Speech

Australian School of Taxation (ATAX)
9th Tax Administration Conference
Sydney, New South Wales
Friday 9 April 2010

(check against delivery)

INTRODUCTION

Thank you for inviting me to speak today at ATAX’s 9th Tax Administration Conference in my capacity as the Chair of the Tax Practitioners Board.

As Australia’s leading taxation school, this is a great opportunity for me to speak to you about the work of the Board and to explain the important changes and improvements to the law to ensure consistency in the registration and regulation of tax and BAS agents throughout Australia. As you will know, these changes came into effect only on 1 March 2010.

The theme of this Conference is to build bridges between administrators and stakeholders, such as taxpayers and tax practitioners. So the focus of my address will be on how the new regime, including the underlying policy, assists in building the relationship pathways between agents, the Board and the community.

There has been a steady growth in the use and reliance of tax and BAS professionals since the introduction of self assessment in the mid 1980s. In the 2007-2008 Taxation Statistics published by the Tax Office last month, figures show that 12.6 million individuals lodged income tax returns and 9.1 million (72.1%) of those tax returns were submitted by tax agents on behalf of individuals. Given the significance of these figures, it is important that all these professionals are regulated fairly, consistently and with flexibility. Doing so, should strengthen the integrity of the tax system which supports the Australian economy and it will also recognise the important role these agents play in the administration of the national taxation system.

Today I will discuss a number of key aspects of the tax agent services regime, including:

• its purpose and benefits;
• the key changes;
• the registration options available to agents, in particular, the transitional arrangements and notification process; and
• the Board’s approach to working together with the tax and BAS professions.

Since mid 2009, a lot of work has been done by the Board and the Secretariat. We are working hard towards achieving a streamlined approach to our operations and to ensure that the new regime is introduced smoothly.

While the official launch of the Board was in October 2009, the official start date of the Board, and of the new regime, occurred just over a month ago, on 1 March 2010.

On 1 March, the shift in administration for the registration of tax agents from the Tax Office to the Board became effective. Under the new law, the Tax Agent Services Act 2009, which I will refer to as the TASA, the Board is given general administration of the TASA. This is a significant departure from the previous arrangements for the former State Tax Agents’ Boards.

While the Board will always seek to have a close relationship with all stakeholders, including the Tax Office, the Board is not the Tax Office and we have a different focus.

The Board has power to do all things necessary or convenient to be done in connection with the administration of the legislative regime. This will enable us to achieve the object of the TASA which has been required by the Australian Parliament. This is to ensure that tax agent services are provided to the public in accordance with the appropriate standards of professional and ethical conduct. In addition to this purpose, the new regime has a new, clear disciplinary focus as well; this is brought about through the administrative sanctions available to the Board and the introduction of civil penalty provisions.

As part of the Board’s administration role, the Board performs a variety of statutory functions, including:

• administering the system for the registration of tax agents and BAS agents;
• determining applications for registration;
• investigating conduct that may breach the TASA, including non-compliance with the Code of Professional Conduct and breaches of the civil penalty provisions;
• imposing administrative sanctions for non-compliance with the Code of Professional Conduct; and
• issuing guidelines on relevant matters.

Importantly, the new regime is not aimed only at regulating tax agent services provided to the general public. Also, the new regime is aimed at regulating any tax agent service, which includes a BAS service, provided for a fee or other reward and where the other tests are met.

The intention is to ensure that only certain regulated entities should provide, for a fee or other reward, tax agent services to recipients of those services. This aim is consistent with the intent of the previous arrangements, but it goes much further than them. In the past, the practical reality was that only those who were providing a full range of tax agent services were required to be registered. The new regime goes much further than that and brings in specialists providing only some services, as well as a much wider range of BAS agents. BAS agents, who are a product of the introduction of GST in Australia, over 10 years ago, now also must be registered. 

To put the effect of the new regime into perspective, it is useful to have a look at the profile of those who are likely to be affected by the new regime.

• There are approximately 26,000 registered tax agents and almost 14,000 of those are active.
• At this stage, we do not know absolutely how many BAS professionals are operating to provide BAS agent services. It is estimated that there are over 120,000 people working in the bookkeeping profession and of those, 12,000 to 18,000 (or around 10% to 15%) are in the business of lodging business activity statements for clients for a fee

Now I will move on and give you a brief outline of the tax agent services legislation.

GENERAL GUIDE TO THE TAX AGENT SERVICES LEGISLATION

The TASA is the main Act and provides, among other things:

• that an entity needs to be registered to provide tax agent services for a fee or to engage in other conduct connected with providing tax agent services;
• the requirements of registration;
• the Code of Professional Conduct that registered entities must comply with;
• the circumstances in which an entity’s registration can be terminated;
• civil penalties aimed at ensuring compliance with the TASA;
• for the establishment of the Board and the Board’s functions and powers, including investigating breaches of the TASA.

The Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009, which I will refer to as the Transitional Act, facilitates the smooth transition from the old law relating to the registration of tax agents to a new regime that regulates and registers tax agents, as defined more widely, and BAS agents.

The Tax Agent Services Regulations 2009, or Regulations for short, provide further details to accompany the TASA, including the prescribing of the:

• requirements for registration as a tax agent or BAS agent;
• requirements for recognition of recognised tax agent and BAS agent associations; and
• fees for registration applications;

BENEFITS

The TASA is a significant piece of legislation that brings benefits to a much wider section of the community than the previous arrangements.  Some key benefits include:

1. Greater recognition

The creation of a national regulatory framework means that now tax agents and BAS agents will be recognised formally Australia wide rather than at the State level.

The increase in the scope of the services being regulated demonstrates a flexibility to include newly emerging services as the tax system evolves.  The inclusion of BAS agents and ‘specialists’, such as R&D consultants and quantity surveyors, into the new regime is a clear recognition of the important role that such groups play in Australia’s tax system.

2. Greater certainty

The establishment of a national Board benefits agents by providing nationally consistent regulation.  It enables the Board to allocate and use its resources more efficiently, and will increase certainty for all registered agents in the way in which the legislation will be administered.

The regulation of agents, including the introduction of an enforceable Code of Professional Conduct, provides certainty and clarity for agents as to what is expected of them.

In particular, BAS agents, once registered, will benefit from the additional clarity provided by a move away from the partially regulated arrangements previously in place prior to the new regime.  This will improve taxpayer confidence in the profession and will provide greater assurance for the public.

3. Raising standards

The introduction of a wider range of more constructive and educative administrative sanctions which can be imposed by the Board should encourage agents to comply with the Code. This should also improve their performance and raise standards.

The replacement of many of the criminal penalties with civil penalties and injunctions will benefit agents and the integrity of the tax system, by providing appropriate and meaningful consequences for misconduct and by providing effective disincentives to act inappropriately.

Further, the inclusion of BAS agents and specialists into the new regime will result in greater involvement from these groups in the tax profession. Therefore this will allow them a stronger voice to assist in the setting of professional standards for their own profession.

4. Benefits to the community

The very purpose of this new regime is to ensure that tax agent services are provided to the public in accordance with the appropriate standards of professional and ethical conduct. With such a strong focus on the community and public, one of the undeniable benefits of the new regime is that the taxpayers, who engage a registered tax agent, should be confident that their agent has the necessary skills and knowledge that maybe expected of them.

Figures contained the ATO’s 2008-09 Annual Report show that net cash collections for that financial year were $264.5 billion and of that figure, 46.3% can be attributed to individuals, 22.8% to company tax and 15.6% to GST. What these figures indicate, when taken with the high percentages of the population who use agents, is the importance of the tax and BAS profession to the Australian tax system and need to ensure that the community can rely on them in meeting their tax obligations.

The introduction of the Code of Professional Conduct only further reinforces the community focus, with commonly accepted obligations such as acting honestly and with integrity, maintaining confidentiality, acting in the best interests of your client and competency now being required explicitly by all registered agents.

5. Greater incentive to use registered agents

In certain circumstances, taxpayers who use a registered agent will benefit from safe harbour provisions, which are administered by the Commissioner of Taxation rather than the Board, for particular administrative penalties. This provides a clear incentive for taxpayers to use a registered agent.

6. Modernised system

The Tax Practitioners Board replaces, with a similar consumer protection focus, the six State Tax Agents’ Boards, introduced in the 1930s and 1940s, to ensure that the tax profession aspired to high professional standards and high levels of integrity. Unfortunately, the isolated operation of each State Board sometimes meant that the governing national Act could be applied inconsistently, resulting in potential varied standards of services to taxpayers. This new system will reduce the potential overlap that existed under the old system, and provides a simple, single point of contact for both agents and clients.

The new independent Board consists of 11 Government appointed members. These appointments are all personal, and not representative, appointments. The position of Chair is a full time position and the other ten members work on a part-time basis. My Board colleagues are Matthew Addison, Professor Cynthia Coleman, Professor Gordon Cooper, Roger Cotton, Adjunct Professor Chris Doogan, Michael Evans, Adjunct Professor George Fox, Miriam Holmes, Professor Dale Pinto and Russell Smith.

Of this group, there are a number of tax agents, bookkeeper segment members, a number of lawyers, academics and business people. Also, we have the benefit of two previous State Tax Agent Board members as members of this new Board. So, as you can see, this is a well qualified Board, equipped with a suitable mix of skills, expertise and experience. The benefit of this mix of skills has been evident during the first six months of the Board’s operation.

The Board is highly committed to achieving a smooth transition into the new regime and supporting the profession. To do this, the Board will:

• be independent, fair, consistent and flexible;
• be reliable in applying the law and providing appropriate guidance to ensure a strong regulatory framework for agents and to reduce uncertainty and risk for consumers;
• consult and work collaboratively with the profession; and
• be open and accountable.

KEY CHANGES

Now I would like us to go a focus on some of the relevant provisions of the tax agent services legislation and discuss some of the key shifts in the new regime from the model that operated before 1 March 2010. What these changes demonstrate is a significant improvement in the regulatory landscape of those who provide and rely on tax agent services.

In reviewing the key changes brought about the new legislative regime, a number of common themes appear:

• a recognition of the importance of the tax and BAS professions;
• a desire to lift standards within those professions; and
• to ensure that agents have the necessary education and skills when they provide tax agent services.

1. Wider scope of application

The new regime, as contained in the TASA, adopts a principles-based drafting approach. This means that the TASA has been written in a series of operative rules, that are principles statements about what the law is intended to do, rather than the details about the mechanism that get it there. This approach allows for flexibility as the law can evolve without the need for constant amendments.

Applying the principles-based drafting to the term ‘tax agent services’, as defined in the TASA, may result in a potentially wide coverage of services falling within the new regime. However, the Board recognises that there may be unintended consequences and that it is a matter for Government to determine what services should fall within the definition. The Board is aware that the Government is currently considering these matters, including for example, the cover of those working in tax consolidatable groups.

Two areas of coverage where no further clarification is required is the inclusion of BAS agents and some specialists into the new regime.

1. BAS agents

BAS agents will now be regulated in much the same way as tax agents. Under the previous regime, certain specified unregistered individuals could provide a BAS service for a fee in limited circumstances.

For example, if an individual were a member of a recognised professional association, or if they were a bookkeeper working under the direction of a tax agent, the law was applied so that their activities were regarded as being exempt and therefore lawful but they did not have to register.

This inclusion represents a significant change for the BAS profession, and together with the introduction of the Code of Professional Conduct and the setting of appropriate educational standards may have the effect of changing the way business is done in Australia for the better, over the years ahead.

As I mentioned in the introduction to my speech, the scope of registration has been widened to include BAS agents in order to ensure the appropriate ethical and professional standards of entities providing BAS services. This is in recognition of the important role these entities play in Australia’s tax system and provides those providing BAS services with an opportunity to be a core part of an important and dynamic profession.

Now Registered BAS agents will be able to provide a range of services which relate to tax laws relevant to the BAS provisions within the tax law. BAS provisions include, among other things GST law, fringe benefits tax laws that relate to collection and recovery, pay as you go withholding and pay as you go instalments.

2.Specialists

The new regime accommodates so called ‘specialist registrations,’ meaning that now certain professional groups may be able to register as tax agents or BAS agents and remove the barriers to entry that existed under the old regime.

The new regime recognises that qualifications in law/accounting are not necessarily the only types of qualifications that would enable an individual to provide tax agent services.

Under the new regime, ‘specialists’, such as research and development (R&D) consultants and quantity surveyors, may seek to be registered as tax agents, but only to provide specified services rather than the whole range of tax agent services.

Importantly, while the Regulations use the term specialist, there is in fact no separate registration scheme for specialists.  Essentially, a specialist registration is a standard registration with conditions.

In deciding whether to register an entity, the Board, if it deems it appropriate to do so, may impose one or more conditions to which the registration will be subject.

Any condition that may be imposed, must relate to the subject area in respect of which an entity provides tax agent services.

For example, if an R&D specialist sought registration and met all the requirements, the Board would grant registration subject to the condition that the tax agent service is limited to the context of the R&D provisions as contained in the Income Tax Assessment Act 1997.

3. Supervisory reach

While not specifically coverage related, I would like to mention that the new regime also has an increased supervisory reach. The introduction of the Code of Professional Conduct, which I discussed earlier, is an important step in ensuring a consistent framework to guide the profession.

2. Introduction of the Code of Professional Conduct

So far I have spoken about the broader policy context and benefits of the new regime, I would like to change direction and discuss some of the key features and changes brought about by the new legislation.

I will start with the Code of Professional Conduct. Under the old law, no comprehensive code existed to govern the conduct of tax agents and BAS agents.

A formal legislated code has been a key aspect of the new legislative regime since it was first recommended in 1994 by the Report of the National Review of Standards for Tax Professions: Tax Services for the Public. This Committee was established in 1992 by agreement through the Tax Office’s National Tax Liaison Group. This Report recommended that any such code should be made binding through legislation to enable the Board to impose sanctions for breaches and thereby to enforce compliance with the code.

Under the new law there now is an entrenched Code of Professional Conduct, including a range of expanded sanctions that previously were not available to the State Tax Agents’ Boards. Importantly though, this Code does not place any additional burden on competent agents. Rather, the Code adopts best practice in what already is required of professionals under the codes of conduct of related professional associations.

The rationale for this major change is to give taxpayers greater confidence that they are dealing with agents who have, and maintain, appropriate ethical and professional standards. Where an agent falls foul of these standards, taxpayers can be confident that the Board, with a greater supervisory reach, is able to respond appropriately to breaches of the Code.

The closest the profession overall came to a code of conduct in the past was through membership of a professional association with an associated set of conduct rules. While these Codes still exist, and play a significant part in governing standards in the tax agent and BAS agent sectors, membership of a professional association is not mandatory.

Under the new regime and the TASA, the Board has a range of options available to it to manage and deal with misconduct by a tax agent or BAS agent and to impose administrative sanctions for breaches of the Code, such as a written caution or order.

I will discuss this in more depth a little later, but let us first look at the Code in a more detail.  The Code, which applies only to conduct that occurs from 1 March 2010, consists of 14 commonly accepted principles of explicit obligations an agent must uphold. These principles are grouped into 5 core categories of:

• honesty and integrity;
• independence, including management of conflicts of interest;
• confidentiality;
• competence, including taking reasonable care to ensure that taxation laws are correctly applied to the circumstances in relation to which an agent provides advice to a client; and
• other explicit responsibilities, including not knowingly obstructing the proper administration of the taxation laws, however, relying on legal rights to withhold documents or information is a not a breach of this requirement.

I will leave it to you to consider the importance of these explicit obligations on agents to ensure that taxation laws are applied correctly. It seems to be me, however, that these will prove to be of great significance over time. Agents, for example, if they even could before, no longer will be able to rely simply on the instructions of their client (the War Crimes defence).

The Board, only this week, published an exposure draft which considers and explains the relevant principles contained in the Code. I encourage you to all have a look at this exposure draft and to take advantage of the 60 day comment period to provide the Board with feedback before we seek to finalise the document.

Now I will turn to the elements of the Code of Professional Conduct.

1. Honesty and integrity

The first category of the Code deals with matters of honesty and integrity.

(a) You must act honestly and with integrity.

The principles of honesty and integrity impose an obligation on a person to ensure straightforwardness, fair dealing, a commitment to not mislead or deceive together with truthfulness.

In appropriate circumstances it may extend to fee disputes. These formed a significant proportion of the complaints received by the State Tax Agents’ Boards but were considered to be outside their jurisdiction.

(b) You must comply with the taxation laws in the conduct of your personal affairs

For example, an agent must properly discharge their personal tax obligations, including the timely lodgement of the agent’s personal income tax return and activity statements.

(c) If you receive money or other property from or on behalf of a client and you hold the money or other property on trust, you must account to your client for the money or other property.

To comply with this requirement, an agent is required to keep separate that money or other property which the agent holds on trust for the client, that is, it must be kept separate from the agent’s personal money, general business monies or other property. This is very important because many tax agents receive refunds on behalf of their clients.

2. Independence

The second category of the Code deals with matters of independence.

(d) You must act lawfully in the best interests of your client.

This duty is designed to prevent agents from being influenced by personal interests when acting for clients and to prevent agents from actually misusing their position for their own personal advantage.

The extent of this duty to the client is determined by the nature of the relationship between the agent and the client. This can be determined from any letter of engagement, report, advice or other communication between the agent and the client, the duties imposed by the TASA and any relevant conduct between the agent and the client.

(e) You must have in place adequate arrangements for the management of conflicts of interest that may arise in relation to the activities that you undertake in the capacity of a registered tax agent or BAS agent.

The adequacy of an agent’s conflict management arrangements will depend on a number of factors, including:

• the nature, scale and complexity of the agent’s business;
• the nature of the services provided by the agent; and
• any information the agent obtains that is relevant to the conflict of interest.

For example it will be relevant where a tax agent has acted for a family and its entities and there is a marriage breakdown.

3. Confidentiality

The third category of the Code deals with matters of confidentiality.

(f) Unless you have a legal duty to do so, you must not disclose any information relating to a client’s affairs to a third party without your client’s permission.

In the absence of client authorisation or a legal duty to disclose, any disclosure of information relating to the affairs of a client will be a breach of the Code.

This requirement of confidentiality includes disclosure of client information to an offshore (or any) entity engaged by an agent to provide certain services to the agent.

4. Competence

The fourth category of the Code deals with matters of competence.

(g) You must ensure that a tax agent service you provide, or that is provided on your behalf, is provided competently.

To ensure that tax agent services are provided competently an agent must maintain adequate knowledge, skill and resources in the area in which the agent is registered to practice.

Where an agent has a specific area of expertise, such as superannuation, the provision of tax agent services outside this area of expertise can only occur where the agent has taken steps to obtain necessary knowledge and skills. However, if they have a specific specialist registration, they would be required to have the Board vary the condition contained in their registration to provide a service that was outside their area of expertise.

To ensure competent provision of services, agents may:

• set out and agree in a letter of engagement with the client the scope and cost of the services to be provided;
• obtain expert advice or assistance;
• obtain knowledge and skills through private study or research; or
• inform the client of a likely delay and cost as a result of the agent acquiring the requisite knowledge and skill.

(h) You must maintain knowledge and skills relevant to the tax agent services you provide

This requires the maintenance of competence by an agent, including continuing awareness, understanding and up to date knowledge of relevant technical, legal and business developments.

Compliance with this requirement may require the agent to undergo continuing professional development (CPD). At this stage the Board is not formally requiring any set standard number of hours of CPD. However, the Board’s preliminary view is that fifteen structured hours of CPD per annum may be an indicative minimum standard for the purposes of this principle.  This is consistent with the requirement for members of a recognised professional association. Further details of the Board’s preliminary view are contained in the now published exposure draft I mentioned earlier.

(i) You must take reasonable care in ascertaining a client’s state of affairs, to the extent that ascertaining the state of those affairs is relevant to a statement you are making or a thing you are doing on behalf of the client.

This requirement is necessarily limited by the scope of the engagement between the agent and the client, but it does not begin or end with engagement letters between them. That is, there could, for example, be changes in the client’s circumstances or the law while a service is being provided. The reasonable care obligation applies throughout, while the service is being provided.

(j) You must take reasonable care to ensure that taxation laws are applied correctly to the circumstances in relation to which you are providing advice to a client.

Taking reasonable care requires a standard that could be expected of a reasonable person in the agent’s position.

5. Other responsibilities

The fifth category of the Code deals with areas of other responsibilities.

(k) You must not knowingly obstruct the proper administration of the taxation laws.

The test for determining whether an act or omission is an obstruction is a test of reasonableness. This is a question of fact to be answered in light of the specific circumstances of the case.

(l) You must advise your client of their rights and obligations under the taxation laws that are materially related to the tax agent services you provide.

Whether a client’s rights and obligations are materially related to a tax agent service in any given case will depend on the nature of the services provided to the client. Importantly, the obligation extends only to services within the scope of engagement between the agent and the client.

How an agent goes about complying with this obligation, and other Code obligations, is a matter for the individual agent. However, you will see from this obligation, an agent will need to know other taxation laws that they are working with, assuming that they are not using the services of other specialists in relation to those other taxation laws.

These rights and obligations could be referred to in a letter of engagement, report, advice or other communication with the client. Of course, this obligation will not begin and end with a letter of engagement, as there could be many circumstances where something will happen which requires advice to a client about their rights and obligations.

(m) You must maintain the professional indemnity insurance that the Board requires you to maintain.

I will discuss later the Board’s position in relation to professional indemnity insurance, but the Board will require agents to have professional indemnity insurance coverage from 1 July 2011. This will be a general requirement that will not apply until then and it is likely to be subject to exceptions.

(n) You must respond to requests and directions from the Board in a timely, responsible and reasonable manner

For example, a failure to respond to a request from the Board may arise where an agent fails to provide written responses to Board correspondence within the time period specified in the notice or providing responses to the Board that are false or misleading.

As I mentioned earlier, following an investigation, if the Board is satisfied that there was a failure to comply with all the obligations in the Code, the Board may impose one or more administrative sanctions. A decision of this kind by the Board will a reviewable decision and the tax agent or BAS agent can apply to the Administrative Appeals Tribunal (AAT) for review.

Some of the sanctions include:

• Written caution

• Order

An Order could include completing a course of education or training, providing services under the supervision of a registered tax agent or BAS agent or providing only the services listed in the Order.

If the Board issues an Order, the Board must notify the individual in writing, then the Order may specify the period of time to complete a requirement in the order or the period of time for which the order applies.

• Suspension of registration

If the Board suspends a registration, an agent cannot provide a tax agent service during the period of suspension. If an agent does not abide by the suspension, they will contravene a civil penalty provision.

• Termination of registration

This is generally only to be used when the agent poses a threat to the public.

This incremental sanction system gives the Board the ability to tailor their response for breaches of the Code based on severity. For example, for isolated mistakes, no action or a written caution may be appropriate, whereas for a repeat offender, it may be necessary to issue a higher sanction, such as an order.

3. Civil Penalty Provisions

Under the previous regime, criminal penalties could be imposed when:

• a person provided any of the listed specified services for a fee without being registered;
• an unregistered person advertised that they will provide income tax related services or who represented that they are a tax agent; or
• a tax agent allowed other unauthorised persons to prepare income tax returns or conduct any other business relating to any income tax matter on their behalf.

Under the new regime, criminal penalties no longer exist under the TASA. This change does not dilute the purpose of the TASA, rather it recognises that the imposition of a significant monetary penalty is a sufficient mechanism to deter tax agents and BAS agents from contravening the civil penalty provisions.

A further rationale for this shift is that the Commonwealth guide to framing civil penalties determined that civil penalties were more appropriate than criminal penalties. This change recognises that this type of conduct is not serious enough to warrant a criminal conviction or imprisonment.

This imposition of civil penalties is subject of course to the criminal penalties that may exist under the Taxation Administration Act 1953 (Cth). However that Act is, in most part, administered by the Commissioner of Taxation and not the Board.

If an entity contravenes a civil penalty provision, the Board may, within four years, apply to the Federal Court for an order that the entity pay a monetary penalty.

If the Federal Court is satisfied that a civil penalty provision has been contravened, the Court can order the entity to pay a civil penalty amount that the Court determines. This amount cannot exceed the penalty amount stated in the civil penalty provisions.

A breach of any of the civil penalty provisions may result in the entity being found by the Federal Court to be liable for a civil penalty of up to 250 penalties units for individuals and 1,250 penalties for a body corporate. Currently 1 penalty unit equates to $110. So that equates to a maximum of $27,500 for individuals and $137,500 for bodies corporate.

It is worth noting that if a partnership contravenes a civil penalty provision, each partner of the partnership, as it was at the time of contravention, is taken to have contravened the civil penalty provisions.

There is an exception though. If a partner can prove, on the balance of probabilities that they did not engage in the conduct, did not aid, abet, counsel or procure the conduct, or were not in any way knowingly concerned in or a party to the conduct, then that partner is taken to not have contravened the civil penalty provision in question.

However, given that there is no guarantee that a financial penalty will change an agent’s behaviour, the Board may, instead or in addition to civil penalty proceeding, apply to the Federal Court for an injunction to prevent or compel certain action by an agent. The ability to seek injunctions, and interim injunctions, allows the Board to take immediate action against those agents to minimise the period in which they can engage in conduct that is prohibited under the TASA.

The Federal Court may grant an injunction where they are satisfied that an agent has engaged in the past, or is proposing to engage in the future, in conduct that would constitute a contravention of a civil penalty provision.

Civil penalties for all agents can be grouped into two categories. The first category is conduct that is prohibited unless registered. The second category deals with other civil penalties that relate to the conduct of an entity registered as a tax agent or BAS agent.

1. Category One

The first type of conduct that is prohibited without registration is where an entity is unregistered and receives a fee or other reward for providing a service which it knows, or should reasonably know, is a tax agent service.

This prohibition ensures that tax agent services are provided only by those agents who satisfy the Board that they meet all the registration requirements.

The second type of conduct that is prohibited without registration is where an entity is unregistered and advertises that it will provide a tax agent service.

The third type of conduct that is prohibited without registration is where an entity represents itself as a registered tax or BAS agent.

Under the old regime, all of these three types of conduct resulted in a criminal penalty. This is no longer the case.

2. Category 2

There are three types of conduct that relate to the conduct of entities registered as a tax or BAS agent.

The first type of conduct that is prohibited is the making of a false or misleading statement. This means, knowingly or recklessly, by inclusion or omission:

• making a false or misleading statement;
• preparing a false or misleading statement which an entity should know is likely to be made; or
• permitting or directing someone to prepare a false or misleading statement to the Commissioner of Taxation.

This type of conduct was not prohibited under the previous regime. However, the State Boards did have a discretion to suspend or cancel the registration of a tax agent if that State Board were satisfied that any return prepared by the tax agent was false in any material particular.

The second type of conduct that is prohibited by entities registered as a tax or BAS agent is where an entity uses or employs the services of a deregistered entity.

In other words, the entity employs or uses the services of another entity to provide tax agent or BAS services on its behalf and it knows, or should reasonably know, that:

• the entity is not currently registered, and the entity’s registration was terminated within 1 year before the entity first employed, or first used the services of the unregistered entity; and
• that the registration was not terminated as a result of the entity surrendering its registration, becoming an undischarged bankrupt or going into external administration.

Under the old regime, this type of conduct would have resulted in a criminal penalty being imposed on a tax agent.

The third type of conduct is the signing of a declaration or statement in relation to a taxpayer that is required or permitted by a taxation law or BAS provision which was prepared by someone other than:

• the registered entity; or
• another individual who is a registered entity or working under the supervision and control of an individual who is a registered entity.

The defence to this category is if the registered entity took reasonable steps to ensure the accuracy of the declaration or statement.

There was no equivalent provision for this type of conduct under the previous regime.

4. Safe harbour

As I mentioned in my introduction, one of key benefits of the new regime is that a taxpayer who uses a registered tax agent or BAS agent will benefit from a safe harbour for certain administrative penalties in certain circumstances.

Safe harbour provisions for taxpayers who engage a registered agent will provide greater protection for taxpayers and will improve the integrity of the tax system by encouraging taxpayers to engage reputable, registered tax experts to assist them in their interactions with the tax system.

• The safe harbour from tax shortfall penalty will apply if taxpayers demonstrate they took reasonable care by engaging a registered agent and providing them with all necessary tax information, but the agent carelessly made a false or misleading statement that resulted in a shortfall amount.
• The safe harbour from administrative penalty for failing to lodge a document on time and in the approved form is proposed to apply if taxpayers establish that they engaged a registered agent, gave their agent all relevant information to enable the lodging of a document on time in the approved form and the agent carelessly failed to do so.

As I noted earlier, the safe harbour provisions are in the Taxation Administration Act 1953 (Cth). This Act is, in most part, administered by the Commissioner of Taxation and not the Board. In addition, safe harbour provisions are invoked directly by a taxpayer rather than through a tax agent or BAS agent.

While the Board may – and may do so with some interest – consider any findings made by the Commissioner in administering the safe harbour provisions, a finding by the Commissioner in relation to the conduct of a tax or BAS agent for this purpose will not bind the Board.

In determining whether a breach of the Code has occurred in any given situation, the Board will conduct its own investigation and will make an independent determination as to whether the Board is satisfied that there has been a breach of the Code.

5. Professional Indemnity Insurance

At the end of February 2010, the Board issued a media release announcing that tax agents and BAS agents will be required to have professional indemnity (PI) insurance coverage from 1 July 2011. This will be a general requirement that will not apply until then and it is likely to be subject to exceptions.

For example, as the requirement is for there to be insurance coverage of the entity providing the service, individual agents may not need to have their own insurance, provided they were covered by the entity’s insurance.

Under the old law, there was no legislative requirement for registered tax agents to maintain PI insurance. However, registered tax agents who were members of a professional association would most likely need to hold some insurance as part of their membership conditions. So while this requirement by the Board is new, it is nothing new to many professionals working already as agents.

This power given to the Board to require a tax agent or BAS agent to maintain PI insurance is extremely important and the Board recognises that this is a sensitive matter for agents.

Also, the Board recognises that PI insurance provides protection for consumers who engage these professionals who hold themselves out as having a special skill or expertise that can be relied on. It provides clients with comfort that if they are exposed to the risk of financial loss resulting from their agent’s conduct, the client needs to adequately protected and compensated.

The Board has commenced undertaking more detailed research and consultations with stakeholders; however the overall case for setting an insurance requirement is clear.  Over the coming months the Board will be consulting with stakeholders, including the insurance industry and others to develop our approach and to issue an exposure draft for comment.

It is anticipated that by September 2010, the Board will be in a position to publicly announce our approach and provide guidance in relation to PI insurance matters.  It is a priority of the Board to give stakeholders as much notice as possible of the coverage that will be required from 1 July 2011.

Naturally, one of the steps that the Board may well need to undertake is to allow time for any registered agent to make a submission to the Board on why the insurance requirements should not apply to them.

This insurance requirement, when it is imposed, will be achieved through a formal Board Guideline – which will have the force of law – and it will likely cover matters such as minimum levels of insurance cover for each class of agent, exemptions and, rather than a list of approved insurance providers. Also, the Guideline may set out essential criteria to be met in relevant policies.

I have said before on a number of different occasions that in the absence of formal
insurance cover requirements being imposed by the Board, it is strongly recommended that agents who already hold some form on PI insurance should maintain their current policies. I would like to stress this again today.

As at 21 March 2010, the Board had received 1818 BAS transitional notification registrations. Of those notifications, 1104, or 60%, indicated that they already hold PI insurance. These are encouraging figures that the Board is seeing and demonstrate that high level of professionalism that already exists amongst agents.

REGISTRATION

I will now discuss the mechanics of the new regime, and that is the registration requirements.

As at 21 March 2010, the Board has received 1943 new tax agent and BAS agent registration applications.

From 1 March 2010, an individual, partnership or company must be registered as a tax agent or BAS agent to provide a defined ‘tax agent service’ or ‘BAS service’ for a fee or other reward.

The fees for registration for:

• A tax agent who carries on a business as a tax agent is $500.
• A tax agent who is not carrying on a business as a tax agent is $250.
• A BAS agent who carries on a business as a BAS agent is $100.
• A BAS agent who is not carrying on a business as a BAS agent is $50.

For the purposes of tax agents, the definition of a ‘tax agent service’ as defined in the TASA is a service that relates to:

• ascertaining or advising about liabilities, obligations or entitlements of an entity under a taxation law; or
• representing an entity in dealings with the Commissioner of Taxation in relation to a taxation law; and

it is reasonable to expect an entity to rely on the service in relation that liability, obligation or entitlement.

For the purposes of BAS agents, a ‘BAS service’ is defined in the TASA, as a ‘tax agent service’ that relates to:

• ascertaining or advising an entity about liabilities, obligations or entitlements that arise, or could arise, under a ‘BAS provision’; or
• representing an entity in their dealings with the Commissioner of Taxation in relation to a BAS provision; and

it is reasonable to expect an entity to rely on the service in relation to those liabilities, obligations or entitlements under a BAS provision.

As a BAS service is a tax agent service, a tax agent does not need to also register as a BAS agent to provide BAS services.

Once an application for registration has been received by the Board, the Board has 6 months from the date of receipt to decide the application.

If no decision is made within that period, the application is taken to have been rejected by the Board. Administrative review is available in the case of an application being rejected.  That is, an applicant wishing to contest a decision of the Board can in many circumstances apply to the AAT for a review of that decision.

1. Individuals

An individual is eligible for registration as a registered tax agent or BAS agent if they are at least 18 years of age, are a fit and proper person and meet the requirements prescribed by the Regulations (including, requirements relating to qualifications and experience).

If an individual meets all these requirements, they need to lodge an application with the Board to be registered.

In determining whether a person is fit and proper person for the purposes of registration as a registered tax agent or BAS agent, there is no general rule that can be applied.

A determination as to whether a person is a fit and proper person requires the Board to make a value judgment in the context of a particular application and person by considering all the circumstances of a given case.

However, in deciding whether a person is a fit and proper person, the Board must have regard to:

• whether the individual is of good fame, integrity and character; and
• whether, in the past 5 years, the individual has:
  • had the status of an undischarged bankrupt;
  • served a term of imprisonment, in whole or in part;
  • been convicted of a serious taxation offence;
  • been convicted of an offence involving fraud or dishonesty;
  • been penalised as a promoter of a tax exploitation scheme;
  • been penalised for implementing a scheme that is materially different to that described in a product ruling; and/or
  • been sentenced to a term of imprisonment.

The Board this week published an exposure draft to explain the relevant principles in determining whether someone is a fit and proper person. A 60 day comment period is available.

To satisfy the prescribed qualification and experience requirements, different rules exist for tax agents and BAS agents. This recognises that the scope of services provided by BAS agents vary from those services provided by tax agents.

(a) Tax agents

For tax agents, to satisfy the prescribed qualifications and experience requirement, the individual must meet, subject to the transitional rules, certain:

• qualification and relevant experience requirements; or
• membership of a professional association and a greater relevant experience requirement.

	Qualification	Conditions
1	Tertiary qualifications in Accounting	(a) One of the following: (i) awarded a degree or post-graduate award in accountancy from an Australian tertiary institution; or (ii) awarded a degree or award in accountancy that is approved by the Board from an equivalent institution; and (b) course in commercial law that is approved by the Board; and (c) course in Australian taxation law that is approved by the Board; and (d) 12 months of full-time relevant experience in the preceding 5 years.
2	Tertiary qualifications in another discipline	(a) Awarded one of the following: (i) a degree or post-graduate award from an Australian tertiary institution, or (ii) a degree or award that is approved by the Board from an equivalent institution in a discipline other than accountancy that is relevant to the tax agent services to which your application relates; and (b) if the Board considers it relevant to the tax agent services to which your applications relates, as many of the following courses as the Board considers necessary: (i) Course in basic accountancy principles that is approved by the Board (ii) Course in commercial law that is approved by the Board (iii) Course in Australian taxation law that is approved by the Board; and (c) 12 months of full-time relevant experience in the preceding 5 years.
3	Diploma or higher award	(a) Diploma or higher award in accountancy from a registered training organisation or an equivalent institution; and (b) course in Australian taxation law that is approved by the Board; and (c) 2 years of full-time relevant experience in the preceding 5 years; and if the application is made 3 years or later after commencement of the new law, a course in commercial law that is approved by the Board.
4	Tertiary qualifications in law	(a) Academic qualifications required to be an Australian legal practitioner; and (b) course in basic accountancy principles that is approved by the Board; and (c) course in Australian taxation law that is approved by the Board; and (d) 12 months of full-time relevant experience in the preceding 5 years.
5	Work Experience	(a) Course in basic accountancy principles that is approved by the Board; and (b) course in Australian taxation law that is approved by the Board; and (c) 8 years of full-time relevant experience in the preceding 10 years; and (d) if the application is made 3 years or later after commencement of the new law, a course in commercial law that is approved by the Board.
6	Membership of a professional association	(a) Voting member of a recognised tax agent association; and (b) 8 years of full-time relevant experience in the preceding 10 years.

Awarded a degree or post-graduate award in accountancy from an Australian tertiary institution

As a starting point, the Board’s view is that all degrees and post-graduate awards in Accountancy listed on the Commonwealth Register of Institutions and Courses for Overseas Students (CRICOS) would be accepted.

Awarded a degree or award in accountancy that is approved by the Board from an equivalent institution

The Board’s view is that any degree or post-graduate award in the discipline of accountancy that is formally approved by the government or a professional body would be accepted.

In any other case, each application will be considered on case by case basis having regard to academic transcripts and course content.

The Board have engaged Professor Keryn Chalmers, Head of Department of Accounting and Finance at Monash University, to advise the Board on issues relating to courses in accountancy.  Currently, the Board are reviewing the advice received and hope to issue further information on this topic shortly.

Course in commercial law that is approved by the Board

The Board will shortly be publishing an exposure draft setting out the Board’s preliminary view in relation to the meaning of ‘a course in commercial law that is approved by the Board’.

The preliminary view of the Board is that a ‘course’ in commercial law must be of sufficient breadth to equip a registered tax agent with a sufficient understanding of commercial law to advise the public on the tax impacts of a diverse range of commercial transactions that ordinarily arise. The Board recognises that the depth of study required under the TASA is far less than that required to engage in legal practice.

The Board is of the preliminary view that a course in commercial law should include an introductory or foundation unit commonly described as Australian legal systems and processes, and the equivalent of two or more commercial law units which may include the following topics:

• Introduction to contract law.
• The fundamental legal concepts of business organisational structures and the underlying regulation (i.e. sole traders, partnerships, corporations, and trusts).
• Basic principles of the law of torts (in particular, negligence and negligent misstatement).
• Introduction to the fundamental law underlying real and personal property transactions.
• Non-tax legal aspects of superannuation.

Currently not all these topics are covered in commercial law subjects offered at universities. Therefore, the Board proposes to take a progressive approach to this requirement to ensure that individuals who already have commenced study in a course on the reasonable expectation that the course would be acceptable to fulfil the requirement for a course in commercial law for the purpose of registration under the predecessor regime are not disadvantaged if they apply for registration under the TASA. Also this allows providers sufficient time to respond to this new list of prescribed course content.   However, it is expected that in many cases applicants for registration as a tax agent will need to undertake study outside their primary course to ensure that the content requirements are met.

Further, the preliminary view of the Board is that a course in commercial law should be of 300 to 390 hours duration – equivalent to the former requirement of 18 months of commercial law. This would equate to three university (or equivalent level) subjects. All courses should be assessed to a significant degree under supervision and in a manner demonstrating rigour and integrity.

Course in Australian taxation law that is approved by the Board

As with a course in commercial law, the Board will shortly publish an exposure draft setting out the preliminary views of the Board in relation to the meaning of ‘a course in Australian taxation law that is approved by the Board’.

The Board is of the preliminary view that a course in Australian taxation law should cover the following topics:

• The rules and principles of Australian tax law including an understanding of the legal environment in which these principles operate, including basics of the legal system, constitutional considerations, separation of powers.
• The key aspects of the income tax law covering concepts of residence and source; related elements (only) of international tax; assessable income; deductions; and tax rebates/offsets; and tax accounting.
• The key aspects of taxes that extend the ordinary income tax base including relevant principles and application of the capital gains tax and fringe benefits tax rules.
• Goods and services tax.
• Taxation of individuals and basic entities including partnerships; trusts and companies.
• Taxation aspects of superannuation law.
• Administrative aspects of the taxes identified above including returns; tax collection and withholding mechanisms; assessments; objections ; rulings; penalties; and audits.
• Rules addressing specific and general anti tax avoidance.
• Ethical and professional responsibilities of tax agents including obligations under the TASA and the Regulations.

Further, the Board is of the preliminary view that a course in Australian taxation law should be of 200 to 260 hours duration. This would equate to two university (or equivalent level) subjects. All courses should be assessed to a significant degree under supervision and in a manner demonstrating rigour and integrity.

The Board recognises that possibly the list of topics and parts of topics that the Board prescribes here extends beyond the content of current offerings at most tertiary providers. As such, the Board intends to a take a similar progressive approach as outlined for those undertaking a course in commercial law that is approved by the Board.

Diploma or higher award in accountancy from a registered training organisation or an equivalent institution

All relevant awards in Accountancy listed on the Commonwealth Register of Institutions and Courses for Overseas Students (CRICOS) would be accepted.

’Registered training organisation’ are those listed on the National Training Information Service (NTIS) database (www.ntis.gov.au).

For ‘equivalent institutions’ – as a starting point, any relevant award in the discipline of accountancy that is formally approved by the government or a professional body will be accepted.

In any other case, each application will be considered on case by case basis having regard to academic transcripts and course content.

Academic qualifications required to be an Australian legal practitioner

This requirement here is that individuals have the academic qualifications required to be an Australian legal practitioners, as well as meeting accountancy principles and Australian taxation law course requirements. The Board is of the view that an individual that successfully completed the academic requirements for admission as a barrister or solicitor of the High Court or of the Supreme Court of a state or territory will satisfy this requirement. Obviously, the fact that someone already is an Australian legal practitioner, backed up by the relevant academic qualifications will carry some persuasion with the Board.  This approach by the Board is consistent with that of the previous State Tax Agents’ Boards.

Voting member of a recognised tax agent association

This is a question of fact. I will discuss later what is required by an association to become a recognised tax agent association.

(b) BAS agents

For BAS agents, to satisfy the prescribed qualifications and experience requirement, the individual must meet, subject to the transitional rules, certain:

• qualification and relevant experience requirements; or
• qualifications, membership of a professional association and a lesser relevant experience requirement.

The requirements can be summarised as follows:

	Qualification	Conditions
1	Accounting qualifications	(a) Award of at least a Certificate IV Financial Services (Accounting) or a Certificate IV Financial Services (Bookkeeping) from a registered training organisation or an equivalent institution; and (b) successfully completed a course in basic GST/BAS taxation principles that is approved by the Board; and (c) at least 1,400 hours of relevant experience in the past 3 years.
2	Membership of professional association	(a) Award of at least a Certificate IV Financial Services (Accounting) or a Certificate IV Financial Services (Bookkeeping) from a registered training organisation or an equivalent institution; and (b) successfully completed a course in basic GST/BAS taxation principles that is approved by the Board; and (c) voting member of a recognised BAS agent association or a recognised tax agent association; and (d) at least 1,000 hours of relevant experience in the past 3 years.

Award of least a Certificate IV Financial Services (Accounting) or (Bookkeeping)

For the purposes of a Certificate IV Financial Services (Bookkeeping) or a Certificate IV Financial Services (Accounting) award from a registered training organisation, as a starting the point, the Board will accept relevant awards from registered training organisations listed on the National Training information Service database. This database is the official national register of information on training packages, qualifications, courses, units of competency and registered training organisations.

For the purposes of these Certificates awarded from equivalent institutions, the Board will need to assess those applications on a case by case basis. However, the Board is of the view that an ‘equivalent institution’ may include professional bodies and other bookkeeper institutions, subject to consideration of the particular Certificate.

The final point I would like to mention in relation to these Certificate IV’s is that the words ‘at least’ in the Regulations indicate to the Board that a relevant award higher than a Certificate IV Financial Services (Bookkeeping) or (Accounting) would be accepted.

Basic GST/BAS taxation principles

In relation to a course in basic GST/BAS taxation principles which is to be approved by the Board. Currently, the Board is determining what is required in such a course. The process that the Board is following is to consult with leading taxation academics, bodies which support the national training system (such as Innovation & Business Skills Australia), professional associations and other stakeholders, as well as registered training organisations and TAFEs.

The Board understands that it will need to explain its approach, when it is settled, and to communicate this to all stakeholders. The Board anticipates publishing an exposure draft on this issue after consultation and further work has been done.

In the meantime, the Board is considering whether it is viable to accept that in first two years from commencement of the new law on 1 March 2010, that the BAS topic in the Certificate IV courses would be an acceptable course on basic GST/BAS taxation principles, or whether some other approach should be taken.

This two year timeframe would be consistent with the time period for transitional registrants and would allow the Board time to consult and form a view on a GST/BAS principles course for the longer term, in particular, when the time comes for BAS agents to renew their registration. If any changes are appropriate, we are very conscious of the need to give registrants and teaching and other bodies time to adjust and to allow applicants for registration time to undertake any courses.

Voting member of a recognised tax agent or BAS agent association

This is a question of fact. I will discuss later what is required by an association to become a recognised BAS agent association.

Relevant experience

For tax agents, an individual seeking to register through the:

• tertiary qualifications in accountancy, tertiary qualifications in another disciple or tertiary qualifications in law options, will need to have engaged in the equivalent of 12 months full-time, relevant experience in the preceding 5 years.
• diploma or higher award option will need to have engaged in the equivalent of 2 years full-time, relevant experience in the preceding 5 years.
• work experience or membership of a professional association option must have engaged in the equivalent of 8 years full-time, relevant experience in the past 10 years.

For BAS agents, an individual seeking to register through the:

• membership of a professional association option will need 1,000 hours of relevant experience in the past 3 years.
• accounting qualification option, they will need 1,400 hours of relevant experience in the past 3 years.

For BAS agents, the lower number of hours of experience needed by individuals who are voting members of a professional association recognises that voting members are subject to an additional layer of professional oversight and support.

‘Relevant experience’ for tax agents means work by an individual:

• as a tax agent registered under the new law or under the old law
• under the supervision and control of a tax agent under the new law or under the old law;
• as an Australian legal practitioners; or
• of another kind approved by the Board.

in the course of which the individual’s work has included substantial involvement in one or more types of tax agent services or a particular area of taxation law to which 1 or more those types of tax agent services include.

‘Relevant experience’ for BAS agents means work by an individual:

• as a tax agent or BAS agent registered under the new law;
• as a tax agent registered under the old law;
• under the supervision and control of a BAS agent or tax agent registered under the new law;
• under the supervision and control of a tax agent registered under the old law; or
• of another kind approved by the Board;

in the course of which the individual’s work has included substantial involvement in one or more types of BAS services.

The Board will endeavour, as soon as we can, to provide more information about what could be relevant experience of another kind that the Board would accept.  Determining what constitutes relevant experience of another kind approved by the Board is a matter that the Board will consider on a case by case basis.

Substantial involvement means ample or considerable amount of involvement. It requires more than simply being involved from time to time in the provision of one or more types of BAS services.

How to satisfy the Board that an individual meets the relevant educational requirements

When applying for registration as either a tax agent or BAS agent, an individual must satisfy the Board that they meet the relevant educational requirements. This can be done through written confirmation from the awarding institution of course completion and certified copies of academic transcripts.

If an individual is unable to obtain any of these documents, for example, because they are no longer available, the individual should provide alternative evidence upon which the Board may be satisfied that the individual is eligible for registration.

This may include, for example, a letter from the course co-ordinator or other relevant person to verify that the course the individual completed is similar or equivalent to what is contained in a more current course.

A statutory declaration identifying subjects satisfactorily completed may also be relevant. The list of people before whom a statutory declaration can be made is wide and includes medical practitioners, legal practitioners, bank and building society officers with 5 or more years continuous service and Justices of the Peace (http://www.ag.gov.au/statdec), plus many other occupations.

2. Partnerships

Partnerships, which consist of a number of individual partners must meet the age requirement and satisfy the fit and proper person test.

If the partnership has a company partner, each director needs to be a fit and proper person and the company must not:

• be under external administration; and
• have been convicted of a serious tax offence or an offence involving fraud or dishonesty during the previous 5 years.

In addition to these requirements, a partnership seeking registration as a tax agent must satisfy the Board that the partnership has a sufficient number of registered individuals (being registered tax agents) to provide tax agent services to a competent standard and to carry out supervisory arrangements.

This additional requirement is slightly different for a partnership seeking registration as a BAS agent. In that case, the partnership must satisfy the Board that the partnership has a sufficient number of registered individuals (being registered tax agents or BAS agents) to provide BAS services to a competent standard and to carry out supervisory arrangements.

In most cases, there is no set formula that can be applied for determining the sufficient number of registered individuals that a partnership is required to have in order to satisfy this requirement.

The Board recognises that what is a ‘sufficient number of individuals’ will depend on the individual circumstances of the partnership and the work they are required to undertake for their clients. Such factors that will need to be considered are:

• the size of the business;
• the services being offered;
• the supervisory arrangements in place; and
• the conditions that may be imposed on the partnerships registration based on the qualifications and experience of its personnel.

Supervisory arrangements may be arrangements aimed at directing, overseeing and checking the services performed on behalf of a tax agent or BAS agent, whatever the case may be, to ensure that those services are provided competently. The Board will shortly issue an information sheet specifically on this issue and I encourage you to have a look at it, when available, if you would like some further information.

Having said that though, whether an agent has appropriate supervisory arrangements in place will be a question of fact to be determined by the Board in particular cases.

The Board will, if necessary, consider the measures taken by an agent to supervise and control relevant activities performed by or on behalf of the agent.

In our view, a number of factors may be relevant in determining whether adequate supervisory arrangements are or have been in place. For example:

• The nature and frequency of any physical oversight by the agent over the provision of tax agent or BAS services on their behalf.
• The physical or geographic proximity of the agent to the person carrying out the work.
• Whether there is substantial supervision, rather than mere checking of documents.
• Whether the agent performs periodic and spot checks of material prepared by staff.
• Whether the agent conducts regular audits of work undertaken by staff to ensure the accuracy and completeness of the services provided on behalf of the agent.
• The degree of control exercised by the agent over the way in which a person carries out their work on behalf of that agent.
• The level of relevant educational and practical training undertaken by staff performing work on behalf of the agent.
• Whether there are documented procedures for staff to escalate issues that are beyond their knowledge or experience to an appropriate supervisor.

The Board may provide further information about adequate staffing and supervisory arrangements from time to time, but knowing the basic requirements for partnerships, of having a sufficient number of registered individuals, the requirement to provide services to a competent standard and to allow for supervision, should enable professionals themselves to determine what is required.

Registered individuals may include partners, directors, employees, contractors and staff provided under service trust arrangements.

If a partnership meets all of these requirements, they will need to lodge an application form with the Board to register as a tax agent or BAS agent.

3. Companies

In addition to the registration requirements I have just mentioned in relation to partnerships and individuals, there are two additional requirements for companies seeking to register as either a tax agent or BAS agent.

The company cannot be under external administration and cannot have been convicted of a serious taxation offence or offence involving fraud or dishonesty during the past 5 years.

In my discussion of partnerships, I mentioned that in most cases there is no set formula that can be applied for determining the number of registered individuals that a partnership is required to have in order to provide tax agent services to a competent standard with adequate supervisory arrangements in place.

One situation where there is a formula is one involving a sole trader company. In this case, the company would need to register and a sufficient number of individuals would be one. Therefore, the company would register as the entity carrying on a business and probably the individual who would be a director or an employee of the company and register as the individual.

TRANSITIONAL REGISTRATION RULES

The new regime includes generous transitional rules which are available to entities to enable them to register as either tax agents or BAS agents. These transitional provisions are extremely important to the implementation of the new regime as they:

• facilitate the smooth transition of entities registered under the old regime into the new regulatory regime and allows them to continue to provide services that they were able to provide before the new regime was introduced and to continue with their day to day provision of services;
• allow for entities, which may not have previously had to register, to come into the new regime easily from the beginning, whilst allowing them to the necessary time to obtain the required qualifications and experience once it is time to renew their registration; and
• achieves many of the key benefits I mentioned earlier, for example, greater recognition and certainty for agents from the introduction of the new regime.

The purpose of these transitional rules is first to transition entities registered under the old law into the new regulatory regime and second, to allow entities that were previously legally providing a tax agent service or BAS services for a fee without registration to transition under the new law.

Different transitional rules are available to tax agents and BAS agents and with time running out to easily transition into the new regime. Shortly I will go over the details of the options available to both tax and BAS agents, but I would like to firstly encourage all those entities who are eligible to transitionally notify or apply to become a registered agent to do so while the option is available, even if it may not seem necessary at the present time. While an individual’s current circumstances may mean that they do not need to be registered, circumstances do change and it is best to be prepared. For example, currently an individual who is an employee of a registered company tax agent – should that individual decide to become self employed after the transitional period ends, then they would then need to apply to be registered through the standard process rather than possibly being registered through an expedited process.

As at 21 March 2010, the Board had received 1818 BAS transitional notification registrations and 31 BAS transitional applications, so it seems that the benefits of notifying rather than applying are being understood by those in the BAS profession.

One last point I would like to bring to your attention before I look at the specifics ways in which entities can transition into the new regime.  I want to stress that there is no difference in the registration outcome between those who notify and those that apply to be registered. The result in each case is the same, quite simply it is registration.

Transitional notification option

Transitional application option

	Deadline to notify	Period of registration	Deadline to apply	Period of registration
Tax agent	31 May 2010 (3 months)	1 March 2010 to 29 February 2011 (2 years)	31 August 2010 (6 months)	1 March 2010 to day Board makes decision
BAS agent	31 August 2010 (6 months)	1 March 2010 to 29 February 2011 (2 years)	28 February 2013 (3 years)	Day Board decides (not backdated to 1 March 2010)

1. Notification

I want to encourage entities to use the transitional notification route rather than the formal application process while it is available. There are a number of reasons for this, in particular:

• notification gives you recognition as a registered tax agent or BAS agent from 1 March 2010;
• no application fees are payable; and
• you are taken to be registered for a period of time from1 March 2010, even if you do not otherwise meet the qualification and relevant experience requirements.

(a) Tax agents

The first transitional rule for tax agents is referred to as Special Rule 4.  This Rule can be found in Item 4 in Part 2 of Schedule 2 to the Transitional Act.

Under this transitional arrangement, certain entities that legally were providing tax agent services immediately before commencement of the new law on 1 March 2010 may obtain registration as a tax agent by notifying the Board in the approved form.

The purpose of this arrangement is to ensure that those entities providing a service that they were not required to be registered for under the old law, but are required to register for under the new law are considered to be a registered tax agent from commencement on 1 March 2010.

An entity may obtain registration as a tax agent by notifying the Board within 3 months of commencement of the new law that immediately before commencement of the new law, the entity was providing a ‘tax agent service’ within the meaning of the new law (other than a ‘BAS service’) and they were not required to be registered as a tax agent under the old law.

If the entity meets the requirements for registration, as I have just mentioned, they will be taken to be a registered tax agent for a period of 2 years beginning immediately after commencement of the new law on 1 March 2010.

If, after the initial two year period of registration, an entity wishes to continue to be a registered tax agent, an application for renewal of registration will need to be lodged with the Board.

This may be relevant for some of the Australian academic members of the audience who perhaps have provided tax agent services and not charged a fee.

So I encourage all entities who are seeking to register as tax agents to use the notification options. As at today (9 March 2010) there are only 53 days remaining for easy inclusion in to the new regime.

(b) BAS agents

The first transitional rule for BAS agents is referred to as Special Rule 5.  This Rule can be found in Item 5 of Part 2 of Schedule 2 to the Transitional Act.

Under the transitional arrangements, certain individuals and entities providing BAS services immediately before commencement of the new law may obtain registration as a BAS agent by notifying the Board in the approved form.

This form is available on the Tax Practitioners Board website (www.tpb.gov.au)

The purpose of this arrangement is to ensure that unregistered individuals and entities that legally were providing BAS services before commencement of the new law are able to transition into the new law under the TASA, allowing those individuals and entities to continue their day to day provision of services.

An individual who was an exempt person under the old law should notify the Board in the approved form. They have 6 months from the commencement of the new law, on 1 March 2010, to notify the Board that immediately before commencement of the new law, the entity was providing a BAS service as defined under the old law and that the agent was a person referred to in the old law.

An exempt person is a person who is a member of a recognised professional association, bookkeepers working under the direction of a registered tax agent or a person who provides payroll services to an employer.

Other entities who were not exempt persons and who were not covered under the old law, but now are considered to be providing a BAS service, may obtain registration as a BAS agent by notifying the Board in the approved form. They should notify within 6 months of the commencement of the new law that immediately before commencement of the new law, the entity was providing a BAS service as defined under the new law.

If an entity meets all the requirements they will be taken to be a registered as a BAS agent for two years. This registration takes effect immediately after commencement of the new law on 1 March 2010. To emphasise my earlier point, this form of notification registration is no different to the outcome for application registrations.

As with tax agents, the Board may still impose conditions on the registration and later may require the maintenance of professional indemnity insurance.

If, after the initial two year period of registration, an entity wishes to continue to be a registered BAS agent, an application for renewal of registration will need to be lodged with the Board.

While the time left to notify is longer than that for tax agents, entities seeking to come into the new regime, should take advantage of this generous transitional arrangement. As at today (9 March 2010), BAS agents only have 145 days left to notify.

2. Applications

Also, tax agents and BAS agents have the option to apply under the transitional arrangements to become registered. However, as these applications will need to be assessed against most of standard registration criteria, in particular fitness and propriety, agents should not use this option to become registered if they are not already street legal now. In those situations, agents may still have to be able to become registered under the notification options I just mentioned.

(a) Tax agents

The second transitional rule for tax agents is referred to as Special Rule 13 and is contained in the Transitional Act.

Under this transitional arrangement for the new law, certain entities may apply for
registration as a tax agent despite not meeting the qualifications and relevant experience requirements for registration.

This arrangement allows entities that were unregistered, but have been providing a tax agent service within a particular area of the taxation laws to a competent standard for a reasonable period, to apply to be transitioned into the new law under the TASA.

The Board may accept that competency be demonstrated via a certificate or reference from an agent’s employer or, if they are a contractor, their principal. Also, an agent may be able to provide supporting documentation from a tax agent or other person who is familiar with their work to demonstrate their competency. If an agent is unable to obtain a certificate or reference from their employer or principal, a submission should be included with the agent’s application for registration, which the Board will consider on its merits.

The Board is of the view that reasonable period for the purpose of this transitional arrangement means two years or more full time. If an agent has been providing the tax agent service for a period of less than two years full time, a submission should be included with an application for registration, which the Board will consider on its merits.

An entity will be taken to be registered if, in addition to the standard registration requirements contained in the TASA:

• apply in the approved form within 6 months of the commencement of the new law that immediately before 1 March 2010, they were providing a tax agent service within a particular area of the taxation laws;
• do not meet all qualifications and experience requirements or sufficient number of individual requirements; and
• satisfy the Board that they have been providing that tax agent service to a competent standard for a reasonable period.

The period of registration granted will be from the date the new law commenced until the day the Board makes a decision as per the TASA. If at that stage the Board grants registration, the entity will be taken to be registered for at least 3 years.

(b) BAS agents

The second transitional rule for BAS agents is referred to as Special Rule 14. Also, this can be found in the Transitional Act.

Under this Rule certain entities may apply for registration as a BAS agent despite not meeting the qualification and relevant experience requirements for registration.

As these entities do not meet the qualification and relevant experience requirements, in addition to standard registration requirements, also these entities must meet the requirement that the BAS services were provided to a competent standard for a reasonable period.

I previously discussed how competent standard can be demonstrated in the context of tax agents. As the same principles apply to BAS agents, I will not repeat myself.

For the purposes of what constitutes a reasonable period, the Board considers that at least 700 hours in the last two years is required. If an agent has been providing the BAS service for less than 700 hours, a submission should be included with an application for registration, which the Board will consider on its merits.

If an entity meets all the requirements and applies to the Board within three years of commencement of the new law, the entity will be granted registration as a BAS agent, effectively for at least three years. Importantly, registration granted in this way, that is, under Special Rule 14, is not back-dated to the day of commencement of the new law on 1 March 2010.  This means that the entity cannot be considered to be registered during the intervening period, and therefore legally cannot provide a BAS service for a fee or other reward during this period.  To do so would open them up to potential liability under the civil penalty provisions.

If an entity intends to apply under Special Rule 14, but they wish to provide BAS services in the meantime, assuming they meet the requirements of Special Rule 5, they must also notify under Special Rule 5 to ensure the BAS services they provide are provided lawfully until they become registered. I should point out that if the notification route is chosen, effectively the entity will be registered, upon notification, from 1 March 2010.

It is worth noting that if Special Rule 14 applies to an entity that has been taken to be registered under Rule 5, the Board may grant registration for a minimum of 12 months rather than three years.

Consistent with other transitional registrations, the Board may still impose conditions on the registration and later may require the maintenance of professional indemnity insurance.

If, after the initial period of registration expires, an entity wishes to continue to be a registered BAS agent, an application for renewal of registration will need to be lodged with the Board.

RECOGNISED PROFESSIONAL ASSOCIATIONS

As I mentioned earlier, one avenue for registration is to be a member of a recognised tax agent or BAS agent association. However, there is no requirement for an individual to be a member of a recognised professional association in order to be registered.

The Regulations provide for a system to allow the Board to accredit professional associations for the purpose of recognising professional qualifications and experience that are relevant to the registration of individuals as either registered tax agents or BAS agents.

The decision to recognise an association is a decision for the Board. However if an association meets all the requirements prescribed in Schedule 1 to the Regulations, the Board must decide to recognise an association and publish a notice on the Board’s website.

If an association applies to the Board for recognition, it is important that all founding governance documents, such as the Constitution or by-laws of the association, clearly demonstrate compliance with Schedule 1 to the Regulations.

The Schedule ensures that only those professional associations that enforce high educational, ethical and professional requirements, relevant to taxation, on their members can be recognised by the Board as a recognised tax agent or BAS agent associations.

To become a recognised tax agent association, an organisation must:

• be a non-profit organisation;
• have adequate corporate governance and operational procedures to ensure that:
  • it is properly managed; and
  • its internal rules are enforced
• have professional and ethical standards for its voting members, including terms to the effect that:
  • voting members must undertake an appropriate number of hours of continuing professional education each year (having regard to the circumstances and requirements of the members);
  • voting members must be of good fame, integrity and character; and
  • each voting member is subject to rules controlling the member’s conduct in the practice of the member’s profession;
  • each voting member is subject to discipline for breaches of those rules; and
  • if a voting member is permitted by that organisation to be in public practice, the voting member has professional indemnity insurance
• have satisfactory arrangements in place for:
  • notifying clients of its members, or of members of its member bodies, about how to make complaints;
  • receiving, hearing and deciding those complaints; and
  • taking disciplinary action if complaints are justified
• have satisfactory arrangements in place for publishing annual statistics about:
  • the kinds and frequency of complaints (except complaints under the TASA about entities registered under the TASA);
  • findings made as a result of the complaints; and
  • action taken as a result of those findings
• be able to pay its debts as they fall due
• have management of the organisation which:
  • is required to be accountable to its members; and
  • is required to abide by the corporate governance and operational procedures of the organisation
• have at least 1,000 voting members, of whom at least 500 are registered tax agents
• have each of its voting members comply with one of the following:
  • member has been awarded a degree or a post-graduate award in the discipline of accountancy from:
    • an Australian tertiary institution; or
    • an equivalent institution
  • member has been awarded a diploma or higher award in the discipline of accountancy from:
    • a registered training organisation; or
    • an equivalent institution
  • member has the academic qualifications required to be an Australian legal practitioner
  • the member was
    • registered as a tax agent or nominee under the Income Tax Assessment Act 1936 (ITAA 1936) immediately before the Regulations commenced; and
    • a member of, and entitled to vote at meetings, of a recognised professional association as recognised under the ITAA 1936
  • the member has the equivalent of eight years full-time experience in providing tax agent services in the past 10 years.

It is worth noting that for an organisation, such as legal professional association, to be a recognised tax agent association, they are taken to comply with the requirements relating to the professional and ethical standards for members. Such standards are dealing with complaints and publishing annual statistics.

The reason for this is because these requirements are governed by external regulations and the organisation, or its members, are subject to a law of a state or territory, or rule or other instrument of a body created by or under a law of a state or territory that sets out requirements that have a similar effect.

To become a recognised BAS agent association, an organisation must:

• be a non-profit organisation;
• have adequate corporate governance and operational procedures to ensure that:
  • it is properly managed; and
  • its internal rules are enforced
• have professional and ethical standards for its voting members, including terms to the effect that:
  • voting members must undertake at least 15 hours of continuing professional education each year; and
  • voting members must be of good fame, integrity and character; and
  • each voting member is subject to rules controlling the member’s conduct in the practice of the member’s profession; and
  • each voting member is subject to discipline for breaches of those rules; and
  • if a voting member is permitted by that organisation to be in public practice, the voting member has professional indemnity insurance
• have satisfactory arrangements in place for:
  • notifying clients of its members, or of members of its member bodies, about how to make complaints; and
  • receiving, hearing and deciding those complaints; and
  • taking disciplinary action if complaints are justified
• have satisfactory arrangements in place for publishing annual statistics about:
  • the kinds and frequency of complaints (except complaints under the TASA about entities registered under the TASA); and
  • findings made as a result of the complaints; and
  • action taken as a result of those findings
• be able to pay its debts as they fall due
• have management of the organisation which:
  • is required to be accountable to its members; and
  • is required to abide by the corporate governance and operational procedures of the organisation.
• have at least 1,000 voting members, of whom at least 500 are registered BAS agents
• ensure each voting member has been awarded at least a Certificate IV Financial Services (bookkeeping) or a Certificate IV Financial Services (accounting), from:
  • a registered training organisation; or
  • an equivalent institution.

If all of these conditions are met, the Board must recognise the association.

Having said that, also there are transitional rules for BAS agent associations under Regulation 4 which allow associations to still be recognised even if:

• the voting members of an organisation do not have the required minimum academic qualifications (this option is available only for the first three years from the date of commencement of the new law on 1 March 2010); or
• an organisation does not have the required number of voting members and/or the voting members do not have the minimum academic qualifications (this option will always be available, even after 3 years from the date of commencement of the new law).

AGENT REGISTRATION IN OTHER COUNTRIES

Finally, I would like to make brief mention of the reforms currently being proposed in the United States. These reforms largely mirror the reforms that had been proposed for Australia in the last 15 years and finally became realised when the new tax agent services regime commenced in full on 1 March 2010.

Currently, paid tax return preparers in the US have no registration requirements with the Internal Revenue Service (IRS), but paid tax return preparers are required to sign the returns they prepare and provide either their Social Security Number or a Preparer Tax Identification Number (PTIN). Now the IRS now plans to implement a number of new regulatory requirements, similar to those being introduced by this new regime in Australia – including:

• paid tax return preparers will have to be registered in order to sign a federal tax return as a paid tax return preparer;
• most preparers, with the exceptions of legal practitioners, certified public accountants and enrolled agents will have to take a competency test and satisfy annual continuing education requirements;
• a public database of all registered tax return preparers; and
• ethical standards, including discipline for unethical and unprofessional conduct.

There are also agent registration systems in other countries, including New Zealand.

KEY MESSAGES

Now I would like conclude with a brief summary of the key messages I would like you to take away with you.

• The new tax agent services regime is different and I suggest of wider and greater significance than the previous arrangements. Key points of difference that I have mentioned are:
  • the establishment of a national Board;
  • wider scope of application, which includes BAS agents and specialists;
  • the introduction of the Code of Professional Conduct, including sanctions for breaches of it;
  • safe harbour from penalties are available to taxpayers in certain circumstances;
  • a general PI insurance requirement;
  • education and work experience requirements for registration; and
  • the introduction of civil penalties.
• The Board is keen to ensure that we administer this new regime and the underlying legislative provisions efficiently, correctly and with consistency. In support of this, the Board has been receiving strong support from the ATO and from stakeholders and we are looking forward to ongoing discussions with the joint accounting bodies and through our Consultative Forum.
• The Board’s website www.tpb.gov.au is the gateway for the community, and tax and BAS professionals to access up to date information about the new regime. If you would like to receive regular email updates direct from the Tax Practitioners Board, email tpbwebsite@ato.gov.au and provide your contact information, including your preferred email address and phone number.
• The Board published two exposure drafts this week dealing with being a fit and proper person and the Code of Professional Conduct. Next week, the Board will be publishing an additional two exposure drafts dealing with ‘a course in commercial law’ and ‘course in Australian taxation law’. A 60 day comment period is available to all those that wish to make submissions to the Board on the particular issues contained in the exposure drafts. Also, the Board will issue a new information sheet that explains the Board’s view on the issue of supervisory arrangements and supervision and control. Further information will be released over the next few months.
• Registration and notification forms for tax and BAS agents are available online on our website. Already the Board has seen encouraging numbers of notifications and registrations applications submitted.
• There are easily accessible arrangements that have been put in place to allow entities to easily transition, either through notification or application, to the new regime.
• If an entity is a registered tax agent immediately before commencement of the new law, automatically, the Board will take them to be registered as a tax agent under the new law and they will not need to register as a BAS agent under the new law.
• An entity does not need to register if they provide tax agent services or BAS services as part of an employment service for which they receive a salary or wage or where no fee or other reward is given for providing a service, for example, a small business owner doing their own BAS.
• An entity does not need to be a member of a recognised association to be eligible to register as either a tax or BAS agent. Membership of one of these associations is just one avenue for an entity to register.
• PI insurance will not be required until 1 July 2011. However, if an entity currently holds PI insurance, the Board strongly encourages them to continue your coverage.

Thank you once again for asking me to speak to you today.

Dale Boucher - Chair, Tax Practitioners Board
dale.boucher@tpb.gov.au
Tax Practitioners Board
Amungula Building
26 Narellan Street Canberra ACT 2601
www.tpb.gov.au