Speech

Reckon Accredited Partner Conference
Gold Coast, Queensland
Friday 19 March 2010

(check against delivery)

INTRODUCTION

Thank you for inviting me to speak today at Reckon’s Accredited Professional Partner Conference.

It is a real pleasure to be here in my capacity as the Chair of the Tax Practitioners Board.  I want to talk to you about the work of the Board and our approach to certain topics. In particular, issues that affect bookkeepers and people providing BAS services. 

It also gives me an opportunity to seek feedback from you and the issues that may be of concern to the BAS profession.

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

Today I will be discussing a number of key areas, including:

• the benefits of the new tax agent services regime to the BAS profession;
• the registration options and qualification requirements (in particular, the transitional rules that allow for streamlined registration). In particular I want to encourage entities to use the transitional notification route rather than the formal application. There are a number of reasons  for this and I will discuss these in more detail later;
• the Code of Professional Conduct; and
• the civil penalty provisions.

Naturally my focus will be on BAS agents and I will draw to your attention any relevant tax agent specific information where necessary.

While the official launch of the Board was in October 2009, the official start date of the Board, and of the new regime, occurred less than 3 weeks ago, on 1 March 2010.

On 1 March, the shift of administration of the registration of tax agents from the Tax Office to the Board became complete. The Board will always seeking to have a close relationship with all stakeholders, including the Tax Office, but the Board is not the Tax Office and we have a different focus.  Our purpose is to ensure that tax agent services are provided to the public in accordance with the appropriate standards of professional and ethical conduct.

BENEFITS

The Tax Agent Services Act 2009, which I will refer to as the TASA, is a significant piece of legislation and brings benefits to a much wider section of the community than the previous arrangements.

The TASA replaces outdated legislation which was first enacted in 1943 . This old legislation was increasingly ill equipped to meet the needs of commercial business practices of today.

The new regime improves the regulatory environment for the provision of tax agent services for a fee or other reward by increasing the consistency in registration and providing appropriate, but flexible, regulation and greater certainty for agents. The new regime is also designed to achieve greater consumer confidence by pursuing the purpose I have just mentioned.

For BAS agents there a number of key benefits of this new regime:

(a) Greater recognition

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 in the new regime is a clear recognition of the important role that BAS service providers play in Australia’s tax system.  It also gives BAS service providers recognition as an individual.

(b) Greater certainty

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

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

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

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

Further, the inclusion of BAS agents in the new regime will result in greater involvement from the BAS sector in the tax profession. This will therefore allow BAS agents to have a stronger voice to assist in setting of professional standards for their profession. We have begun consulting with key stakeholders in the BAS sector and will continue to do that, as we will with all stakeholders.

(d) Greater incentive to use registered BAS agents
Taxpayers who use a BAS agent will benefit from safe harbour provisions which will be administered by the Commissioner of Taxation for certain administrative penalties in certain circumstances. This provides an incentive for taxpayers to use a registered BAS agent.

To put the new regime in context, let me first start off with a very general history of the regulatory framework that has guided tax agents.

BRIEF HISTORY

In the 1930s, the Royal Commission on Taxation recognised the role of tax agents and concluded it was in the best interests of taxpayers and the Tax Office to provide an assurance that persons authorised to act on behalf of taxpayers were both reputable and competent.

In the 1930s and 1940s the State Tax Agents’ Boards were introduced. These Boards were set up with aim of registering ‘fit and proper’ persons to be tax agents and was largely driven by a consumer protection focus. These Boards were also instrumental in helping to ensure that the tax profession aspired to high professional standards and high levels of integrity.

Under the old law, as contained in the Income Tax Assessment Act 1936 (Cth), it was generally a criminal offence for a person who was not a registered tax agent to knowingly or recklessly demand or receive a fee for providing certain taxation services. However these prohibitions did not apply to the provision of a BAS service by certain individuals.

The definition of BAS service in the old law contained a list of services for which unregistered individuals could charge a fee in limited circumstances. Such circumstances included preparing or lodging a BAS on behalf of a taxpayer, or giving advice about a BAS provision.

Further, under the old law there were no equivalent minimum educational qualifications and relevant experience requirements for BAS agent registrations. Instead, a BAS service could only be provided by:

• a member of a recognised professional association;
• a bookkeeper working under the direction of a  registered tax agent;
• a person who provided payroll services to an employer (where the BAS service relates only to PAYG withholding); or
• a Customs broker.

Now, in 2010, after more than 15 years in the making, the Tax Practitioners Board replaces, with a similar consumer protection focus, those six State Tax Agents’ Boards and BAS service providers are now required to be registered if they provide a BAS service for a fee or other reward. There is also now an additional focus, which is on the conduct of agents, or in other words, on their discipline.

This new national Board provides an independent and consistent regulatory regime for all agents who provide tax agent services.

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%) are in the business of lodging business activity statements for clients for a fee.

I will now move on to give you a broad outline of the new regime, including the purpose.

PURPOSE

The purpose of the 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.’

section 2-5 of the TASA

Importantly, the new regime is not aimed only at regulating tax agent services provided to the general public. The new regime is also 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.

OVERVIEW

1. Establishment of a new national Tax Practitioners Board to replace 6 State Tax Agents’ Boards.

The new independent Board consists of 11 Government appointed members. These appointments are all personal and Board members are 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. We also 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 Board is highly committed to achieving a smooth transition into the new regime and to support 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.

2. Wider scope of application.
The new regime has meant that the goal posts have been widened.

BAS agents will now be regulated in much the same way as tax agents. However, BAS agents will be registered to specifically 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.

The new regime also accommodates so called 'specialist registrations', meaning that certain professional groups may now be required to register as tax agents or BAS agents.

The new regime also has an increased supervisory reach. The introduction of the Code of Professional Conduct is an important step in ensuring a consistent framework to guide the profession. Under the old law, there was no comprehensive code to guide agents.

3. Registration requirements
By way of a general overview, an entity providing BAS services for a fee or other reward, upon which there is reliance, is required to register from 1 March 2010 in order to provide those services.

The definition of BAS service is broader than the definition in the old regime and therefore it is expected that the entities allowed to provide BAS services under the old regime, as well as other entities providing other services, are included within the new definition and will need to register in order to provide their services for a fee or other reward.

Later I will go into more detail as to the specific registration requirements and associated qualification/experience options, in particular the transitional arrangements for BAS agents.
 

4. Introduction of a Code of Professional Conduct and sanctions for breaches of the Code
As I previously mentioned, one of the key features of the new regime is the introduction of the Code of Professional Conduct.

The Code consists of 14 commonly accepted principles, grouped under the 5 core categories of:

• honesty and integrity;
• independence;
• confidentiality;
• competence; and
• other responsibilities (including not knowingly obstructing the proper administration of the taxation laws).

In support of these categories and principles, the Board has the power to impose administrative sanctions for breaches of the Code.

Following an investigation, if the Board is satisfied that there was a failure to comply with any of the obligations under the Code, the Board may impose one or more administrative sanctions, such as a written caution or order.

5.Civil penalty provisions
Under the old law, criminal penalties could be imposed by the courts upon unregistered tax agents for certain breaches that involved a service for a fee.

These criminal penalties will no longer directly exist under the TASA. In accordance with the Commonwealth guide to framing civil penalties, it was 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.

While there are no longer criminal penalties in the TASA, criminal sanctions may still apply under the Tax Administration Act 1953 (Cth), however that Act is, in most part, administered by the Commissioner of Taxation and not the Board. 

6. Introduction of the safe harbour provisions

Under these new safe harbour provisions, which are administered by the Commissioner, a taxpayer who uses a registered tax agent or BAS agent will benefit from a safe harbour for certain administrative penalties in certain circumstances  Generally, penalties will no longer apply to taxpayers through carelessness of a tax agent or BAS agent.

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

SOFTWARE PROVIDERS

There are no special rules for software providers to determine whether they need to be registered under the TASA. As for other groups, the question is whether the services fall within the definition of a tax agent service or BAS service. That is, as in every other case, we must ask two fundamental questions:

• Does the service provided involve the application or interpretation of a BAS provision, or involve representing an entity  in their dealings with the Commissioner in relation to the BAS provision?
• Are the services provided in circumstances where the entity can reasonably be expected to rely on it?

If the answer is yes to each of these questions, then the software provider needs to be registered to provide a BAS service for a fee or other reward. For example: 

A software provider may provide classroom and on-site training about the installation and/or configuration and the use of off-the-shelf accounting software, including the use of the software to determine liabilities under a BAS provision. Where this training is of a general nature and does not provide specific advice about a client’s liabilities and does not establish appropriate default code for GST purposes, then the software provider would not be providing a BAS service and therefore does not need to be registered.

The reason for this is because the provider is not interpreting a BAS provision and is not providing advice to a client about their liabilities under a BAS provision in circumstances where the information can be reasonably be expected to be relied upon to satisfy their liabilities or obligations under a BAS provision or to claim entitlements under a BAS provision.

However, if a software provider helps a client to determine the appropriate default GST codes for particular transactions when configuring the accounting software, then it may be said that the software provider is providing a BAS service because the provision of advice relating to which GST codes are to be used requires the provider to interpret and apply a BAS provision and therefore to have a certain level of knowledge about GST law.

If a software provider were to provide a ‘help line’ that is accessible by their clients, then, assuming that there is some fee or other form of payment or reward for using the help line, it is possible that the advice provided would constitute a BAS service, particularly if the advice given deals with factual situations relating to an individual taxpayer.

Importantly, a fee does not necessarily have to be separately charged to the client. It can form part of a package of services offered by the software provider when a client purchases their software.

Any such decision whether the advice would constitute a BAS service would require consideration of all the facts and circumstances to determine whether the client can reasonably be expected to rely on that advice.

The Board will be consulting with the Tax Office’s Software Developers Consultative Group and, if appropriate, will issue further information on these topics in due course.

REGISTRATION REQUIREMENTS

I will now discuss the registration requirements that exist under the new regime.

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

The fees for registration as a BAS agent who carries on a business as a BAS agent is $100 and for those BAS agents who are not carrying on a business as a BAS agent, the fee is $50.

 
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. 

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.

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 Commonwealth Administrative Appeals Tribunal for a review of that decision.

 
1. Individuals
An individual is eligible for registration as a registered BAS agent, or indeed a tax agent, if they are at least 18 years of age, are a fit and proper person and meet the requirements prescribed by the Tax Agent Services Regulations 2009 (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 anticipates publishing an exposure draft, to explain the relevant principles in determining whether someone is a fit and proper person, over the next few weeks.

Once published on our website, a 60 day comment period will be available. When that period ends, the Board will carefully consider all comments and will look to finalise the paper as part of our commitment to providing information to agents.

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.

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 (www.ntis.gov.au) 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, the Board is currently 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 currently 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. We are also very conscious of the need to give registrants and teaching and other bodies time to adjust, if any changes are appropriate, and to allow applicants for registration time to undertake any courses.

How to satisfy the Board that an individual meets the relevant educational requirements
When applying for registration, 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.

Relevant experience (1,000 or 1,400 hours) in the past 3 years
For an individual seeking to register through the membership of a professional association option, they will need 1,000 hours of relevant experience in the past 3 years.

For those seeking to register through the accounting qualification option, they will need 1,400 hours of relevant experience in the past 3 years.

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’ 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 in the next few weeks, to provide more information about what could be 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.

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.

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, the partnership itself must satisfy the requirement that the partnership has a sufficient number of registered individuals (being either 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 BAS agent to ensure that those services are provided competently.

Whether a BAS 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 a BAS 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 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 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.

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 the individual would probably be a director or an employee of the company and register as the individual.

SPECIALIST REGISTRATIONS

I will only touch briefly on this point as I think the relevance of this type of registration to BAS agents may be confined, applying to groups, for example, such as payroll providers and perhaps others.

Under the new regime, ‘specialists’, such as research and development (R&D) consultants and quantity surveyors, may now seek to be registered as tax agents.

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 an R&D application.

TRANSITIONAL REGISTRATION RULES

The new regime includes generous transitional rules which are available to entities to enable them to register as either tax agents BAS agents.

There are two reasons for these transitional rules, 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. 

For the purposes of this Conference, I will only deal with the two transitional rules which are available to BAS providers to register as BAS agents under the new regime, the notification process and transitional registration applications.

Before I do so, 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, it is quite simply registration.

1. Notification
As I said earlier, 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 BAS agent from 1 March 2010;
• no application fees are payable; and
• you are taken to be registered for two years from 1 March 2010, even if you do not otherwise meet the qualification and relevant experience requirements.

The first transitional rule is referred to as Special Rule 5.  This Rule can be found in Item 5 in Part 2 of Schedule 2 to the Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009 (Cth) (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 were legally 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 may later 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.

2. Applications
The second transitional rule for BAS agents is referred to as Special Rule 14. This can also 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, these entities must also meet the requirement that the BAS services were provided to a competent standard for a reasonable period.

 
Competent standard can be demonstrated via a certificate or reference from the applicant’s employer or from the tax agent of the client for whom the work is done. An applicant may also be able to provide material from someone who is familiar with the applicant’s work to demonstrate their competency. If the applicant is unable to obtain a certificate or reference from any of these sources, the Board would need to consider the application on a case by case basis.

For the purposes of what constitutes a reasonable period, the Board considers that at least 700 hours in the last two years is required. Anything less would need to be considered on a case by case basis. 

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 for at least three years from the day the Board makes a decision. Importantly, registration granted in this way 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 cannot legally 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 notify under Special Rule 5 to ensure the BAS services they provide are provided lawfully until they become registered.  However, I should point out that if the notification route is chosen, the entity will effectively be registered upon notification.

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 may later 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.

 

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 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, the requirement is for there to be insurance coverage of the entity providing the service and so this would mean that individual agents may not need to have their own insurance, provided they were covered by the entity’s insurance.

The Board recognises professional indemnity insurance as an important and sensitive matter for agents and that it provides important protection for consumers.

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 its 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 professional indemnity insurance matters.

It is a priority of the Board to give stakeholders as much notice as possible that coverage will be required from 1 July 2011.

Given the importance of professional indemnity insurance, the Board also recognises that it will need to give consideration to the development of a legislative instrument in support of this requirement. This process involves significant consultations and tabling and disallowance processes in Parliament.

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, it 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 professional indemnity insurance should maintain their current policies. I would like to stress this again today.

RECOGNISED BAS AGENT ASSOCIATIONS

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.

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, there are also 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 only available 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).

CIVIL PENALTY PROVISIONS

As I mentioned earlier, criminal penalties no longer exist under the new regime. This is subject of course to the criminal penalties that may exist under the Taxation Administration Act 1953 (Cth).

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 $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.
 
Civil penalties for BAS agents, and indeed tax 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 BAS service.

This prohibition ensures that BAS services are only provided 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 BAS service.

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

 
2. Category 2
There are three categories of conduct that relate to the conduct of entities registered as a 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.

The second type of conduct that is prohibited by entities registered as a 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.

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.

CODE OF PROFESSIONAL CONDUCT

Under the old law, no comprehensive code existed to govern the conduct of tax agents and BAS agents. Under the new law there is an entrenched Code of Professional Conduct and the range of sanctions available to the Board has also been expanded beyond those that were available to the State Tax Agents’ Boards.

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, as we would all be aware, membership of a professional association is not mandatory.

Under the new regime, the Board has a range of options available to it to manage and deal with misconduct by a tax agent or BAS agent. One such option is through the Code.

The TASA has established the Code of Professional Conduct for registered tax agents or BAS agents. This legislative Code sets out the professional and ethical standards to be observed by tax agents and BAS agents and outlines the duties that agents owe to their clients, the Board and other agents.

The Code applies only to conduct which occurs after commencement of the TASA on 1 March 2010.

The Board anticipates publishing an exposure draft on the Code of Professional Conduct over the next few weeks. This paper will consider and explain the relevant principles contained in the Code.

As with the fit and proper person exposure draft, once published on our website, a 60 day comment period will be available.

I will now 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.

(b) You must comply with the taxation laws in the conduct of your personal affairs
For example, a BAS 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, a BAS 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.

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 BAS agents from being influenced by personal interests when acting for clients and to prevent agents from actually misusing their position for the 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 a BAS 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.

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 entity engaged by a BAS 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 a BAS agent must maintain adequate knowledge, skill and resources in the area in which the agent is registered to provide.

As BAS agents have a specialised area of expertise, 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.

To ensure competent provision of services, BAS 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 a BAS agent, including continuing awareness, understanding and up to date knowledge of relevant technical, legal and business developments.

Compliance with this requirement may require the BAS 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. 

(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 BAS 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 only extends 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 have already discussed the Board’s position in relation to professional indemnity insurance.

(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.

SANCTIONS

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, the Order may then specify the period of time to complete a requirement in the order or the period of time that 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 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.

SAFE HARBOUR

A taxpayer who uses a 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 an 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.

 

KEY MESSAGES

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

• The Tax Practitioners’ Board 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.
• Registration and notification forms for tax and BAS agents are now available online on our website. The Board has already seen encouraging numbers of notifications and registrations applications submitted.
• There are easily accessible arrangements that have been put in place to allow you an easy transition to the new regime.

If you are an eligible entity, you can simply notify the Board, under Special Rule 5, no later than 31 August 2010, that you were providing a BAS service within the meaning of the old law and you will then be taken to be a registered BAS agent under the new law for a two year period starting from 1 March 2010. 

Alternatively, you can apply to the Board, under Special Rule 14, for registration under the transitional arrangements even if you do not meet the qualification and experience requirements prescribed by the Regulations. If you apply to the Board within three years from the commencement of the new law on 1 March 2010, and you have been providing BAS services to a competent standard for a reasonable period of time before making the application, you will be taken to be registered for at least 3 years from the day specified in the notice that the Board gives you.

As I mentioned earlier, registration granted under Special Rule 14 is not back-dated to the day of commencement of the new law.  This means that the entity cannot be considered to be registered during the intervening period, and therefore cannot legally provide a BAS service for a fee or other reward during this period.  You can, however, work as an employee.

• If you are a registered tax agent immediately before commencement of the new law, you will not need to register as a BAS agent under the new law. The Tax Practitioners Board will automatically take you to be registered as a tax agent under the new law. You will be contacted by the Board when your re-registration is due.
• You do not need to register if you provide BAS services as part of your employment service for which you receive a salary or wage.
• You do not need to be a member of a recognised BAS agent association to be eligible to register as a BAS agent. Membership of one of these associations is just one avenue for you to register.
• Professional indemnity insurance will not be required until 1 July 2011, however, if you currently hold professional indemnity insurance, the Board strongly encourages you 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