An unexpected year of focus on the profession
Last year saw an unparalleled focus of senators, the Government and various government agencies on the ethical and professional conduct of the tax profession. Parliamentary inquiries and a constant flow of media articles meant that our profession was rarely out of the headlines. Last year also saw the passage of new laws designed to strengthen the regulation of the tax profession, as well as the announcement of a significant reform package on 6 August 2023. The package aims to restore public confidence and faith in the tax profession.
It is important to bear in mind that many of the changes we saw legislated in 2023 did not originate from the revelations by government agencies about actual or alleged professional misconduct. They instead had their genesis in the Government’s response to the Review of the Tax Practitioners Board (TPB) (the James Review). The Final Report of the James Review contains 28 recommendations, some of which form the first tranche of legislative changes to the Tax Agent Services Act 2009 (Cth) (TASA).
The second tranche of changes to the TASA and related laws in the Government’s proposed reform package announced on 6 August 2023 resulted from revelations in January 2023 of professional misconduct. The two tranches of legislative changes are explained below.
Tranche 1 changes — enacted law
The tranche 1 amendments primarily give effect to five of the 28 recommendations by the James Review and are contained in Schedule 3 to the Treasury Laws Amendment (2023 Measures No. 1) Act 2023. The three key changes made by this Act amend the TASA to:
- Insert additional code items into the Code of Professional Conduct (Code) in section 30-10 of the TASA with effect from 1 January 2024 — new Code item 15 (and 16) and new Division 45 of the TASA:
- require a registered tax or BAS agent (agent) to seek approval before employing, or using the services of, an entity to provide tax agent services on their behalf if they know, or ought reasonably to know, that the entity is a ‘disqualified entity’;
- require disqualified entities to notify an agent before they are employed or engaged by the agent to provide tax agent services on the agent’s behalf; and
- broadly allow disqualified entities employed or used to provide tax agent services immediately before 1 January 2024 who are also so employed or used immediately before 1 January 2025 until 30 January 2025 under a transitional rule to notify the agent of their status.
Guidance on the meaning of ‘disqualified entity’ and agents’ new obligations can be found in the TPB’s draft Information sheets TPB(I) D51/2023 and TPB(I) D52/2023. Significant penalties may apply to the disqualified entity and the agent for failing to meet their new obligations.
- Reduce the registration period from every three years to annually — the new annual registration period applies from the next renewal date which occurs from 1 July 2024. This means that a renewal in or before June 2024 would be for a three-year period ending in 2027, whereas a renewal in or after July 2024 would be for only a one-year period. Notably:
- practitioners will no longer need to submit an annual declaration with the TPB;
- no changes will be made to the CPE requirements at this stage; and
- the application fee that will be payable for annual registration is currently being determined by the Government.
- Enable the Minister to specify in a legislative instrument additional obligations that registered agents must comply with — from 1 January 2024. Treasury has released a draft determination, the Tax Agent Services (Code of Professional Conduct) Determination 2023, which will supplement the Code, proposes a range of new obligations that agents will need to meet, including:
- protecting public trust and confidence in the integrity of the tax profession and the tax system;
- not disclosing any information they receive, directly or indirectly, from an Australian government agency in connection with any activities undertaken with the agency in their capacity as a registered agent;
- keeping complete and accurate records relating to the tax agent services they have provided to each of their clients, including former clients; and
- advising all current and prospective clients of various matters that could be reasonably relevant and material to a decision by a client to engage, or to continue to engage, the agent.
The key professional associations representing the tax and accounting profession (Joint Bodies) made a joint submission in respect of the Minister’s draft determination.
I noted above that ‘the tranche 1 amendments primarily give effect to five of the 28 recommendations by the James Review’. However, Schedule 3 to the Treasury Laws Amendment (2023 Measures No. 1) Act 2023 also amended the TASA to:
- Prevent a partner in a partnership or an executive officer of a company (and certain former partners and executives who continue to receive financial benefits within a six-month period preceding their possible appointment) from being appointed a Board member of the TPB where the firm has more than 100 employees — from 1 October 2024.
- Introduce new breach reporting rules (‘dob-in’ provisions) requiring registered agents to report themselves and other registered agents to the TPB and the relevant professional association where they have reasonable grounds to believe that they or another agent has breached the Code, and the breach is a ‘significant breach’.
These amendments were tabled by the Greens on 8 November 2023 and accepted by the Senate on 15 November 2023. In the case of these amendments, the usual consultation processes were foregone, sidelining the Joint Bodies. The Joint Bodies stated in a joint media release dated 15 November 2023, ‘while the Government consulted widely on the original proposed amendments earlier this year, there has been no consultation with stakeholders on the Greens’ latest amendments, nor has an accompanying explanatory memorandum been provided to give further guidance on the changes.’
A lack of consultation can often lead to poor tax law design and unintended outcomes for everyone involved, which is why the usual process of parliamentary consultation is in place and should have been followed in this case. Any amendments to the law must consider all impacts and become good law, based on sound and considered policy. Meaningful consultation is the key to achieving this balance.
Unlike other laws, including the Corporations Act 2001 (Cth), these amendments lack any protections usually afforded to those who are the subject of false or unfounded allegations, or for claims for lost revenues against someone who made an allegation.
The tax profession is particularly concerned about the new ‘disqualified entity’ and the ‘dob-in’ provisions and what it means for them. What additional compliance burden (time and cost) should agents expect to ensure they comply with the ‘disqualified entity’ provisions? How will the ‘dob-in’ provisions affect relationships between agents? How will these rules affect partners of the same firm or practitioners in smaller regional communities? Will this affect the process of gaining a client from, or losing a client to, another agent?
Support and guidance from the TPB are needed to enable the profession to better understand their new obligations, particularly around what constitutes a ‘significant breach’. The Joint Bodies continue to consult with the TPB on the development of this guidance.
Tranche 2 changes — proposed law
The Government’s announcement of its reform package on 6 August 2023 aims to restore public confidence and faith in the tax profession, by covering three priority areas:
- strengthening the integrity of the tax system;
- increasing the powers of the regulators; and
- strengthening regulatory arrangements to ensure they are fit for purpose.
Newly introduced legislation, the Treasury Laws Amendment (Tax Accountability and Fairness) Bill 2023, proposes to further amend the TASA to increase obligations imposed on registered agents and increase the powers of the regulators. The Senate referred this Bill to the Senate Economics Legislation Committee on 30 November 2023 for inquiry and report by 18 April 2024. The Tax Institute has made a submission to the Committee.
The measures in this Bill propose to:
- increase the maximum promoter penalties by 100-fold — the maximum promoter penalty was previously touted as being $782.5 million but thanks to a separately proposed increase in the amount of a penalty unit from $313 to $330, this will instead be $825 million;
- expand whistleblower protection when evidence of agent misconduct is provided to the TPB;
- allow the TPB more time to complete an investigation (from six months to 24 months); and
- enable the ATO and the TPB to refer ethical misconduct by advisers to ‘prescribed disciplinary bodies’ (this broadly includes, but is not limited to, prescribed professional associations) for disciplinary action.
Further to the tranche 2 changes noted above, a Treasury consultation paper released on 10 December 2023 sought feedback on enhancing the TPB’s sanctions regime, in respect of which the Joint Bodies made a joint submission.
Final comments
The sweeping changes affecting the regulation of the tax profession will take some time to navigate, and the provision of timely guidance by the TPB will be paramount to practitioners understanding their new obligations. Against the backdrop of the professional misconduct which has underpinned these reforms, it is important to acknowledge that the vast majority of practitioners do the right thing and conduct themselves honestly and with integrity.
It is vital that the tax profession is held to the highest ethical standard, standards which most of the profession strives to achieve. Measures that intend to maintain or improve the integrity of our taxation and superannuation system and those who operate within it should be supported, but effective consultation in designing these measures is essential to avoid unintended consequences. This is the hallmark of good law so that all stakeholders can operate within a fair system that is fit for purpose.
