Module 3 - FA1

Chapter 9: Tax Agents

Learning Outcome Describe the duties, obligations and requirements for registration as a tax agent and the regulatory framework within which tax agents operate.

Content:

Regulatory framework for tax agents:

The Tax Agent Services Act 2009 Tax Agent Services Regulations

Tax Practitioners Board

 Procedural requirements for registration and re-registration as a tax agent, including the requirement to be of a “fit and proper person”.

 Academic and relevant experience requirements for registration as a tax agent.

Ethics and Professional responsibility of tax agents:

Code of Professional Conduct Continuing Professional Education

Charging of fees

Advertising

False representations Supervision and control

Negligence

 Professional indemnity insurance requirements

Safe Harbour protection.

Engagement Letter and Tax Return Checklist.

Tax agent lodgment program.

 Circumstances in which tax agent registration may be terminated.

 Right of appeal against Tax Practitioners Board decisions.

 Circumstances in which the Tax Practitioners Board must be notified.

Online services for tax agents.

Advanced Income Tax Law

Chapter 9 Tax Agents

9.1

REGULATORY FRAMEWORK On 1 March 2010, a national Tax Agent Services regime commenced. The previous regulatory system for the regulation of tax agents was originally introduced in 1943 and was considered to no longer fully reflect the current tax environment. It was regarded as being out of step with the taxation system due to factors such as:  Self-assessment, as well as other reforms to the tax legislation, which has led to an increased reliance on tax practitioners.  The introduction of GST which has resulted in unregulated people providing BAS services. This affects the integrity of the tax system. In response, the government initiated a complete overhaul of the legislative regime governing tax practitioners, with the aim of establishing a national framework to ensure consistency in the registration and regulation of tax practitioners. Tax Agent Services Act 2009 The Tax Agent Services Act 2009 (TAS Act) was passed by Parliament in March 2009. It did not become operational until March 2010 to allow time for the appointment of a national Tax Practitioners Board (TPB) and the establishment of administrative resources to administer the Act. The key features of the Tax Agent Services Act 2009 are:  Establishment of the national Tax Practitioners Board (TPB).  The registration and regulation of Business Activity Statement (BAS) service providers as BAS Agents. The minimum educational requirements and relevant experience tests will be less demanding than for registration as a tax agent. All BAS agents are now governed in the same way as tax agents, but will provide only a limited range of services relating to tax laws relevant to BAS.  A legislated Code of Professional Conduct that defines and governs the professional and ethical standards of all registered tax practitioners (i.e. tax agents and BAS agents).  A wider and more flexible range of disciplinary sanctions which may be imposed by the Tax Practitioners Board.  Civil penalties and injunctions to replace the existing criminal penalties for certain misconduct by tax agents and unauthorised entities. The TAS is intended to assist the ATO in increasing the number of accurate returns, reducing enquiries, reducing audit activity, and improving the relationship between tax practitioners and the ATO.

Chapter 9: Tax Agents

Tax Agent Services Regulations 2009 The Tax Agent Services Regulations 2009 (Regulations), which commenced on 14 November 2009, set out the qualification and relevant experience requirements for registration as a tax agent and as a BAS agent. The Regulations provide details to accompany the Tax Agent Services Act 2009 and form part of the new tax agent services regime. The Regulations provide that an individual tax agent must satisfy one of a number of academic and relevant experience combinations depending upon the applicant’s circumstances. Key elements of the Regulations include:  The qualification and relevant work experience requirements for registration as a tax agent and a Business Activity Statement (BAS) agent.  The requirements for recognition as a recognised professional association and a recognised BAS agent association. Tax Practitioners Board (TPB) The national TPB is a statutory authority independent of the ATO, but funded and supported by the ATO. Key functions of the TPB include:  Administrating the system of registration of tax agents and BAS agents.  Investigating applications for registration and conduct which may breach the Code of Conduct.  Imposing administrative sanctions for non-compliance.  The application fees for registration as a tax agent or BAS agent.

The TPB is required to establish and maintain a register of registered tax agents and those whose registration has been terminated - s.60-35 TAS Act .

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9.2

TAX AGENT REGISTRATION REQUIREMENTS Following of the passing of the Tax Agent Services Act 2009, a national Tax Practitioners Board was established to replace the previous six state-based tax agent’s boards. Previously the procedures for registering tax agents were administered by a separate Tax Agents’ Board in each State.

Application for registration fees Different fees for various types of registration application to the TPB for registration.

Initial Registration An individual, company or partnership wishing to be registered as a tax agent must apply to the TPB. Application for registration as a tax agent who carries on the business as a tax agent must be made using the prescribed form and a fee of $500 must accompany the application for registration - s.20-20 TAS Act . The fee for registration as a tax agent who does not carry on a business as a tax agent is $250. Registration comes into force on the day that it is granted for a period of three years, unless it is terminated, suspended, surrendered or the agent dies. Individual applicants To be eligible for registration as a tax agent an applicant must be aged 18 or more. Individual applicants must also satisfy the TPB that they are fit and proper persons to perform tax agent services and to transact tax related business on behalf of the taxpayer, and that they meet the requirements relating to qualifications and experience - s.20-5 TAS Act. Fit and Proper persons The criteria for determining whether an individual applicant is a fit and proper person are contained in s.20-15 TAS Act . They are:  The TPB must be satisfied that an individual applicant is of good fame, integrity and character in the previous five years.  The applicant must not have been convicted of a serious tax offence involving fraud or dishonesty, be an undischarged bankrupt, or served a term of imprisonment at any time during the previous five years.

These are the minimum requirements. Compliance with them does not necessarily guarantee that the applicant is fit and proper.

Partnership applicants Under s.20-5 TAS Act, a partnership is eligible for registration if the TPB is satisfied that: • Each individual partner must be aged 18 years and over and meet the “fit and proper person” standard.  The partnership must have a sufficient number of individuals, being registered tax agents, to provide tax agent services to a competent standard and to carry out supervisory arrangements.

Chapter 9: Tax Agents

 If a company is a partner: (i) Each director of the company is a fit and proper person, (ii) The company is not under external administration, (iii) The company has not been convicted of a serious taxation offence or an offence involving fraud or dishonesty during the previous five years. Company applicants Under s.20-5 TAS Act, a company is eligible for registration if the TPB is satisfied that: • Each director must be a “fit and proper person”. • The company must not have been convicted of a serious tax offence involving fraud or dishonesty during the previous five years.  The company must have a sufficient number of individuals, being registered tax agents, to provide tax agent services to a competent standard and to carry out supervisory arrangements.  Have shares with at least 25% of the voting power beneficially owned by a The purpose of s.20-5 TAS Act is to ensure that a partnership or a company tax agent or BAS agent has sufficient organisational qualifications and experience to provide tax agent services or BAS services competently. Re-registration Tax agents must apply for re-registration every three years on the prescribed form - s.20-50 TAS Act . Re-registration requirements are generally the same as for initial registration. Applications for re-registration must be made at least 30 days before the expiry of the existing registration. director or directors each of whom is a fit and proper person. • The company must not be under external administration.

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9.3

ACADEMIC QUALIFICATIONS and RELEVANT EXPERIENCE REQUIREMENTS Eligibility for registrations

To satisfy the prescribed requirements for registration purposes, the Tax Agent Services Regulations 2009 provides that an individual tax agent or BAS agent must satisfy one of a number of academic and relevant experience combinations depending on whether the applicant:

Is a holder of a tertiary qualification.

Is a holder of a diploma.

Has admission to legal practice.

 Is a member of a professional association, or,

Has certain accounting qualifications.

Academic Qualifications An individual tax agent applicant must have successfully completed the academic requirements for the award of degree or post-graduate award, diploma or other qualification from: (i) An Australian tertiary institution, or, (ii) An Australian registered training organisation (e.g. TAFE), or, (iii) Have qualified for admission to legal practice, and, have successfully passed examinations in subjects with the appropriate Australian tertiary institution or registered training organisation which the TPB certifies to represent a course of study in accountancy, or has such other qualification as the TPB regards as equivalent to that qualification. Note that the above requires a pass in Australian taxation law and commercial law or equivalents that are approved by the TPB. Further, the TPB is of the view that a course in Australian taxation law be of 200 to 260 hours’ duration. This would equate to two tertiary level units. Therefore, with regard to the Australian taxation law requirement, holders of an Advanced Diploma of Accounting should have successfully completed the following units: • Prepare Tax Documentation for Individuals. • Prepare and Administer Tax Documentation for Legal Entities.  Implement Tax Plans and Evaluate Tax Obligations. In regard to the commercial law requirement, the TPB takes the view that all of the following topic areas (which are described by the TPB as the “core commercial law areas”) are essential for individuals required to undertake a course of study in commercial law for the purposes of registration as a tax agent:  Australian legal systems and processes,  Contracts,  The law of entities (including partnerships, corporations and trusts) and business structures,  Property law.

Chapter 9: Tax Agents

If an applicant does not have any formal academic qualifications, they need to complete a course in each of basic accounting principles, Australian taxation law and commercial law. They must have been engaged in full-time relevant employment for not less than a total of eight years in the preceding ten years, or otherwise engaged in other relevant employment deemed equivalent by the TPB, and be a member of, and entitled to vote at, meetings of a recognised professional association . Recognised Professional Associations There are currently fifteen associations that are accredited by the TPB as Recognised Professional Associations (RPA’s). These recognised tax agent associations include:

Institute of Public Accountants.

 Chartered Accountants Australia and New Zealand.  CPA Australia.

There is no requirement that an individual applying for tax agent registration must be a member of an RPA.

Relevant Experience In order to be a fit and proper person, an individual applicant must also satisfy the relevant experience requirements. The definition of relevant experience under the Tax Agent Services Regulations 2009 includes work by the applicant:  Under the supervision and control of a tax agent.  As an Australian legal practitioner.  Of a kind approved by the TPB. Relevant experience is experience as a salary and wage employee under an employer’s supervision. It does not include self-employment or sub-contracting experience. In fact, the employment must be exercised under the control and supervision of a registered tax agent. The amount of relevant experience varies according to the applicant’s level of academic qualifications. For example, holders of a TAFE qualification such as an Advanced Diploma of Accounting generally must have two years of full-time relevant experience in the five years preceding the application for registration. For applicants with relevant tertiary qualifications the experience requirement is 12 months of full- time relevant experience in the last five years. The Tax Agent Services Regulations 2009 require that the applicant’s work experience must include a substantial involvement in one or more of the types of tax agent services described of the s.90-5 TAS Act . These tax agent services include: (i) a BAS service; or, (ii) preparing or lodging an approved form about a taxpayer’s liabilities, obligations or entitlements under a taxation law; or, (iii) advising an entity about liabilities, obligations or entitlements of the entity or another entity that arise, or could arise, under a taxation law; or, (iv) dealing with the Commissioner on behalf of a taxpayer in relation to a taxation law.

Substantial involvement is taken as the applicant’s major duty while employed. SUMMARY OF QUALIFICATION AND EXPERIENCE REQUIREMENTS

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FOR REGISTRATION (INCLUDING RENEWAL) AS A TAX AGENT (Only ONE item needs to be satisfied) TERTIARY QUALIFICATION S IN ACCOUNTANCY TERTIARY QUALIFICATIONS IN ANOTHER DIPLOMA OR HIGHER AWARD TERTIARY QUALIFICATIONS IN LAW

M E M B E R S H I P I n d i v i

WORK EXPERIENCE

DISCIPLINE - SPECIALISTS

Diploma or higher awarded (from a registered training organisation or equivalent institution) in the discipline of accountancy

Degree or post- graduate award (from an Australian tertiary institution) or degree or award that is TPB approved (from an equivalent institution) in

Degree or post-graduate award (from an Australian tertiary institution) or degree or award that is TPB approved (from an equivalent institution) in a relevant discipline other than accountancy May be required – if TPB considers it is relevant to the tax agent

Not applicable

Academic qualifications to be an Australian legal practitioner

PRIMARY QUALIFICATION

O F d u a l A P R O i s

discipline of accountancy

N o t r e q u i r e d N o t r e q u i r N o t e d r e q u i r e d

Required

Required

Required

Required

BOARD APPROVED COURSE IN AUSTRALIAN TAXATION LAW

F E S S I O N A L A S S O C I A T I O N v o t i n g m e m b e r o f a E q u i a

services to which the application relates

May be required – if TPB considers it is relevant to the tax agent

Required BUT only for applications made from 1 March 2013

Required BUT only for applications made from 1 March 2013

Required

Not required

BOARD APPROVED COURSE IN COMMERCIAL LAW

services to which the application relates

May be required – if TPB considers it is relevant to the tax agent

Not required

Not required

Required

Required

BOARD APPROVED COURSE IN BASIC ACCOUNTANCY PRINCIPLES

services to which the application relates

r e c o g n i s e d t a x a g e v a l e n t o f 8 y e a r s ’ f

Equivalent of 12 months’ full- time experience in preceding 5 years

Equivalent of 2 years’ full-time experience in preceding 5 years

Equivalent of 12 months’ full- time experience in past 5 years

Equivalent of 12 months’ full-time experience in preceding 5 years

Equivalent of 8 years’ full- time experience in past 10 years

RELEVANT EXPERIENCE

Chapter 9: Tax Agents

9.4

ETHICS and PROFESSIONAL RESPONSIBILITY Code of Professional Conduct

The Code of Professional Conduct (Code) is a legislated code that sets out the professional and ethical standards required of registered tax agents (and BAS agents). It outlines the duties that agents owe to their clients, the Tax Practitioners Board, and other agents. The core principles of the Code of Professional Conduct for registered tax agents (and BAS agents) are organised into the following five categories:  Honesty and integrity.  Independence.  Confidentiality.  Competence, and,  Other responsibilities, such as the proper administration of tax law and following the direction of the TPB. Within these five categories, the Code has 14 principles. They are: Honesty and Integrity 1. An agent must act with honesty and integrity. 2. An agent must comply with the taxation laws in the conduct of their personal affairs. 3. If an agent receives money or other property from or on behalf of a client, and they hold that money or other property on trust, then the agent must account to the client for the money or other property. Independence 4. An agent must act lawfully in the best interests of their client. 5. Agents must have in place adequate arrangements to manage conflicts of interest that may arise in relation to activities they undertake in the capacity of a registered tax agent (or BAS agent). Confidentiality 6. Unless the agent has a legal duty to do so, they must not disclose any information relating to a client’s affairs to a third party without the client’s permission. Competence 7. Agents must ensure that the tax agent services they provide, or that is provided on their behalf, is provided competently. 8. Agents must maintain knowledge and skill relevant to the tax agent services that they provide (i.e. undergo continuing tax-related professional education (CPE). 9. Agents must take reasonable care in ascertaining a client’s state of affairs, to the extent that ascertaining the state of affairs is relevant to a statement the agent makes, or a thing that the agent is doing on behalf of a client. 10. An agent must take reasonable care to ensure that taxation laws are applied correctly to the circumstances in relation to which they are providing advice to a client.

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Other Responsibilities 11. Agents must not knowingly obstruct the proper administration of taxation laws. 12. Agents must advise their clients of their rights and obligations under taxation laws that are materially related to the tax agent services being provided. 13. An agent must maintain the professional liability insurance that the TPB requires to be maintained. 14. An agent must respond to requests and directions from the TPB in a timely, responsible and reasonable manner. A tax agent must take reasonable care in ascertaining a client’s state of affairs, and to ensure that taxation laws are correctly applied to the circumstances in relation to which they are providing advice to the client - s.30-10 TAS Act . Continuing Professional Education (CPE) A key part of the Code of Professional Conduct (Code) is for tax and BAS agents to maintain their knowledge and skills relevant to the tax agent and BAS services they provide. The TPB has developed a continuing professional education (CPE) policy to assist agents to meet their obligations under the Code. Since 1 July 2012, all registered tax agents must begin or carry on their CPE in accordance with the TPB’s policy, which includes maintaining a record of evidence of the CPE they have completed. For agents applying to renew their registration from 1 July 2013 – the TPB will ask if they are complying with the TPB’s CPE policy. Tax agents should complete 90 hours of CPE within a three-year period with a minimum 10 hours each year. BAS agents should complete 45 hours of CPE within a three-year registration period, with a minimum five hours each year. CPE activities that can be undertaken are not limited to fee paying activities. For example, reading, TPB or ATO seminars and webinars, computer/internet courses, structured multimedia conferences and discussion groups all count. Twenty-five per cent of CPE can be completed through private reading and research. The TPB have a CPE log that can used to maintain a record of CPE activities, and these should be kept for six years. Number of hours and CPE period There are a specified minimum number of CPE hours that should be completed over a CPE period. The CPE period for most agents will be three years, which is generally the agent’s registration period:  If a tax agent is registered on or before 1 July 2012, their CPE period will begin on 1 July 2012 and end on the day their registration expires, or is due to expire.  If a tax agent is registered after 1 July 2012, their CPE period will begin on registration as a registered tax agent and expire on the day their registration expires, or is due to expire.

If an agent’s CPE period is for a period other than three years, CPE should be completed on a pro-rata basis.

Chapter 9: Tax Agents

The following table shows the minimum number of CPE hours expected to be undertaken by the various tax agent types within a standard three-year registration period.

Minimum CPE hours over 3 years

Minimum hours each year

Registered agent type

90

10

Tax agents

Tax agents (with a condition of registration other than quantity surveyor) Tax agents with the condition of quantity surveyor

45

5

6

2

Special circumstances There may be extenuating circumstances where a registered agent is unable to complete the minimum hours of CPE. Registered agents should exercise their professional judgment in this regard and keep appropriate records of these circumstances. Examples of situations where it might not be possible for a registered agent to complete the minimum level of CPE include:  Illness  Disability  Financial or other hardship. Using the flexibility of the three-year CPE period Ali is a tax agent running a sole practice in the Adelaide suburbs. In early 2017, Ali is involved in an accident involving his photocopier and sustains a serious injury. Ali is unable to work for six months. The TPB would not expect Ali to complete the minimum level of CPE that year. Failure to comply with the Code Sanctions for failure to comply with the Code of Professional Conduct are contained in s.30-15 TAS Act . These are:  A written caution from the TPB.  Completing a course of education or training specified by the TPB.  Providing services only under the supervision of another tax agent.  Providing only those services as specified by an order of the TPB.  An order from the TPB to rectify the problem - s.30-20 TAS Act.  Suspension of tax agent registration - s.30-25 TAS Act.  Termination of tax agent registration - s.30-30 TAS Act. Charging of Fees Only registered tax agents (or a person exempted from registration) may charge a fee for providing tax agent services (i.e. the preparation and lodgement of income tax returns or transacting business for a taxpayer in any income tax matter). They must be registered with the Tax Practitioners Board and follow strict regulations that ensure they act in a professional manner. Example:

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s.50-5 TAS Act specifies the persons entitled to provide tax agent services. They are: • Registered tax agents. • Solicitors or barristers acting in the course of their profession in the preparation of any tax objections or litigation before a court or tribunal, or advising on the preparation of a tax return or other income tax matter. The civil penalty for breach of s.50-5 TAS Act by an individual is 250 penalty units (equal to $52,500). For a body corporate, the civil penalty is 1,250 penalty units (equal to $262,500). Currently, a penalty unit is equal to $210. Fees charged for tax agent services by persons entitled to charge for such services are deductible for the payee (taxpayer) under s.25-5. Advertising Under s.5O-10 TAS Act it is an offence for a person who is not a registered tax agent to advertise that they will provide a tax agent service. The civil penalty for breach of s.50-10 TAS Act by an individual is a fine of 50 penalty units (equal to $10,500). For a body corporate, the civil penalty is 250 penalty units (equal to $52,500). False representations A person representing that they are a registered tax agent or BAS agent where they are unregistered is in breach of s.50-15 TAS Act . The civil penalty for an individual is 50 penalty units. For a body corporate, the penalty is 250 penalty units. Supervision and Control The notion of supervisory arrangements is a requirement for eligibility for registration as a tax agent and is contained in s.20-5 TAS Act . An offence is committed if a registered tax agent (individual, partnership or company) signs any document or declaration made in relation to a taxpayer that is required or permitted under taxation law that was prepared by an entity other than an individual working under the supervision and control of a registered tax agent – s.50-30 TAS Act . There is no precise definition of what constitutes adequate supervisory arrangements or supervision and control. They are a question of fact to be determined on a basis of the specific facts of each particular case. The civil penalty for contravening the supervision and control provisions is up to a maximum of 250 penalty units for an individual tax agent, and up to 1,250 penalty units for a partnership or company tax agent. Negligence Before 1 March 2010, if a client became liable to pay a fine, penalty, additional tax, Shortfall Interest Charge (SIC) or General Interest Charge (GIC) because of the negligence of a tax agent, then the tax agent was obliged to reimburse the client for the amount of that fine, penalty or interest - s.251M ITAA36 . Since 1 March 2010 tax agents may only be sued at common law by clients for negligence or breach of contract to recover damages.

Chapter 9: Tax Agents

The fact that the tax agent has been negligent does not relieve the client of the liability to pay any fine or penalty to the ATO. The taxpayer must first pay it and then recover the amount from the tax agent. A tax agent may face suspension or cancellation of their registration under if they are found guilty of neglecting the client’s business. In addition to the penalties imposed by the ITAA, tax agents may also be liable for offences under the Taxation Administration Act (e.g. for making false and misleading statements or falsifying records). Each partner of a partnership is guilty of an offence where the partnership fails to comply with its obligations under the ITAA unless they can prove they had no knowledge of the offence. Professional Indemnity (PII) Insurance requirements From 1 July 2011, generally all registered tax agents (and BAS agents) are required to have adequate professional indemnity insurance cover that meets the TPB’s minimum requirements. The TPB is of the view that there needs to be a mechanism to ensure that funds are likely to be available to compensate clients who may suffer loss due to certain conduct on the part of the tax agent connected with the provision tax services including BAS services. This requirement is designed to provide a greater level of consumer protection for the Australian community, particularly for anyone who pays for the services of tax agents and BAS agents. Adequate PII cover is cover that will satisfactorily indemnify an agent against civil liability that may arise in the agent’s provision of tax services; and which meets the policy objective of reducing the risk that client losses are not compensated by the tax agent due to the agent having inadequate financial resources or for any other reason. The TPB requires that agents hold PII that is “adequate”, having regard to the nature of the tax agent services business carried on by the agent, including the: 1. Volume of business in terms of turnover; 2. Number and kind of clients; 3. Kind or types of services provided; 4. Number of employees; and 5. Degree of risk.

Tax agents may be required to provide evidence that they have PII cover that meets the TPB’s requirement on an annual basis.

If an agent fails to maintain adequate PII cover that meets the TPB’s requirements, the TPB may sanction the agent for a breach of the Code under s.30-10(13) TAS Act . Depending on the circumstances, the sanctions available to the TPB range from cautions to suspension or termination of an agent’s registration.

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9.5

“SAFE HARBOUR” PROTECTION The (ATO) administers ‘safe harbour’ provisions set out in the

Taxation

Administration Act 1953 (TAA).

Under the safe harbour provisions, taxpayers using a registered tax or BAS agent may not be liable to some administrative penalties imposed by the ATO in certain circumstances. For example, where an agent is responsible for:  failing to lodge a document (such as an income tax return) on time.  making a false or misleading statement resulting in a shortfall of tax. Client protection under the safe harbour provisions The safe harbour provisions will only be available to the client if, amongst other things, the client provides “all relevant taxation information” in a timely manner. Accordingly, it is to the client’s advantage that all relevant information is disclosed to the tax agent as any failure by the client to provide this information may affect the client’s ability to rely on the “safe harbour” provisions and will be taken into account in determining the extent to which tax practitioners have discharged their obligations to clients. It is the clients’ responsibility to show that they brought all matters to the tax agent’s attention if they want to take advantage of the safe harbours created under the new regime. To obtain the benefits of "safe harbour" protection, the taxpayer must provide the registered agent with "all relevant taxation information" to enable accurate statements to be provided to the ATO. This requirement may be important to both parties in identifying and understanding the purpose and scope of the engagement. In particular, tax agents are bound by a statutory code of conduct which is administered by the TPB which requires them, amongst other things, to act lawfully in the best interests of the client and with honesty and integrity in the performance of their duties. Where the ATO, or a court or tribunal, makes a decision about the application of the safe harbour provisions to the circumstances of a taxpayer, that decision may involve a finding that an agent, in making a statement or failing to lodge a return on behalf of the taxpayer, has failed to take reasonable care.

Such a finding in relation to an agent’s conduct, may be considered in assessing whether an agent has breached the Code of Professional Conduct.

Chapter 9: Tax Agents

Engagement Letters and Tax Return Checklists Terms of Engagement letter

A Terms of Engagement letter (or more simply an engagement letter) is a form that sets out the terms, conditions and expectations between the taxpayer and their tax agent. Key elements include naming who is covered and to what extent (such as which particular tasks are to be performed, and which will not), the extent of the review or verification of information, the fees or fee estimates and terms of payment. There is no specific requirement under the TAS Act for an agent to have an engagement letter with their client. Although an engagement letter is not mandatory under the law, it is certainly a good idea considering the safe harbour provisions of the TAS Act. The aim of the TAS Act is to ensure that tax agent services are provided to the public in accordance with appropriate standards of professional and ethical conduct. The TPB considers that a written agreement between the agent and the client that sets out the terms and conditions of their arrangement is an advantage. In particular, an engagement letter is likely to be a simple way to assist an agent to comply with their obligations under the Code and to define and limit the obligations of both parties, subject to the law. There are also other legal and professional standards and regulatory requirements under which letters of engagement may be necessary. Examples include standards issued by the Accounting Professional and Ethical Standards Board (APES 305 Terms of Engagement) and the Auditing and Assurance Standards Board. Tax Return Checklist The tax return (or interview or assignment) checklist is a series of questions to assist clients and tax practitioners complete tax returns efficiently and consistently and help identify relevant tax issues for special consideration. Clients are required by law to keep full and accurate records relating to their tax affairs. It is the client’s obligation to provide the tax practitioner with all information that one would reasonably expect will be necessary to allow the practitioner to perform the work contemplated under the engagement within a timely manner or as requested. This includes providing accurate and complete responses to questions asked of the client by the practitioner. Inaccurate, incomplete or late information could have a material effect on tax practitioner services and/or conclusions provided to the client. Tax practitioners need not verify the underlying accuracy or completeness of information the client provides if it appears reasonable. However, if the tax practitioner believes information is missing, incorrect or misleading, the agent will need to seek further assurance from the client. The use of Engagement Letters is standard operating procedure for most tax agents.

A sample Engagement Letter and Tax Return Checklist can be found in Appendix 1 at the end of this chapter.

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9.6

TAX AGENT LODGMENT PROGRAM Each year the ATO, in consultation with practicing tax agents and professional association representatives, develops the tax agent Lodgment Program. The Lodgment Program is structured to accommodate progressive lodgment of documents throughout the year and it is designed to enable tax agents to spread their work over an income year, and considers ATO revenue obligations, and government and community expectations. It covers the lodgment dates for all tax agent’s individual, partnership and trust tax returns, but not company or superannuation fund returns. Tax agents are responsible for monitoring their own performance, although the ATO also regularly monitors the agents’ performance. All practising tax agents have a responsibility to do everything possible to meet the tax agent lodgment program. The Lodgment Program includes details of lodgment obligations including:  Income tax returns.  Monthly and quarterly activity statements.  Fringe benefits tax (FBT) returns and PAYG withholding annual reports.  Annual goods and services tax (GST) returns and information reports.  Annual and quarterly instalment notices.  A range of superannuation statements, including the single annual return for SMSF’s, and,  Other lodgment obligations, including franking account returns, annual investment income reports and venture capital deficit returns. End Dates There are numerous income tax return lodgment end dates in the Lodgment Program. The end dates for lodging income tax returns depends on factors including:  The type of client they are.  Their lodgment compliance history.  Their tax level in current and/or prior years, and,  In some instances, their income level. Examples of the concessional lodgment dates granted to tax agents for the 2017/18 income year are as follows: Lodgment due date Description 31 October 2018 Income tax return for all entities where one or more prior year income tax returns were outstanding as at 30 June 2018. 15 January 2019 Income tax return for taxable large/medium business taxpayers as per latest year lodged - all entities other than individuals. 28 February 2019 Income tax return for new registrant large/medium business taxpayers and SMSFs.

15 May 2019

Income tax return for all other entities not required earlier.

Chapter 9: Tax Agents

Any tax agent prepared returns lodged after the specified end dates must be accompanied by payment of any estimated due tax amount, as payment in advance, together with any applicable penalties.

A tax agent’s own personal income tax return must be lodged by 1 February following the end of the year of income.

85% on-time lodgment requirement Since 1 July 2013, tax agents have been required to lodge 85% or more of their clients' current year returns by the lodgment program due date, or by the deferred due date if a deferral is granted. Additionally, concessional lodgment dates available under the lodgment program will only apply to returns lodged electronically. If a tax agent lodges a paper return after the statutory due date, late lodgment penalties may be applied.

Since 1 July 2013 the ATO has applied specific treatments, taking a differentiated approach, to improve lodgment performance across the tax profession.

Before applying a treatment, the ATO will contact the tax agent to discuss their individual circumstances that may be impacting on their lodgment performance. Any treatments will take into account the tax agent’s individual performance and compliance history.

The table below outlines the ranges of lodgment performance and the subsequent approach:

Yearly average performance percentage is:

ATO Approach to Tax Agent

85% or above

"Well done, you are managing your lodgment program successfully."

65-84%

"Here are self-help tools to improve your performance."

41-64%

"We will contact you to discuss performance and ways to improve performance."

40% or below

"We may take firmer action to improve your performance."

Treatments will be applied where the tax agent does not meet the 85% on-time lodgment benchmark. If a treatment is applied by the ATO, the tax agent is expected to improve their lodgment performance by the following year.

Advanced Income Tax Law

If performance does not improve, the ATO will progressively apply increasingly stringent treatment strategies, as detailed in the diagram below.

Since the 2017/18 income year, the ATO have focused on those agents who are performing at 40% or below and placing them on a guided program. The ATO provides support services and tools, such as educational field visits, as part of their differentiated approach to help underperforming tax agents improve their lodgment performance. Tax agents who continually have poor lodgment performance, with a poor compliance history, may be at risk of losing access to concessional due dates under the lodgment program. These agents may also be at risk of breaching the Tax Agent Services Act 2009 Code of Professional Conduct. Deferrals for short-term or unforeseen circumstances Lodgment deferrals will continue to be available under the lodgment program to help tax agents manage short-term difficulties that impact their ability to lodge by the due date. If a lodgment deferral has been granted the ATO will use the deferred due date to measure on-time lodgment performance. Longer term and exceptional circumstances If a tax agent is experiencing longer term exceptional circumstances, they can ask for lodgment assistance to help them get back on track. The ATO works with the tax agent and take their individual circumstance into account, such as:  Serious illness within the practice or family.  Sudden and unexpected staff changes.  Natural or other disasters.

Chapter 9: Tax Agents

9.7

TERMINATION OF REGISTRATION S.20-45 of the TAS Act details the events which may affect a tax agent’s on-going registration. The events are where a tax agent:  Is convicted of a serious taxation offence.  Is convicted of an offence involving fraud or dishonesty.  Is penalised for being a promoter of a tax exploitation scheme.  Is penalised for implementing a scheme that has been promoted based on conformity with a product ruling in a way that is materially different from that described in the product ruling.  Becomes an undischarged bankrupt or goes into external administration.  Is sentenced to a term of imprisonment. Grounds for termination of registration Individuals Under s.40-5 TAS Act where an individual is a registered tax agent or BAS agent, the TPB may terminate registration if: (a) An event affecting continued registration, as described in s.20-45, occurs, or, (b) The individual ceases to meet one of the tax practitioner registration requirements, or, (c) A breach of condition of registration occurs. Partnerships Under s.40-10 TAS Act where a partnership is a registered tax agent or BAS agent, the TPB may terminate registration if: (a) An event affecting continued registration, as described in s.20-45, occurs, or, (b) The partnership ceases to meet one of the tax practitioner registration requirements, or, (c) A breach of condition of registration occurs. The TPB must terminate registration if a partnership surrenders its registration by notice in writing to the TPB. Companies Under s.40-15 TAS Act where a company is a registered tax agent or BAS agent, the TPB may terminate registration if: (a) An event affecting continued registration, as described in s.20-45, occurs, or, (b) The company ceases to meet one of the tax practitioner registration requirements, or, (c) A breach of condition of registration occurs. The TPB must terminate registration if an individual: (a) Surrenders their registration by notice in writing to the TPB, or, (b) Dies. The TPB may also terminate an individual’s registration for breach of the Code of Professional Conduct.

Advanced Income Tax Law

The TPB must terminate registration if a company:  Surrenders its registration by notice in writing to the TPB, or,  Ceases to exist.

9.8

RIGHT OF APPEAL AGAINST TPB DECISIONS A tax agent or BAS agent who has had their registration terminated may appeal against the decision to the Administrative Appeals Tribunal (AAT). Also, a tax agent or BAS agent who has had their application for registration (or re-registration) refused by the TPB may also appeal against the decision to the AAT. NOTIFICATION PROVISIONS The TAS Act and Regulations require tax agents to notify the TPB in writing regarding certain matters relevant to their registered status - s.30-35 TAS Act . These are: Individuals An individual must notify the TPB if:  An event which affects continuing registration, as described by s.20-45 TAS Act, occurs. • They cease to meet one of the tax practitioner registration requirements. Partnerships A partnership must notify the TPB if: • They cease to meet one of the tax practitioner registration requirements.  An event which affects continuing registration, as described by s.20-45 TAS act, occurs.  There is a change in the composition of the partnership. Companies A company must notify the TPB if: • It ceases to meet one of the tax practitioner registration requirements.  An event which affects continuing registration, as described by s.20-45 TAS act, occurs.  An individual becomes, or ceases to be, a director of the company.

9.9

Non-compliance penalty The penalty for non-compliance with s.30-35 TAS Act is five penalty units.

Time of notice Written notice must be provided to the TPB within 30 days of the day on which the taxpayer become, or ought to have become, aware that the event occurred.

Chapter 9: Tax Agents

9.10 ONLINE SERVICES FOR TAX AGENTS

Registered tax agents can choose to use the following tools to deal with the ATO on behalf of their clients:  Tax Agent Portal.  Practitioner Lodgment Service (PLS).  Update Client Australian Business Number (ABN) details on the Australian Business Register (ABR).  Access Electronic Forms. Tax Agent Portal The Tax Agent Portal is an online database system that was developed in consultation with tax practitioners in order to provide them with rapid, real-time access to a range of information and services via the ATO website 24 hours a day, 7 days a week. It is a secure website which is only available to registered tax agents and BAS agents via a digital certificate issued by the ATO. The portal ensures that tax practitioners can easily access information that is applicable to their needs and circumstances in a convenient, efficient and more personalised way. It is intended to compliment the Practitioner Lodgment Service (PLS).

The Tax Agent Portal provides tax practitioners with rapid online access to a range of information, services and functions including:

Refunds and transfers,

 Income tax, activity statement and fringe benefits tax account information,

 View and update a range of live client details including name and addresses,

 Add or cancel income tax withholding and GST tax types,

 A client directory that lists all clients and their roles,

 A range of reports containing specific information about clients including:

Client account running balance

PAYG instalments

Year to date interest summary

Year to date revenue product summary

 Year to date excise revenue product summary  Income tax lodgment status for the most recent four years (current and previous three years)  Outstanding activity statements (current and previous three years)  Pre-filling report  Correspondence preference  Family trust elections (FTE) and Interposed Entity Elections (IEE)  The ability to prepare and lodge activity statements online and view details of previous activity statements,  Messaging facilities that allow the tax agent to send enquiries and receive answers from the ATO (portal mail), and,

Advanced Income Tax Law

Online request forms for:

Lodgment deferrals

Replacement cheques

ELS password resets

Auditor actuary contravention report

 Lodgment deferral form - automatic acceptance

Relationship manager program

Refunds and transfers

Portal feedback

Practitioner Lodgment Service The Practitioner Lodgment Service (PLS) is a new channel that allows tax professionals to lodge forms electronically with the ATO. It replaced the Electronic Lodgment Service (ELS) as the primary lodgment channel at the end of March 2017. The Electronic Lodgment Service (ELS) allowed tax practitioners to lodge client income tax returns, activity statements and Australian Business Number (ABN) applications online (see Chapter 21: Electronic Lodgments). Update Client Australian Business Number (ABN) details on the Australian Business Register (ABR) Tax agents can access their clients' Australian Business Number (ABN) details online and:  Change secure ABN information (for example - postal address and public officer) and receive confirmation of the change in the same internet session.  Apply for a Tax File Number (TFN), and,  Register for PAYG or GST. Access Electronic Forms Various forms can be completed on-screen and securely transmitted back to the ATO online. These include:  PAYG income tax withholding variation.  Choosing to pay an annual PAYG instalment. These forms are very flexible. The tax agent can be partially complete the form in one session, save it onto the hard drive and/or print the (partially) completed form. The information can be recalled in a later session and then submitted via the internet.

Chapter 9: Tax Agents

Appendix 1

Sample Engagement Letter

The following is a suggested Engagement Letter for a simple individual tax return. The exact contents can be varied according the requirements of the engagement.

Mr Tax Client 1 Citizen Street Sydney NSW 2000

Dear Tax Client,

Re: Engagement of CPA & Associates as your Tax Agent for Individual Return

Following our discussions of we are pleased to accept appointment as your Tax Agent for the 2017 individual tax return. We will act in your best interest at all times and provide the highest level of professional service. This document sets out the terms of the engagement. Any additions will be by the written agreement of both parties. As your Tax Agent we will: a) analyse, discuss and make recommendations regarding your tax return; and b) prepare and lodge your tax return for the year 2018. In addition to the financial information required to complete these tax returns, it is expected that all relevant source documentation will be made available to us. You are responsible for compliance with the substantiation provisions of the Income Tax Assessment Act. We will not be responsible for any errors brought about by your failure to provide information or documentation later found to be material to your tax affairs. You are responsible for the timely provision of information and we will not be responsible for any late lodgement or other fees and fines brought about by your failure to act in a timely manner. Please note that any refund is an estimate only and we are not responsible and will not accept liability if the Australian Taxation Office determines an outcome which is different than that lodged . Professional Fees and Payments A set fee of $xxx is applicable to this service. Deduction of Fees from refund cheque (optional) If it is agreed that fees for the service provided will be deducted directly from any tax refund, then in accordance with the requirements of the Institute of Public Accountants, your refund will be deposited into CPA & Associates Trust Account with the fee deducted and the balance forwarded to you as agreed. Terms of Payment (optional) Unless otherwise agreed, payment terms are strictly 14 days from the date of invoice. Client’s disclosure and record keeping obligations You are required by law to keep full and accurate records relating to your tax affairs. It is your obligation to provide us with all information that would be reasonably expected/will be necessary to allow us to perform work contemplated under the engagement within a timely manner or as requested. This includes providing accurate and complete responses to questions asked of the client by the practitioner. Inaccurate, incomplete or late information could have a material effect on services and/or conclusions. The Taxation Administration Act 1953 now contains specific provisions that may provide you with “safe harbour” from administrative penalties for incorrect or late lodgement of returns. These safe harbour provisions will only be available to you if, amongst other things, you provide “all relevant taxation information” to us/me in a timely manner (the safe harbour provisions apply from 1 March 2010). Accordingly, it is to your advantage that all relevant information is disclosed to us as any failure by you to provide this information may affect your ability to rely on the “safe harbour” provisions and will be taken into account in determining the extent to which tax practitioners have discharged their obligations to clients. It is your responsibility to show that you have brought all matters to our attention if you want to take advantage of the safe harbours created under new regime.

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