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Taking reasonable care — Questions and answers

1 April 2020

Taking reasonable care — Questions and answers

We have compiled some of the questions we received during our webinar – Taking reasonable care.

Reasonable care requirements

Corporations Act

Work-related expenses

Engagement letters

Reasonable care requirements

Is there a set formula to determine if a practitioner is taking reasonable care, how do you determine that we’re meeting our requirements?

There is no set formula for determining reasonable care. Ultimately, determining whether a tax practitioner has complied with their obligations under Code of Professional Conduct (Code) items 9 and 10 will be a question of fact. This means each situation will need to be considered on a case-by-case basis having regard to the specific facts and circumstances. A good question to ask yourself is “what would my peers and colleagues do in this situation?”.

What does taking reasonable care mean in relation to a 'statement' you make, or ‘thing’ you do for your client?

A ‘statement’ could be a statement you make to the Australian Taxation Office (ATO) or to your client when providing tax advice. For example, a BAS agent’s declaration made when electronically submitting a BAS return is a ‘statement’.

A ‘thing’ you do could include providing taxation advice to your client, or preparing and lodging returns, statements, objections or appeals on behalf of your client.

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In what situations should we make further enquiries to ascertain a client’s state of affairs?

Some examples include when:

  • there are new or substantial changes in the law
  • you take on a new or inexperienced client
  • you notice unusual transactions in the context of the regular business of your client
  • it appears that the information or instructions your client has provided are incomplete or inaccurate.

Can you explain some of the things we should look at when taking reasonable care to apply tax laws correctly?

To ensure you’re applying tax laws correctly some of the things you should consider include:

  • legislation and related material
  • relevant case law
  • rulings and determinations issued by the ATO on the topic in question
  • the ATO Commissioner’s instructions in documents such as income tax returns, BAS returns, fact sheets and practice statements
  • any other guidance material published by the ATO, including on its website
  • information published or provided by a recognised professional association or other relevant regulatory agency, including the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority
  • publications, information, advice or commentaries published by other experts, registered practitioners or specialists
  • another registered practitioner or a legal practitioner who has the ability and expertise to provide the advice on taxation laws
  • relevant training material.

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Corporations Act

Are the reasonable care obligations under the Code the same as the obligations of the Corporations Act, that tax (financial) advisers are also subject to?

Yes, they are similar, for example your obligations under Code item 9, are consistent with sections 912A, 961B, 961E and 961H of the Corporations Act which requires the following:

  • The person providing the advice must make reasonable enquiries to obtain complete and accurate information relating to the client’s relevant circumstances.
  • If it is reasonably apparent the information on which the advice is based is incomplete or inaccurate, the person providing the advice must warn the client that:
    • the advice is, or may be, based on incomplete or inaccurate information relating to the client’s relevant personal circumstances, and
    • the client should consider the appropriateness of the advice before acting on it.
  • If the person providing advice to the client does not have the expertise required for that particular subject matter, they must decline to provide the advice.
  • Australian financial services (AFS) licensees must ensure their representatives are adequately trained and are competent to provide financial services.

Also, sections 912A, 961B, 961G and 961H of the Corporations Act are similar to your obligations under Code item 10, in that:

  • AFS licensees must comply with financial services laws and take reasonable steps to ensure that their representatives comply with them
  • the person providing personal advice to a retail client must act in the best interests of the client in relation to the advice. The resulting advice must also be appropriate to the client.

It is worth noting that compliance with the Corporations Act does not necessarily mean your reasonable care obligations under the Tax Agent Services Act 2009 (TASA) are being met, so you need to ensure you manage both. For more information refer to Code comparison with the Corporations Act and FASEA Standards.

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Work-related expenses

How do I ensure that I’m taking the appropriate reasonable care steps when making work-related expense claims?

The first thing to keep in mind is what the ATO Commissioner refers to as the ‘golden rules’ of claiming work-related expenses. If you have a client who wants to claim work-related expense deductions, you need to ensure the:

  • client has spent the money themselves and weren't reimbursed by their employer
  • expense is directly related to your client earning their income
  • client has a record to prove the expenses.

You should talk to your client and ask them:

  • Did you spend the money yourself?
  • Did your employer reimburse you already? Would they confirm this, if asked?
  • How does this expense directly relate to you earning your income?
  • Was there any private component to the expense that needs to be apportioned?
  • Do you have a record to prove the expense? If not, why not?

Make it clear to your client that they are not automatically entitled to claim standard deductions. Exceptions to keeping written evidence are there to make things simpler (for example, claiming $150 for laundry expenses or using the cents per kilometre method for car expenses). Your clients still need to show how they worked out their claims.

If your client can show an expense is deductible, then substantiation rules must be met. Your client must have written evidence to prove claims if the total claim exceeds $300. Written evidence must include a document from the supplier of the goods or services.

See the ATO website for more information.

What if I tell a client I can’t claim a work-related expense for them, and they go to another agent? Should I report them?

If you think a client may be acting illegally (from a tax perspective), you do not have an obligation to notify the ATO. However, you may wish to 'blow the whistle' to an eligible recipient, such as the ATO, under the new whistleblower laws. These new laws commenced on 1 July 2019 to legally protect people who ‘blow the whistle’ about an entity that is not complying with the tax laws.

At a more practical level, if you suspect your client is acting illegally, talk to your client about it. If this doesn’t resolve the issue, we suggest you decline the engagement of that client.

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If I have a client making false work-related expenses claims and they go to a new agent can I let the new agent know about the client’s fraudulent behaviour?

You cannot disclose any information to the new agent. It is up to them to ascertain whether the deductions claimed are lawful. You are, however, able to advise the ATO because you had a previous relationship with the client and may be eligible for whistleblower protections. This will not contravene the Code.

If you are aware that the agent is doing the wrong thing, we encourage you to let us know. It’s important to provide us with as much detail as possible and to make sure that you provide us with any relevant documentation to support your complaint. If you want to make a complaint you can complete an online complaint form at www.tpb.gov.au/makeacomplaint

Engagement letters

In the webinar you mentioned using an engagement letter to set out the scope for services to be done. Is this compulsory?

No, engagement letters are not a specific requirement under the Code, but we highly recommend you use them. Using an engagement letter can assist you to establish a clear understanding of the elements of the engagement between you and your client. They set out the terms and scope of the professional service you will offer your client.

Engagement letters should inform your clients about their rights and obligations and are a useful reference point in case of future questions around expectations. Importantly, an engagement letter helps to avoid uncertainty and misunderstandings, especially in relation to disputes over fees and about the scope of work to be completed.

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Last modified: 1 April 2020