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Sufficient number requirement for partnership and company TFA exposure draft TPB(I) D24/2014

Exposure Draft
Information sheet TPB(I) D24/2014

Sufficient number requirement for partnership and company registered tax (financial) advisers

This exposure draft is also available as a PDF – Download link at the end of this page.

The Tax Practitioners Board (TPB) has released this draft Information Sheet as an exposure draft and invites comments and submissions in relation to the information contained in it within 30 days. The closing date for submissions is 24 October 2014. The TPB will then consider any submissions before settling its position, undertaking any further consultation required and finalising the Information Sheet.

Written submissions should be made by the closing date to the Secretary of the TPB via email at tpbsubmissions [at] tpb.gov.au or by mail to:

Tax Practitioners Board
PO Box 126
HURSTVILLE BC NSW 1481

Disclaimer

This document is in draft form, and when finalised, will be intended as information only. While it seeks to provide practical assistance and explanation, it does not exhaust, prescribe or limit the scope of the TPB’s powers in the Tax Agent Services Act 2009 (TASA). The principles and examples in this paper do not constitute legal advice. They are also only at a preliminary stage. The TPB’s conclusions and views may change as a result of comments received or as other circumstances change.

Document history

This draft Information Sheet was issued on 24 September 2014 and is based on the TASA as at 1 July 2014.

Sufficient number requirement for partnership and company registered tax (financial) advisers

Introduction

  1. From 1 January 2016, partnerships and companies seeking registration or renewal of registration as a tax (financial) adviser will need to meet the sufficient number requirement. This means that these entities will need to have a sufficient number of individuals, being registered tax agents or registered tax (financial) advisers, to provide tax (financial) advice services to a competent standard, and to carry out supervisory arrangements.

  2. This draft TPB Information Sheet (TPB(I)) has been prepared by the TPB to assist entities in understanding the TPB’s approach to the sufficient number requirement.

  3. Whether a particular partnership or company satisfies the sufficient number requirement is a question of fact. This means that each application for registration or renewal will need to be considered on a case-by-case basis having regard to the partnership or company’s facts and circumstances.

Sufficient number requirement

Legislative background

  1. From 1 January 2016, partnerships and companies seeking registration or renewal of registration as a tax (financial) adviser will need to meet all the standard eligibility criteria under section 20-5 of the Tax Agent Services Act 2009 (TASA).

  2. Under subparagraphs 20-5(2)(c)(iii) and 20-5(3)(d)(iii) of the TASA, one of these standard eligibility criteria is that the partnership or company has:

    1. (iii) 

      in the case of registration as a registered tax (financial) adviser—taking into account the requirements of paragraphs 912A(1)(d) to (f) of the Corporations Act 2001, a sufficient number of individuals, being registered tax agents or registered tax (financial) advisers, to provide tax (financial) advice services to a competent standard, and to carry out supervisory arrangements.

  3. Paragraphs 912A(1)(d) to (f) of the Corporations Act 2001 provide that:

    (1) A financial services licensee must:

    (a)...

    (d) unless the licensee is a body regulated by APRA--have available adequate resources (including financial, technological and human resources) to provide the financial services covered by the licence and to carry out supervisory arrangements; and

    (e) maintain the competence to provide those financial services; and

    (f) ensure that its representatives are adequately trained, and are competent, to provide those financial services; and

    (j) ...

Who can form the sufficient number?

  1. The registered individual tax agents and tax (financial) advisers that a company or partnership is required to have, for the purpose of satisfying the sufficient number requirement, is unique and can be wide-ranging having regard to the company or partnership’s particular circumstances. The individuals may include partners, directors, employees, contractors and staff provided under a service trust arrangement. [1] Further, these individuals may also include the financial services licensee’s representatives, [2] responsible managers, compliance officers and regional/line managers.

Meaning of 'competent standard' and 'supervisory arrangements'

  1. The phrases ‘competent standard’ and ‘supervisory arrangements’ are not defined in the TASA. As a result they take on their ordinary meaning and are broadly considered to be arrangements aimed at directing, overseeing and checking the tax (financial) services performed on behalf of a registered tax (financial) adviser to ensure those services are provided competently.

Competent standard

  1. The Macquarie Dictionary (2009) provides the following definition:

    Competent

    1. Properly qualified; capable

    2. Fitting, suitable or sufficient for the purpose; adequate.

  1. Further, the Code of Professional Conduct contained in section 30-10 of the TASA provides some guidance in relation to the meaning of competence. In particular, subsections 30-10(7) to (10) of the TASA, which all fall under the key principle of ‘competence’, require that tax (financial) advisers must:

    • ensure the tax (financial) advice services they provide, or are provided on their behalf, are provided competently

    • maintain knowledge and skills relevant to the tax (financial) advice services they provide

    • take reasonable care to ascertain clients' state of affairs

    • take reasonable care to ensure that taxation laws are applied correctly.

Supervisory arrangements

  1. The Macquarie Dictionary (2009) provides the following definition:

    Supervise

    1. To oversee (a process, work, workers, etc) during execution or performance; superintend; have the oversight and direction of.

    Supervision

    1. The act or function of supervising; oversight; superintendence.

  2. Further, the TPB is of the view that the following considerations may be relevant in determining whether there are appropriate supervisory arrangements in place:

    • the level and depth of oversight over the provision of tax (financial) advice services by staff. While it is not necessary that all work or client interviews be monitored, a substantial degree of oversight (which may or may not include physical) [3] of the staff and what they do is necessary and this will vary according to the skills and experience of the staff and the complexity of the tax (financial) advice service being provided

    • periodic and ‘spot’ checks of relevant financial advice material, such as Statement of Advice, prepared by staff

    • quality assurance mechanisms such as conducting regular audits of work performed or undertaken by staff

    • the degree of control exercised by a tax (financial) adviser over the way in which staff carry out their work.

Determining the 'sufficient number'

  1. There is no set formula for determining the sufficient number of registered individual tax agents or tax (financial) advisers a partnership or company is required to have to satisfy this requirement.

  2. However, the TPB will take into account the requirements of paragraphs 912A(1)(d) to (f) of the Corporations Act 2001, which relate to:

    • having available adequate resources (including financial, technological and human resources) to provide the financial services covered by the license and to carry out supervisory arrangements

    • maintaining the competence to provide those financial services

    • ensuring that its representatives are adequately trained, and are competent, to provide those financial services.

  3. In addition to those requirements under the Corporations Act 2001, the TPB will also take into account other factors, including:

    • size of the business (for example, turnover, number of clients and number of staff)

    • the types of tax (financial) advice services being offered

    • number of qualified and experienced staff

    • the frequency of appropriate training and development activities for all staff

    • the level (and type) of technology or software used

    • the supervisory arrangements (for example, quality control practices and escalation procedures) in place

    • any conditions imposed on the entity’s registration based on the qualifications and experience of its staff.[4]

  4. The TPB recognises that the business models and structures in the financial services industry are different to those commonly found with tax and BAS agents. This is in part due to the licensing requirements under the Corporations Act 2001. Existing business models and structures in the financial services industry that the TPB is aware of include:

    • licensees with multiple practices operating under one licence

    • licensees operating with authorised representatives only (which may include corporate authorised representatives and/or individual authorised representatives), employee representatives only or a combination of both

    • licensees with a small number of representatives operating a business under their own licence

    • corporate authorised representatives authorised by one of the above licensee structures

    • authorised representatives, often as sole traders, operating a financial planning business under the license of a larger licensee.        

  5. Taking into account the different business models and structures outlined in paragraph 16 and the numerous combinations in relation to the factors listed in paragraph 15, the TPB is of the view that it is ultimately a matter for the partnership or company to satisfy the TPB that it meets the sufficient number requirement. In particular, the TPB is of the view that partnerships and companies are best placed to assess how many registered individual tax agents or tax (financial) advisers their business requires to ensure that tax (financial) advice services are provided competently and to ensure there are supervisory arrangements in place.

  6. Having regard to the information in this draft TPB(I) (particularly paragraphs 14 and 15), when a partnership or company seeks registration or renewal of registration with the TPB, we will ask the applicant the following types of questions on their application form:

    • Does your company/partnership have a sufficient number of registered individual tax agents or tax (financial) advisers to provide tax (financial) advice services to a competent standard and to carry out supervisory arrangements?

    • How many registered individual tax agents or tax (financial) advisers does your company/partnership have?

    • Provide details of supervisory arrangements in place for ensuring tax (financial) advice services are provided competently, for example: size of practice, number and experience of staff (including representatives), how supervision and control is conducted.

  7. We will then review the responses to the above questions, and in most cases, accept the information provided by the applicant. However, where a potential issue or discrepancy arises, we will contact the applicant for further information

[1] See paragraph 2.56 of the Explanatory Memorandum to the Tax Agent Services Bill 2008.

[2] 'Representatives' has the meaning given by paragraph (a) of the definition of that expresssion in section 910A of the Corporations Act 2001.

[3] This recognises those practices that may be geographically dispersed and where face-to-face supervision will not always be a viable option.

[4] Some of these factors are taken from paragraph 2.56 of the Explanatory Memorandum to the Tax Agent Services Bill 2008.