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Federal Court reminds tax agents of their obligations

In two recent decisions, the Federal Court of Australia upheld decisions of the Administrative Appeals Tribunal to affirm the de-registration of tax agents who failed to meet the requirements of the Tax Agent Services Act 2009 (TASA). These cases serve as a timely reminder of the importance of complying with and understanding the obligations imposed on tax agents under the TASA and the potential consequences that follow from breaching these obligations.

Matthew D'Angelo, Maddocks

What legislation governs Tax Agent conduct?

The Tax Agent Services Act 2009 (Cth) (TASA) regulates the conduct of tax agents to ensure that they provide services to the public in line with professional and ethical standards. To support this, the TASA establishes the Tax Practitioner’s Board (Board) and a scheme to register and regulate tax agents.

Under section 20-5(1)(a) of the TASA, the Board must be satisfied that an individual is a ‘fit and proper person’ for that individual to be eligible for registration as a tax agent. Section 20-15(a) clarifies that, in determining whether a person is fit and proper, the Board must consider whether the individual is ‘of good fame, integrity and character’.

What is the Code of Professional Conduct?

To uphold these standards, section 30-10 of the TASA introduces a Code of Professional Conduct (Code) for registered tax agents. There are five categories of obligations on tax agents in the Code:

  • Honesty and Integrity;
  • Independence;
  • Confidentiality;
  • Competence; and 
  • Other Responsibilities.

Within these categories, some of the most relevant obligations include the obligations on a tax agent to:

  • act honestly and with integrity (s 30-10(1));
  • act lawfully in the best interests of their client (s 30-10(4));
  • take reasonable care to ensure that taxation laws are applied correctly (s 30-10(10)); and
  • not knowingly obstruct the proper administration of taxation laws (s 30-10(11)).

Failure to comply with the Code can carry serious consequences, including the suspension or termination of the tax agent’s registration. In fact, two recent cases demonstrate that the Board and the Courts will take obligations imposed by the TASA seriously.

Case example: what are the consequences for repeated breaches and personal conduct?

In Logic Accountants, the Board considered the conduct of a registered tax agent company (Logic) and its sole director and supervising tax agent (Mr Mina): see Logic Accountants & Tax Professionals Pty Ltd v Tax Practitioners Board [2022] FCA 830). Mr Mina failed to comply with tax laws in the conduct of his personal affairs because he refused pay his income tax debt pending an objection he lodged to his income tax assessment.

Logic also breached the Code under Mr Mina’s direction by repeatedly claiming incorrect and excessive work-related expense deductions in income tax returns on behalf of its clients, even after several compliance reviews over an extended period of time and advice from the ATO alerting Logic to these inaccuracies. As a result, Logic and Mr Mina failed to provide tax agent services competently and failed to take reasonable care that tax laws were applied correctly.

The consequences in Logic Accountants were serious. The Board terminated Mr Mina’s and Logic’s registrations as tax agents, which means that if Mr Mina and Logic provided tax agent services, they would be subject to civil penalties under the TASA. Mr Mina was not permitted to re-apply for registration for 2 years. 

The Administrative Appeals Tribunal (Tribunal) upheld the decision the Board’s decision to de-register Mr Mina and Logic. The Federal Court rejected an attempt to question the appropriateness of this sanction and emphasised that the Tribunal considered relevant evidence in assessing whether Mr Mina was a fit and proper person (at [74]–[79]).

Case example: what are the consequences for fraudulent conduct?

In Beckett, the Board terminated the registration of a tax agent (Ms Beckett) and both the Tribunal and the Federal Court affirmed this decision (Beckett v Tax Practitioners Board [2022] FCA 930). The Board terminated Ms Beckett’s registration because she was not a fit and proper person under the TASA.

Ms Beckett previously pleaded guilty to two counts of using a false document to influence the exercise of a public duty under the Crimes Act 1900 (NSW). In her work, Ms Beckett stamped transfers of real property under a scheme operated by the NSW Office of State Revenue (OSR) and was required to have the duty payable to her prior to stamping a transfer. In one instance, Ms Beckett did not have the amount owing available from her client and intentionally altered two bank cheques to give the false appearance that she had the funds available at the time that the transfer was stamped (Beckett v Tax Practitioners Board at [6]–[10]).

In the decisions of the Tribunal and the Federal Court, there was great importance placed on the severity of Ms Beckett’s convictions and the fact that she lied under oath in an interview with the OSR. Ms Beckett failed to fully accept responsibility and the Tribunal did not believe that she would not act in the same manner again.

What are the key takeaways?

Logic Accountants and Beckett highlight that the Tax Practitioner’s Board will ensure that tax agents comply with high standards of integrity, including in their own personal affairs.

Whether a tax agent fails to meet their obligations repeatedly over several years or even just once in a serious breach, it is clear that the Board will determine appropriate sanctions not only by reference to the need to protect those individuals who engage the tax agent, but also by reference to the importance of upholding public confidence in the tax system.

This makes it all the more important that tax agents actively engage with their obligations under the TASA.

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to a member of the Commercial Practice Group.

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Last revised on : 28-09-2022
 

Lawyer in Profile

Julian Smith
Julian Smith
Partner
PH: 61 3 9258 3734

Julian Smith is a partner in the Maddocks Commercial team.

Julian advises extensively in the following areas:

  • trusts law;
  • self managed super funds;
  • business and company sales and acquisitions; and
  • financial services law.

Julian advises clients ranging from public companies servicing the wholesale financial services market to high net worth individuals and their advisers.

Julian has been with Maddocks since undertaking articles in 2001.