22 July 2010 - Initial input into Tax Practitioners Board policy on professional indemnity insurance 
 
Following the announcement on 25 February 2010 by the Tax Practitioners Board that from 1 July 2011, registered BAS and tax agents will need to have professional indemnity insurance (PII) coverage, the Board recently wrote to registered tax and BAS agent associations seeking input to the development of the Board's policy on PII. On 19 July 2010, the Institute provided an initial written response to the Board, and on 22 July Institute representatives attended a meeting in Melbourne for further discussion with the Board on this important issue. 
 
Paul Meredith FCA, Manager Professional Standards, and Lesley Simmons FCA, Professional Standards Consultant, attended the meeting on behalf of the Institute. The Board was seeking input on the details of the PII requirements of the various tax and BAS agent associations, and more generally on questions of who should have coverage under PII, what limits of indemnity should apply, what exclusions should be allowed or not allowed, and views on allowable policy deductibles, reinstatements, run-off cover, retroactivity, and coverage for defence costs. Discussion also addressed the proposed start date of the Board's requirements and the need for transitional provisions. The Institute has been keen to ensure that the existing PII requirements placed on members will be acceptable for the Board's purposes. 
 
The Board is continuing its consultations with stakeholders on the development of their PII policy, in which the Institute will continue to participate. The Board anticipates releasing an exposure draft of its PII policy for public comment later this year.  
 
9 July 2010 - Draft regulations on coverage of tax agent services regime 
 
On 9 July 2010, the Assistant Treasurer announced the release of the exposure draft of the Tax Agent Services Amendment Regulations 2010 for public consultation that will, when enacted, exclude certain groups from the operation of the tax agent services regime. 
 
As reported in Edition 15/2010 of the Tax Bulletin, the Assistant Treasurer has determined that several groups should be granted exemptions from the coverage of the regime. 
The regulations prescribe that the provision of tax agent advice within a tax consolidated group or other related entities will not be captured. This extends to:

• Services provided between entities that are part of the same GST group  
  
• Services provided by an entity in discharging their own formal obligations to another entity, namely trustees and responsible entities of a managed investment scheme  
  
• Services provided between separate legal entities that are carrying on a common economic enterprise and have the same or near same owners, namely wholly owned corporate groups, stapled groups, non-wholly owned groups and listed groups  
  
• Services provided between dual listed companies and between joint venture partners.

• The reference in Footnote 29 on Re Woods (No 1) and Migration Agents Registration Authority [2004] AATA 457 at [359] does not stand as any authority whatsoever for a proposition that accountants develop fiduciary relationships with their clients. We submit that the reference to fiduciary duties in the ED should be withdrawn
 

• The Institute submits that the use of the term 'adhoc' creates confusion, given its particular meaning in the Bolkiah (Prince Jefri) case and should be replaced in paragraph 46, perhaps by the word 'undocumented' or 'informal'
 

• The Institute believes that paragraph 45 requires further consideration in that it suggests that legal ethical standards rather than accounting ethical standards of conflict management are required.

• Encouraging the community to ask whether their agent is registered  
  
• Creating awareness on the risks of using unregistered agents  
  
• Helping bookkeepers who provide a BAS service for a fee or reward to become registered  
  
• Publicising to bookkeepers the easy notification registration option which expires on 31 August 2010  
  
• The Board's ongoing role as the single, national, independent governing and regulatory body for tax practitioners.

• Given that the historic 'status quo' was not to strictly mandate 18 months of commercial law, the Board’s immediate approach to approving ‘a commercial course in commercial law’ under the new regime should be consistent with the historical approach. If three semester-length subjects were required, this would lift the bar above the highest existing benchmark of the tax profession.
 

• Should the Board have aspirational goals of reshaping the commercial law requirements in the long term, such endeavour would need to be approached in a manner akin to that of best practice tax policy reform, with full consultation and an appropriate transitional period.
 

• The Institute believes that the tax/accounting link should be a much more prevalent message than is currently reflected in the series of EDs on academic requirements.

• Continuity of the past approach to "Australian taxation law" requirements is essential in the short to medium term. The introduction of fundamental changes to core academic requirements for a course in taxation law to qualify for registration as a tax agent must be done on a longer term basis.
 

• The Institute requests the Board to provide clarification on whether an in-house course at the appropriate level could qualify, or whether the course needs to be provided by an external educational institution, and also whether overseas qualifications can qualify.
 

• The Board should also clarify its expectations regarding the content of the course in taxation law in relation to specialist tax agents, and the level of detailed knowledge that such specialists will be required to exhibit in the broad range of taxation law areas outlined.

• It would be appropriate for the Board to provide further clarification or detail to allow a practitioner, such as a chartered accountant, to confirm that their qualifications would be taken to satisfy all of the educational requirements for BAS agent registration, including the course in basic GST/BAS taxation principles.

• The ED should be amended so that the "reasonable steps" exception in the civil penalty provision, and the clarification in the EM regarding the permissibility of 'contractors', is clearly covered in the ED.
 

• In relation to the duty to take reasonable care in ascertaining a client's state of affairs, the Board should provide more guidance on any circumstances that could create an exception to an agent's general ability to rely on a "scope out" clause under an engagement letter.
 

• Regarding the 'duty to take reasonable care to ensure that taxation laws are applied correctly', the words of paragraph 3.56 of the EM should be included in the ED itself, rather than being omitted.

• The ED should provide practical guidance to registered tax agent entities to assist them to recognise the particular point in time when a partner or director ceases to be of 'good fame, integrity and character', so that entities can comply with their obligation to notify the Board regarding changes in circumstances affecting their registration (i.e. all partners or directors must be a 'fit and proper person').

• Recognised Associations - the Tax Practitioners Board (the Board) announced that it has accredited four associations as a Recognised Tax Agent Associations (RTAA) and five associations as a Recognised BAS Agent Association (RBAA). The Institute can confirm that we have been accredited as both an RTAA and an  
  RBAA. See the full list of RTAAs and RBAAs
 

• Feedback meetings - the Board will be travelling interstate for two-day meetings in all capital cities over the coming months (June to December) commencing with Perth in June, and is looking forward to obtaining feedback from practitioners around Australia. The Institute will advise further details when they are to hand.
 

• Registrations -
  1. the Board advised that there is a significant backlog of registration applications which it is still working through, so the Board requests that practitioners please be patient. It indicated that the turnaround time for registrations could be some months, so practitioners should expect delays in being notified and should not take the delays as any cause for concern.
   
  
  2. Notification - the Board is still encouraging practitioners to use the notification method to become registered while it is available (until 31 May for tax agents, and until 31 August for BAS agents).
   
  
  3. New registrations - if practitioners are having difficulty obtaining a "Statement of Relevant Experience" from their supervising tax agent, they can complete the document themselves and have it signed off by any manager or partner of the firm who knows about the work they have been doing. Alternatively, a statutory declaration on the practitioner's experience would also suffice.
• Professional Indemnity (PI) insurance - the Board confirmed that it is in the process of developing the PI insurance requirements for the Tax Agent Services regime (TASR), with shared experience being provided by Australian Securities and Investments Commission and based on input from insurance providers. Several options are being considered and the Board expects to be able to finalise a proposed model for the insurance requirements in the next couple of weeks, for further consultation to ensure it is workable and appropriate.
 

• Excluded services -
1. The Board is very close to issuing a view on the implications of "Reports incorporating a tax agent service", eg. Due diligence reports comprising specialist input from a range of service lines such as corporate finance, legal and taxation; and the Board's views on "Contractors" and "Service Trusts" are also expected out shortly. The Institute will remain heavily involved in consultation on these matters with the Board.
 

2. Treasury is yet to release for consultation the draft Regulations to exclude in-house advisor services and custodians, and to provide a one year deferral to holders of an Australian Financial Service Licence (AFSL) providing financial planning services from the TASR. The Institute will be reviewing the draft Regulations to ensure the 'carve outs' are designed appropriately, and expects to prepare a submission.
• Software products and services - the Board is currently consulting with tax software developers and software service providers regarding the implications of their services under the TASR, and expects to form a view on this over the coming weeks.

“There may be circumstances where partnerships and companies, which were previously registered, had within them individuals who were not required to be registered. These individuals may have been providing what are now defined as tax agent services. These people were not required to be registered because relevant services were provided under the firm’s agent registration.  
 
In these circumstances, the Board will treat such persons within firms who were not in fact registered but were providing tax agent services, as defined, as not being required to be registered and therefore being eligible to notify under Special Rule 4.  
 
This view of the Board is not and is not intended to be inconsistent with previously expressed views of the Board concerning certain agents providing specialist services within a firm. As the Board has indicated, such specialists may use Special Rule 13 to become registered.”

A firm (partnership or company) was previously registered as a tax agent under the old regime, with several partners registered as nominees of the firm for the purposes of signing/lodging tax returns on behalf of the firm. The firm and the nominees transitioned on 1 March 2010 to become tax agents under the new regime.  
 
The firm wishes to register additional partners of the firm, for the purposes of supporting its operating entity registration (sufficient number), as well as to enable the partner to sign declarations and advices on behalf of the firm. The firm is the entity who is providing the tax agent services for a fee to clients under the engagement letter. The additional partners will be able to demonstrate that prior to 1 March they were providing particular types of tax agent services, including return preparation/ review and consulting advice, in relation to the specialist fields of tax for which they are seeking registration. They were also not required to register previously as they were not themselves providing the tax agent services for a fee. 
 
Could the Board please confirm that the notification method is an available option to obtain registration for the additional partners?

• Australian Financial Services licensee
• BAS services
 

• FBT consultants
 

• GST consultants
 

• Individual tax return preparers
 

• Other indirect taxes consultants
 

• Payroll service providers
 

• Quantity surveyors
 

• Research and development consultants
 

• Salary packaging consultants
 

• Software consultants
 

• Superannuation advisers
 

• Transfer pricing advisers

• FREE registration window closing soon for Tax Agents
 

• Terms Explained

• 'In-house advisors'
 
 
The exemption provided in March 2010 to those providing advice "in-house" within a tax consolidated group will be extended to cover services provided between other related entities. 
 
In addition to services within a tax consolidated group this arrangement will extend to include:
• services provided between entities that are part of the same GST group
 

• services provided by an entity in discharging their own formal obligations to another entity
 

• services provided between separate legal entities that are carrying on a common economic enterprise and have the same or near same owners; and
 

• services provided between dual listed companies and between joint venture partners
 
The technical details of the extension will be the subject of further industry consultation.  
 

• Custodians
 
 
The Assistant Treasurer has also announced the decision that custodians will not be captured by the TASR.  
 

• AFSL holders providing financial planning services
 
 
As members would be aware, concerns have also been raised about the coverage of the TASR to AFSL holders providing financial planning advice.  
 
The Assistant Treasurer stated that he will provide a one-year deferral to financial planners from the application of the TASR so as to end the current uncertainty being experienced by financial planners, and also to allow consultation with other sectors of the tax community. 
 
An amendment will be made to the Tax Agent Services Regulations 2009 to confirm this deferral arrangement. During the period of deferral a comprehensive industry consultation will take place to assess which of the two permanent options should be applied to AFSL holders providing financial planning advice. 
 
The Institute issued a media release in response to the Assistant Treasurer's announcement stating that a one-year deferral of financial planners from the new TASR puts consumers at risk of unregulated tax advice.  
 
The Institute's Tax Counsel, Yasser El-Ansary said that tax advice is such an integral component of financial planning that excluding planners would fundamentally erode the integrity of what the new tax agent regulatory is seeking to achieve - a higher standard of tax advisory services to the general public. 
 
In addition, Yasser said that the exclusion of in-house tax advisers who provide services to related party businesses was a sensible outcome, as the new regime is designed to only apply to people who provide services to the public.

• the meaning of ‘a course in commercial law that is approved by the Board’ for the purpose of Part 2 of Schedule 2 to the Tax Agent Services Regulations 2009 (TASR)
 

• the meaning of ‘a course in Australian taxation law that is approved by the Board’ for the purpose of Part 2 of Schedule 2 to the TASR
 

• the meaning of ‘a course in basic GST/BAS taxation principles that is approved by the Board’ for the purpose of Part 1 of Schedule 2 to the TASR.

• Fit and proper
 

• Code of Professional Conduct
 

• What is a course in Australian taxation law

• The Chair highlighted the two transitional options available to BAS agents that simplify their entry into the new regime. He encourages entities to use the transitional notification route for BAS services rather than the formal application process while it is still available (from 1 March to 31 August 2010).
 

• As at 26 March 2010, the Board is considering a number of applications for recognition of Associations, but none have been formally recognised as yet.

• There are a number of key benefits of this new regime for BAS Agents and these are:
• The inclusion of BAS agents in a new regime is a clear recognition of the important role that BAS service providers play in Australia’s tax system.
 

• The establishment of a national Board benefits BAS agents by providing nationally consistent regulation.
 

• 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 of Professional Conduct. This should also improve their performance and raise standards.
 

• 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.
 

• There are no special rules for software providers to determine whether they need to be registered under the Tax Agent Services Act 2009 (TASA).
 

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

• The Chair noted his desire to conduct timely one on one consultation with all relevant associations and stakeholders in the future and in the longer term, the Board suggested having three Consultative Forum meetings per year
 

• On the Board's initial approach to entry requirements (including education, experience and qualification requirements), they foresee the need to engage a person who has adequate accounting credentials in relation to accounting course requirements and a person who has adequate bookkeeping credentials in relation to BAS/GST courses.
 

• On the Board's initial approach to Professional Standards (including the Code of Professional Conduct, fitness and proprietary and other requirements), their intention is to have exposure draft papers published following consultations at the working group level before 1 March 2010
 

• The Board is mindful of the need to communicate to the greatest degree possible within available resources and has developed a preliminary communication plan for the bookkeepers who are BAS agents and for new tax agent registrants
 

• The Board emphasised that its approach to what would be a tax agent service or BAS agent service would be even handed and applied consistently.
 

• The Board pointed out that 'specialist registrations' are simply ordinary registrations with conditions. There is no formal category of specialist registrations
 

• Under the new regime, the Board can require that professional indemnity insurance be maintained but the Board does not require this from initial registration
 

• The Board will provide professional associations with information dealing with re-registrations in February to allow for incorporation into any educational materials or newsletters. In relation to applications made to the State Tax Agents' Boards, application to those Boards can be lodged using the old form until 31 March 2010 and payment of the old (current) fee
 

• The proposed Board approach to the relevant experience eligibility requirements is currently under consideration by the Board.

1. what forms and information will be required for re-registration under the new regime once current registrations have expired, and whether the Board will consider allowing transitional ‘extension’ arrangements if the forms and processes are not settled by 1 March 2010?
 

2. what kinds of “relevant experience” will be approved by the Board?
 

3. what is a “sufficient number of individuals” registered as tax agents for a partnership or company to be able to be registered as a tax agent?;
 

4. in what circumstances will a service trust need to be registered as opposed to the main operating entity such as a partnership or a company?; and
 

5. what is required by practitioners for compliance with the code of conduct duties, eg reasonable care (ability to scope out), confidentiality and advising of rights and obligations?