Note as at 31 July 2024: The Government has indicated that it will now introduce transitional rules for these changes and accordingly, the article below should be read in conjunction with and subject to the transitional rules.
Recent changes to the Code of Professional Conduct (Code) under the Tax Agent Services Act 2009 (TASA) will affect all registered tax agents and BAS agents (collectively, tax agents), their businesses and the clients who engage them. Alongside this, the Tax Agent Services (Code of Professional Conduct) Determination 2024 (Determination) has introduced 8 new obligations to the Code. The changes apply from 1 August 2024 giving tax agents little time to ensure they comply with the new rules. Some of the obligations are also retrospective and apply from 1 July 2022.
In this article, we outline in detail two of the obligations which have caused angst amongst tax agents and which will inevitably affect the profitability of their businesses. We also have solutions to assist tax agents to comply with the Code. We then provide a summary of the other 6 obligations.
New significant obligations under the Code
The obligation to correct false or misleading statements made to the TPB and/or the ATO
The Determination imposes an obligation on tax agents to correct any false, incorrect, or misleading statements made to the Tax Practitioners Board (TPB) or the Australian Tax Office (ATO), even if a client does not agree for the tax agent to do so.
Under the Code, tax agents must not:
- make statements to the TPB or the ATO that they know or ought reasonably to know is false, incorrect or misleading;
- prepare such statements that they know or ought reasonably to know will be made to the TPB or the ATO; or
- permit or direct others to make such statements.
If a tax agent becomes aware that such statements were made to the TPB or the ATO, the tax agent must take reasonable steps to:
- correct such statements if they had made or permitted the statement to be made, even if it is against the clients’ instructions;
- advise the maker of the statement that the statement should be corrected if they had prepared the statement; and
- notify the TPB or the ATO that the statement is incorrect, false, or misleading if the maker does not correct the statement within a reasonable time. This should occur even if the client instructs them not to.
These changes may result in breaches of contract, trust and confidentiality obligations between the tax agent and their clients. They may also result in negligence claims.
We recommend that tax agents revisit their letters of engagement and update them to include these new requirements. This will reduce the risk of claims in the future against their businesses. It will also give the tax agent a contractual basis that they can point to, permitting them to correct certain statements if a client does not consent. The alternative for tax agents may be to simply disengage the client if the statement is not corrected within a reasonable time.
The obligation to disclose all relevant matters to clients
Under the Code, tax agents must advise all current and prospective clients of:
- any matter that could significantly influence a client’s decision to engage the tax agent (Item 1). “Any matter” is any matter occurring after 1 July 2022 and so this rule is retrospective;
- the tax agent register, and how the register can be accessed and searched via the TPB’s website (Item 2); and
- how they can make a complaint against the tax agent, including making a complaint to the TPB (Item 3).
Although Items 2 and 3 can easily be satisfied by updating the tax agent’s website, letter of engagement and/or email signature block, Item 1 is clearly problematic and may ultimately affect the profitability of the tax agent’s business.
The exact scope of matters that need to be disclosed is currently unclear, including whether personal issues, such as a tax agent’s mental health, are relevant.
The explanatory statement for the Determination states the following are relevant matters to be disclosed under Item 1:
- a prior material breach of the TASA;
- a current or former investigation by the TPB;
- any sanctions imposed by the TPB;
- any conditions applying to registration; and/or
- any potential use of disqualified entities in relation to that client or potential client.
In respect of disclosing Items 1, 2 and 3:
- for existing clients, tax agents have until 30 October 2024 to notify them; and
- for any new prospective clients after 1 August 2024, tax agents must notify them before they engage their services.
We recommend that tax agents update their website, letter of engagement and/or email signature block to satisfy Item 2 and Item 3. Further consideration and reflection will also be needed to determine if any disclosures are required under Item 1.
Other obligations under the Code
The obligation to uphold and promote the Code and ethical standards of the tax profession
Under the Code, tax agents must:
- uphold and promote the Code;
- avoid conduct that undermines public trust in the tax profession or system;
- not undermine the collective efforts to maintain integrity and accountability within the profession; and
- report significant breaches of the Code to the TPB.
Again, the exact scope of these ‘significant breaches’ that need to be reported are currently unclear. However, the explanatory statement for the Determination states the following are relevant breaches to be reported:
- not removing staff from a project where there are reasonable concerns about potential unethical conduct relating to the project;
- asking not to be informed of, or for appropriate records to be made of, information relating to potential breaches of the Code;
- destroying evidence relating to any potential breach of the Code;
- taking or threatening any adverse action against an individual who raises concerns about potentially unethical conduct; or
- rewarding an individual in relation to conduct that is unethical or otherwise encouraging (or not discouraging) such unethical behaviour.
In our view, a breach of this Code item is likely to be joined to other substantive breaches of the Code.
The obligation to identify, disclose and manage conflicts of interest in dealings with government
Under the Code, tax agents must identify, document, disclose, and manage conflicts of interest when working with Australian government agencies in a professional capacity
This Code item is unlikely to apply to the vast majority of tax agents.
The obligation to maintain confidentiality in dealings with government
Under the Code, tax agents must not:
- disclose any information received from an Australian government agency (unless legally required or authorised); or
- use such information for personal advantage unless authorised.
Similar to the above, this Code item is unlikely to apply to the vast majority of tax agents.
The obligation to keep proper client records
Under the Code:
- tax agents must keep detailed records in English (or they must be easily translatable to English) of services provided to clients for at least five years; and
- these records must include all relevant information, advice, and communications with the clients.
In our view, this Code item is likely to reduce the circumstances where tax agents are providing oral advice to their clients because records of such services will also ultimately need to be kept in writing.
The obligation to provide competent tax agent services
Under the Code, tax agents must ensure that entities providing services on their behalf have the necessary knowledge, skills, and are appropriately supervised. Broadly, if tax agents have staff, this obligation requires that they must have processes in place to ensure the tax agent services are provided competently and with adequate oversight. This also applies if certain administrative or other services are outsourced by the business to third parties.
The issue of competency, supervision and oversight arises in most disputes, complaints, and professional investigations. We therefore strongly recommend tax agents record and/or update their internal policies and controls, management systems, work papers, communication logs between them and their clients, and Continuing Professional Development logs for this purpose. In our experience, most businesses have the systems and processes in place, but they are not recorded in writing.
The obligation to maintain quality management systems
Under the Code, tax agents must:
- establish and maintain a quality management system to ensure compliance with the Code; and
- maintain this system which should cover governance, performance monitoring, record-keeping, confidentiality, conflict management, and employee management.
The explanatory statement states that the internal controls will differ significantly depending on the size of the tax agent’s business. However, smaller tax practices must maintain physical controls over filing, conducting conflict of interest checks, updating software, and maintaining policies for recruitment, training, management and security protocols, where applicable. A detailed onboarding and disengagement process for clients is also essential. These requirements are also consistent with other parts of the Code, as it is key to maintaining the integrity of any tax practice.
How can we help?
Our National Tax Group acts for tax agents covered by these new rules. We can assist to revise letters of engagement and websites, advise on significant breaches and reporting obligations, and communications with affected clients. We also assist tax agents subject to disputes, complaints, and professional investigations before the TPB and the professional bodies.
This article was written by Vincent Licciardi, Partner, Isabelle Smith, Senior Associate, Alissa Lee, Associate and
Matilda Loton, Law Graduate.
