What you can expect from your tax agent
A steady migration to using the services of a tax professional has been occurring in Australia for years. In a speech to introduce the government's legislation covering these services, the Tax Agents Services Act. Assistant Treasurer Nick Sherry said: 'The use of tax agents has grown substantially over the last 30 years, with tax agents currently lodging around 73% of income tax returns for individuals and 95% of business tax returns.'
It's not surprising. Despite the TaxPack and e-tax initiatives, with which ordinary Australian taxpayers can lodge and file their own income tax returns, the fact remains that not everyone really enjoys taking care of their own tax matters (even many plain-vanilla salary earners).
And an extra dose of irksome is in store for anyone in business who doesn't have a tolerance for tax – what with the complexities of depreciation and capital gains, and the demands of meeting the obligations surrounding activity statements, and possibly fringe benefits tax, the super guarantee or PAYG instalments.
So for a huge percentage of Australian taxpayers, it's off to the tax agent they happily go (and the agent fees are generally deductible anyway). The cherry on top is that tax agents generally garner a bit more time to lodge tax forms as well.
But if you've noticed an extra furrow in the brow of your tax agent, accountant or book-keeper lately, it probably isn't something you've done. A more likely source will be the fact that since the end of the first quarter of 2010 a new swath of regulatory responsibilities landed on the collective shoulders of every tax professional across the nation – and for many, the new 'tax agent services' regime will mean a significant shift in the way they do business with you.
There is naturally a certain amount of hand wringing by those affected whenever regulatory change is handed down by 'the powers that be', such as the professional code of conduct that has been included, but the legislation will have meant that many tax professionals will have started to feel a fundamental change in their daily work life due to the Tax Agents Services Act (see what's involved here ).
It's true however that for many others the change won't be a big ask – those already registered as a tax agent need do nothing, and many if not most are already operating to a professional code of conduct through other bodies and institutions (such as the CPA or ICAA).
What does it all mean for us taxpayers?
Terms of engagement letter
An engagement letter is a form that sets out the terms, conditions and expectations between you and your tax agent. Although a terms of engagement letter is not mandatory under the law, they are certainly a good idea and there is nothing stopping you asking for one. Many agents already use such letters anyway.
Key elements would include naming who is covered and to what extent (such as which particular tasks are to be performed, and which will not), the extent of the review or verification of information, the fees or fee estimates and terms of payment.
Having such matters set out in writing can stand both yourself and your tax agent in good stead, and you will also need to sign a declaration that the agent is authorised to lodge documents on your behalf. Never of course sign blank or incomplete returns or declarations.
A tax agent has no legal right to negotiate over a refund cheque or direct deposit without written consent, nor deduct fees without specific authorisation, with the amount of fees stated. Also, agents are required to pass on a refund as soon as possible, which the Tax Practitioners Board says should be within two weeks.
One of the more contentious aspects of the tax agent legislation centres around its 'safe harbour' provisions – and it is this area of the new regime that could leave your tax agent feeling a little guarded.
The safe harbour provisions mean that taxpayers themselves will not be liable for penalties for lodging late or misleading returns, or returns that result in a shortfall amount, where this is caused by negligence on behalf of the tax agent.
will still be placed on a taxpayer to exercise 'reasonable care' to provide all the relevant information, but should a breach of tax law still occur (and it can be shown that it was the tax professional who dropped the ball), the penalties imposed will come down squarely on the tax agent's head, not the taxpayer.
Senator Sherry, in the same speech mentioned above. said that the safe harbour provisions will 'eliminate the need to take the agent to court for compensation', and that the changes 'are a recognition that the new regulatory regime will allow effective action to be taken to improve the performance of tax agents or BAS agents when necessary'.
That 'effective action' includes shifting the basis of protection – tax agents guilty of fraud or misconduct will now face civil penalties rather than criminal ones. It is a change that brings such offences more into the scope of consumer protection as it is administered by other government agencies.
The government's Ministerial Council on Consumer Affairs says that 'criminal proceedings do not, as a matter of course, provide avenues for obtaining consumer redress or injunctions, which are often an important component of consumer protection enforcement'.
The council also notes that 'the level of civil penalties is often higher than criminal fines', and the penalties now hanging over tax agents are certainly nothing to be sneezed at.
As spelled out by the Tax Practitioners Board (the national body charged with administering the regime, which took over from separate state bodies), receiving a fee for service when not registered appropriately will now see an agent slapped with a penalty of $27,500 for an individual tax agent, or $137,500 for a corporate. This reflects the Tax Office's present 'penalty unit ' approach to levelling fines on taxpayers (one unit equals $110, so the above fines are 250 and 1,250 units respectively).
On the subject of registration, many service providers that did not need to be registered under the old regime will now have to. The increased paperwork that business activity statements (BASs) brought to small businesses saw a large amount of this work pass from the traditional accountant to supporting service providers, such as book-keepers.
The demand for accounting support to meet this extra burden saw an influx of practitioners who may or may not necessarily have had the experience or qualifications. The new regime aims to fix all that, and anyone entering transactions or processing data for the preparation of BASs will now need to be appropriately registered as a BAS agent (if not already registered as a tax agent). See details about registration for BAS services here. And if someone is just joining the BAS agent ranks, see the Tax Office's induction package here .
Not being properly registered while charging for these services will attract a fine, as mentioned above, although the new tax agent regime allows quite some scope for practitioner qualifications to be eligible (depending on education or working experience, but also membership of professional associations). There are also less demanding requirements for providing BAS services only. See the Tax Practitioners Board's eligibility requirements here .
Every tax and BAS agent will have their professional actions made subject to a formal code of conduct that is enshrined in legislation, not purely anchored in the code of ethics of a professional association or other body.
The Code of Professional Conduct in operation under the new tax agent regime is therefore binding on all registered agents, and will have several enforceable tiers of sanctions available for breaches of that code.
The code is set out as a statement of broad principles, such as honesty, integrity, and to have independence and competence, but can also have binding written guidelines to adhere to. An example is: 'Maintain professional indemnity insurance to the extent required by the board.'
Having a formal and binding code also paved the way for being able to impose sanctions for breaching that code. To make a complaint about a tax or BAS agent you have used, you will need to make an application to the Tax Practitioners Board using the form you can access here. or call 1300 362 829 or visit the website .