House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan Mp

Chapter 2 - Registration of tax agents and BAS agents

Outline of chapter

2.1 Part 2 of this Bill provides for the requirements and process for registration as a tax agent or Business Activity Statement (BAS) agent. Sections 90-5 and 90-10 provide for the meanings of 'tax agent service' and 'BAS service'.

2.2 Subdivision 30-C of Part 3 of the Bill provides for the obligation for tax agents and BAS agents to notify the Tax Practitioners Board (Board) of a change in circumstances.

2.3 Part 4 of the Bill provides for the grounds for termination of registration, and notice and effect of termination of registration.

2.4 Subdivision 70-B of Part 7 of the Bill provides that registration and termination of registration decisions of the Board are reviewable by the Administrative Appeals Tribunal (AAT).

Context of amendments

Operation of current provisions

Definitions of tax agent service and BAS service

2.5 The current law does not define 'tax agent service'. Subsection 251L(1) of the Income Tax Assessment Act 1936 (ITAA 1936) contains a list of services for which unregistered entities are prohibited from charging a fee. Subsection 251L(6) states that certain specified unregistered individuals may provide a BAS service for a fee. (The definition of 'BAS service' is given in subsection 251L(7).)

Registration of tax agents

2.6 Divisions 3 and 4 of Part VIIA of the ITAA 1936 specify the requirements (and process) for registration as a tax agent or as a nominee of a tax agent. For an individual, the registration requirement is that the individual must be a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters, and must not be an undischarged bankrupt.

2.7 Under section 251BC of the ITAA 1936, a person is not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters if they do not hold the prescribed qualifications, are not a natural person, are not above 18 years of age, are not of good fame, integrity and character, have been convicted of a serious taxation offence during the previous five years or are under a sentence of imprisonment for a serious taxation offence.

2.8 However, individuals who were registered as a tax agent or nominee immediately before 1 November 1988 can be fit and proper persons without holding the prescribed qualifications.

2.9 Currently, there is no separate registration requirement for the provision of a BAS service for a fee, although there are restrictions on who, other than tax agents, can provide those services. Under subsection 251L(6) of the ITAA 1936, an unregistered individual may provide a BAS service (as defined under subsection 251L(7)) for a fee in limited circumstances, for example, if they are a member of a recognised professional association, or if they are a bookkeeper working under the direction of a tax agent.

Suspension or cancellation of registration

2.10 Section 251K of the ITAA 1936 specifies the grounds on which the current state Tax Agents' Boards (state Boards) must or may suspend or cancel a tax agent's or nominee's registration, including where the agent or nominee is convicted of certain offences, ceases to meet the registration requirements or is guilty of certain misconduct.

Rationale for major changes

Definitions of tax agent service and BAS service

2.11 The Bill contains positive principled definitions of 'tax agent service' and 'BAS service' to ensure that the scope of the services being regulated is clear and sufficiently flexible to include newly emerging services as the tax system evolves.

Registration of BAS agents

2.12 The scope of registration has been widened to include BAS agents in order to ensure the appropriate ethical and professional standards of entities providing BAS services, in recognition of the important role such entities play in the tax system.

Termination of registration

2.13 For clarity, the Bill separates the grounds for termination of registration into:

•

ceasing to meet the registration requirements, breaching registration conditions or surrendering registration (which are dealt with under Part 4); and

•

breaching a provision of the Code of Professional Conduct (Code) (which is dealt with under Part 3 - refer to Chapter 3 of this explanatory memorandum).

Summary of new law

Definitions of tax agent service and BAS service

2.14 To provide a tax agent service or a BAS service for a fee or other reward, an entity must be registered, otherwise the entity may contravene a civil penalty provision. (The requirement to register and the civil penalties that may apply in cases of contravention of a civil penalty provision are explained in Chapter 4 of this explanatory memorandum.)

2.15 A tax agent service is any service that relates to:

•

ascertaining or advising about the liabilities, obligations or entitlements of an entity under a taxation law; or

•

representing an entity in their dealings with the Commissioner of Taxation (Commissioner) and,

that is provided in circumstances where it is reasonable to expect that the entity will rely on it to satisfy liabilities or obligations under a taxation law or to claim entitlements under a taxation law.

2.16 Taxation law is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to mean an Act (including a part of an Act) of which the Commissioner has the general administration, or regulations under such an Act. Note that the scope of the taxation laws will be broadened to include the Bill and the regulations under the Bill - refer to paragraphs 1.32 and 1.33 in Chapter 1 of this explanatory memorandum.

2.17 A BAS service is any service that relates to:

•

ascertaining or advising about the liabilities, obligations or entitlements of an entity under a BAS provision; or

•

representing an entity in their dealings with the Commissioner relating to a BAS provision,

that is provided in circumstances where it is reasonable to expect that the entity will rely on it to satisfy liabilities or obligations under a BAS provision or to claim entitlements under a BAS provision.

2.18 BAS provisions is defined in section 995-1 of the ITAA 1997 to mean:

•

collection and recovery of tax provisions in Part VII to the Fringe Benefits Tax Assessment Act 1986;

•

the indirect tax law (which means the goods and services tax (GST) law, the wine tax law, the luxury car tax law or the fuel tax law, as defined in section 995-1 of the ITAA 1997); and

•

Parts 2-5 and 2-10 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) (the pay as you go system).

2.19 As 'taxation law' includes 'BAS provisions', by definition 'tax agent services' include 'BAS services'.

Registration

2.20 Individuals (including those acting in the capacity of a trustee), partnerships and companies (including those acting in the capacity of a trustee) may apply to the Board for registration as a tax agent or BAS agent. The Board must grant registration where all eligibility requirements have been satisfied.

2.21 To be eligible for registration, an entity must satisfy the Board that it has met the registration requirements, which broadly consist of the following two elements:

•

a fit and proper person test; and

•

prescribed qualifications and experience requirements (for individuals), or the requirement to have a sufficient number of individuals who are registered (for companies and partnerships).

2.22 The Bill preserves the special registration criteria for individuals who were registered either as a tax agent or a nominee immediately before 1 November 1988 (pre-1988 tax agents or nominees). Pre-1988 tax agents or nominees who were also registered immediately before the commencement of all of the provisions of the Bill are eligible for registration without satisfying the prescribed qualifications and experience requirements under the Bill. The Board must register pre-1988 tax agents or nominees as tax agents provided that the Board is satisfied that they comply with the other registration requirements.

2.23 The Board has a period of six months from receiving an application for registration in which to decide whether to grant or refuse registration. If the Board has not made a decision within this six-month period, the Board is taken to have rejected the application. This time limit provides certainty and finality for entities seeking to be registered and allows an entity who has not been granted registration to have their application reviewed by the AAT - refer to paragraphs 2.66 to 2.68 for further information about AAT review of Board decisions.

2.24 The Board may impose or vary a condition of registration. Any such condition limits the tax agent services that an agent may provide to an area of the taxation laws or a type of service for which:

•

in the case of an individual, the agent has the prescribed qualifications and relevant experience; or

•

in the case of a partnership or company agent, the registered individuals who work for the agent have the prescribed qualifications and relevant experience.

Termination of registration

2.25 The Board has discretion to terminate the registration of a tax agent or BAS agent if:

•

it no longer meets the registration requirements;

•

it breaches a condition of registration; or

•

if it is an individual or a company - an event affecting continued registration happens to the agent.

2.26 The Board must terminate registration:

•

upon the death or dissolution of a tax agent or BAS agent; or

•

when an agent surrenders their registration.

2.27 The majority of the decisions of the Board under Parts 2 and 4 of the Bill are reviewable by the AAT.

Comparison of key features of new law and current law

Detailed explanation of new law

Definitions of tax agent service and BAS service

Definition of tax agent service

2.28 A tax agent service is any service that relates to:

•

ascertaining the liabilities, obligations or entitlements of an entity that arise, or could arise, under a taxation law;

•

advising an entity about the liabilities, obligations or entitlements of the entity or another entity that arise, or could arise, under a taxation law; or

•

representing an entity in their dealings with the Commissioner and,

that is provided in circumstances where it can reasonably be expected that the entity will rely on it to satisfy liabilities or obligations that arise or could arise under a taxation law, or to claim entitlements that arise or could arise under a taxation law. [Subsections 90-5(1) and 90-1(1)]

2.29 A tax agent service includes, but is not limited to:

•

preparing or lodging a return, notice, statement, application or other document about a taxpayer's liabilities, obligations or entitlements under a taxation law;

•

preparing or lodging on behalf of a taxpayer an objection under Part IVC of the TAA 1953 against an assessment, determination, notice or decision under a taxation law;

•

applying to the Commissioner or the AAT for a review of, or instituting an appeal against, a decision on an objection under Part IVC of the TAA 1953;

•

giving a taxpayer advice about a taxation law that the taxpayer can reasonably be expected to rely upon to satisfy their taxation obligations; or

•

dealing with the Commissioner on behalf of a taxpayer.

2.30 A tax agent service relates to services provided under a taxation law. A taxation law has the same meaning as in subsection 995-1(1) of the ITAA 1997, namely, any Act (including a part of an Act) which the Commissioner has the general power to administer, and any regulations under such an Act. (Note that the scope of 'taxation law' will be broadened to include this Bill and the regulations under the Bill - refer to paragraph 1.32 in Chapter 1 of this explanatory memorandum.) Consequently, the new provisions extend the concept of 'tax agent services' beyond income tax matters.

2.31 Tax agent services only include those services that involve the application or interpretation of a taxation law (and therefore require the provider to have a certain level of knowledge and experience in the taxation laws), and those services which involve representing an entity in their dealings with the Commissioner. For example, advising or assisting an entity on tax concessions for expenditure incurred on research and development (R & D) activities are tax agent services, where the service involves the application of the taxation laws.

Example 2.1

Lorenzo describes himself as an 'R & D consultant'. Lorenzo assists his clients to identify which of the activities undertaken by them will meet the definition of 'R & D activities', for the purpose of assisting them in making claims under the R & D tax concession provisions in the ITAA 1936.

Lorenzo advises his clients on which activities are eligible, and helps them to prepare their registration forms to be lodged with Innovation Australia, in respect of these activities. This registration form includes a description of the eligible R & D activities and the technical objectives of those activities, as well as a break up of the expenditure claimable in respect of those activities. Registration with Innovation Australia is a pre-requisite to making a claim for the expenditure on those activities under the R & D tax concession.

The work performed by Lorenzo falls within the definition of 'tax agent service' as the service provided and advice given relate to the ascertaining of clients' entitlements under the R & D tax concession provisions in the ITAA 1936 and the services are provided in circumstances in which Lorenzo's clients could reasonably be expected to rely on them to claim the entitlement.

Example 2.2

Jessica is a quantity surveyor who provides reports that detail depreciable items in a building to enable her clients to calculate deductions for decline in the values of depreciating assets.

Jessica is providing a tax agent service as she would need to have certain knowledge of the relevant taxation laws to determine the depreciable nature of the assets to provide the service and it is reasonable to expect her clients to rely on the service to claim an entitlement under the taxation laws.

2.32 The definition of 'tax agent service' does not include services that do not involve the interpretation and/or application of the taxation laws.

Example 2.3

Tom is an asset valuer and provides opinions on the value of assets.

Tom often assists clients in determining the market value of assets for tax purposes. There are many provisions in the taxation laws where the tax position depends upon the value of an asset or transaction, for example, ascertaining the tax consequences of non-arm's length transactions.

Tom would not ordinarily be providing a tax agent service as the provision of this service does not normally involve the interpretation and/or application of the taxation laws to ascertain clients' tax positions.

2.33 The definition of 'tax agent service' does not include services provided in circumstances where it is not reasonable to expect that they would be relied upon to satisfy liabilities or obligations under a taxation law, or to claim entitlements under a taxation law.

Example 2.4

Tanto Ltd is a car dealer. While selling cars, Tanto Ltd often gives its clients suggestions on the tax implications of car purchase transactions, but includes with its advice that because it is not a tax expert, clients should consult their tax agent. Because Tanto Ltd does not hold itself out as a tax advisor or as having expertise in tax, and, further, caveats its advice, it is not reasonable to expect the tax advice provided by Tanto Ltd to be relied upon by its clients for the purpose of satisfying their liabilities or obligations under a taxation law, or claiming entitlements under a taxation law. As such, the tax advice provided by Tanto Ltd is not a tax agent service.

2.34 Most tax related services that tax agents or BAS agents outsource to an unregistered entity would not be tax agent services. This could be because the service does not involve the interpretation or application of the taxation laws, or because the relationship between the agent and the contractor is such that it is not reasonable to expect the agent to rely on the service provided by the contractor to satisfy its clients' tax obligations or to claim entitlements under the taxation laws.

Example 2.5

Ace Accounting is a partnership which is registered as a tax agent. Acme Services Trust provides professional and administrative support personnel to Ace Accounting. The personnel supplied remain employees of Acme Services Trust, and as such, they are Ace Accounting's contractors.

Ace Accounting instructs and directs the contractors, and provides the relevant steps and review processes that the contractors must adhere to. Ace Accounting specifies in its engagement letters with clients that it may use contractors or other entities to deliver contracted services with their authorisation, but that it is responsible for the conduct and activities of all persons that it uses in delivering the contracted services.

In these circumstances, the services provided by the contractors are not tax agent services because it is not reasonable to expect that Ace Accounting would rely on the services to satisfy its clients' liabilities or obligations, or claim entitlements, under a taxation law.

2.35 If tax agents or BAS agents contract a tax expert to provide specialised tax advice in an area that they are not familiar with and therefore cannot review for accuracy, the tax advice would normally be a tax agent service.

Example 2.6

Joe is a registered tax agent who sometimes contracts the services of Wilma, a specialised tax agent who has particular expertise in the area of capital gains tax (CGT).

In this case, Wilma, in providing the specialised CGT services, is providing a tax agent service to Joe, as it is reasonable to expect that Joe would rely on the services provided by Wilma to satisfy his clients' obligations under the taxation laws.

2.36 Where it is reasonable to expect that advice is to be relied upon for purposes other than to satisfy tax obligations (eg, for the preparation and lodgment of a return), such as making an informed financial or business decision, assessing risks or determining income tax provisions in an audited account, the advice is not a tax agent service. This applies to, for example, certain advice provided by a financial services licensee under the Corporations Act 2001 (Corporations Act) on the tax implications of financial products or financial transactions, or advice relating to ascertaining tax liabilities for the purpose of calculating a future income stream. It would also include advice provided by an actuary on a risk assessment of a particular product or entity that takes into account the tax implications.

Example 2.7

Angelia is licensed under the Corporations Act to provide a range of financial services. In accordance with the scope of her financial services licence, Angelia recommends to her client, Adam, a gearing strategy as a way to accumulate wealth over the long term. In determining whether Adam has the cash flow to afford the interest costs on borrowed funds, Angelia estimates Adam's cash flow taking into account the potential tax deductibility of interest costs, the taxable nature of the dividends, the impact of franking credits on Adam's income tax position and his eligibility for certain tax offsets.

Merely taking into account the tax consequence of Adam's circumstances in estimating his future cash flow does not constitute a tax agent service. This is incidental to the financial advice being provided and it is reasonable to expect that the advice would only be relied upon by Adam for the purpose of deciding whether to adopt the recommended financial strategy.

Example 2.8

Erica is licensed under the Corporations Act to provide a range of financial services. Caroline seeks financial advice from Erica regarding long-term wealth accumulation and an appropriate asset allocation.

Erica assesses Caroline's risk profile and recommends an asset allocation that is consistent with that profile. As part of this process, Erica recommends that Caroline sells some of her existing shares and uses the proceeds for investment in managed funds to increase diversification of her investments. In assessing which shares Caroline should sell, Erica alerts Caroline to the fact that selling certain shares could potentially raise CGT liabilities. This would not ordinarily be a tax agent service because it is provided for the purpose of advising Caroline about an appropriate asset allocation that fits her risk profile. However, if, while alerting Caroline to the CGT consequences of selling particular shares, Erica also assures Caroline that the tax advice she provides is accurate and can be relied upon without further consulting a tax agent, then Erica would be providing a tax agent service.

Example 2.9

Oliver & partners is an audit firm and a registered company auditor under the Corporations Act. As part of its audit work, Oliver & partners is required to calculate income tax provisions to be included in its clients' audited accounts.

Oliver & partners is not providing a tax agent service as it is reasonable to expect that its clients' would only rely on the service to satisfy the statutory requirements for their audited accounts.

Example 2.10

Norma is licensed under the Corporations Act to provide a range of financial services. In addition to providing advice about the tax implications of decisions about financial products, Norma provides extensive analysis of her clients' tax positions and details of the relevant entries into her clients' tax returns that would result from adopting certain financial product decisions.

She includes a disclaimer in her product disclosure statement stating that the tax advice she provides cannot be relied upon for the purpose of satisfying obligations or claiming entitlements under the taxation laws. Despite the disclaimer, because the advice is extensive and sufficiently detailed to be able to be reflected in her clients' tax returns, it is reasonable to expect her clients to rely on the advice to satisfy their obligations under the taxation laws. As such, Norma is providing a tax agent service.

2.37 Given the broad definition of a 'taxation law', a regulation-making power is provided in the Bill to give the Parliament the flexibility in the future to specify particular services that do not fall within the definition of 'tax agent service'. A similar power is provided in relation to the definition of 'BAS service'. [Subsections 90-5(2) and 90-10(2)]

Definition of BAS service

2.38 A BAS service is a type of tax agent service. It is a tax agent service that relates:

•

particularly to ascertaining the liabilities, obligations or entitlements of an entity that arise, or could arise in the future, under a BAS provision;

•

particularly to advising an entity about the liabilities, obligations or entitlements of the entity or another entity that arise, or could arise in the future, under a BAS provision; or

•

to representing an entity in their dealings with the Commissioner relating to a BAS provision and,

that is provided in circumstances where it can reasonably be expected that the entity will rely on it for the purpose of satisfying liabilities or obligations that arise, or could arise, under a BAS provision, or to claim entitlements that arise, or could arise, under a BAS provision. [Subsections 90-10(1) and 90-1(1)]

2.39 A BAS provision is any one of the provisions defined as BAS provisions in section 995-1 of the ITAA 1997. This means:

•

collection and recovery of tax provisions in Part VII to the Fringe Benefits Tax Assessment Act 1986;

•

the indirect tax law (which means the GST law, the wine tax law, the luxury car tax law or the fuel tax law, all as defined in section 995-1 of the ITAA 1997); and

•

pay as you go withholding and instalments provisions in Parts 2-5 and 2-10 of Schedule 1 to the TAA 1953.

2.40 A BAS service therefore includes:

•

preparing or lodging an approved form about a taxpayer's liabilities, obligations or entitlements under a BAS provision;

•

giving a taxpayer advice about a BAS provision that the taxpayer can reasonably be expected to rely upon to satisfy their taxation obligations; or

•

dealing with the Commissioner on behalf of a taxpayer in relation to a BAS provision.

2.41 As with tax agent services, BAS services only include those services that involve the application or interpretation of a BAS provision (and therefore require a certain level of experience and knowledge of BAS provisions), and those services which involve representing an entity in their dealings with the Commissioner in relation to a BAS provision. Administrative duties such as entering data, paying tax and record-keeping are not BAS services.

Example 2.11

Leonard provides classroom and onsite training about the installation/configuration and the use of off-the-shelf accounting software including the use of the software to determine liabilities under a BAS provision. The training he provides is of a general nature. Leonard does not provide specific advice about his clients' liabilities nor does he help to establish appropriate default codes for GST purposes in the accounting software.

Leonard is not providing a BAS service because he is not interpreting a BAS provision and is not providing advice to his clients about their liabilities under a BAS provision in a circumstance where it can reasonably be expected to be relied upon by them to satisfy their liabilities or obligations under a BAS provision, or to claim entitlements under a BAS provision.

If, however, Leonard helps his clients to determine the appropriate default GST codes for certain transactions when configuring the accounting software, then he is providing a BAS service as the provision of advice regarding which GST codes are to be used requires Leonard to interpret and apply a BAS provision and therefore have a certain level of knowledge of the GST law.

2.42 Not all items of work from the recording of a transaction to the preparation of an approved form (eg, a BAS) are BAS services. Entering data, coding transactions based on instructions provided and processing payments or preparing bank reconciliations are not BAS services because they do not require the interpretation or application of a BAS provision.

Example 2.12

Francisca is a bookkeeper. She follows instructions from Chris, a registered BAS agent, in coding tax invoices and transferring data onto a computer programme for her clients. Francisca's work is then reviewed by Chris to check its accuracy. The tasks that Francisca is performing do not constitute BAS services.

Example 2.13

Penny operates a mobile bookkeeping service for a number of clients. The services she provides include setting up commercial accounting software for clients, entering and coding clients' transactions into these software programmes and generating a variety of reports (including those that assist clients in determining their BAS liabilities) from these software programmes.

Penny's clients rely on the information she provides to complete their regular BASs. They do not expect to have to re-work reports and are paying Penny to provide a service that allows them to complete the BAS with the information she provides. While installation and configuration of accounting software (without determining the default GST codes) does not constitute a BAS service, the coding of clients' transactions in this situation, where clients do not expect to have to re-work the reports generated, constitutes the provision of a BAS service as it requires the interpretation and application of a BAS provision where the service can be expected to be relied upon by clients for the purpose of satisfying obligations under a BAS provision.

Registration

Registration requirements

2.43 Individuals who are aged 18 or over (including those acting in the capacity of a trustee), partnerships and companies (including those acting in the capacity of a trustee) are eligible for registration as a tax agent or BAS agent if the Board is satisfied that they meet the tax practitioner registration requirements. While trustees can apply for registration, trusts are not entities that can apply for registration. [Subsection 90-1(1) and sections 20-5 and 70-15]

Example 2.14

Amy, Betty and Cathy are trustees of ABC Trust and only Amy is a registered tax agent. While ABC Trust is not eligible for registration as a tax agent and therefore cannot provide tax agent services for a fee in its own right, ABC Trust can provide tax agent services for a fee on Amy's behalf provided that Amy ensures that the services provided by ABC Trust are provided competently.

2.44 The registration requirements consist of the following two elements:

•

the fit and proper person test (which applies to individuals and partners/directors of partnerships/companies); and

•

prescribed qualifications and experience requirements for individuals, or having a sufficient number of registered individuals (thereby demonstrating appropriate organisational qualifications and experience) for partnerships/companies.

[Section 20-5]

Element 1: Fit and proper person test

2.45 To be eligible for registration, the Board must be satisfied that an applicant is a fit and proper person. The fit and proper person requirement applies to individuals, each individual partner (for partnerships) and each director of a company (for partnerships/companies). [Paragraphs 20-5(1)(a) and 20-5(3)(a) and subparagraphs 20-5(2)(a)(ii) and 20-5(2)(b)(i)]

2.46 The Board, in deciding whether an individual is a fit and proper person, must have regard to whether the individual is of good fame, integrity and character and, in particular, but without limiting those characteristics, whether an event affecting the individual's continued registration happened to the individual in the past five years, whether the individual had the status of an undischarged bankrupt at any time during the previous five years, and whether the individual had served any part of a term of imprisonment during the previous five years. [Section 20-15]

2.47 An event affecting an entity's continued registration occurs if the entity:

•

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 (under subsection 290-50(1) of Schedule 1 to the TAA 1953);

•

is penalised for implementing a scheme that has been promoted on the basis of conformity with a product ruling in a way that is materially different from that described in the product ruling (under subsection 290-50(2) of Schedule 1 to the TAA 1953);

•

becomes an undischarged bankrupt or goes into external administration (as defined in the Corporations Act); and/or

•

is sentenced to a term of imprisonment.

[Section 20-45]

Example 2.15

Three years ago, Melissa was convicted of dangerous driving causing serious injury under section 319 of the Crimes Act 1958 (Vic) and received a two-year suspended prison sentence. Being sentenced to a term of imprisonment in the previous five years is an event that the Board must consider in deciding whether Melissa is a fit and proper person for registration purposes.

Example 2.16

Seven years ago, William became bankrupt and was not discharged until three years ago. Although William became bankrupt more than five years ago, having the status of an undischarged bankrupt at any time during the past five years is a factor that the Board must consider in deciding whether William is a fit and proper person for registration purposes.

2.48 Broadly speaking, a serious taxation offence is a certain type of taxation offence or any one of a series of specified offences outlined in the Schedule to the Criminal Code Act 1995 (Criminal Code) that relates to a tax liability, as described below. [Subsection 90-1(1)]

2.49 A taxation offence is defined in section 8A of the TAA 1953 as an offence against any taxation law. A 'serious taxation offence' is an offence that is a 'taxation offence' that is punishable on conviction by a fine exceeding 40 penalty units, or imprisonment, or both. [Subsection 90-1(1)]

Example 2.17

Fernando maintains a bank account in a false name and omits the interest from his income tax return. If convicted, the offence is punishable by a fine of up to 50 penalty units. This is a serious taxation offence, irrespective of the penalty actually imposed by the court upon conviction.

2.50 A 'serious taxation offence' also refers to those offences outlined in the Criminal Code which relate to:

•

obtaining property by deception (section 134.1 of the Criminal Code);

•

obtaining financial advantage by deception (section 134.2 of the Criminal Code);

•

general dishonesty with respect to obtaining a gain, causing a loss or influencing a Commonwealth public official (section 135.1 of the Criminal Code);

•

obtaining a financial advantage (section 135.2 of the Criminal Code); and/or

•

conspiracy to defraud with respect to obtaining a gain, causing a loss or influencing a Commonwealth public official (section 135.4 of the Criminal Code),

if the offence relates to a tax liability within the meaning of the TAA 1953. [Subsection 90-1(1)]

2.51 An event affecting an entity's continued registration includes conviction of an offence involving fraud or dishonesty. The offence of dishonesty takes its ordinary meaning. Under section 130.3 of the Criminal Code, dishonest is defined as dishonest according to the standards of ordinary people in circumstances where the defendant is aware of these standards. Consequently, the scope of 'dishonest' is determined by community standards.

Example 2.18

Patricia was convicted of theft and was fined $1,500. To convict an individual for theft, a court must find that the individual has dishonestly appropriated property belonging to another with the intention of permanently depriving the other person of the property. Consequently, theft is an offence of dishonesty and the Board must consider this in determining whether Patricia satisfies the fit and proper person test for registration.

2.52 In addition to the fit and proper person requirements for individuals, the following requirements apply to partnerships and companies (including companies which are partners in a partnership seeking registration), as appropriate:

•

each partner who is an individual must be aged 18 years or more;

•

the company must not be under external administration; and

•

the company must not have been convicted of a 'serious taxation offence' or an offence involving fraud or dishonesty during the previous five years.

[Subparagraphs 20-5(2)(a)(i), 20-5(2)(b)(ii) and (iii) and paragraphs 20-5(3)(b) and (c)]

Element 2: Prescribed qualifications and experience

Prescribed qualifications and experience (for individuals)

2.53 An individual is required to satisfy the prescribed requirements in order to register. The requirements prescribed in the regulations include minimum educational qualifications and relevant experience. [Paragraph 20-5(1)(b)]

2.54 The regulations may provide a system to allow the Board to accredit professional associations, including tax and accounting professional associations, associations of bookkeepers and legal professional associations, for the purpose of recognising professional qualifications and experience for registration purposes. [Section 20-10]

Sufficient number of registered individuals (for companies/partnerships)

2.55 In order to be registered, companies and partnerships must satisfy the Board that they have a sufficient number of registered individuals to provide services to a competent standard and to carry out necessary supervisory arrangements, as follows:

•

in the case of registration as a tax agent, such registered individuals must be registered as tax agents; and

•

in the case of registration as a BAS agent, such registered individuals must be registered as BAS agents or tax agents.

[Paragraphs 20-5(2)(c) and 20-5(3)(d)]

2.56 This requirement ensures that a company or a partnership has sufficient organisational qualifications and experience to provide tax agent services or BAS services competently. The registered individuals that a company or partnership are required to have in order to satisfy this requirement may include partners, directors, employees, contractors and staff provided under service trust arrangements.

Example 2.19

NXW Ltd applies to the Board for registration as a tax agent. To satisfy the Board that it has a sufficient number of individuals who are registered tax agents to ensure that the tax agent services it provides are provided competently and that provision of services is appropriately supervised, NXW Ltd lists in its application for registration both its employees who are registered tax agents and the registered individuals supplied by JMD Trust (a service trust).

2.57 There is no set formula for determining the number of registered individuals that a company or partnership is required to have to satisfy this requirement. The Board may provide further guidance on adequate staffing and supervision from time to time. The factors that the Board may take into account in providing such guidance may include the size of the business, the services being offered, the conditions that may be imposed on the company/partnership's registration (based on the qualifications and experience of its personnel - refer to paragraph 2.69 for the Board's ability to impose conditions on an entity's registration) and the supervisory arrangements (eg, quality control practices) in place.

Pre-1988 tax agents and nominees

2.58 Individuals who were registered as a tax agent or a nominee under Part VIIA of the ITAA 1936 immediately before the commencement of section 39 of the Taxation Laws Amendment Act (No. 2) 1988 on 1 November 1988 and remain registered immediately prior to commencement of all of the provisions of the Bill are eligible for registration as tax agents even if they do not meet the prescribed educational qualifications and relevant experience requirements for registration. (They must, however, meet the other registration requirements.) This rule governing pre-1988 tax agents and nominees preserves the special treatment provided in the current law. [Subsection 20-5(4)]

Registration process

Application for registration

2.59 Individuals, partnerships or companies may apply to the Board for registration, including renewal of registration, as a tax agent or BAS agent. [Subsection 20-20(1)]

2.60 An application for registration must be in the form approved by the Board, accompanied by the prescribed application fee and any documents that are required by the Board. [Subsection 20-20(2)]

2.61 The Board must give the application fee to the Commissioner who receives the fee on behalf of the Commonwealth. If the applicant decides to withdraw an application for registration, the application fee will be refunded if the withdrawal occurs within 30 days after the day on which the application was made and before the application has been granted or refused. [Subsections 20-20(3) and (4)]

Decision by the Board to register the applicant

2.62 If the Board is satisfied that the applicant meets all of the registration requirements, the Board must grant registration. Otherwise, the Board must reject the application for registration. [Subsection 20-25(1)]

2.63 The Board has a period of six months from receiving an application for registration in which to decide whether to grant or refuse registration. Where the Board has not made a decision on a registration application within six months of receiving the application, the Board is taken to have rejected the application unless the rules for renewal of registration apply. [Subsections 20-25(2) and (3)]

2.64 Under the rules for renewal of registration, if a tax agent or BAS agent applies for renewal at least 30 days prior to the expiration of registration, or such shorter period as the Board allows, the agent's registration is taken to continue until their application has been decided. [Subsections 20-50(1) and (2)]

2.65 An entity whose registration has been suspended may apply for renewal of registration during the period of suspension. [Subsection 20-50(3)]

2.66 Both the Board's decision to reject an application for registration and its deemed decision to reject an application as a result of its failure to determine an application within six months of receiving the application are reviewable decisions, for which the applicant can make an application to the AAT. [Subparagraph 70-10(a)(i)]

2.67 The right to apply for review by the AAT allows those entities that have been affected by a decision of the Board to question the Board's exercise of its powers before an independent administrative body. For the reviewable decisions in the Bill, the Board is required by section 27A of the Administrative Appeals Tribunal Act 1975 to give a notice to the affected entity/entities stating that a decision was made and that the entity has the right to have that decision reviewed. Under section 28 of that Act, the Board is required, upon request, to provide a written statement setting out the findings on material questions of fact, referring to the evidence or other material on which those findings were based and giving the reasons for the decision. A request for the review of a Board decision must be lodged directly with the AAT, generally by the twenty-eighth day after the day on which the terms of the decision are given to the affected person.

2.68 A decision by the Board refusing to grant the applicant a shorter period in which to lodge their application for renewal of registration is also a reviewable decision against which the applicant can apply to the AAT for review. [Paragraph 70-10(d)]

2.69 The Board may impose one or more conditions on an entity's registration to limit the scope of services that the entity may provide to a particular type of tax agent service (such as providing advice as opposed to compliance work) or a particular area of the taxation laws (such as GST). [Subsections 20-25(5) to (7)]

2.70 In determining whether any limitations should be placed on an entity's registration:

•

for an individual, the Board must have regard to the individual's qualifications and relevant experience; and

•

for a company or partnership, the Board must have regard to the conditions that have been imposed on the registrations of the individuals working for that company or partnership. It would be inappropriate, for example, for a partnership to provide general income tax related services if the registered individuals working for it and supervising the provision of services are restricted under their own registrations to providing fringe benefits tax related advice.

[Subsection 20-25(7)]

2.71 This allows individuals with extensive experience in a specialised area of the taxation laws or in a particular type of tax agent service to be eligible for registration as agents provided all of the other registration requirements are satisfied.

2.72 A tax agent or BAS agent may apply to the Board to vary a condition imposed on their registration. The application must be in a form approved by the Board and supported by information or documents required by the Board. If the Board is satisfied that it is appropriate to vary a condition, then it may decide to vary it accordingly. [Section 20-40]

2.73 The Board may issue guidelines (which are legislative instruments - refer to paragraph 5.35 in Chapter 5 of this explanatory memorandum) to specify training courses for the purpose of varying or removing a condition placed on a registration. For example, the Board may specify that an agent must satisfactorily complete a specified course in preparing tax returns in order to remove a condition on a registration preventing them from doing so.

2.74 The Board's decisions to impose a registration condition and to refuse to vary a condition are reviewable decisions, for which the applicant can make an application to the AAT for a review. [Subparagraph 70-10(a)(ii) and paragraph 70-10(c)]

2.75 The Board must notify an applicant of its decision to register or refuse to register within 30 days of that decision being made. If the Board grants an entity's application, it must notify the entity of the period of registration and any conditions imposed on the registration. If the Board refuses to register an entity, it must furnish the entity with reasons for the decision. However, failure by the Board to comply with these requirements does not affect the validity of the Board's decision. [Subsection 20-30(1)]

2.76 The Board must also notify the Commissioner of the Board's decision to register or refuse to register an entity. This will facilitate the Commissioner's administration of the Australian Taxation Office's (ATO) electronic interfaces with tax agents and BAS agents (eg, the tax agents' portal). [Subsection 20-30(2)]

2.77 The Board may, by written notice, require a tax agent or BAS agent to maintain professional indemnity insurance as specified in the notice, which may include requirements as to the level and essential terms of the insurance policy. The notice may be given at any time during the agent's registration. [Subsection 20-30(3)]

2.78 Tax agents and BAS agents are professionals who hold themselves out as having a special skill on which members of the community can rely. As they are agents for the client, they can be liable for any financial loss or damage which their clients suffer through failure or mistake. The requirement to have appropriate professional indemnity insurance cover ensures that those people who are exposed to the risks of financial loss resulting from agents' conduct are adequately protected and compensated.

2.79 In determining the appropriate type or level of professional indemnity insurance for tax agents and BAS agents, the Board may refer to the insurance level standards currently imposed by recognised professional associations, and the Commonwealth legislative framework regarding the capping of liabilities for damages, for guidance.

2.80 The Board has discretion not to impose additional professional indemnity insurance requirements on those tax agents and BAS agents who are already required to take out insurance by virtue of their membership with a relevant professional association.

2.81 In addition, the Board has discretion to exempt a tax agent or BAS agent from having to hold professional indemnity insurance if the entity can satisfy the Board that it has other satisfactory insurance arrangements in place.

Example 2.20

SupaTax is a franchisee and a registered tax agent. The franchise agreement specifies that SupaTax must take the professional indemnity insurance arrangement organised by the franchisor who is a foreign company. The franchisor purchased, at an industry standard, professional indemnity insurance cover overseas for the whole franchising group including SupaTax. In this case, as SupaTax already has an industry standard professional indemnity insurance arrangement in place, the Board may choose not to specify further requirements.

2.82 The Board's decision to require professional indemnity insurance is a reviewable decision, for which a tax agent or BAS agent can make an application to the AAT for a review. [Paragraph 70-10(b)]

Commencement and duration of registration

2.83 A tax agent's or BAS agent's registration commences on the date specified in the notice that the Board gives to the agent informing it of the Board's decision to grant its application for registration. For a renewal of registration, the agent's registration commences on the day after the expiry date of the previous registration. [Paragraph 20-35(a)]

2.84 Registration is valid for a period of at least three years. The Board has the power to determine a period longer than three years. Registration expires at the end of the period determined by the Board unless it is terminated before that time. [Subsection 20-25(4) and paragraph 20-35(b)]

Notification of a change in circumstances

2.85 A tax agent or BAS agent must notify the Board, in writing, of a change in circumstances that results in failure to continue to meet any of the registration requirements, or if an event affecting their continued registration happens to an agent that is an individual, or to a partner or director of a partnership/company agent (including a director of a corporate partner in a registered partnership) - refer to paragraph 2.47 for an outline of events affecting continued registration. [Section 30-35]

2.86 A tax agent or BAS agent who is a partnership must notify the Board when an event affecting continued registration happens to a partner or a director of a company that is a partner in the partnership. In addition, the partnership must notify the Board if the composition of the partnership changes. A tax agent or BAS agent who is a company must notify the Board if an event affecting continued registration happens to a director of the company, if one or more directors cease to be a director, or if one or more persons become a director of the company. [Paragraphs 30-35(2)(b) and (c) and 30-35(3)(b) and (c)]

2.87 For the purposes of the Bill, a change in the composition of a partnership does not affect the continuity of the partnership. In terms of registration, this means that a partnership's registration does not lapse every time a partner leaves or a new partner is admitted, provided the partners of the registered entity continue to comply with the partnership registration requirements, including the fit and proper person test. [Section 70-20]

2.88 A tax agent or BAS agent must notify the Board within 30 days of the day on which they became or ought to have become aware of the occurrence of any of these events. Failure to notify within the time frame is a breach of the Code (which may attract an administrative sanction) and/or an offence under section 8C of the TAA 1953 for failure to comply with requirements under a taxation law. [Subsection 30-35(4)]

Termination of registration

Grounds for termination

2.89 The Board may terminate registration if an agent breaches the Code (this is explained in Chapter 3 of this explanatory memorandum), if an agent ceases to meet the registration requirements, if the agent breaches a condition imposed on their registration, or, if they are an individual or a company, an event affecting the agent's continued registration happens to them - refer to paragraph 2.47 for an outline of events affecting continued registration. [Paragraph 30-15(2)(d) and subsections 40-5(1), 40-10(1) and 40-15(1)]

2.90 For a tax agent or BAS agent who is a partnership or company, where an event affecting continued registration happens to a partner or a director of a company that is a partner of a registered partnership, or a director of the registered company, as an alternative to a decision to terminate the registration, the Board may decide to require:

•

the registered partnership to remove the partner, or the company that is a partner in the partnership to remove the director from its board of directors; or

•

the registered company to remove the director from its board of directors.

[Subsections 40-10(1), (3) and (4), and 40-15(1) and (3)]

2.91 If the Board directs the removal of a partner/director from a partnership/company, it must do so by notice in writing that specifies a period within which the partnership/company must remove the partner or director. In determining a suitable period for the removal of a partner, the Board must have regard to the requirements of any law of the Commonwealth, a state or a territory in relation to the removal of partners from partnerships. Similarly, when determining a suitable period for the removal of a director of a company, the Board must have regard to any requirement of the Corporations Act in relation to the removal of directors. [Subsections 40-10(3) to (5), and 40-15(3)]

2.92 Failure to follow the Board's direction in these circumstances may amount to a breach of the Code or may result in termination of registration. [Subsections 40-10(3) and (4) and 40-15(3)]

2.93 The Board may terminate the registration of a tax agent or BAS agent if the agent breaches a condition on their registration. [Paragraphs 40-5(1)(c), 40-10(1)(b) and 40-15(1)(c)]

Example 2.21

XXZ Co. is a registered tax agent. XXZ Co.'s tax agent registration is subject to a condition that it may only provide advice about indirect taxes for a fee, given that registered individual tax agents working for XXZ Co. specialise in providing indirect tax advice and are therefore restricted by conditions on their registrations to providing only such advice. To expand its business, XXZ Co. starts to accept work relating to income tax (eg, providing income tax advice and preparing income tax returns) and starts to recruit personnel who are registered tax agents without conditions. Unless XXY Co. applies to the Board to vary its registration condition and the Board decides to make the variation, XXZ Co. is in breach of its registration condition. This exposes XXZ Co. to a risk that its registration may be terminated.

2.94 The Board must terminate an agent's registration:

•

if the agent surrenders its registration to the Board by notice in writing; or

•

upon the death or dissolution of the agent.

[Subsections 40-5(2), 40-10(2) and 40-15(2)]

Example 2.22

SmallTax Pty Ltd is a registered tax agent with a single director and four employees. SmallTax Pty Ltd has decided to merge its business with SupaTax Ltd, another registered tax agent. SmallTax Pty Ltd closes down its business and surrenders its registration to the Board. The Board must terminate the registration of SmallTax Pty Ltd.

Notice and effect of termination

2.95 Where the Board has terminated a registration, it may specify a period of up to five years during which the agent is prohibited from making a fresh application for registration, except in the following circumstances where the termination is not related to the agent's character:

•

where registration was terminated because the agent surrendered their registration by notice in writing; or

•

where registration was terminated because the agent became an undischarged bankrupt or went into external administration.

[Section 40-25]

2.96 The exceptions listed above avoid the potentially unfair outcome that an agent who becomes an undischarged bankrupt or goes into external administration (eg, if they agree to be a guarantor for a loan) may be subject to a time period in which they cannot make an application for registration. Similarly, an agent who surrenders their registration of their own volition should not be prevented from re-applying for registration at any time in the future.

2.97 Where the Board has terminated the registration of a tax agent or BAS agent, the Board must notify the agent in writing of the decision and the reasons for the decision within 30 days of the decision being made. The Board must also notify the agent in writing of any determination of a period during which they are not eligible to apply for registration, within 30 days of the termination decision being made. However, failure by the Board to comply with this requirement does not affect the validity of the Board's decision. [Subsection 40-20(1)]

Example 2.23

The Board decides to terminate Kate's registration as she no longer meets the fit and proper person test for registration purposes, but does not notify Kate of its decision within the 30-day time limit. Despite the Board's failure to notify, its decision is still valid.

2.98 The Board must also notify the Commissioner of its registration termination decisions and reasons for the decisions. As noted in paragraph 2.76, notifying the Commissioner of certain decisions will facilitate his administration of the ATO's electronic interfaces with agents. [Subsection 40-20(3)]

2.99 The date of effect of the Board's decision to terminate a tax agent's or BAS agent's registration is the date specified by the Board in the termination notice. Rather than termination taking effect immediately, the Board must specify a termination date that is at least 28 days after the date of the notice. [Subsection 40-20(2)]

2.100 The fact that a decision to terminate a registration does not take effect until at least 28 days after a tax agent or BAS agent being notified of the decision allows sufficient time for the tax agent or BAS agent to apply to the AAT for a stay of the decision if they intend to apply to the AAT for a review. The absence of an upper limit for the period between the date of notice and the date of effect gives the Board flexibility to specify a date in the future to allow an agent to wind up their business and inform their clients.

2.101 Decisions by the Board to:

•

terminate the registration of a tax agent or BAS agent; and

•

determine a period during which a tax agent or BAS agent, whose registration has been terminated, may not make an application for registration,

are reviewable decisions for which the agent may apply to the AAT for a review. [Paragraphs 70-10(e) and (h)]