14 October 1996 - 25 November 2001
NEW LEGISLATIVE FRAMEWORK FOR TAX AGENT SERVICES
A new legislative framework for tax agent services has been approved by the Government, the Assistant Treasurer, Senator Rod Kemp, announced today. The proposals have been developed over the last few years as a co-operative undertaking by the Australian Taxation Office, tax practitioners and representatives of taxation and community organisations.
The proposed legislative changes are designed to create an improved environment for tax agent services by clearly defining the role of tax agents in a legislated Code of Practice.
The Code sets out the responsibilities expected of tax agents by the community in the preparation of tax returns. It will enable taxpayers to have greater confidence that they are dealing with a tax agent who has, and maintains, high professional standards.
The Code makes it clear that tax agents are not responsible for the veracity of the tax information provided to them by their clients. Tax agents are not required to conduct any audit of that information but should be reasonably satisfied with the accuracy and completeness of the information in the return.
The proposals will give taxpayers who engage a tax agent a safe harbour from penalties, providing they exercise reasonable care in furnishing all the relevant taxation information to their tax agent. Taxpayers will no longer be vicariously liable for penalties imposed under the current law as a result of the actions of their tax agent.
Similarly, there will be no sanctions against tax agents who meet a defined standard of reasonable care in the preparation of tax returns.
The proposals will establish a new national Tax Agents Board that is to be responsible for administering the Code of Practice and processing applications for registration.
The Board will be independent of the Australian Taxation Office and will mostly comprise members nominated by the tax professional associations. To be re-registered as a tax agent a person must satisfy the Board that they meet continuing professional development requirements.
The Code of Practice, together with the Taxpayers' Charter, will facilitate the development of a more level and professional relationship between tax officers and tax agents.
An exposure draft of the legislation will be released later this year for further broad consultation with a view to having the proposals commence on 1 July 1999.
An outline of the legislative framework is attached.
6 April 1998
Assistant Treasurers Office
Telephone: (02) 6277 7360 (BH)
Mobile: (0419) 482 497
Australian Tax Office
Telephone: (02) 6216 1350
Legislative Framework for Tax Agent Services
In November 1994 the committee comprising tax professionals and ATO representatives released its report on the 'National Review of Standards for the Tax Profession'. It made a number of recommendations for legislative change to regulate the role of tax agents in the self assessment environment. The following extract from the report summarises the context in which the recommendations were developed.
"There is a profound public interest in ensuring that the rights and responsibilities of all parties to the tax system are defined and understood, proper standards exist, and legislation governing the activities of tax professionals is well conceived, cost effective and properly administered. Our task, in essence, was to address these matters in the context of the movement to a tax regime based on self assessment principles."
2. A working party representing the ATO and tax professionals has examined the recommendations. Thereafter, a legislative framework encompassing all aspects of tax agent services was developed. The Government has approved this framework which is outlined below.
National Tax Agents' Board
3. There is to be a National Tax Agents' Board (the Board), headed by a National Chair, to replace the current state based Tax Agents' Boards. The new Board will operate on a regional basis with a Deputy Chair responsible for administering activities in each region. There will be a least three members of the Board in each region, including the Deputy Chair. Larger regions could have more members. The National Chair and Deputy Chairs will constitute the Board's executive committee.
4. All Board members will be appointed by the Minister from nominees of the ATO, the Law Council of Australia, recognised professional associations and other associations representing the tax profession. The Board will be independent from these bodies. There will be only one nominee of the ATO and the Law Council of Australia in each region.
5. The Board will be responsible for processing registrations and re-registrations. Applications will be determined administratively. The Board will have the discretion to grant registration where the requirements are not fully satisfied, but not to deny it where they are met. All current registrations of tax agents will continue at the time the new arrangements come into effect, with no reduction in their present period of registration.
6. The basic requirement for a new registration by an individual is that the person:
- satisfies prescribed qualifications (academic qualifications and relevant experience);
- provides documentation regarding fitness of character;
- is a least 18 years of age;
- has not in the previous five years been convicted of any offence involving dishonesty;
- has not been convicted of a serious taxation offence; and
- has not in the past year been registered as a tax agent and under a prohibition order from the Board.
7. Although membership of a recognised professional association will not be a pre-requisite for registration, holding a recognised professional association practicing certificate approved by the Board will be sufficient evidence of the possession of qualifications, experience and fitness of character necessary for registration as a tax agent.
8. To qualify for re-registration an individual will be required to show that he or she has satisfied relevant continual professional educational requirements and either has only signed returns he or she has prepared personally or satisfied a quality control review. The purpose of the review is to ensure that the tax agent's operational procedures and controls, including supervisory and management arrangements, comply with the Code of Practice. The quality control review will be undertaken by a party approved by the Board.
9. Just as taxpayers are not subject to penalty if they make a genuine effort to comply with the tax law, tax agents will not face sanctions where they exercise reasonable care in the preparation and lodgment of tax returns. The concept of reasonable care is central to the responsibilities of tax agents and taxpayers under self assessment. Tax agents and taxpayers for the first time can be confident that they will not to be penalised where they satisfy this standard. What constitutes reasonable care for tax agents will be the subject of further consultation.
10. A taxpayer will be considered to have exercised reasonable care where the taxpayer can demonstrate that a tax shortfall is not due to failure by the taxpayer to:
- provide the tax agent with a copy of the last lodged return, including schedules;
- meet the record keeping requirements of the law;
- provide accurate and complete information in response to questions asked by the agent;
- conform with the tax agent's advice; and
- bring to the tax agent's attention all the information they could have been reasonably expected to have known was relevant to the preparation of the return.
11. Where a taxpayer satisfies these obligations, and there is a tax shortfall caused by the tax agent failing to exercise reasonable care, the taxpayer will have a 'safe harbour' and not be penalised. Instead the tax agent may be subject to a disciplinary measure.
12. Reasonable care as it applies to a tax agent reflects the community's expectations that a tax agent has the standards, skill, competence, and personal qualities necessary to prepare tax returns and transact other matters with the Commissioner of Taxation on behalf of clients. The requirements expected of a tax agent will be legislated in a Code of Practice. It will enable a tax agent to understand his or her rights and responsibilities in undertaking taxation work on behalf of clients. The Code will also specify the ethical standards expected of agents.
13. A tax agent will not be responsible for the veracity of a client's tax information and will not be obliged to conduct any audit or further examination of the client's tax information. However, if the agent is not satisfied with the information, the agent must make reasonable enquiries as to its accuracy and completeness.
14. Failure to take reasonable care or a breach of an ethical requirement can be reported by any person to the Board. An allegation against a tax agent can be examined by a single member of the Board. In most cases this will be a member from the recognised professional associations and other associations representing the tax profession. It will not be the ATO member of the Board. Where the tax agent has failed to exercise reasonable care or breached an ethical requirement, the Board can require the agent to:
- undertake continuing professional development;
- sit an examination, focussing on a particular subject matter; or
- have a quality control review of the tax agent's practice.
15. The Board may choose to caution the agent rather than impose a sanction. Failure to take reasonable care or breaches of an ethical requirement will not result in a monetary penalty. Where the tax agent or the Commissioner of Taxation disagrees with the decision of the member, the tax agent or the Commissioner can request the matter be reviewed by a panel of the Board. A Deputy Chair and two members will constitute a panel of the Board.
16. The law will provide for a number of objective administrative requirements relating to a tax agents registration and the provision of tax agent services. Many of these requirements are contained in the current law, eg allowing a person not under the tax agents supervision and control to prepare a clients tax return. As with allegations of tax agents failing to take reasonable care, the matter will be examined by a single member. Where it is considered that the offence has occurred, the Board will have the discretion to caution the agent, issue a penalty infringement notice, or institute prosecution proceedings.
17. The infringement notice penalty will be an amount of either $500 or $1,000, depending on the offence. With a first offence, the Board may use its discretion to caution the agent. As is the case with breaches of the Code of Practice, a decision of the single member can be referred to a three member panel of the Board for review. Non-payment of the penalty may give rise to the Board initiating prosecution proceedings in a court which could result in a penalty for an amount up to ten times the amount of the infringement notice. In some cases, such as repeat offences, the Board may decide to proceed directly to prosecution instead of issuing the infringement notice.
18. The situation could arise where, as the result of an audit, multiple breaches of the same administrative requirement are detected, e.g. failing to sign the agent's declaration. It is proposed that these type of multiple offences would attract only one infringement notice and not a separate notice for each breach of the same requirement. This principle will also apply to breaches of the Code of Practice.
19. Behaviour which seriously calls into doubt the honesty, integrity or competence of the tax agent, and raises questions about a persons suitability to practice, may warrant severe disciplinary action. Where such behaviour is reported, the matter will be examined by a three member panel of the Board.
20. At present, serious misconduct can lead to suspension or cancellation of a tax agent's registration. However, there may be situations where the Board considers that it would be more appropriate to impose a lesser sanction, such as a prosecution penalty, rather than take away the tax agents livelihood. The proposals will give the Board the discretion to suspend or cancel a tax agent's registration, or institute prosecution proceedings with the possibility of the tax agent facing a fine of up to $25,000. A decision of the Board to suspend or cancel a tax agent's registration is open for review by the Administrative Appeals Tribunal.
Recognised Professional Associations
21. Recognised professional associations will play an important role in the new regulatory framework. Status as a recognised professional association will only be given to those bodies that satisfy prescribed criteria such as size, accountability, academic requirements for membership, ethical and behavioural rules, continuing professional educational requirements, and satisfactory disciplinary and quality assurance regimes. The Board will be responsible for accrediting recognised professional associations. Recognised professional associations will be able to:
- nominate persons as members of the Board;
- have their practicing certificates recognised for the registration purpose of evidencing a person's qualifications and experience;
- have their continuing professional education courses, examinations and quality control review processes recognised for re-registration and disciplinary purposes; and
- act as a conduit for registration and re-registration applications.
Tax Officer Responsibilities
22. The National Review of the Standards of the Tax Profession report referred to the perceived imbalance in responsibilities under self assessment. The committee made the following comment which is reflected in the draft regulatory framework.
"The proposals remove from the ATO the ability, through its auditors, to make determinations as to the 'reasonableness' of either the standards or the behaviour of the tax agent representing a taxpayer. Thus the 'playing field' on which the two professional sides meet substantially levels."
23. Tax agents may be concerned that the proposed changes impose a penalty on them for falling short of the required behavioural standards, yet tax officers can do so without sanction. That is not the case. The behavioural standards of tax officers is governed by the Taxpayers' Charter, which can lead to sanctions under the Public Service Act such as counselling, fines, demotion or dismissal. Among other requirements, tax officers must:
- treat tax agents and their clients with courtesy, consideration and respect;
- act impartially and use powers fairly and professionally;
- make fair and equitable decisions in accordance with the law;
- be accountable for service standards;
- provide clear explanations of decisions about a taxpayers affairs;
- give advice and information that tax agents and their clients can rely on;
- respect privacy and keep information confidential; and
- treat clients as being honest in their tax affairs unless they act otherwise.
24. The Code of Practice and the Taxpayers' Charter define a new environment for a more professional relationship between tax officers and tax agents.