Update 1 April 2009 - Submission on the Exposure Draft Tax Agent Services (Transitional Provisions and Consequential Amendments) Bill 2009 
 
On 1 April 2009, the Institute lodged a submission on the exposure draft of the Tax Agent Services (Transitional Provisions and Consequential Amendments) Bill 2009 (the Bill) and Explanatory Material (EM). Details on the Bill and the EM are available on the Treasury's website. 
 
Our main submission points included:

• The proposed 'safe harbour' from late lodgement penalties, under new sub-section 286-75(1A), should be amended by inserting the further words 'in sufficient time' after the words 'all relevant taxation information', so as to provide greater certainty in the law for tax agents.
 
 

• As many BAS service providers are partnerships and companies, the reference to an "individual" in Item 5 of Part 2 in Schedule 2 of the Bill should be amended to refer to a "person", which would then include partnerships and companies.
 
 

• In relation to transitional registrations where entities are "taken to be registered", such as unregistered agents not currently required to register and registered nominees, there are a number of uncertainties as to the rights, obligations and other implications of those 'deemed' interim registrations. The Institute requested clarification in the EM.
 

• It is unclear how the expiry of deemed interim registrations under the transitional provisions of Part 2 of Schedule 2 of the Bill is dealt with under section 20-50 of the Tax Agent Services Act 2009, which relates to renewals. In the Institute's view, the transitional law should provide that the expiry is subject to section 20-50 of the new law so that these registrations are dealt with as renewals.
 
 

• Item 17 of Part 4 in Schedule 2 of the Bill, which provides for the continuation of inquiries already commenced by a Tax Agents' Board, should be amended to clarify that, while the investigation is to be conducted in accordance with the new procedures, the assessment of past conduct is to be made in accordance with standards applicable under the old law.

• transitional arrangements to allow tax agents and nominees registered under the current law to transition smoothly into the new regulatory regime, and allow certain entities to be taken as registered BAS agents under the new regime;
 

• amendments to introduce two ‘safe harbour’ provisions which exempt taxpayers who engage an agent from liability for an administrative penalty for certain mistakes and omissions where the error is solely due to the agent’s lack of reasonable care; and
 

• consequential amendments to existing legislation that will be necessary upon the enactment of the Tax Agent Services Bill 2008, such as repeal of the existing tax agent provisions under the Income Tax Assessment Act 1936 (ITAA 1936).

• A single national Tax Practitioners Board is proposed to replace the existing state-based Tax Agents' Boards 
  
• Tax agents and BAS agents will be governed by a legislated Code of Professional Conduct defining the professional and ethical standards required of them. 
  
• Civil penalties and injunctions will replace criminal penalties, which are more appropriate where the conduct being sanctioned is not serious enough to warrant a criminal conviction or imprisonment. 
  
• Two 'safe harbours' for taxpayers who engage a tax agent or BAS agent are to be introduced.

• The legislation should be amended to put beyond doubt that work outsourced to a contractor will not breach the legislation if the contractor is remunerated for their services by the agent since no fee has been directly charged by the contractor to the end user client. This will be consistent with the competency requirement which in our view rightly targets the final outcome rather than the commercial process.
 

• The proposed regime replaces the current regime for partnerships to be tax agents and the partners to be the nominees of the partnership, with a requirement for partnerships and sufficient partners therein to be registered tax agents. This approach may require some adjustment as a partnership will include specialists practicing in areas such as R&D or transfer pricing, for whom the proposed tax agent eligibility requirements may be inappropriate.
 

• The two requirements of taking reasonable care in ascertaining the state of affairs and applying the law should be removed, or otherwise redrafted, as we believe the competency requirement is sufficient and more clearly reflects the policy intention of limiting reasonable care and applying the law, to the scope of the engagement or contractual relationship between an agent and a client.
 

• The draft explanatory memorandum requires amendment concerning the management of conflicts of interest to better align with the draft legislation which requires that conflicts be managed, rather than avoided.
 

• To enhance its perceived independence, the secretariat for the Board should not be drawn from the ATO.

• The independence of the Tax Practitioners Board (the Board) from the Commissioner of Taxation has been enhanced by creating a stand-alone Act rather than as part of the Tax Administration Act 1953. The general administration of the provisions would be vested in the Board rather than in the Commissioner. Furthermore, financial independence of the Board has been bolstered by quarantining its funding for its exclusive use. 
  
• The wording of several provisions of the Code of Professional Conduct and the explanations in the explanatory memorandum have been amended to focus more on the ultimate outcome rather than the process employed to reach that outcome. For example, the requirement to supervise and control has been replaced with a requirement to provide tax agent services competently.  
  
• Certain aspects of the tax agent registration system have also changed, including the removal of the requirement to carry on a business. This is considered to make the separate category of ‘nominee’ registration redundant. 
  
• Additional safe harbour from administrative penalty for taxpayers has been introduced for the late lodgement of a document in the approved form resulting from a tax agent’s or a BAS agent’s careless error in certain circumstances.