
egregious practitioners that are offering their clients inflated refunds.69
67
TPB Corporate Plan 2019-20, p. 4.
68
Above n 39, pp. 151, 163.
69
Ibid, see discussion at p. 163.
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6.4 Egregious tax practitioners also enable, and in some instances
instigate, black economy participation by their clients.70 For instance,
the Black Economy Taskforce observed that some practitioners
perpetuate tax fraud and money laundering.71 Further, the ATO's small
business income tax gap analysis identified that the majority of black
economy activity in that market segment is associated with deliberate
under-reporting of business income and over-claiming of business
deductions.72
6.5 These deliberate and illegal behaviours are unfair to both honest tax
practitioners and honest consumers of tax practitioner services, and
undermine the integrity of the broader tax and superannuation system.
6.6 Submissions and feedback received as part of this Review have
identified that more needs to be done to address these behaviours and
that the TPB needs to be appropriately funded and equipped to
effectively monitor and discipline the profession. This reflects the
findings of the Black Economy Taskforce in its Final Report, which
said that there is not enough action taken to address egregious tax
practitioner behaviour.73
6.7 As was noted in one of the submissions, "a better dynamic, and fairer
outcomes, would ensue from both taxpayers and their agents being
held to account against the standards expected under a self-assessment
system in cases where a failure to meet the standards has been
identified by the Commissioner as having led to an underpayment of
tax. That is, both taxpayers and their agents should be expected to
exercise reasonable care and to not behave recklessly or with
intentional disregard.
Importantly, if both agent and taxpayer fail the standards in any given
case, there should be consequences for both. I understand this is the
principle adopted in the Canadian system. The idea that any penalty
should be solely on one or the other seems flawed, given that the
object is to promote behaviour consistent with the relevant standards
by both parties. "74
70
Ibid, p. 165.
71
Ibid.
72
https://www.ato.gov.au/General/Tax-and-small-business/In-detail/Small-busine
ss-income-tax-gap/
?page=4#Trendsandlatestfindings2 (accessed on 24 September 2019).
73
Above n 39, p. 164.
74
Comments received from Mr Neil Olesen, former Second Commissioner,
Australian Taxation Office.
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
This concept is discussed in more detail below in the "Safe harbours"
section at paragraphs 6.16 to 6.19.
The income tax gap
6.8 To appreciate the importance of a well-regulated tax profession, it is
useful to appreciate the scale of tax agent services provided to
Australian taxpayers. Around 17 million taxpayers (across all entity
types) in the Australian tax and superannuation system use a tax agent
to prepare their return.75 Taxpayers engage tax practitioners to seek
assurance that they are compliant with their tax obligations.76
6.9 Analysis undertaken by the ATO on the income tax gap demonstrates
the significant reliance on tax practitioners; in particular, tax agents.
Around 70 per cent of individuals and over 90 per cent of small
businesses use a tax agent to help them prepare their return.77 Of the
approximate 44,500 registered tax agents, there are 25,000 active,
registered tax agents that operate in the Australian tax system.78
6.10 These figures highlight the level of influence and responsibility placed
on tax agents and practitioners more broadly. Professional and ethical
advice on clients' tax obligations is a necessary feature of a
self-assessment tax system.
6.11 However, as was detailed in the Discussion Paper, the ATO's estimate
of the net income tax gap for individuals not in business in the 2014-15
financial year is $8.7 billion. Results from this analysis indicate that
the error rate for agent-prepared returns is 78 per cent, which is
considerably higher than self-preparer returns at 57 per cent.79
6.11.1 Some stakeholders in the tax profession have challenged the
figures from the income tax gap analysis, on account of the
small sample size. However, even if the income tax gap was
halved, the amount is still significant. The Review notes that
the ATO continues to monitor the income tax gap and is
undertaking work to further develop its analysis and identify
trends.
75
Data received from the ATO.
76
Above n 39, p. 166.
77
Above n 74.
78
Ibid; an active tax agent is one that the ATO identifies as having at least one
client.
79
Individuals not in business income tax gap (ATO website) (accessed 31
October 2019).
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6.11.2 This can be contrasted with the comments from Mr Neil
Olesen that:
"The ATO has positioned the tax gap data and research as
an opportunity for the ATO, tax practitioners and the
broader community to work collaboratively to improve the
performance of this vital component of Australia's revenue
collection system. One important element of that opportunity
is presented by this Review, which is one of the first
opportunities to provide a policy response to the insights
provided by the tax gap data. In this sense the Review is well
timed.
The case for grasping the policy opportunity is strengthened
further when the tax gap for small business taxpayers is also
considered. Earlier this year the Commissioner indicated
that the net tax gap for small businesses (turnover less than
$10m) was in the order of $10b,80 a net tax gap of between
10 per cent and 15 per cent of the theoretical tax payable by
this market. This is a much larger net tax gap than in other
markets. Rates of tax agent usage by small businesses are
well over 90 per cent, much greater than for
individuals-not-in-business. It would again be valuable for
the Review to gain access to the ATO's insights on the
behavioural drivers behind the small business tax gap, and to
make these transparent."81
6.12 Further, the ATO now has estimated that for the 2015-16 financial
year, the net income tax gap for the small business population is $11.1
billion.82
6.13 Considering the significant role tax practitioners and advisors play in
the preparation of their clients' returns, it is necessary to understand
the behaviours that are driving this gap, and to what extent these
behaviours are driven by egregious tax practitioners.
6.14 With respect to small businesses, the ATO observed a range of
behaviours that contributed to the income tax gap, including poor
record keeping and lack of reconciliation processes, carelessness, and
80
Since the Discussion paper was published the ATO have now released details of
the small business tax gap which is $11.1 billion for 2015-16.
81
Comments received from Mr Neil Olesen, former Second Commissioner,
Australian Taxation Office.
82
https://www.ato.gov.au/General/Tax-and-small-business/In-detail/Small-busine
ss-income-tax-gap/
?page=4#Trendsandlatestfindings2 (accessed 24 September 2019).
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business owners appearing to deliberately avoid paying the right tax
(that is, exhibiting black economy behaviour). For individuals, the
observed behaviours included incorrect claiming of deductions for
work-related expenses and rental property expenses, and careless
administration or careless preparation of the return.
6.15 Overall, the majority of behaviour was attributable to a failure to take
reasonable care, while larger adjustments83 tended to be associated
with behaviour that was reckless or demonstrated an intentional
disregard of the tax law.
6.15.1 It is estimated that 64 per cent of the gross income tax gap
for small business is attributable to black economy activity.84
Therefore while the incidence of adjustments is less where
the behaviour is more culpable, there is a disproportionate
impact on the tax gap and ultimately tax revenue.
Safe harbours
6.16 Prior to the introduction of the TASA, section 251M of the Income Tax
Assessment Act 1936 allowed clients of tax agents to recover a penalty,
charge or interest they incurred because of the negligence of the tax
agent. This section was repealed upon the introduction of the TASA,
with clients left to sue their agent for negligence under the common
law or consumer law.
6.17 To address misconduct of the tax agent, the TASA introduced a civil
penalty regime. The civil penalty provision applies where a statement
is made by a tax agent to the Commissioner (or the statement is
prepared by a tax agent and is likely to be made to the Commissioner)
and the tax agent knew the statement was false or misleading or was
reckless as to whether the statement was false, incorrect or misleading
(section 50-20 of the TASA). The TPB is required to apply to the
Federal Court for the imposition of the civil penalty.
6.18 As part of the Tax Agent Services (Transitional Provisions and
Consequential Amendments) Act 2009, a safe harbour was introduced
to protect taxpayers who use a tax or BAS agent. As identified in the
Discussion Paper, the safe harbour protection sought to protect
consumers of tax agent or BAS services and reduce some of the
uncertainty in the self-assessment regime, while maintaining the
integrity of the tax system. However, the safe harbour protection does
not apply where the penalty arises from recklessness or intentional
83
An adjustment is the difference between the tax position in the respective return
and what the ATO determines to be the correct tax position.
84
Above n 81.
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disregard of the tax law by the agent. The safe harbour also does not
shield the taxpayer from the tax shortfall that arises as a result of agent
behaviour that has been assessed as reckless or intentional.
6.19 The current safe harbour regime is insufficient to protect innocent and
vulnerable taxpayers who incur a tax shortfall as a result of the
culpable conduct of these egregious intermediaries. While taxpayers
must maintain a level of individual responsibility in the preparation of
their returns, often they place a large degree of reliance on their agent.
Holistic approach to treating tax intermediary
behaviour
6.20 The TPB and the ATO are both invested in achieving appropriate
outcomes in cases of tax practitioner misconduct. The Review
considers that a clear delineation of responsibilities between the TPB
and ATO would assist in ensuring this misconduct is treated with the
appropriate response.
6.21 The TPB and ATO must employ their best efforts to main their plan
that details how each will work together in the future to address poor
behaviour (see Recommendation 3.3). It is vital that as part of this plan
that the TPB and ATO have an efficient and effective information
sharing system that allows them to address risks to both the integrity of
the tax profession and the tax system.
6.22 The TPB and ATO have demonstrated during the course of this review
that they are committed to working together and with other partner
agencies such as ASIC, AFP and the CDPP, to ensure the compliance
of tax practitioners with relevant law and policy.
6.23 As a starting point, the TPB is adopting the ATO's Practitioner
Engagement Model (the "teardrop") to understand the various
behaviours, priorities and risks associated with particular advisers.
This will involve data analysis and monitoring of the entire tax
practitioner population. It also involves a joint compliance focus on the
highest risk practitioners. This joint compliance focus incorporates:
6.23.1 sharing of intelligence;
6.23.2 understanding the risks associated with the practitioner, and
their underlying causes;
6.23.3 designing treatment strategies to address these risks and their
causes with specific goals. Sometimes the treatment strategy
is from one organisation or another, but most commonly
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
these treatment strategies are joined up or "whole of
government" approaches;
6.23.4 treatment strategy will be monitored and governed jointly by
the ATO and TPB, to ensure they are on track, with
appropriate capacity and capability, or to make any required
adjustments; and
6.23.5 joint measurement and evaluation to identify whether goals
have been attained, efficiently and effectively, to identify
innovations (including law or policy reform) and improve
processes into the future.
6.24 As a starting point for the Forum (recommended at Recommendation
3.3), the responsibilities for both the TPB and ATO in addressing
different types of tax practitioner behaviours should be determined.
6.25 At this stage, the TPB and ATO are conducting intelligence sharing
and case workshops to deliver joint treatment strategies for 2,000 high
risk practitioners.
6.26 Considering their roles are distinct, misconduct may warrant action by
both the TPB and ATO. This occurs in the current system: for
example, the ATO may amend a taxpayer's assessment, which results
in an administrative penalty for the shortfall. If the safe harbour is
unavailable, the taxpayer may then sue their tax agent with respect to
the penalty, while simultaneously the TPB could bring an action
against the agent for a civil penalty, a breach of the Code of
Professional Conduct and/or not being fit and proper.
6.27 This Review proposes to re-focus the approach currently taken to
address tax practitioner behaviour, so that the TPB and ATO are
treating behaviours affecting them in the most streamlined and
effective manner. The first step in doing so is to consider the types of
behaviours present in the profession.
6.28 As mentioned above, the majority of tax agent errors were attributable
to carelessness or a lack of care in understanding the tax law. For the
majority of tax agents and tax practitioners more broadly, there is no
need for anything more than continuing and improved education to
maintain professional standards, and where appropriate, a more
nuanced and agile administrative sanctions regime that allows the TPB
to appropriately manage professional standards of the tax profession.
6.29 However, tax practitioners who are clearly operating outside of the law
also pose a threat to the tax and superannuation system. It is for the
TPB and ATO to then work together to ensure that this behaviour is
appropriately addressed.
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Enhanced administrative sanctions for the TPB
6.30 Initial submissions received in response to the terms of reference for
this review highlight the need for the TPB to be equipped with an agile
sanctions regime to respond to emerging issues in the tax profession.
The Review observed a gap, where the TPB has been left little choice
between applying low-level sanctions (such as written cautions and
further education), and high-level sanctions including the suspension
or termination of registration and civil penalties.
6.31 The Discussion Paper identified seven possible additional sanction
tools to be made available to the TPB. These sanction tools sought to
promote integrity, deter egregious behaviour and to provide the TPB
with greater flexibility when finding a breach.
6.32 Consultation and submissions evidenced broad support for the TPB
having increased powers to address tax practitioner misconduct. The
proposed sanctions, which are further detailed below, each have their
role to play to cover the broad range of misconduct the TPB must
address.
6.32.1 A number of the proposed sanctions sought to address tax
practitioner misconduct by heading off certain behaviours
before they escalate or repeat.
6.32.1.1 The proposed infringement notice for certain
breaches of the Code of Professional Conduct and
for unregistered practice operates both as
deterrence for misconduct and to encourage future
compliance. Allowing a practitioner to pay the
infringement notice without the sanction being
published on the register serves as an incentive for
the practitioner to alter their behaviour. The TASA
should empower the Board to decide who within
the TPB can issue an infringement notice. This will
allow the TPB to delegate such decision making
where appropriate, which facilitates a more
streamlined process.
6.32.1.2 Enforceable undertakings can be used either as an
effective alternative to, or to supplement, civil
penalties or more severe administrative sanctions as
a mechanism to change future behaviour. They
provide assurance to the TPB while allowing tax
practitioners to continue operating their practice in
accordance with professional and ethical standards.
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
To be effective, enforceable undertakings need to
be published on the TPB register.
6.32.1.3 Quality assurance audits would allow the TPB to
deal with misconduct arising from internal control
weaknesses, with a view to addressing the core of a
firm's compliance issues.
6.32.2 Certain sanctions operate to further protect the community.
This not only includes the client or clients of a particular tax
practitioner, but the broader community as well.
6.32.2.1 Interim suspensions would be a useful discretionary
tool for the TPB to address the risk of immediate
harm to the public. Submissions highlighted the
implications an interim suspension would have on a
practitioner's ability to continue their practice.
Clear and transparent guidance should be published
by the TPB detailing in what instances they would
exercise this discretion. Further, it is intended that
the broader range of sanctions will operate to
address lower-risk activity earlier.
6.32.2.2 Permanent disbarment of practitioners from the tax
profession would alleviate two current issues.
Firstly, it would enable the TPB to prevent the most
egregious tax practitioners from re-registering, as
currently the TPB can only prohibit a de-registered
practitioner from re-applying to become registered
for up to five years. Secondly, it would prevent
potential employers from employing, paid or
otherwise, these most egregious practitioners. Both
of these outcomes serve to protect consumers, who
would not otherwise be aware of previous serious
misconduct.
6.32.2.3 Providing a register of identified unregistered
practitioners would provide transparency to
consumers of tax agent services.
6.32.3 The external intervention sanction is aimed at not only
protecting consumers of tax agent services, but also assisting
practitioners and firms that are experiencing significant
issues affecting their practice. As mentioned in the
Discussion Paper, this option would also allow some value to
be recovered for the practice in an orderly run off of clients
through a managed winding up.
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6.32.3.1 External interventions are currently a feature of the
legal profession. For example, the Law Institute of
Victoria, Law Society of New South Wales and
Queensland Law Society are empowered under the
relevant State legal profession legislation to appoint
an external receiver to a law practice for the
purpose of protecting the interests of the general
public.85
6.32.3.2 External interveners can be appointed as
supervisors of trust money received by a law
practice, a manager of a law practice or a receiver
of a law practice.
Recommendation 6.1
The Review recommends that the Board's sanctions powers need to be increased,
including introducing the following sanctions into the Tax Agent Services Act 2009,
which could be applied to registered and unregistered practitioners:
infringement notices
enforceable undertakings
quality assurance audits
interim suspensions
permanent disbarment
external intervention
Investigations
6.33 The Review recommends that the TPB be empowered to commence
and continue an investigation once a registered tax practitioner either
has their registration terminated, chooses not to re-register, or is
seeking to surrender their registration. The example of Agent C in the
Discussion Paper highlighted an integrity concern in the investigatory
process, where the TPB was unable to finalise its investigation
following Agent C's voluntary de-registration.
6.34 It follows that the TPB would then be able to make findings and
impose sanctions. This has positive flow-on effects: sanctions would
85
See Chapter 6 of the Legal Profession Uniform Law (VIC, NSW) and Chapter 5
of the Legal Profession Act 2007 (QLD).
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
be made available to prospective employers and clients, preserving
integrity in the system.
6.35 The Review further recommends that the limitations on the TPB
formally gathering information prior to commencing and notifying a
tax practitioner of an investigation be removed. Timely information
gathering supports efficient investigations and the information
obtained may also assist in reducing the number of instances where the
TPB needs to formally commence an investigation. There was no
opposition to these proposals.
6.36 Similarly, the six-month timeframe to conduct an investigation should
also be removed. While there was some opposition to this proposal,
having a one size fits all approach is inappropriate to deal with the
range of matters and behaviours the TPB manage. However, there
should be a clear and transparent administrative process for conducting
investigations that ensures that all are dealt with expeditiously.
6.37 The Review notes that options to:
6.37.1 remove the limitation on the TPB formally gathering
information prior to commencing and notifying a tax
practitioner of an investigation; and
6.37.2 remove the six-month timeframe to conduct an investigation
were raised in the Discussion Paper and no negative feedback was
received as regards these proposals.
Recommendation 6.2
The Review recommends that:
Investigations are able to commence and/or continue once a registered tax
practitioner either has their registration terminated, chooses not to re-register, or is
seeking to surrender their registration.
The limitation on the TPB formally gathering information prior to
commencing and notifying a tax practitioner of an investigation be removed.
The six month timeframe to conduct an investigation be removed.
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Controlling minds -- shadow and supervisory
agents
6.38 The cases provided by the ATO and detailed in the Discussion Paper86
highlight real instances of shadow or supervisory agents obfuscating
the compliance efforts of the TPB and ATO by operating outside of the
system as either an unregistered or de-registered practitioner. The
challenge faced by the TPB in addressing misconduct by such entities
is that the higher end sanctions available to them were limited to civil
penalties.
6.39 The current state provides a space for persons who are not registered
with the TPB to control the operations of a tax practice in a near risk
free environment. These 'controlling minds' are not visible to the TPB
(and therefore the ATO) through the registration process. Even if they
are identified by the TPB, there are relatively few instances where civil
penalties have been imposed on these operators.
6.40 The enhanced administrative sanctions regime partly addresses this
issue:
6.40.1 Permanent disbarment from the tax profession and the
resulting visibility to employers will remove a small number
of the most egregious, de-registered practitioners from the
profession. Currently a terminated practitioner's sanction is
only visible on the TPB's Public Register for up to 12
months and they can only be prohibited from applying for
registration for up to five years. This provides them with an
opportunity to re-enter the profession in another capacity
without a registered tax practitioner knowing, or even as a
registered tax practitioner again. Permanent disbarment
would preclude a practitioner from working in the profession
entirely -- this would include performing a specific function
in a tax services business, including being a senior manager
or controller of a tax services business; and/or performing
any function in a tax services business. Details of permanent
disbarments would remain visible on the TPB Register.
6.40.2 A register of identified unregistered practitioners would
provide further transparency to both prospective employers
and clients. Currently there is no way for the public to know
if someone has engaged in unregistered practice. Publishing
known unregistered practitioners provides transparency to
other practitioners, firms and the community, with a view to
86
At Appendix C to the Discussion paper
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limiting their prevalence. Further, as part of a practitioner's
eligibility for registration, engaging someone from this
register would require approval from the TPB. This would
allow the TPB to consider, among other things, whether the
person on this register is knowingly non-compliant with the
TASA.
6.40.3 Enforceable undertakings and even infringement notices
would then be available to the TPB to utilise in instances
where registered practitioners engage the services of these
practitioners.87 This is in addition to the TPB's current ability
to terminate registration or apply to the Federal Court for the
imposition of civil penalties.
6.41 The Review considers that the enhanced administrative sanction
regime would be more effective if the TPB were empowered to impose
certain sanctions directly on de-registered or unregistered practitioners
(see Recommendation 6.1). For instance, where the TPB has identified
that an unregistered or de-registered practitioner is inappropriately
providing tax agent services, the TPB should be empowered to issue an
infringement notice directly to that person. Alternatively, the TPB
could require an enforceable undertaking from that practitioner to
cease further practice.
6.42 The enhanced administrative sanctions seeks to mitigate the influence
of controlling minds by dissuading registered practitioners from
engaging the services of de-registered and certain unregistered
practitioners, and allowing the TPB to impose sanctions either on
non-compliant practitioners or directly on the controlling mind.
However, sanctions alone are insufficient in addressing the issue; the
TPB requires information to identify these controlling minds.
Firm governance
6.43 In order to assist the TPB in identifying unregistered and de-registered
practitioners, the Review considers that registered tax practitioners
should be required to provide details of certain engagements.
6.44 The Discussion Paper canvassed the idea of requiring firms, as part of
their registration process, to provide details of their actual governance
and control structures. Submissions received in response to the
Discussion Paper highlighted both the burden this would place on
practitioners and the limited utility of such information. Some
submissions also highlighted that the TPB could then be collecting
87
Without TPB approval in instances of unregistered practitioners.
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Independent Review of the Tax Practitioners Board - Final Report
information they never use, and this information could be
commercially sensitive.
6.45 As discussed in Chapter 4 and Recommendation 4.6, the Review
recommends that as part of the registration process, the TPB will be
provided with the discretion to consider certain associates as part of
expanded eligibility requirements for registration.
6.46 The Review here recommends a more streamlined process where as
part of a practitioner's obligation to notify the TPB of a change in
circumstances,88 a practitioner must notify the TPB when they engage
an associate that meets the proposed definition discussed at paragraphs
4.41 to 4.50 or a person on the unregistered practitioner register.
6.47 Further, requiring applicants to meet TPB-endorsed governance
standards as part of registration (see discussion at Chapter 4) would
appear to remove the need for each firm to provide such control
details.
6.48 Should the TPB discover that a registered practitioner has engaged
such an associate and not notified the TPB of a change of
circumstances, this would then be a breach of the TASA and expose
the practitioner to disciplinary action.
Public visibility of sanctions
6.49 The Review recommends that the TASA be amended to enable the
TPB to publish more detailed reasons for practitioner terminations on
the TPB Register.
6.50 It is important to ensure that the details provided on any public register
of identified unregistered practitioners clearly differentiate
unregistered practitioners from registered and de-registered
practitioners, and include a warning to consumers to avoid engaging
the services of unregistered practitioners.
6.51 Submissions highlighted the importance of ensuring that it is clear
from the Register whether a practitioner has had lower or more serious
level sanctions imposed. The seriousness of the sanction should also
inform the length of time the sanction remains published. The TPB
should be provided with the discretion to determine this, subject to
clear guidelines being created and published.
6.52 Administrative sanctions imposed with a view to encouraging a tax
practitioner to re-engage should not appear on the public TPB Register.
For instance, it may run counter to the intent of an infringement notice
88
Section 30-35 of the TASA.
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system to publish the issuance of certain notices on the Register.
However, repeated sanctions, sanctions for unregistered practice and
more serious sanctions should be made publicly available. The TPB
should be provided with the discretion as to what sanctions should be
published on the Register.
Recommendation 6.3
The Review recommends that the Tax Agent Services Regulations 2009 be amended
to enable the TPB to publish more detailed reasons for tax practitioner sanctions,
including terminations, on the TPB Register (which is publicly available). See also
Recommendation 8.1.
Administrative penalties for advisers
6.53 A number of submissions received in response to the Discussion Paper,
while supportive of addressing the conduct of egregious
intermediaries, questioned the suitability of the administrative penalty
regime as proposed. Primary concerns raised included the potential
overlap in disciplinary responsibility between the TPB and ATO,
having ATO regulate tax practitioners, the type of conduct or
behaviour the penalty would apply to, the divergence from the existing
Canadian "preparer penalty" and the existence of other powers to
address the misconduct.
6.54 The Review considers that the current system is largely ineffective in
addressing the behaviour of intermediaries, such as registered tax
agents, unregistered preparers or advisors, who knowingly made false
or misleading statements in the preparation of tax returns for taxpayers.
6.55 Further, the current tax system already empowers the Commissioner of
Taxation to decide whether a tax practitioner, as an agent of the
taxpayer, has demonstrated intentional disregard with respect to a tax
law. The tax law, however, imposes any resulting penalty only on the
taxpayer. The Review considers that there are often instances where it
is more appropriate for the penalty to be imposed on the tax
practitioner.
6.56 A number of the enhanced administrative sanctions detailed above
target a middle-range of tax practitioner misconduct; conduct
warranting more than a caution or further education, but falling short
of suspension or termination of registration, or civil penalties.
Ultimately these sanctions are recommended with a view of providing
the TPB with tools to re-engage tax practitioners and encourage
behavioural change.
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6.57 However, unlike tax practitioners who exhibit carelessness or
recklessness, there are high risk tax intermediaries who clearly operate
outside the system, and their deliberate actions pose a real and current
threat to the tax and superannuation system. These practitioners are
breaking the tax law, for which the Commissioner of Taxation has the
responsibility to administer.
6.58 The Review considers that it is the responsibility of the ATO to
therefore address the actions of tax practitioners when they knowingly
make false or misleading statements, in addition to the TPB taking
appropriate action in addressing the risk to the profession.
6.58.1 As part of an improved relationship between the TPB and
ATO, each case should be subject to joint analysis and a
specific compliance plan. The plan should detail when the
TPB and ATO will address misconduct independently and
when they will collaborate. Often cases may involve
collaboration: for instance, following the imposition of an
administrative penalty the TPB may take action to terminate
the practitioner's registration.
6.59 The ATO has developed a new engagement and assurance model that
categorises intermediaries and describes the type of experience they
will receive based on the behaviours and choices they make. At the
time of writing this report the ATO had identified around 200 highest
risk agents representing around 500,000 taxpayers.89
6.60 Considering the above, the Review recommends the Government
introduce an administrative penalty regime that targets particular
intermediaries that demonstrate intentional disregard of the tax laws.
6.60.1 Intentional disregard would be where a person intentionally
does something more than recklessly disregard or be
indifferent to tax law. Actual knowledge of making a false
statement would be required. An intermediary must
understand the effect of relevant legislation and make a
deliberate choice to ignore it. This would often involve
dishonesty to separate this sort of behaviour from lack of
reasonable care and recklessness.
6.60.2 Whether an intermediary's disregard of a relevant law is
intentional may be determined on the basis of direct evidence
of the intermediary's intention, but would more likely need to
be inferred from the surrounding circumstances and conduct
of the practitioner and the taxpayer. An intermediary would
89
According to ATO data.
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not intentionally disregard a law unless it knows its
obligations under the law and chooses to disregard them.
6.61 The recommended administrative penalty regime is intended to result
in behavioural change by deterring those tax intermediaries who
currently engage in risk taking, fraudulent and criminal behaviour.
Further, it should contribute to improving the integrity of the
self-assessment tax system that relies on intermediaries providing
advice and preparing returns for taxpayers.
6.62 The regime would be aimed at protecting the large majority of honest
agents as well as taxpayers who are trying to do the right thing. It
would hold the small percentage of intermediaries that intentionally
disregard the tax law accountable for their actions.
How the administrative penalty would work
6.63 The ATO already has the ability to determine that a person has
demonstrated intentional disregard of the tax law in making a false or
misleading statement to the Commissioner of Taxation.90 Currently,
however, the law imposes a penalty for that statement solely on the
taxpayer, regardless of the involvement of the tax intermediary. Under
the proposed administrative penalty regime, the ATO is still forming
the same view. However, the law will allow for the penalty to be
imposed on the party at fault.
6.64 For this reason, the Review considers that the ATO should administer
the regime. Further, the relevant conduct demonstrates the tax
practitioner is operating outside of the law and poses a threat to the
integrity of the tax system.
6.65 The proposed penalty would only apply in instances of intentional
disregard and would not apply to recklessness. Responsibility for tax
practitioner conduct determined to be reckless or a lower standard
would remain with the TPB.
6.66 For the purpose of this administrative penalty, 'tax practitioners'
should be defined broadly to encompass a person who makes, or
participates in in the making of a statement to the Commissioner of
Taxation, on behalf of another person. This definition is based on the
definition in the Canadian preparer penalty regime and seeks to ensure
that the penalty cannot be avoided by failing to register, or not needing
to register, with the TPB.
6.67 The administrative penalty would complement the expanded safe
harbour regime discussed below, where taxpayers who do the right
90
Division 284 of Schedule 1 to the TAA 1953.
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thing and provide all necessary information to their agent can be
shielded from liability to penalty. However, the Review considers
these powers should operate independently as there is scope for the
penalty to apply in circumstances where the taxpayer is not faultless.
For example, even if the taxpayer did not provide all the necessary
information, the actions of the tax practitioner could also be of a nature
that still warrants a penalty. Any law design would need to ensure the
penalty is appropriately apportioned between the practitioner and the
taxpayer based on the behaviours exhibited by the two parties. This
alleviates the prospect of a double penalty arising from this situation.
6.68 The Review is conscious that cases involving the potential intentional
disregard by a tax practitioner will often involve complex facts. As
such, it is important that the practitioner be afforded the opportunity to
present these facts in disputing the penalty. The Review proposes that
the administrative penalty framework would mandatorily involve an
independent body or panel to review cases before an administrative
penalty becomes due and payable. This may be an Independent Penalty
Advisory Panel consisting of external industry members and ATO
officers.
6.68.1 External members may include ex-federal court judges or key
industry representatives that are in a position to provide
impartial advice to case officers on whether a tax
intermediary's behaviour ought to warrant an administration
penalty under the new law. This will ensure that the ATO
administration is considerate of the commercial realities of
the professions and the challenges faced by practitioners in
running a competitive business.
Onus and standard of proof
6.69 The Review envisages that the ATO would have the onus of proving
the administrative penalty on review to a civil standard of proof.
Recommendation 6.4
The Review recommends that an administrative penalty regime, administered by the
ATO, be introduced to impose penalties on tax practitioners who demonstrate an
intentional disregard of the taxation laws in making, or being involved in making, a
statement to the Commissioner of Taxation.
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Interaction with safe harbour
6.70 The Review recommends expanding the safe harbour protection to
instances of recklessness and intentional disregard to further protect
taxpayers, with the trade-off of allowing it to collect penalties against
those high risk tax intermediaries that break the tax law.
6.71 An expanded safe harbour protection better complements the broader
sanctions and penalty regime proposed. It protects consumers of tax
agent services regardless of the standard of behaviour of their agents
on the basis that penalty should shift to the person who was at fault.
6.72 The Review considers that the expanded safe harbour protection
should operate in parallel to the proposed sanctions and penalty
regime. Extending safe harbour such that a penalty could only be
imposed on a tax agent would create a situation where taxpayers were
incentivised not to engage in, or take any responsibility for, the
preparation of their returns. This runs counter to the objects of the
self-assessment regime.
6.73 This approach accounts for situations where a taxpayer may not have
provided all necessary information to their agent, but the agent's
conduct remained so egregious as to still warrant a penalty.
6.74 Submissions highlighted the lack of awareness of the safe harbour
protection, and the inherent reluctance of some practitioners in
advising their clients of the protection. For this reason, the ATO should
increase its efforts in publicising the protection. Further transparency
on the safe harbour process and how the ATO makes referrals to the
TPB in instances of safe harbour would also assist in clarifying the
protection for taxpayers.
Safe harbour from failure to lodge penalties
6.75 The Review has not received substantive submissions regarding the
safe harbour protection as it applies to failure to lodge penalties.
However, the EM specifically referenced that the intended
post-implementation review place emphasis on the operation of the
'safe harbour' from penalties in certain circumstances for failing to
lodge a return, notice, statement or other document in the approved
form and on time.91
6.76 As with the safe harbour from false and misleading statements, the safe
harbour from failure to lodge penalties also does not apply where the
tax agent demonstrated recklessness or intentional disregard with
91
Paragraph 6.71 of the EM.
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respect to the taxation laws. Similarly to the safe harbour protection for
false or misleading statement penalties, one can envisage
circumstances where a tax agent's conduct in failing to lodge a
document on time would amount to recklessness or intentional
disregard. For example, the tax agent could intentionally not lodge
returns, even when they were asked to and were provided with all
relevant information from the taxpayer.
6.77 The Review considers that the same rationale for extending the safe
harbour for false or misleading statement penalties applies in
considering whether to extend the safe harbour from failure to lodge
penalties.
6.78 Where the ATO determines that a taxpayer is entitled to safe harbour
from failure to lodge penalties, the ATO should refer the tax agent's
conduct to the TPB for investigation.
Recommendation 6.5
The Review recommends the safe harbour protection as it applies both to false or
misleading statement penalties and failure to lodge penalties, be extended to cover
instances where the tax agent has demonstrated recklessness or intentional disregard
with respect to a taxation law.
Interaction with the TPB -- civil penalties and
proposed administrative sanctions
6.79 This proposal provides a more efficient and potentially more effective
means for the ATO to impose sanctions with a view to changing
behaviour of a small group of high risk tax intermediaries. An
administrative penalty allows the ATO to address misconduct in a
timely manner that aligns with the extended safe harbour relief
provided to taxpayers (discussed below). This avoids the current,
convoluted and duplicative process where a taxpayer could sue their
intermediary for negligence, and the intermediary could also face a
civil penalty action brought by the TPB.
6.80 The proposal also provides low-cost, administrative pathways to deal
with any subsequent dispute. The civil penalty regime requires an
application to the Federal Court, which places an enormous cost and
time burden on tax intermediaries as well as the TPB to dispute the
claim. Interposing an independent review of the administrative penalty
removes the court burden and avoids the situation of the intermediary
simultaneously owing a debt that accumulates interest.
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6.81 Where an administrative penalty is imposed, the legislation would
'turn off' the TPB's ability to make an application for a civil penalty
for that same conduct. This is to avoid duplication of pecuniary
penalties. However, the power would be retained to enable the TPB to
take action against tax practitioner misconduct. For example,
administrative penalties applied to a tax agent will need to be disclosed
by the ATO to the TPB. The underlying conduct, leading to this
administrative penalty, may raise a question about a practitioner's
ongoing fitness and propriety to be registered. Further, the power
would be available for the TPB to address reckless behaviour.
6.81.1 This mechanism is proposed on the basis that it is for the
ATO to address this level of misconduct. However, there
may be instances where, due to resourcing or the particular
circumstances of a case (such as timing), it may be more
appropriate for the TPB to undertake action to address the
misconduct. The TPB and ATO should have a clear plan in
place that sets out how this will be practically administered.
6.81.2 The recommended administrative penalty would be distinct
from the current promotor penalty laws,92 which are limited
to the promotion of tax exploitation schemes.93
6.82 Many of the proposed administrative sanctions to be made available to
the TPB, including infringement notices, QA audits and enforceable
undertakings, operate both separately and in conjunction with the
proposed administrative penalty. Primarily, these administrative
sanctions provide a more nuanced and agile toolkit to the TPB to
address conduct ranging from low to medium risk, with a view to
encouraging the practitioner to provide their services in accordance
with professional and ethical standards. However, the administrative
sanctions such as termination of registration or the proposed permanent
disbarment could be utilised by the TPB in conjunction with the
administrative penalty where required.
6.83 The Review acknowledges that the detailed design of such an
administrative penalty framework may pose constitutional law issues.
Should these issues impede the ability to implement the proposed
regime, consideration should be given to providing the ATO, rather
than the TPB, with the responsibility under section 50-20 of the TASA
to apply to the Federal Court for the imposition of a civil penalty for
make a false or misleading statement for the reasons described above.
92
Division 290 of Schedule 1 to the TAA.
93
The key elements of the promotor penalty laws are that an entity must not
engage in prohibited conduct, and that the entity is not a promoter of a tax exploitation
scheme.
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7. TAX SERVICES AND FINANCIAL
ADVICE
7.1 From 1 January 2016, following an 18 month transition, the TPB
required entities that gave tax advice while giving financial product
advice (as that term is defined in section 766B of the Corporations Act
2001) for a fee or reward to be registered as tax (financial) advisers
(TFAs). Since March 2015 ASIC requires all natural persons who
provide personal advice on investment products and life insurance to
retail clients (financial advisers) to be registered on the Financial
Advisers Register (FAR). Financial advisers, who are also TFAs have
to register with both ASIC and the TPB, incurring registration94 fees
payable to two different government regulators.
7.2 TFAs are not permitted to make representations on behalf of their
clients to the Commissioner of Taxation, including preparing or
lodging tax returns or a statement in the nature of a return or represent
their clients with the ATO. They also do not have access to the ATO's
portal/online services unless they hold a registered tax or BAS agent
number. While the provision of financial advice often also
encapsulates providing tax advice, the level of tax advice provided by
a TFA will inevitably differ from simple in some cases to significant or
substantial in other cases.
7.3 While all financial advisers must be listed on the FAR, the legal
obligation to register the financial adviser falls on the AFSL
(Australian Financial Services Licensee) who authorises the financial
adviser. The AFSL is also responsible for ensuring the financial
adviser is adequately trained and competent. In addition, most of the
conduct obligations in the Corporations Act fall on the AFSL, rather
than the individual financial adviser. In effect the AFSL is responsible
for those financial advisers it appoints to act under the AFSL.
(However, some specific conduct obligations in Part 7.7A of the
Corporations Act 2001 fall on the individual adviser.)
7.4 The system used by the TPB is not quite the same because registration
is an individual's responsibility which, in the case of a representative
financial adviser, does not fall to their AFSL but rather to themselves.
A tax practitioner must pay an application fee and the individual must
go through an assessment process by the TPB. The eligibility
assessment is performed by the regulator for tax practitioners whereas
the AFSL undertakes their own assessment of the financial adviser.
94
The term used by ASIC for the payment of a fee for a financial adviser to be on
the FAR is a fee for appointing.
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7.5 Another regulatory layer was added when FASEA was established in
April 2017. FASEA is responsible for setting education, training and
ethical standards for financial advisers in Australia. The TPB performs
a similar function for all tax agent services, BAS services and tax
(financial) advice services. This creates a further regulatory overlap for
TFAs, having to ensure they meet standards set by both the TPB and
FASEA. However, it is important to note that where there is overlap,
for example, in the education space, it will count towards both
FASEA's requirements and TPB's requirements.
7.6 The Australian Financial Complaints Authority (AFCA), replacing the
Financial Ombudsman Service, the Credits and Investments
Ombudsman and the Superannuation Complaints Tribunal was created
on 1 November 2018 and quickly become the main dispute resolution
scheme for financial services in Australia. It not only provides a free
complaint service, but the decisions of AFCA are binding on the AFSL
and AFCA has the power to provide a wide range of remedies
including monetary compensation where appropriate. In addition,
AFCA can also, if it wishes name banks and insurers that are the
subject of complaints.
7.7 In light of the above, while possible it is unlikely that financial advice
clients would make a complaint with the TPB instead of AFCA. As
such, is there a need to maintain this dual choice for financial advice
clients? This is further examined below.
7.8 From 1 January 2020 all financial advisers (including TFAs) are
required to comply with FASEA's Code of Ethics. The Code of Ethics
outlines the ethical obligations financial advisers have to their clients.
This Code is similar to the Code of Professional Conduct in the TASA
-- another duplication.
7.9 In the Final Report of the Financial Services Royal Commission,
Commissioner Hayne considered the key features necessary in a "new
approach to discipline"95 as being:
First, each financial adviser should be individually registered.
Second, only those who are registered should be permitted to
give financial advice.
Third, there should be a single, central disciplinary body with
the power to impose disciplinary sanctions on financial advisers
-- the most serious sanction being cancellation of registration.
95
Above n
16https://financialservices.royalcommission.gov.au/Pages/default.aspx, p. 212.
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Fourth, there should be a system of mandatory notifications,
requiring AFSL holders to report particular information about
the conduct of financial advisers to the disciplinary body.
Fifth, there should be a system of voluntary notifications,
enabling AFSL holders, industry associations and clients to
report information about the conduct of financial advisers to the
disciplinary body.96
7.10 As Commissioner Hayne points out, there is currently no requirement
for individual financial advisers to be registered with ASIC.97
Recommendation 2.10 of the Financial Services Royal Commission
Report addresses the points in [7.9] above including recommending
individual registration with ASIC and a single, central disciplinary
body.98
7.11 On 19 August 2019 the Government announced an "Implementation
Roadmap"99 setting out when the Commission's recommendations
would be recommended. The intention for Recommendation 2.10 is
that legislation creating the new disciplinary body will be introduced
by the end of 2020.
7.12 Subsequently, on 11 October 2019 a further announcement was made
by the Government that they would be accelerating the establishment
of the new disciplinary body, looking to having it established by early
2021.
7.13 The Review's Discussion Paper set out six different options that could
be adopted to help reduce the regulatory burden on TFAs, noting that
this was not an exhaustive list. What is important is that whatever
model is adopted, that it strikes an appropriate balance between
regulation for tax and financial advice and reducing the regulatory
duplication for TFAs.
7.14 The best model in the Review's opinion is one that is aligned with the
recommendations made by Commissioner Hayne and also recognises
that ASIC has the capability, expertise and capacity to effectively
regulate financial advice and the TPB has the capability, expertise and
capacity to effectively regulate the provision of tax advice.
7.15 That said, distinguishing between what is financial advice and what is
tax advice can, at times be a difficult line to draw. Inherently most
96
Ibid, p. 199 and repeated at p. 212.
97
Ibid p. 208.
98
Ibid p. 217.
99
"Restoring Trust in Australia's Financial System, Financial Services Royal
Commission Implementation Roadmap, August 2019.
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financial advice contains an element of tax advice; depending on the
nature of the advice, it can be difficult to do one without the other.
7.16 With the implementation of the Hayne recommendations already
underway it is the Review's opinion that any outcome should align not
only with the intent of the Final Report of the Financial Services Royal
Commission Recommendations but also with the timing of
implementation of these Recommendations.
Recommended solution
7.17 The Review's Discussion Paper proposed (as Option 4) the following:
ASIC and the TPB operate as co-regulators of financial advisers
and the TPB is responsible for the imposition of sanctions for
tax related matter.
TPB registration as a TFA automatically attaches to all
financial advisers, who can then 'opt out' of the TPB regime if
they do not provide tax advice.
7.18 While many of the submissions did not nominate a preferred option
(out of the six options outlined in the Discussion Paper), of those that
did Option 4 was the most popular. This is also the Review's preferred
model, subject to some modification. The Review's Discussion Paper
was released prior to the Government's announcement of an
"Implementation Roadmap". Some modification is now required to
ensure that implementation of the review's recommendations can
occur as seamlessly as possible in alignment with the "Implementation
Roadmap".
7.19 With legislation for implementation of a new, central disciplinary body
to be introduced by December 2020100, and the new body expected to
be established by early 2021, the review suggests that the status quo
remain until then but that the following changes occur at the same time
as the disciplinary body is created.
7.20 The TPB and ASIC, in consultation with Treasury need to develop a
registration system that allows a financial adviser to only have to
register once. Such a system will need to be implemented in
accordance with Recommendation 2.10 of the Financial Services
Royal Commission Report so that it is individuals who are registering,
not just AFSLs. It is noted that this new body is also expected to be
responsible for registration101.
100
Ibid p. 9.
101
Ibid p. 6.
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7.21 Consultation should also occur with ASIC, TPB, FASEA and Treasury
so that a process is developed that continues to ensure that only
appropriately qualified financial advisers can give tax advice and that
AFS licensees have the option of not authorising a financial adviser to
give tax (financial) advice on their behalf even though the adviser has
completed the FASEA education requirements.102 This would be
consistent with the approach for product authorisations that currently
exists in the financial services licensing regime.
7.22 An important feature that will need to be incorporated into the new
disciplinary body is how it considers sanctions for misconduct of
financial advisers103 when the misconduct is attributable to poor tax
advice. The Review recommends that the new disciplinary body when
it sits to hear matters involving the provision of tax advice is
comprised of a majority of panel members who have taxation
expertise. Ideally those members could be TPB Board members,
otherwise leading tax practitioners or other well respected members of
the tax profession.
7.23 This model will:
7.23.1 Remove the need to register twice. A commensurate drop in
fees should follow.
7.23.2 Ensure disciplinary action involving the provision of tax
advice is decided by appropriately qualified experts from the
tax profession.
7.23.3 Require TFAs to have to abide by only one code, namely the
Code of Ethics set by FASEA, instead of having to also
comply with the Code of Professional Conduct in the TASA.
7.24 A final point, which flows from implementation of such a model, is
that in addition to reducing the regulatory overlap that currently exists
it will also have the indirect benefit of freeing up resources within the
TPB that are currently being used for the administration of a TFAs.
The TPB could devote such resources to other activities such as
focusing on the compliance of tax agents and BAS agents with their
obligations under the TASA.
102
This assumes the current processes for registering financial advisers with ASIC
remains the same. These processes may change as the Financial Services Royal
Commission Recommendations are implemented.
103
The term tax (financial) advisers should no longer be necessary once this new
regime is implemented. All advisers providing financial advice will simply be financial
advisers.
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Recommendation 7.1
The Review recommends, in alignment with implementing Recommendation 2.10 of
the Final Report of the Financial Services Royal Commission, a new model be
developed for regulating tax (financial) advisers in consultation with ASIC, FASEA,
the TPB and Treasury. This new model should incorporate the following features:
single point of registration for individuals;
requirement to abide by only the one code of conduct; and
any disciplinary action involving the provision of tax advice is decided by
experts from the tax profession.
Until the new model is developed the status quo should be retained.
Former accountants' exemption
7.25 The Review's Discussion paper also raised the suggestion at Option 7
of restoring the accountants' exemption that previously existed and
allowed accountants to provide basic self-managed super fund (SMSF)
advice and services without having to operate in the AFSL
environment.
7.26 Up until 30 June 2016, accountants were able to provide a range of
services to SMSFs under the accountants' exemption in Regulation
7.1.29A of the Corporations Regulations 2001. The exemption allowed
accountants to provide advice on the establishment and winding up of
SMSFs without needing to hold an AFSL. As part of the Future of
Financial Advice (FOFA) reforms the Government removed the
accountants' exemption and since 1 July 2016 accountants have been
subject to much stricter rules relating to the provision of financial
advice, including in particular not being able to recommend the
establishment of an SMSF unless they held an AFSL.
7.27 Accountants are also unable to advise what contribution limits apply to
their clients -- with respect to both concessional and non-concessional
contributions. Importantly, both prior to the removal of the
accountants' exemption and after, accountants have not been able to
provide investment advice. This is solely within the province of the
financial planner/adviser.
7.28 The policy objectives of FOFA were to improve the trust and
confidence of Australian retail investors in the financial services sector
and ensure the availability, accessibility and affordability of high
quality financial advice104. Many of the submissions were of the view
104
Treasury website Future of Financial Advice.
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that these objectives had not been met, stating that it placed
accountants in an impractical situation where, as trusted advisers, they
were expected by their clients to be able to provide advice relating to
SMSFs but could not unless they held an AFSL.
7.29 Further to this point, comments have recently been made by tax
practitioners at a Tax Forum that advice on establishing an SMSF is
advice concerning a structure in the same vein as advice on
establishing a company or trust. At this point no financial product
advice is being provided. Clients may be confused as to why their
accountant can give advice on all business and investment structures
but not an SMSF.
7.30 It should be noted though that it is possible for an accountant to hold a
limited AFSL that will allow the provision of some advice relating to
superannuation105. Many would agree though that this is difficult to
understand106 and remains impractical. Some submissions have advised
it is not easy to obtain a limited licence.
7.31 The point should be made though that whether an accountant wishes to
obtain an AFSL that will allow the provision of some advice relating to
superannuation, or wants to be able to provide broader financial
services by being covered by a full AFSL; either way the accountant
will have to incur additional fees in addition to the fees incurred by
registering with the TPB as a registered tax agent.
7.32 If, as the Review recommends, the regulatory burden on TFAs is
reduced, it is reasonable that the corresponding regulatory burden on
accountants is also reduced.
7.33 Some submissions have suggested that what is required is a thorough
review of the accountants' exemption before considering whether it
should be re-introduced. There is some substance in this when it is
borne in mind what factors need to be taken into account:
7.33.1 FOFA reforms in 2016 removing the exemption;
7.33.2 the complexity of the limited licensing regime since
established by ASIC that authorises the provision of some
financial services;
7.33.3 how the exemption impacts upon professional indemnity
insurance;
105
ASIC Information Notes 227, 228 and 229 explain how limited AFS licences
work.
106
ASIC Information Note 216 provides detailed guidance as to what information
accountants can and cannot provide as regards SMSFs.
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
7.33.4 implementation of the recommendations arising from the
Financial Services Royal Commission;
7.33.5 the education and qualification requirements for providing
advice in relation to SMSFs; and
7.33.6 ensuring there is an appropriate level of consumer protection
without the current high regulatory costs and burden.
7.34 In addition to the above it is important to note the observations by
Commissioner Hayne in his Final Report that:
" ... the financial services industry is itself complicated ... much
of the complication comes from piling exception upon exception,
from carving out special rules for special interests. And, in
almost every case, these special rules qualify the application of
a more general principle to entities or transactions that are not
different in any material way from those to which the general
rule is applied.
... it is time to start reducing the number and the area of
operation of special rules, exceptions and carve outs. Reducing
their number and their area of operation is itself a large step
towards simplification. Not only that, it leaves less room for
'gaming' the system by forcing events or transactions into
exceptional boxes not intended to contain them."107
7.35 The Review held targeted consultations to understand these (and other)
issues further. The Review understands the complexity and thanks
stakeholders for their engagement and considers it best to move to a
further review on this particular issue, subject to Government's
agreement.
Recommendation 7.2
Having recommended the regulatory burden on tax (financial) advisers is to be
reduced, the Review believes it is reasonable that a similar level playing field should
be considered for accountants. The Review therefore recommends the Government
initiate a specific review of what advice accountants can and cannot give in respect of
superannuation and which accountants that might apply to. Such a review could
perhaps be undertaken by the Productivity Commission.
107
Above n 16, pp. 16 -- 17.
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8. OTHER ISSUES
Community awareness
8.1 The Review's Discussion Paper raised as an issue whether there was
sufficient public visibility of the TPB. Submissions were generally of
the view that this could be improved.
8.2 As was stated in the Discussion Paper (and above at paragraph 6.9),
the community relies heavily on the services of tax professionals, with
approximately 70 per cent of individuals and over 90 per cent of small
businesses choosing to use a tax agent to help them perform some or
all their tax functions. This reflects a high degree of trust within the
community of the tax profession. However, while reliant and trusting
of the tax profession, consumers of tax services are largely unaware of
their rights when using a registered tax professional or the risks
associated with using an unregistered tax professional.
8.3 Given that the TPB is a small organisation with only 133 staff it is not
surprising that there is a lack of awareness of its existence. Clearly
having greater visibility would assist consumers when they are
dissatisfied with the service received from their tax practitioner.
Public register
8.4 The TPB Register is a public register containing the details of
registered and deregistered tax practitioners. One of the TPB's primary
tools in protecting consumers of tax agent services is by publishing
information on the TPB's Register.
8.5 Currently, the TPB Register includes details on the tax practitioner's
registration status, including periods of effect and reasons for
sanctions, disqualification and termination. The reasons currently
included on the Register are however fairly general in nature. For
example:
Reason: Individual no longer meets registration requirements.
No explanation is provided as to why the individual does not meet the
registration requirements.
8.6 It would be beneficial for consumers of tax agent services if the TPB
Register provided additional information on registered and
unregistered tax practitioners. This could include publishing a wider
range of decisions and outcomes on the TPB Register, including more
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Treasury Laws Amendment (2023 Measures No. 1) Bill 2023
details of reasons for sanctions and termination, publication of cease
and desist notices to unregistered tax practitioners, and publication of
details relating to rejections of renewal applications. Additionally, the
Review suggests removing the time limits on how long certain
information appears on the Register.
8.7 Submissions were generally supportive of the concept of including
details of tax practitioners on the Modernising Business register
(MBR), though the Law Council of Australia's submission did express
concern that the MBR was being administered by the ATO which is, in
the view of the submission, "inconsistent with maintaining the
independence of the ATO from the TPB".
Recommendation 8.1
The Review recommends that:
Details of tax practitioners that are currently included on the TPB Register
should be expanded. This could include publishing a wider range of information,
decisions and outcomes on the TPB Register.
A register of unregistered tax practitioners be made available. This register
would include those entities that receive a notice by the TPB to 'cease and desist'
providing tax agent services for a fee and publication of details relating to renewal
application rejections (in certain circumstances, such as not being fit and proper).
The time limits on how long certain information appears on the Register be
removed.
Recommendation 8.2
The Review recommends that details of tax practitioners that are included on the TPB
Register should ultimately be included on the Modernising Business Register.
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APPENDIX A: Terms of Reference
This review is into the effectiveness of the Tax Practitioners Board and the
operation of the Tax Agent Services Act 2009 (the Act) and the Tax Agent
Services Regulations 2009, which establish the regulatory regime for tax
practitioners in Australia.
The review will consider whether the legislative framework for the Tax
Practitioners Board delivers on its policy objectives to ensure that tax agent
services are provided to the public in accordance with appropriate standards of
professional and ethical conduct. Further, that this framework does not impair
the operation of the Tax Practitioners Board to deliver against their objectives,
being:
a) to maintain, protect and enhance the integrity of the registered tax
practitioner profession;
b) to promote the Tax Practitioners Board as an independent, efficient and
effective regulator; and
c) to protect all consumers of tax practitioner services.
The review will consider the current and future suitability and effectiveness of
the legislative and governance framework.
The review will be informed by consultation on substantive issues identified
before recommendations are made to Government by 31 October 2019.
Submissions to the review will be made public unless otherwise requested.
In particular, the review should:
1. Examine if the legislative framework is operating as intended and
continues to be fit for purpose and meet the objectives of the Act.
2. Examine if the governance framework is operating as intended and
continues to be fit for purpose.
3. Consider the appropriateness of the Tax Practitioners Board's
governance arrangements.
4. Consider whether the tax agent services legislation supports the Tax
Practitioners Board in responding to known and emerging issues.
5. Examine whether the powers and the functions of the Tax Practitioners
Board are sufficient to enable the objects of the legislative framework to
be met.
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6. Consider any other matters that may enhance the regulatory environment
that tax practitioners operate under, including the interaction with the
regulation of relevant related professional activities.
Some issues may be identified that fall outside the scope of the review of the
legislative framework. The government should be advised of these matters and
recommend whether further examination should be undertaken.
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APPENDIX B: Advice provided by 'The
Ethics Centre'
In a democratic polity, like Australia, the taxation system is the practical means
by which citizens fund the provision of public goods by their agent, the elected
government of the day.
The system -- as a whole -- encompasses those who levy taxes (the
Parliament), those who collect taxes (the Australian Taxation Office), those who
pay taxes and those who mediate the relationship between those who pay and
those who collect tax.
The Tax Practitioners Board (TPB) is responsible for regulating the conduct of
the latter group; those who mediate the relationship between those paying and
those collecting taxation. As such, the TPB forms part of the taxation system as
a whole -- standing alongside other elements of the system, like the ATO.
The taxation system is only efficient and effective if it is trusted by all concerned
to serve the public interest through means that are lawful, fair and in accordance
with the highest standards of integrity.
Tax practitioners play a vital role in ensuring that the system as a whole is
efficient and effective. Thus the overarching purpose of the TPB is to ensure that
tax practitioners operate with integrity. However, it is equally important that tax
practitioners have confidence in the integrity of the system as it applies to them
-- especially as it has a bearing upon their conduct.
The TPB is charged with providing independent oversight of tax practitioners.
When understood in the larger context outlined above, it is in the public interest
that the TPB be (and be seen to be) independent as this is one of the
preconditions for tax practitioners voluntarily submitting to its authority --
rather than merely complying as a matter of necessity. Voluntary commitment
rather than mere compliance is preferable because it enhances both efficiency
and effectiveness by reducing the 'deadweight' costs of formal regulation and
compliance. That is, it is better for all if people choose to do what is right rather
than being forced to do so.
So, if independence is key to the TPB fulfilling its purpose, how might that be
assured to a degree sufficient to enjoy the confidence of tax practitioners and the
wider community? In particular, to what extent can this outcome be achieved
even the connection between the TPB and ATO within the design of the taxation
system as a whole?
First, the Board must itself be entirely independent. It must have authority to
decide all matters and do all things that fall within the scope of the TPB's remit.
Ideally, it should control its own budget -- once allocated. It should have the
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formal power of appointment of its executive and staff who should work
exclusively under its direction.
Second, any staff employed by the TPB (whether directly or by secondment)
must be relieved formally of any residual obligation to any other organisation.
That is, the executive and staff of the TPB should formally be accountable to the
Board and no other party. This accountability should be acknowledged and
approved by any source of secondees, such as the Commissioner of Taxation.
While the Commissioner might select and recommend a secondee, the ultimate
right of acceptance must lie with the TPB.
Third, those working at the TPB must be inducted into its work by means that
reinforce their professional obligation to serve the public interest by acting in a
manner that expresses, in practical form, the independent character of the TPB's
operations -- including its exercise of judgement.
These are the minimum requirements that need to be met in order to merit the
confidence of those subject to the TPB's authority. Equally, if met, these
conditions set a foundation that a reasonable person should accept as evidence of
independence of a kind and quality that should be relied on.
29 June 2019
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APPENDIX C: List of submissions
Association of Accounting Technicians
Association of Financial Advisers
Australian Bookkeepers Association
Australian Business Software Industry Association
Australian Institute of Conveyancers (NSW Division)
Australian Institute of Conveyancers (VIC Div)
Australian Securities and Investments Commission
Australian Services Union
Australian Small Business and Family Enterprise Ombudsman
Australian Taxation Office
BDO
Chartered Accountants Australia and New Zealand and CPA Australia -- Joint
Submission (2)
Community and Public Sector Union
Curtin University
Financial Planning Association of Australia
Financial Services Council
Inspector-General and Taxation Ombudsman
Institute of Public Accountants
IPA Eastern Discussion Group
KDA Group Pty Ltd
KPMG
Law Council of Australia (2)
Law Society of New South Wales
Morgan, Mr John
National Tax & Accountants Association
Nexia Canberra
Olesen, Mr Neil
Professional Standards Councils
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Queensland Law Society
SMSF Association
South African Institute of Chartered Accountants
Tax & Super Australia
Tax Practitioners Board
The Institute of Certified Bookkeepers
The Institute of Chartered Accountants in England and Wales
The Tax Institute
University of Melbourne
UNSW Tax Clinic
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APPENDIX D: Explanatory Memorandum
extract
Extract from Explanatory Memorandum circulated with Tax Agent Services Bill
2008, paragraphs 5.28 to 5.32, pages 96-97.
5.28 The Board has responsibility for regulating the provision of tax
agent services in all Australian states and territories by reference to the
Code and the system for the registration of tax agents and BAS agents
and conduct of investigations set out in the Bill.
5.29 The Board is a statutory authority that falls within the portfolio
responsibilities of the Treasurer. It is not itself a prescribed agency
under the Financial Management and Accountability Act 1997 (FMA
Act) and is not a body regulated by the Commonwealth Authorities and
Companies Act 1997 (ie, the Board is neither a prescribed FMA Act
agency nor a Commonwealth Authorities and Companies Act body) but
is formally part of the ATO, a prescribed FMA Act agency.
5.30 To ensure that the Board has the requisite degree of independence
from the ATO, it will be funded via a Special Account (under section 20
of the FMA Act) through the annual appropriation to the ATO. As such,
the Board's annual appropriation will be quarantined within the ATO's
funding. The Commissioner of Taxation (Commissioner) will provide
resources to the Board within the limits of the Special Account.
5.31 In this way the Board will operate with decision-making
independence from the ATO, but will rely on the ATO for
administrative support. The Board will have available to it the resources
necessary to perform its functions up to the amount of its Budget as
determined by the Finance Minister. The exact nature of the service
relationship and arrangements between the Board and the ATO will be
determined through agreements between the two parties. Such
agreements are likely to cover a number of issues including resourcing,
technical support and legal support.
5.32 In the establishment phase, it is efficient for the Board to sit within
the ATO, due to the administrative obligations that would otherwise
apply to it as a separate agency and because the ATO provides the most
appropriate functional fit for the Board from among existing prescribed
FMA Act agencies.
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APPENDIX E: PGPA RULE EXCERPTS
Excerpt from PGPA Rule Schedule 1 --
Listed Entities
Guide to this schedule
The purpose of this Schedule is to prescribe certain bodies, persons, groups of
persons or organisations to be listed entities. It is also to give each of those
entities a name, to specify who the accountable authority and officials of the
entity are, and to set out what the purposes of the entity include.
Other bodies, persons, groups of persons or organisations that are not prescribed
by this Schedule may be a listed entity because they are prescribed by an Act to
be a listed entity.
This Schedule is made for the definition of listed entity in section 8 of the Act,
for item 3 of the table in subsection 12(2) of the Act and for paragraph 103(e) of
the Act.
7 AUSTRALIAN TAXATION OFFICE
For the purposes of the finance law:
the following combination of bodies and persons is a listed entity:
i) the Commissioner of Taxation;
ii) the Tax Practitioners Board;
iii) the Australian Charities and Not-for-profits Commission (the ACNC);
iv) the Australian Charities and Not-for-profits Commission Advisory Board
(the ACNC Advisory Board); and
the listed entity is to be known as the Australian Taxation Office; and
the Commissioner of Taxation is the accountable authority of the listed entity;
and
the following persons are officials of the listed entity:
i) the Commissioner of Taxation;
ii) the Second Commissioners of Taxation;
iii) the staff assisting the Commissioner of Taxation referred to in section 4A of
the Taxation Administration Act 1953;
iv) the members of the Tax Practitioners Board;
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v) APS employees whose services are made available to the Tax Practitioners
Board under section 60-80 of the Tax Agent Services Act 2009;
vi) the Commissioner of the ACNC;
vii) the staff assisting the Commissioner of the ACNC referred to in section 120-5
of the Australian Charities and Not-for-profits
ATO The TPB can disclose official information to the Commissioner
of Taxation if it is for the purpose of administering a taxation
law108.
When the TPB makes a decision about an application for
registration or renewal as a tax agent, BAS agent or tax
(financial) adviser, the TPB must notify the ATO of its
decision.109
If the TPB conducts a formal investigation, against any tax
practitioner, and makes a decision that there has or has not been
a breach, the TPB must notify the ATO of the TPB's decision or
finding, including reasons, within 30 days of making the
decision or funding. 110
ASIC The TPB can disclose official information to ASIC if it is for the
purpose of ASIC performing any of its functions or exercising
any of its powers.111
When the TPB makes a decision about an application for
registration or renewal as a tax (financial) adviser, the TPB must
notify ASIC of its decision.112
If the TPB conducts a formal investigation, against a tax
(financial) adviser or a tax agent in relation to providing a tax
(financial) advice service, and makes a decision that there has or
has not been a breach, the TPB must notify the ASIC of the
TPB's decision or finding, including reasons, within 30 days of
making the decision or funding. 113
Code Monitoring The TPB can disclose official information to a monitoring body
Bodies for a compliance scheme if it is for the purpose of the
108
See subsection 70-40(3) of the TASA.
109
See paragraph 20-30(2)(a) of the TASA.
110
See paragraphs 60-125(8)(c) and (d) of the TASA.
111
See subsection 70-40(3A) of the TASA.
112
See paragraph 20-30(2)(b) of the TASA.
113
See paragraphs 60-125(8)(c) and (d) of the TASA.
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monitoring body monitoring or enforcing compliance with the
Code of Ethics under the scheme. 114
If the TPB conducts a formal investigation, against any tax
practitioner that is a person covered by a compliance scheme
who provides a tax (financial) advice service, and makes a
decision that there has or has not been a breach, the TPB must
notify the relevant code monitoring body of the TPB's decision
or finding, including reasons, within 30 days of making the
decision or funding. 115
Inspector-General The TPB can disclose official information to the
of Taxation and Inspector-General of Taxation and if it is for the purpose of
Taxation investigating or reporting under, or otherwise administering:
Ombudsman
(a) the Inspector-General of Taxation Act 2003; or
(b) provisions of the Ombudsman Act 1976, to the extent that
they are applied by the Inspector-General of Taxation Act
2003.116
Authorised law The TPB can disclose official information to an authorised law
enforcement enforcement agency if:
agencies
the record is made for, or the disclosure is to, an
authorised law enforcement agency officer; a
the record or disclosure is for the purpose of:
i) investigating a *serious offence; or
ii) enforcing a law, the contravention of which is a serious
offence; or
iii) the making, or proposed or possible making, of a
*proceeds of crime order.117
Recognised If the TPB conducts a formal investigation, against a member of
professional a recognised professional association, and makes a decision that
associations there has or has not been a breach, the TPB must notify the
relevant recognised professional association of the TPB's
decision or finding, including reasons, within 30 days of making
the decision or funding. 118
114
See subsection 70-40(3AA) of the TASA.
115
See paragraphs 60-125(8)(c) and (d) of the TASA.
116
See subsection 70-40(3B) of the TASA.
117
See subsection 70-40(4) of the TASA.
118
See paragraphs 60-125(8)(c) and (d) of the TASA.
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APPENDIX F: INTEGRATED PLAN
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APPENDIX G: Information sharing
Table 4: sharing of information and information requests under
the TASA
Organisation Role
ATO The TPB can disclose official information to the
Commissioner of Taxation if it is for the purpose
of administering a taxation law.119
When the TPB makes a decision about an
application for registration or renewal as a tax
agent, BAS agent or tax (financial) adviser, the
TPB must notify the ATO of its decision.120
If the TPB conducts a formal investigation,
against any tax practitioner, and makes a decision
that there has or has not been a breach, the TPB
must notify the ATO of the TPB's decision or
finding, including reasons, within 30 days of
making the decision or funding. 121
ASIC The TPB can disclose official information to
ASIC if it is for the purpose of ASIC performing
any of its functions or exercising any of its
powers.122
When the TPB makes a decision about an
application for registration or renewal as a tax
(financial) adviser, the TPB must notify ASIC of
its decision.123
If the TPB conducts a formal investigation,
against a tax (financial) adviser or a tax agent in
relation to providing a tax (financial) advice
service, and makes a decision that there has or has
not been a breach, the TPB must notify the ASIC
of the TPB's decision or finding, including
119
See subsection 70-40(3) of the TASA
120
See paragraph 20-30(2)(a) of the TASA
121
See paragraphs 60-125(8)(c) and (d) of the TASA
122
See subsection 70-40(3A) of the TASA
123
See paragraph 20-30(2)(b) of the TASA
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Organisation Role
reasons, within 30 days of making the decision or
funding.124
Code Monitoring The TPB can disclose official information to a
Bodies monitoring body for a compliance scheme if it is
for the purpose of the monitoring body
monitoring or enforcing compliance with the
Code of Ethics under the scheme.125
If the TPB conducts a formal investigation,
against any tax practitioner that is a person
covered by a compliance scheme who provides a
tax (financial) advice service, and makes a
decision that there has or has not been a breach,
the TPB must notify the relevant code monitoring
body of the TPB's decision or finding, including
reasons, within 30 days of making the decision or
funding.126
Inspector-General of The TPB can disclose official information to the
Taxation and Inspector-General of Taxation and if it is for the
Taxation purpose of investigating or reporting under, or
Ombudsman otherwise administering:
the Inspector-General of Taxation Act 2003; or
provisions of the Ombudsman Act 1976, to the extent
that they are applied by the Inspector-General of
Taxation Act 2003.127
Authorised law The TPB can disclose official information to an
enforcement authorised law enforcement agency if:
agencies
the record is made for, or the disclosure is to, an authorised
law enforcement agency officer; a
the record or disclosure is for the purpose of:
i) investigating a *serious offence; or
ii) enforcing a law, the contravention of which is a serious
offence; or
124
See paragraphs 60-125(8)(c) and (d) of the TASA
125
See subsection 70-40(3AA) of the TASA
126
See paragraphs 60-125(8)(c) and (d) of the TASA
127 See subsection 70-40(3B) of the TASA
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Organisation Role
iii) the making, or proposed or possible making, of a
*proceeds of crime order.128
Recognised If the TPB conducts a formal investigation,
professional against a member of a recognised professional
associations association, and makes a decision that there has
or has not been a breach, the TPB must notify the
relevant recognised professional association of
the TPB's decision or finding, including reasons,
within 30 days of making the decision or funding.
129
128 See subsection 70-40(4) of the TASA.
129
See paragraphs 60-125(8)(c) and (d) of the TASA
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APPENDIX H: Fit and proper person
comparisons
Table 5: The fit and proper person criteria for APRA and ASIC
Industry body Criteria
1. Australian Prudential Prudential Standard CPS 520 is made under the
Regulation Authority following provisions:
43. section 11AF of the Banking Act 1959;
44. section 32 of the Insurance Act 1973;
45. section 230A of the Life Insurance Act 1995; and
46. section 92 of the Private Health Insurance
(Prudential Supervision Act) 2015.
The above provisions provide the authority for APRA to
determine prudential standards. None of the Acts define
the phrase "fit and proper" but rather refer to it in the
context of the criteria set out in the prudential standards
set by APRA.
In particular, Prudential Standard CPS 520 Fit and
proper provides at paragraph 30 that for the purposes
of the Prudential Acts and for the purposes of
determining whether a person is fit and proper to hold a
responsible person position, the criteria are whether:
47. it would be prudent for an APRA-regulated
institution to conclude that the person possesses the
competence, character, diligence, honesty,
integrity and judgement to perform properly the
duties of the responsible person position;
48. the person is not disqualified under an applicable
Prudential Act from holding the position;
49. the person either:
a. has no conflict of interest in performing the
duties of the responsible person position; or
b. if the person has a conflict of interest, it would
be prudent for an APRA-regulated institution to
conclude that the conflict will not create a
material risk that the person will fail to
perform properly the duties of the position;
and
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50. for a senior manager of a corporate agent of a
general insurer, the person is ordinarily resident in
Australia.
2. Australian Securities and ASIC grants licenses to engage in credit activities in
Investments Commission accordance with the National Consumer Credit
Protection Act 2009. In particular, section 37 states that
ASIC must grant a person (other than an ADI) a license
if (and must not grant a person a license unless), among
other things, ASIC has no reason to believe that the
person is not a fit and proper person to engage in
credit activities (see paragraph 37(1)(c)). The phrase "fit
and proper" is not defined in the National Consumer
Credit Protection Act 2009.
ASIC's fit and proper requirements are set out in
Regulatory Guide 204 "Applying for and varying a
credit licence".
Chapter B1 of Regulatory Guide 204 is of relevance. It
states that to engage in credit activities, you must be a fit
and proper person. In particular, RG 204.177 defines a
fit and proper person to engage in credit activities to
mean that the person:
51. is competent to operate a credit business (as
demonstrated by the person's knowledge, skills and
experience);
52. has the attributes of good character, diligence,
honesty, integrity and judgement;
53. it not disqualified by law from performing their role
in the credit business; and
54. either has no conflict of interest in performing their
role in the credit business, or any conflict that exists
will not create a material risk that the person will
fail to properly perform their role in the credit
business.
ASIC notes at RG 204.177 that the criteria for
determining whether a person is fit and proper are
consistent with the criteria set out for responsible
persons of ADI's in Prudential Standard CPS 520 Fit
and Proper. This is also noted in the National Consumer
Credit Protection Regulations 2010 (see in particular
Regulation 14).
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APPENDIX I: ASIC Act provision on LPP
Section 70 Powers of Court where non-compliance with Part
1) This section applies where ASIC is satisfied that a person has, without
reasonable excuse, failed to comply with a requirement made under this Part
(other than Division 8).
2) ASIC may by writing certify the failure to the Court.
3) If ASIC does so, the Court may inquire into the case and may order the person to
comply with the requirement as specified in the order.
.
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