The Government is presently passing new laws to close technical loopholes in the Tax Agent Services Act 2009 (TASA). At present, accountants who do not qualify for registration may still provide their services via registered businesses.
The laws impose strict obligations on registered accountants prohibiting them from using “disqualified entities” in their businesses without approval from the Tax Practitioners Board (TPB). The laws also impose strict obligations on disqualified entities to notify the accountant about their disqualification. Breaches of these laws can lead to significant penalties, including termination from practice and fines.
The laws are very broad and capture the employment of staff, and other contractual or service arrangements. For instance:
- registered accountants who, in a tight labour market, do not wish to lose senior staff. They may therefore permit staff to have their own client base whose tax obligations are satisfied via the accountant’s business. In effect, senior staff are permitted to operate a business “on the side”; and
- service arrangements where new clients are introduced to a registered accountant’s business, or assistance is obtained during the busy season, and there is a commission or “fee splitting” arrangement.
So what are the new laws and what do we need to do?
Once these laws pass Parliament, registered accountants will not be able to:
- employ or use the services of a disqualified entity if they know, or should reasonably know, that the entity is disqualified;
- provide their services in connection with an arrangement with an entity they know, or should reasonably know, is disqualified.
A disqualified entity, including an entity that becomes disqualified, must also notify the registered accountant of their disqualification.
Penalties for the failure to comply with these new rules can include suspension or termination from practice and fines. The fines exceed $65,000 for individuals and $340,000 for companies.
To be clear, these penalties do not apply if registered accountants have obtained approval from the TPB, which requires a formal application to be made. The TPB may give approval, taking into account the reasons why the entity is a disqualified entity, the proposed role the disqualified entity will have in the business and the disqualified entity’s ability to perform the proposed role. An application that is denied can be appealed to the Administrative Appeals Tribunal or Federal Court.
Who is disqualified and how broad do our checks need to be?
The definition of disqualified entity is broad. It includes a person who has been subject to TPB sanctions, such as written cautions, education orders, suspension or termination any time during the past 5 years (unless that person successfully re-registers with the TPB). It also includes entities who have been convicted of serious offences, including tax offences, and means that registered accountants’ due-diligence checks will need to be broad.
Importantly, a person who does not re-register with the TPB remains a disqualified entity for 5 years even if the sanction that was imposed was for less than 5 years, or the sanction did not involve termination or suspension of registration (for example, if an education order was imposed). This could be an unintended consequence of the current drafting of the law.
The new laws apply to all new arrangements entered into from 1 January, 1 April, 1 July or 1 October after the new laws receive Royal Assent, including arrangements that are renewed or renegotiated.
In respect of existing arrangements, there will be a 12-month grace period for registered accountants, their staff and services providers to comply with the new requirements, including applying to the TPB for approval.
Finally, registered accountants who operate their businesses via companies, trusts or partnerships, and who are presently (or were recently) under investigation by the TPB also need to comply with these new laws. This could, for example, include negotiating a suitable arrangement with the TPB as to how the accountant can continue to participate in their business, albeit that they are disqualified. This should ensure that the business can continue to operate smoothly and deliver its services to clients.
Overall, registered accountants should revisit and update their on-boarding processes for staff and external service providers to ensure probity checks are documented and completed. We recommend that such processes should also extend to existing staff and service providers to ensure that registered accountants comply with the code. For example, registered accountants may wish to carry out police checks, review the TPB register and/or seek declarations of probity from staff and service providers. These are quick and cost-effective checks which can coincide with staff planning sessions or contract renewals.
HWL Ebsworth Lawyers specialises in professional conduct investigations carried out by the Tax Practitioners Board and the various accounting bodies. We have acted for accountants and their businesses in investigations arising from Australian Taxation Office referrals and client complaints, including allegations of stolen monies, unauthorised tax lodgements and non-compliance with personal tax obligations.
Please contact one of our team members with any queries, including if you are presently subject to an investigation either before the TPB or in the Administrative Appeals Tribunal.
This article was written by Vincent Licciardi, Partner, Alissa Lee, Solicitor, and Joseph Li, Law Graduate.