22. There is no set formula for determining the sufficient number of registered individual tax practitioners a partnership or company is required to have to satisfy this requirement. However, the minimum number of registered individuals forming the sufficient number must be at least one.
23. In determining the adequacy of the nominated sufficient number, the TPB will take into account a number of factors, including:
    • having available adequate resources (including financial, technological and human resources) to provide the tax agent or BAS services and to carry out supervisory arrangements
    • maintaining the competence to provide those tax agent or BAS services
    • ensuring that the registered individual tax practitioner responsible for the supervision and control is fit for purpose, that is, the registered individual is adequately trained and competent, to provide the supervision and control
    • ensuring that the registered individual tax practitioner responsible for the supervision and control only supervises tax agent or BAS services they are registered to provide
    • size and scale of the tax agent or BAS services provided within the business (for example, turnover, number of clients and number of relevant staff)
    • the type and complexity of tax agent or BAS services being provided and supervised
    • number of qualified and experienced staff
    • the number of qualified tax relevant providers^[21] responsible for overseeing the supervisory arrangements
    • the frequency of appropriate training and development activities for all relevant staff
    • the level, type and complexity of technology or software used, including network security protocols in place and digital monitoring and review processes
    • risk management processes and procedures, including the use of delegated supervision processes
    • the supervisory arrangements (for example, quality assurance and control practices and escalation procedures) in place
    • any conditions imposed by the TPB on the entity’s registration based on the qualifications and experience of its staff.^[22] 
24. In assessing the capacity of the individual tax practitioner assuming the role of supervising tax practitioner and their ability to continue providing a competent service to their own client base, it is important to take into consideration all of the factors set out in paragraph 23 above.
25. In addition, the TPB requires that the prior informed written consent of the registered individual tax practitioner forming the sufficient number must be obtained. A partnership or company registered tax practitioner must ensure that the individual registered tax practitioner has considered all the relevant information, including the nature of the supervisory arrangements in place and the supervision and control to be undertaken, and provided their prior informed consent by way of a written signed statement to the partnership or company registered tax practitioner. This ensures that the individual is aware of their appointment as a supervising tax practitioner and understands the responsibilities that attach to that role.
26. Where existing documentation sets out the nature of the supervisory arrangements and the supervision and control to be undertaken, and the individual tax practitioner forming the sufficient number is aware of and understands the obligations set out in that existing documentation, this will obviate the need for the prior informed written consent to be obtained.

27. The TPB is of the view that it is ultimately a matter for all registered tax practitioners to assess how many registered individual tax practitioners their business requires to ensure that tax agent or BAS services are provided competently and to ensure there are adequate supervisory arrangements in place. A partnership or company will be required to demonstrate, on the balance of probabilities, that it satisfies the sufficient number requirement where requested to do so by the TPB.

Tax agents with a tax (financial) advice services condition

28. The TPB recognises that the business models and structures in the financial services industry are different to those commonly found with tax and BAS agents. This is in part due to the licensing requirements under the Corporations Act 2001. Existing business models and structures in the financial services industry that the TPB is aware of include:
    • licensees with multiple practices operating under one licence
    • licensees operating with authorised representatives only (which may include corporate authorised representatives and/or individual authorised representatives), employee representatives only or a combination of both
    • licensees with a small number of representatives operating a salaried advice business
    • corporate authorised representatives authorised by one of the above licensee structures
    • authorised representatives, often as sole traders, operating a financial planning business under the licence of a larger licensee.
29. Where an AFS licensee registers as a tax agent, it must have at least one registered tax agent as its sufficient number. In determining the number of registered tax agents required to satisfy the sufficient number requirement, the TPB may take into account the number of qualified tax relevant providers within the company who provide tax (financial) advice services.
30. Where an AFS licensee does not register as a tax agent, it must ensure that every entity that provides tax (financial) advice services on its behalf are either registered as a tax agent with the TPB or a qualified tax relevant provider with the Australian Securities and Investments Commission in order to continue providing tax (financial) advice services on behalf of the AFS licensee for a fee or reward.  

Circumstances where a registered tax practitioner is unlikely to carry out adequate remote supervisory arrangements

59. The following is an example of where the TPB is unlikely to be satisfied that adequate and appropriate remote supervisory arrangements are in place

Example 3

XYZ Pty Ltd has been a registered tax agent with the TPB since 1 July 2018. Steven, a registered tax agent, is the sole director of the company and the nominated supervising agent.

Amanda provides tax agent services on behalf of XYZ Pty Ltd. She is not registered with the TPB.

As the nominated supervising agent for XYZ Pty Ltd, Steven is responsible for the supervision and control of Amanda who is located in an interstate office. As part of the supervisory arrangements XYZ Pty Ltd has in place, Steven:

• undertakes spot checks of Amanda’s work intermittently
• has infrequent Skype check-ins with Amanda which are often cancelled
• has provided Amanda with a suite of training material but has not undertaken any training or mentoring of Amanda himself
• has no remote supervisory arrangement plan in place.

In these circumstances, the TPB is unlikely to be satisfied that XYZ Pty Ltd has adequate and appropriate remote supervisory arrangements in place. There is no remote supervisory arrangement plan setting out the nature of the remote supervisory arrangement, contact with Amanda is irregular and insufficient, and there is no agreed schedule for check-ins, training or review of work undertaken by Amanda on behalf of XYZ Pty Ltd.

Holding multiple supervisory roles

60. The TPB acknowledges that a registered tax practitioner carrying out supervisory arrangements may be doing so for multiple related or unrelated entities, or both.
61. Where a registered tax practitioner is carrying out supervisory arrangements for multiple related entities, due consideration must be given to the factors outlined in paragraphs 46 and 47 above. Where the supervisory arrangements involve unrelated entities, due consideration must also be given to the factors outlined in paragraph 55 above.
62. In addition, where a registered tax practitioner is carrying out supervisory arrangements for multiple entities, related or unrelated, the following additional considerations may be relevant to determine whether the supervisory arrangements are adequate:
    • size of each entity (for example, turnover of business, number of clients, and number of relevant staff)
    • market segment of the client base of each entity
    • type and complexity of the tax agent or BAS services being provided or supervised
    • other professional duties or responsibilities of the registered tax practitioner undertaking the supervision and control.

66. Of most relevance in the context of supervisory arrangements is Code Item 7 which provides that you must ensure that the tax agent or BAS service provided on your behalf is provided competently.
67. To ensure that a service provided on behalf of a registered tax practitioner is provided competently, the registered tax practitioner must be satisfied that the provider of the service, including any subcontractor, has the requisite skills and experience to provide the services on their behalf. They must also ensure that adequate supervision and control arrangements are in place to ensure the accuracy of any services provided on their behalf.
68. The level of supervision and control will depend on a range of factors including:
    • the educational qualifications and extent of experience of the provider of the service
    • the nature of the actual service being provided
    • any structures or processes in place (for example, supervisory arrangements or quality assurance and control procedures) to facilitate the competent provision of tax agent or BAS services.
69. The TPB has a range of options available to it under the TASA in making findings about the conduct of registered tax practitioners. The options open to the TPB include:
    • imposing sanctions for breach of the Code
    • applying for a civil penalty for breach of the civil penalty provisions
    • terminating registration on the basis that the registered tax practitioner is no longer a fit and proper person to be registered. This may include terminating the director(s) or partner(s) of a registered tax practitioner company or partnership where the director(s) or partner(s) are registered with the TPB and are found to be no longer fit and proper.

Sections 35 and 40 of the Determination

70. The Determination contains additional obligations which relate to the professional and ethical conduct of registered tax practitioners which elaborate or supplement aspects of the Code^.[47] Subsection 30-10(17) of the TASA requires that registered tax practitioners must comply with the Determination. 
71. Subsections 35(1) and (2) respectively of the Determination require that registered tax practitioners must ensure that each entity providing tax agent services on their behalf:
    • maintains knowledge and skills that are relevant to the tax agent services the entity is providing
    • is appropriately supervised, having regard to knowledge and skills of the entity, the tax agent services being provided by the entity, and the registered tax practitioner’s system of quality management.
72. Subsections 40(1) and (2) respectively of the Determination require that registered tax practitioners must:
    • establish and maintain a system of quality management in relation to the provision of tax agent services, designed to provide the registered tax practitioner with reasonable confidence that they are complying with the Code
    • document and enforce the policies and procedures of their system of quality management.

Ensuring tax agent services provided on your behalf are provided competently

73. Subsections 35(1) and (2) of the Determination complement and extend the Code by specifically requiring individuals who provide tax agent services on behalf of registered tax practitioners to maintain sufficient skills and knowledge to provide those services competently.^[48]
74. In practice, this requires tax practitioners to ensure unregistered staff providing tax agent services on their behalf are provided with adequate training^[49], to ensure that these services are provided competently.^[50]
75. Registered tax practitioners will also be required to ensure that substantive review and sign-off of work is conducted prior to sending work to clients or lodging returns on behalf of a client.^[51]
76. Registered tax practitioners should refer to paragraphs 39 to 63 above for additional guidance with respect to what may be considered appropriate supervision, including in the context of remote supervisory arrangements.
77. The following is an example of where the TPB is unlikely to be satisfied that the requirements of section 35 of the Determination have been met.

Example 5

Bizy B Pty Ltd (Bizy B) is a registered tax agent company. Barry, a registered tax agent, is the sole director of the company and the nominated supervising agent.

Vanessa provides tax agent services on behalf of Bizy B. She is not registered with the TPB. As the nominated supervising agent for Bizy B, Barry is responsible for the supervision and control of Vanessa, who works from home full-time.

Barry is seeking to expand the client base of Bizy B by offering BAS services, in addition to other services Bizy B already provides. Barry asks Vanessa to assist him in preparing and lodging BAS for these new clients.

Vanessa has no experience in preparing BAS and has not undertaken any education in relation to providing BAS services.

Bizy B’s expanding client base has left Barry with limited time to supervise Vanessa as she undertakes this new work. These supervisory arrangements, which have been discussed verbally with Vanessa, generally consist of:

• spot checks of BAS prepared by Vanessa and her working papers
• monthly team meetings via videoconference to check-in on her progress
• links to online training modules for Vanessa to complete which contain out-of-date information, and
• no requirement or timeframe for Vanessa to confirm once these online training modules have been completed.

In these circumstances, the TPB is unlikely to be satisfied that Bizy B has met the requirements of section 35 of the Determination, which require Bizy B to ensure Vanessa maintains knowledge and skills that are adequate and relevant to the tax agent service she is providing on their behalf. Factors the TPB would consider include:

• Vanessa’s inexperience and lack of education in relation to providing BAS services, and
• the training modules Vanessa has been asked to complete contain out-of-date information.

The TPB is also unlikely to be satisfied that Bizy B has ensured Vanessa is being appropriately supervised, having regard to Vanessa’s inexperience and lack of knowledge/skills. Factors the TPB would consider include:

• the spot checks and check-ins are not frequent enough to be considered appropriate supervision, and
• there is no requirement for Vanessa to confirm once she has completed relevant training modules.

78. For the purpose of section 40 of the Determination, a system of quality management includes policies and procedures relating to governance and leadership, monitoring of performance, adherence to the Code, client engagement, proper keeping of records, protecting confidentiality of information, the management of conflicts of interest, and the recruitment, training and management of employees.^[52]
79. The extent of internal controls in place will differ significantly between tax practitioners based on the size of individual practices, level of day-to-day engagement by a tax practitioner on the tax agent services being provided, complexity of the services being provided, and the complexity of the clients’ tax affairs.^[53] For example, a large firm providing various streams of tax agent services to multinational clients would be expected to use extensive internal controls to provide reasonable assurance that all tax practitioners within the firm (as well as the firm itself) are compliant with the Code.^[54] Examples of these internal controls include:
    • regular training of new and existing staff on their obligations under the TASA when providing tax agent services whether or not as a registered tax practitioner
    • the use of information barriers where there is a conflict of interest between current and former clients
    • quality assurance processes and systems to review the accuracy and standard of tax agent services being provided to clients
    • authorisation and risk management processes considering potential conflicts of interest prior to accepting new clients
    • file management system with access controls, limiting the users’ access to confidential information
    • documented reporting lines and responsibilities to ensure staff duties are effectively segregated and prevent the incidence of fraud or non-compliance
    • independent internal control reviews.^[55]
80. In comparison, individual tax practitioners with a relatively small client base who are generally located in the same geographical area would require less sophisticated internal controls.^[56] These may include:
    • physical controls over filing cabinets
    • conducting a conflict of interest check prior to engaging or re-engaging a client
    • regularly updating software to ensure information remains confidential.^[57]
81. The obligations in section 40 of the Determination have been informed by standards issued by the Accounting Professional and Ethical Standards Board (APESB).^[58] Further details about appropriate quality management processes can be found in APES 320 Quality Management for Firms that provide Non-Assurance Services (APES 320) released by the APESB.^[59]
82. APES 320 requires firms to establish and maintain a system of quality management that includes policies and procedures which address each of the following elements:
    • Governance and leadership
    • Professional standards
    • Acceptance and continuance of client relationships and specific engagements
    • Resources
    • Engagement performance
    • Information and communication
    • Monitoring and remediation^.[60]
83. APES 320 also requires firms to document their policies and procedures and communicate them to their personnel^.[61] Whilst the requirements under APES 320 are more prescriptive than the requirements of the Determination, tax practitioners must ensure that their quality management systems are also consistent with the requirements of the TASA, as outlined in the TPB’s guidance.  
84. Registered tax practitioners must also consider the impact of broader organisational policies and procedures on compliance with the Code, the Determination and integrity, including policies and procedures relating to: 
    • recruitment 
    • training 
    • supervision 
    • information sharing 
    • reporting 
    • record-keeping
    • security
    • information technology
    • human resources
    • dealing with complaints 
    • workplace culture.^[62]
85. Registered tax practitioners are required to exercise their professional judgment in determining the appropriate controls in their circumstances by considering a range of factors, including the size, nature and clientele of their practice.^[63] For example, a sole practitioner without staff would not be required to have controls in relation to recruitment and other staff related matters. Registered tax practitioners are also required to document and enforce the policies and procedures of their system of quality management.^[64]
86. The following is an example of where the TPB is unlikely to be satisfied that the requirements of section 40 of the Determination have been met.

Example 6

Consultation questions

87. The TPB welcomes submissions addressing any aspects of this draft TPB(I) as it relates to proposed changes to TPB(I) 36/2021 Supervisory arrangements under the Tax Agent Services Act 2009. The following consultation questions may assist you in providing feedback:

Appendix - Case examples

Re: S & T Income Tax Aid Specialists Pty Ltd and Christopher Forward and Tax Agents’ Board of New South Wales 87 ATC 2001

Re: McGowan and Tax Agents' Board of Queensland 96 ATC 2056
 

The applicant sought review of a decision of the Board to reject his application for registration as a tax agent. Before the AAT (Senior Member Muller (as he was then)), one of the issues was whether or not the applicant had been adequately supervised during his employment.

The AAT found that the applicant was supervised by a registered tax agent for 7 years and that for 9 months of each year the applicant physically shared the same office as the tax agent. For the remaining three months, the applicant and the tax agent were based in the same building. In addition, for 3 of these years, the applicant was supervised by a tax agent – they were in contact with each other virtually on a daily basis in busy times and about twice per week during less hectic periods. Approximately 15 per cent of returns prepared by the applicant were spot-checked by the tax agent.

On the basis of these findings, the AAT concluded that the supervision of the applicant by the tax agents was sufficient in the circumstances to constitute proper supervision in accordance with the Act and regulations.

Re: Scott and Tax Agents’ Board of Queensland [2001] AATA 435; [2001] ATC 2218

The applicant applied for a review of the Board’s decision to cancel her registration as a tax agent. There were a number of matters in issue before the AAT (Deputy President Forgie, Members Way & Horrigan), one of which concerned whether or not the applicant had breached subsections 251N(1) and (2A).

The applicant’s husband and one of her sons prepared client income tax returns on behalf of the applicant. The applicant claimed that she supervised them in this.

The applicant was found to be in breach of subsection 251N(2A), in that she failed to exercise supervision and control over her husband and son and an employee. In relation to income tax returns prepared by these people, the applicant checked that returns had been completed and looked at a checklist. However, she did not go further and conduct spot checks of particular income tax returns to see whether they were correct and that claims made were justified.

The AAT affirmed the Board’s decision to cancel the applicant’s registration as a tax agent.

Re: Cafferty and Tax Agents’ Board of New South Wales [2004] AATA 560

This case related to a refusal to grant original registration on the basis that the applicant had failed to satisfy the ‘relevant employment’ requirement under Regulation 156 of the Income Tax Regulations 1936. Here the applicant relied on a period of work performed for an accounting firm during which he prepared tax returns individually and referred these returns to his supervisor (a public accountant) for final checking. While the supervision model involved a general lack of supervision of the applicant in his day-to-day work, the supervisor cleared all matters that were to leave the office.

Senior Member M J Sassella, in citing Re: Underwood v Tax Agents’ Board of Queensland (‘Underwood’) emphasised that an employee must be adequately supervised in order to have engaged in ‘relevant employment’ under Regulation 156. In such a case involving the demonstration of employment, the level of supervision was inadequate as it was carried out only at the end of the process, and therefore more closely reflected the position of a self-employed accountant.