Tax Practitioners Board exposure draft

The Tax Practitioners Board (TPB) has released this draft Information Sheet (TPB(I) D51/2023) as an exposure draft and invites comments and submissions in relation to the information contained in it within 60 days. The closing date for submissions is 16 February 2024. The TPB will then consider any submissions before settling its position, undertaking any further consultation required and finalising the TPB(I). 

Written submissions should be made via email at tpbsubmissions@tpb.gov.au or by mail to: 

Tax Practitioners Board 
GPO Box 1620 
SYDNEY NSW 2001 

Disclaimer

This document is in draft form, and when finalised, will be intended as information only. It provides information regarding the TPB’s position on the application of subsection 30-10(15) of the Tax Agent Services Act 2009 (TASA) which commences on 1 January 2024.

Subsection 30-10(15) of the TASA was introduced by Schedule 3 to the Treasury Laws Amendment (2023 Measures No. 1) Bill 2023 (the Bill).

Subsection 30-10(15) of the TASA contains a new obligation for registered tax agents and BAS agents (collectively referred to as ‘registered tax practitioners’) under the Code of Professional Conduct (Code).

While this draft Information Sheet seeks to provide practical assistance and explanation, it does not exhaust, prescribe or limit the scope of the TPB’s powers in the TASA.

The principles, explanations and examples in this draft Information Sheet do not constitute legal advice and create no additional rights or legal obligations beyond those that are contained in the TASA or which may exist at law.

Please refer to the Bill and the TASA for the precise content of the legislative requirements.

Document history

This draft Information Sheet was issued on 18 December 2023 and is based on the TASA, as at the date of issue.

Issued: 18 December 2023

Introduction

1. The Code of Professional Conduct (Code) applies to all registered tax practitioners.^[1]The Code is found in section 30-10 of the Tax Agent Services Act 2009 (TASA).
2. This Information Sheet explains the obligations of registered tax practitioners under Code Item 15 (subsection 30-10(15) of the TASA) in respect of their employment, contracting with, or otherwise use of a ‘disqualified entity’ to provide tax agent services on their behalf.^[2] 
3. Code Item 15 was introduced into the TASA by the Treasury Laws Amendment (2023 Measures No. 1) Bill 2023 (the Bill). Code Item 15 applies from 1 January 2024, although transitional provisions may apply to some existing arrangements until 31 December 2024 (inclusive).
4. In this Information Sheet, you will find the following information:
   • What is Code Item 15 (paragraphs 5 to 14)
   • How to comply with Code Item 15 (paragraphs 22 to 31)
   • Notification requirements for disqualified entities (paragraphs 32 to 35)
   • Transitional provisions for registered tax practitioners (paragraphs 36 to 39)
   • Consequences for failing to comply with Code Item 15 (paragraphs 40 to 43).

What is Code Item 15?

5. Registered tax practitioners often use the services of employees and other entities to assist them in providing tax agent services and BAS services to their clients. However, Code Item 15 states that as a registered tax practitioner, you must not employ, or use the services of, an entity to provide ‘tax agent services’ on your behalf if:
   • you know, or ought reasonably to know, that the entity is a ‘disqualified entity’, and
   • the TPB has not given you approval to employ, or use the services of, the ‘disqualified entity’ to provide tax agent services on your behalf.^[3] 
6. The Explanatory Memorandum (EM) to the Bill includes the following guidance in respect of the intended operation of Code Item 15 to:
   • ensure that the entities employed or used by registered tax practitioners in the provision of tax services, have the appropriate ethical and professional attributes to be employed in the tax profession^[4]
   • facilitate compliance with, and preserve the integrity of, the taxation system^[5]
   • reduce the possibility of tax fraud and evasion by or on behalf of taxpayers (for example, claiming unsubstantiated deductions)^[6]
   • protect consumers from services being provided by inappropriate entities.^[7]
7. Under Code Item 15 registered tax practitioners will be required to consider:
   • who are the individuals (or entities) employed or used, or seeking to be employed or used, by the registered tax practitioner to provide tax agent services on their behalf, and
   • whether any of those individuals (or entities) meet the definition of a disqualified entity.^[8]
8. A 'tax agent service' is any service:
   • that relates to:
     1. ascertaining liabilities, obligations or entitlements of an entity that arise, or could arise, under a taxation law; or
     2. advising an entity about liabilities, obligations or entitlements of the entity or another entity that arise, or could arise, under a taxation law; or
     3. representing an entity in their dealings with the Commissioner, and
   • that is provided in circumstances where the entity can reasonably be expected to rely on the service for either or both of the following purposes:
     1. to satisfy liabilities or obligations that arise, or could arise, under a taxation law;
     2. to claim entitlements that arise, or could arise, under a taxation law.^[9]
9. For the purposes of this draft Information Sheet, unless otherwise stated, tax agent services include BAS services.

What constitutes employing or using the services of an entity to provide tax agent services?

10. The terms 'employ’ and ‘use the services’ are not defined in the TASA and as such take on their ordinary meaning. 
11. The EM to the Bill provides the following non-exhaustive list of entities who are likely to constitute entities that are ‘used’ or ‘employed’ by a registered tax practitioner to provide tax agent services:
    • Employees^[10]
    • Associates^[11]
    • Contractors^[12] 
    • Individuals (or entities) who share in the revenue and income received from the tax agent services provided under the registered tax practitioner.^[13] 
12. The EM to the Bill makes it clear that the requirements of Code Item 15 are not intended to apply in respect of individuals or entities who only provide peripheral services to assist a registered tax practitioner, for example, administrative support staff who are only responsible for the administrative management of client files and data.^[14]

When is an entity employed or used to provide tax agent services ‘on your behalf’?

13. Under Code Item 7, registered tax practitioners are required to ensure that tax agent services they provide, or that are provided ‘on their behalf’, are provided competently.^[15] The TPB considers that the phrase ‘on your behalf’ carries the same meaning under Code Item 15 as it does under Code Item 7; that is, entities that registered tax practitioners may employ or use to provide tax agent services on their behalf includes (but are not limited to) individuals who are their employees or under their supervision and control.^[16]
14. Examples of circumstances where the TPB considers entities to be providing tax agent services ‘on the behalf’ of a registered tax practitioner include, but are not limited to, the following:
    • any entity, whether employed or used (i.e. as a contractor), for which the registered tax practitioner is also required to exercise adequate supervision and control to meet their obligations under Code Item 7,^[17] and
    • any entity with which a registered tax practitioner maintains (or is required to maintain, to comply with Code Item 7) a ‘remote’ supervisory arrangement.^[18]

What is the meaning of ‘disqualified entity’?

15. Subsection 45-5(2) of the TASA provides that a ‘disqualified entity’ is:
    • an entity^[19]
    • neither a registered tax agent or BAS agent, nor a ‘qualified tax relevant provider’ (QTRP),^[20] and
    • within the last 5 years, has had one or more of the events listed in Table 1 occur.

Table 1

What does it mean to know 'know or ought reasonably to know'?

16. The phrase ‘know or ought reasonably to know’ has two elements. The term 'know' refers to actual knowledge. The phrase 'ought reasonably to know' extends to constructive knowledge, where a person is taken to have knowledge about a matter, if the existence of that matter could be discovered by a reasonable person in the same position as the person, making reasonable enquiries.^[24]
17. A registered tax practitioner must therefore take reasonable steps and make reasonable enquiries to determine if an entity is a disqualified entity. The level of assurance a registered tax practitioner should seek from those reasonable steps and enquiries is the same for Code Item 15 as it is with respect to Code Item 16.^[25]
18. The EM to the Bill states that 'tax practitioners are expected to implement new onboarding requirements, information gathering and employee reporting processes to determine whether their staff and people they use are disqualified entities and if notification and approval by the TPB is necessary'.^[26] 
19. The first step is to check whether the entity is registered on the TPB Public Register as a registered tax agent or BAS agent, or registered on the Financial Advisers Register as a QTRP. If they are, that entity is not a disqualified entity at that time.^[27]
20. If they are not registered, the TPB considers that, at a minimum, reasonable steps and enquiries will include each of the following requirements outlined in Table 2.

Table 2

21. Table 2 contains the minimum requirements for most standard employments or engagements between registered tax practitioners and entities used to provide tax agent services on behalf of the registered tax practitioner. However, registered tax practitioners should exercise their professional judgment when determining the processes to undertake in circumstances where the above are not practical or applicable to a particular circumstance. While processes may be different to those outlined above, they must not be of a lower standard.

How to comply with Code Item 15

22. The ways in which a registered tax practitioner will comply with Code Item 15 will depend on the circumstances surrounding their use or employment of an entity to provide tax agent services on their behalf. Table 3 below provides a non-exhaustive explanation as to how registered tax practitioners can comply with Code Item 15 in different circumstances.

Table 3

Other considerations

23.  In considering how to proceed to ensure compliance with Code 15 and their obligations under the TASA more generally when employing or using the services of a disqualified entity, registered tax practitioners should also have regard to additional practical considerations, including but not limited to:
    • compliance with other requirements including obligations under the TASA (including supervision and control and professional indemnity insurance requirements) and other legal requirements (for example under employment and contract law) 
    • seeking additional information and clarification of the relevant facts and circumstances, including the attributes of the disqualified entity
    • cultural, human resources and management issues
    • general principles of fairness, transparency and ethics.
24. Having regard to the above considerations and any other considerations that will inform the tax practitioner’s professional judgment, the tax practitioner may decide to consider their options to cease the engagement or employment with the disqualified entity. Registered tax practitioners may wish to seek independent legal advice or other assistance as appropriate.
     

Seeking approval from the TPB

25. If a registered tax practitioner intends to employ or use (or continue to employ or use) a disqualified entity to provide tax agent services on their behalf, the registered tax practitioner must apply to the TPB for approval.
26. In addition to Code Item 15, a registered tax practitioner will not contravene subsection 50-25(1) of the TASA, relating to employing or using the services of deregistered entities, if:
    • the deregistered entity is a disqualified entity, and
    • the TPB has given approval to employ or use the services of the disqualified entity to provide tax agent services on the registered tax practitioner’s behalf.^[34]
27. An application to the TPB to approve the employment or use of a disqualified entity must be made in the approved form, accessed by logging in to My Profile and accompanied by relevant information relating to:
    • the reasons why the entity is a disqualified entity and the circumstances relating to those reasons
    • the role (or the proposed role) that the entity is performing (or would perform) in providing the tax agent services on your behalf
    • the extent to which the reasons why the entity is a disqualified entity are relevant (or not relevant) to the entity’s ability to perform the proposed role to an appropriate standard of professional and ethical conduct
    • any additional information that you consider to be relevant to the TPB’s consideration of the request for the TPB’s approval. 
28. Registered tax practitioners should ensure that the disqualified entity has provided written consent for the registered tax practitioner to make an application for approval to the TPB.
29. The TPB must decide an application for approval within 60 days of receiving the application, or within a longer period agreed between the TPB and registered tax practitioner.^[35] If the TPB does not make a decision within 60 days (or agreed longer period) the application will be taken to be rejected.^[36]  
30. The TPB will, within a reasonable time after making its decision in respect of an application for approval, notify the registered tax practitioner in writing of:
    • the decision; and
    • if the TPB rejects the application – the reasons for the decision.^[37]
31. Decisions to reject an application for approval to employ or use the services of a disqualified entity are reviewable by the Administrative Appeals Tribunal.^[38]

Notification requirements for disqualified entities

32. A disqualified entity must notify a registered tax practitioner in writing that they are a disqualified entity before the registered tax practitioner enters into a contract, or renews / agrees to extend an existing contract, to employ or use the services of the disqualified entity to provide tax agent services on the registered tax practitioner’s behalf.^[39]
33. If an entity is employed or used to provide tax agent services on behalf of a registered tax practitioner and then becomes a disqualified entity, they must provide written notice to the registered tax practitioner they are a disqualified entity within 30 days of the day on which they become, or ought to have become, aware that they are a disqualified entity.^[40]
34. Transitional provisions may apply to entities who are already disqualified entities, and are being employed, or used, to provide tax agent services on behalf of the same registered tax practitioner. For transitional provisions to apply, the disqualified entity must be:
    • at the start of the day on 1 January 2024:
      • employed or used by the registered tax practitioner to provide tax agent services on their behalf
      • a disqualified entity, and
    • at the end of the day on 31 December 2024:
      • remain employed or used by the same registered tax practitioner to provide tax agent services on their behalf.
35. If the transitional provisions apply to a disqualified entity, the entity must provide written notice to the registered tax practitioner that they are a disqualified entity by no later than 30 January 2025.

Transitional provisions for registered tax practitioners

36. To allow registered tax practitioners a reasonable amount of time to ensure compliance with the requirements of Code Item 15, transitional provisions apply in certain circumstances.
37. Code Item 15 will apply on and after the date of entering into or renewing the contract, or the date of the agreement, if a registered tax practitioner enters into, renews, or agrees to extend a contract to employ or use a disqualified entity to provide tax agent services on their behalf, between 1 January 2024 and 31 December 2024 (inclusive).
38. A registered tax practitioner will not be required to have received TPB approval for their employment or use of a disqualified entity to provide tax agent services on their behalf from 1 January 2024 until 31 December 2024 (inclusive), unless during this period the registered tax practitioner enters into, renews, or agrees to extend a contract to employ or use a disqualified entity to provide tax agent services on their behalf.^[41]
39. The scenarios in Table 4 illustrate the operation of the transitional provisions to the application of Code Item 15 for registered tax practitioners. These scenarios are equally applicable whether the registered tax practitioner employs, or use the services of, the individual or entity to provide tax agent services on their behalf.

Table 4

Consequences for failing to comply with Code Item 15

40. If a registered tax practitioner employs or uses the services of a disqualified entity to provide tax agent services on their behalf without the TPB’s approval, the TPB will find that the registered tax practitioner has breached the Code and may impose sanctions for that breach.
41. Ultimately, whether a registered tax practitioner has complied with their obligations under Code Item 15 is a question of fact. This means that each situation will need to be considered on a case-by-case basis having regard to the particular facts and circumstances of that case.
42. Conduct that leads to a breach of Code Item 15 could also impact on a registered tax practitioner meeting the fit and proper person requirement^[42] and other Code items, such as Code Item 1, which relates to honesty and integrity, and Code Item 7 which relates to ensuring tax agent services provided on a registered tax practitioner’s behalf are provided competently.
43. If a registered tax practitioner breaches the Code, the TPB may impose one or more of the following sanctions:^[43]
    • a written caution
    • an order requiring the tax practitioner to do something specified in the order
    • suspension of the tax practitioner’s registration
    • termination of the tax practitioner’s registration
    • a period within which a terminated tax practitioner may not re-apply for registration.

Case studies

44. These case studies provide general guidance only. In all cases, consideration will need to be given to the specific facts and circumstances.
45. Note that these case studies are based on scenarios where the transitional provisions are no longer in effect. Refer to Table 4 (at paragraph 39) for scenarios which illustrate the operation of the transitional provisions.