Significant changes to the regulation of accountants came into effect on 1 January 2024. You can read our previous article on some of the new rules which is available, click here to read. Key amongst the changes was the introduction of two new Code items [15] and [16] prohibiting accountants from using the services of a “disqualified entity” or providing tax agent services as part of an arrangement with a disqualified entity.
We expect the Tax Practitioners Board (Board) to take a particularly rigid view of what it will and won’t find acceptable, it nonetheless has the power to approve certain arrangements in writing.
In this article, we show that with appropriate conditions, the Board’s approval power should be exercised often and liberally, thereby permitting otherwise disqualified accountants to continue helping clients (and indirectly the Tax Office) to comply with complex tax and superannuation laws.
New Code items
New sections s30-10(15) and s30-10(16) of the Tax Agent Services Act 2009 (TASA) state as follows:
“…(15) You must not employ, or use the services of, an entity to provide tax agent services on your behalf if:
(a) you know, or ought reasonably to know, that the entity is a disqualified entity; and
(b) the Board has not given you approval under section 45-5 to employ, or use the services of, the disqualified entity to provide tax agent services on your behalf.
(16) You must not provide tax agent services in connection with an arrangement with an entity that you know, or ought reasonably to know, is a disqualified entity…”
There are various technical and practical challenges with these new sections (the detail of which is beyond the scope of this particular article). These include:
- under Code [15], it may be arguable that, on one interpretation, the opening phrase “must not employ…an entity to provide tax agent services” means the prohibition is not ongoing. Instead, it is a prohibition that arises at a point in time (say when a person is first employed). Accordingly, Code [15] may therefore not capture circumstances where an entity’s role changes from time to time;
- the Board has no power to approve circumstances that fall within both Code [15] and Code [16].
There has also been some focus recently placed on the Explanatory Memorandum (EM) to these rules. The EM simply cannot be used if the plain text of the law is not unclear. Accordingly, relying on the circumstances specified by the EM to uncover the meaning of the new Code items is unhelpful and possibly (legally) wrong.
Disqualified entities
The definition of a “disqualified entity” is broad and in some respects may catch accountants unawares (s45-5(2) of the TASA).
Provided that you aren’t already registered under the TASA, it includes:
- anyone who has within the last 5 years been convicted of a serious tax offence, serious offence more generally, or an offence involving fraud or dishonesty;
- anyone who has within the last 5 years been sanctioned by the Board, has had their renewal denied by the Board, or have been found to have contravened the TASA. These definitions mean than an accountant can be disqualified even if a prior sanction received from the Board has ended and the accountant didn’t re-apply for registration; and
- anyone who has within the last 5 years suffered from personal or corporate insolvency (bankruptcy, external administration, etc).
The definitions mean that an accountant can be disqualified even though the circumstances causing their disqualification are not tax-related. Further details about the definition of a “disqualified entity” are contained in our earlier article here.
Practically, registered accountants will need to apply to the Board for approval to employ or use the services of the disqualified accountant if the person becomes a disqualified entity after 1 January 2024. Accordingly, the approval process isn’t just for new relationships, but can also apply to existing relationships in a business (say an existing employee becomes disqualified after 1 January).
Applying to the Board for approval
A registered accountant can apply to the Board for approval to employ or use the services of a disqualified accountant (s45-5 of the TASA). In an environment where firms are under pressure to meet client and regulator demands, we are expecting that a lot of applications will be made.
s45-5(1) of the TASA states:
“If you are a registered tax agent or BAS agent, you may apply to the Board for approval to employ, or use the services of, a disqualified entity to provide tax agent services on your behalf.”
The application to the Board must be made in the approved form (which is presently available via its website login) and accompanied by the materials required by the Board (s45-5(3) of the TASA). It should also include a declaration signed by the disqualified accountant. The Board has published such declaration on its website.
A decision on the application is made within 60 days of the application, or within such further time as agreed between the parties (s45-5(4) of the TASA). However, if the period passes and the Board hasn’t made a decision, then the application is automatically rejected (s45-5(5) of the TASA). Unfavourable decisions can be appealed to the Tribunal.
The Board has a wide remit as to the things it can consider in determining an application. However, we expect the Board to take a particularly rigid view of what it will and won’t consider, including the circumstances in which it will exercise its approval power favourably. Contrary to the case law (which we discuss below), the livelihood of a disqualified accountant may not be a priority for the Board because it will see its overarching objective as supporting trust and integrity in the tax profession, including by enforcing appropriate standards of professional and ethical conduct (see, also, New South Wales Bar Association v Stevens [2003] NSWCA 95).
The Board can give approval for an application, having regard to (s45-5(6) of the TASA):
- the reasons why the person is disqualified and the circumstances relating to those reasons;
- the proposed role that the person would perform in providing tax agent services;
- the extent to which the reasons why the person is disqualified are relevant to the person’s ability to perform the proposed role to an appropriate standard of professional and ethical conduct; and
- any other matters that the Board considers relevant.
This is where it gets interesting.
In our view, the case law shows that with appropriate conditions, the Board’s approval power should be favourably exercised often and liberally, thereby permitting otherwise disqualified accountants to continue helping clients (and therefore indirectly, the Australian Tax Office) to comply with complex tax and superannuation laws.
As a starting point, the Board’s new powers aren’t novel or new. The concept came from similar rules which apply to disqualified lawyers. You can apply to your local regulator under the Legal Profession Uniform Laws for approval to practise and/or carry out certain duties (see, s 121 of Schedule 1 of the Legal Profession Uniform Law Application Act 2014 (Vic) (LPUL)).
There have been numerous cases in this area of law, which provide detailed examples of how the new regime should be applied by the Board. To avoid any doubt, we consider that the statutory language of s45-5 of the TASA is broad enough to enable the Board to adopt a similar approach to its decision-making as the local regulators under the LPUL. There is uncertainty at present about whether the Board will take a similar approach to the local regulators.
Overall, the published cases in this area have all tended towards granting approval for otherwise disqualified persons subject to conditions. Although, there are also cases where attempts to narrow those conditions have failed (see, Evans v Queensland Law Society [2022] QCAT 284).
The conditions, amongst others, generally involve:
- supervision of the person’s work, including hand-over between supervisors if needed;
- limited access to mail, trust accounts and/or office accounts;
- some unsupervised contact with clients;
- changing the person’s title and how such title is communicated to clients; and
- advice being provided in-house to assist other staff in the practice provided that such advice is ultimately signed-off before it is communicated to the client.
The following are a sample of cases which all demonstrate that, even in cases involving more serious conduct or misconduct, approval is granted.
The often-cited case in this area is Dezarnaulds and Wawn v The Law Society of New South Wales (Unreported Supreme Court 27 June 1995). Mr Dezarnaulds applied for approval to become a law firm’s lay associate. After 34 years as a solicitor, he was removed from the Roll of Solicitors after he was found to have misappropriated $75,000 of clients’ funds over a period of four and a half years. The Court, finding that Mr Dezarnaulds had good prospects of rehabilitation despite prior significant offending, ultimately granted approval for Mr Dezarnaulds to work as a lay associate. The conditions that applied related to general supervision, access to office accounts, office attendance, restrictions on correspondence in his name and personal business cards.
Separately, the case of Connolly v Law Society of New South Wales [2000] NSWADT 82 is authority for the proposition that rehabilitation and permitting a person to work and earn a living is important. Mr Connolly, a parolee convicted with indictable theft and fraud offences, applied for approval to become a law practice’s lay associate. He had never practised as a lawyer, nor did he have formal legal education or training. However, he had developed legal skills whilst imprisoned by assisting solicitors who visited inmates. In making its decision, the Tribunal emphasised rehabilitation and ensuring that Mr Connolly had the opportunity to work and earn a living. The conditions that applied restricted his scope of work to legal research, prevented him from accepting client instructions without supervision and limited access to firm or client funds.
Finally, Double Bay Law Pty Ltd (t/as & Legal) v Council of The Law Society of New South Wales [2013] NSWADT 182 involved a solicitor (ie, Mr Hilton) conspiring to bribe a Minister, and was approved with conditions. Mr Hilton, a former solicitor, applied for approval to be a lay associate. He was previously convicted of conspiring to bribe a Minister, serving a 9-year prison sentence. The Tribunal looked favourably on Mr Hilton’s degree of contrition, his unblemished record before and after his offending, and the quantity and weight of 23 fully informed referees. The conditions that applied related to supervision of his work, access to accounts, corresponding with clients and not providing legal advice. He could, however, provide in-house advice to his colleagues.
Case after case in this area follows similar lines.
Final observations
These new laws provide disqualified accountants the opportunity to apply to the Board, along with their employer / service provider, for approval to continue to operate and ultimately provide tax agent services. Of course, there will be conditions. However, those conditions do not need to be unnecessarily prohibitive as the case law shows. We will see in due course if the Board apply the rules in the same way.
How can we help?
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 Board or in the Administrative Appeals Tribunal.
This article was written by Vincent Licciardi, Partner, Isabelle Smith, Senior Associate and Aidan Del Socorro, Law Graduate.
