House of Representatives

Explanatory Memorandum

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

Chapter 4 - Civil penalties and injunctions

Outline of chapter

4.1 Part 5 of this Bill outlines the civil penalties to which unregistered entities, tax agents and Business Activity Statement (BAS) agents may be liable for contravening a civil penalty provision under the Bill, and the way in which orders for civil penalties are obtained.

4.2 Specifically, Part 5 of the Bill provides:

•

for unregistered entities' liability for civil penalties for engaging in conduct that is prohibited without registration, as follows:

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providing tax agent services or BAS services for a fee or other reward;

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advertising the provision of tax agent services or BAS services; and

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making representations of being registered;

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for registered entities' liability for civil penalties for engaging in certain serious misconduct while registered, as follows:

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making a false or misleading statement;

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employing or using the services of an entity whose registration has been terminated in certain circumstances; and

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signing a declaration or statement that relates to a document which was prepared by an entity other than the tax agent or BAS agent, another tax agent or BAS agent, or an individual under the supervision and control of a tax agent or BAS agent; and

•

that the Tax Practitioners Board (Board) may apply to the Federal Court of Australia (Federal Court) for an order for a civil penalty.

4.3 Subdivision 70-A of Part 7 of the Bill provides that the Board may apply to the Federal Court for an injunction to prevent or compel certain action if an entity has engaged or proposes to engage in conduct that contravenes a civil penalty provision.

4.4 Section 70-20 of the Bill provides that, for the purpose of the Bill, a change in the composition of a partnership does not affect the continuity of the partnership.

4.5 Section 50-40 introduces special rules relating to the liability for civil penalties of partners in a partnership that contravenes a civil penalty provision.

Context of amendments

Operation of current provisions

Criminal penalties

4.6 Subsection 251L(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides for a criminal penalty for a person who provides any of the specified services listed in the subsection for a fee without being registered. Subsection 251L(6) specifies certain entities that may provide a BAS service for a fee without registration.

4.7 Section 251O of the ITAA 1936 provides for a criminal penalty for an unregistered person who advertises that they will provide income related services or who represents that they are a tax agent.

4.8 Section 251N of the ITAA 1936 provides for a criminal penalty for a tax agent who allows another person (who is not a partner in the partnership or their employee, or a tax agent) to prepare income tax returns or conduct other business relating to any income tax matter on their behalf.

Rationale for major changes

4.9 In accordance with the Commonwealth guide to framing civil penalties, civil penalties are considered more appropriate than criminal penalties for conduct that is prohibited without registration and for serious misconduct while registered. This is because such conduct is not considered serious enough to warrant the imposition of a criminal conviction or imprisonment. There is, however, a need for more significant monetary penalties to deter tax agents and BAS agents from contravening the civil penalty provisions in the Bill.

4.10 In addition, civil penalties may be more appropriate than suspension or termination of registration in circumstances where an agent has engaged in conduct prohibited by the Bill, which, although serious, does not warrant the loss of the agent's livelihood.

Summary of new law

Civil penalties

4.11 Entities are liable to pay a pecuniary penalty for contravening a civil penalty provision (civil penalties) for engaging in the following conduct without registration:

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providing a tax agent service or BAS service for a fee or other reward;

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advertising the provision of a tax agent service or BAS service; or

•

representing themselves to be a tax agent or BAS agent.

(Refer to paragraphs 2.14 to 2.19 and 2.28 to 2.42 in Chapter 2 of this explanatory memorandum for an explanation of the definitions of 'tax agent service' and 'BAS service'.)

4.12 There are exemptions from liability to civil penalties for certain unregistered entities providing (for a fee or other reward) or advertising tax agent services or BAS services as legal services in certain circumstances. These services are referred to as 'exempted legal services' in this chapter.

4.13 Tax agents and BAS agents are liable to civil penalties for the following serious misconduct:

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making a false or misleading statement to the Commissioner of Taxation (Commissioner);

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employing or using the services of a deregistered entity; or

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signing a declaration or statement in relation to a taxpayer on a document that was not prepared by a registered entity or an individual under the supervision and control of a registered entity.

4.14 The maximum amount of civil penalties for individuals for engaging in prohibited conduct ranges from 50 penalty units to 250 penalty units. Bodies corporate are subject to a penalty that is five times the penalty imposable on an individual, and therefore ranges from 250 penalty units to 1,250 penalty units.

4.15 If a partnership contravenes a provision of the Bill imposing a civil penalty, each partner that was in the partnership at the time of the contravention is treated as though they have contravened the provision, unless they prove otherwise. The maximum amount of civil penalties for each individual partner is the same as for individuals for engaging in prohibited conduct, and therefore ranges from 50 penalty units to 250 penalty units. Similarly, the maximum amount of civil penalties for each corporate partner is the same as for bodies corporate for engaging in prohibited conduct, and ranges from 250 penalty units to 1,250 penalty units. The maximum amount of civil penalties for a partnership depends on the number and type of contravening partners in the partnership.

4.16 If the Board believes an entity has contravened a provision of the Bill imposing a civil penalty, it may apply to the Federal Court for an order requiring the entity to pay the Commonwealth the civil penalty.

Injunction

4.17 If the Board is satisfied that an entity is engaging in conduct that contravenes a civil penalty provision, for example, engaging in conduct that is prohibited without registration, it may apply to the Federal Court for an injunction to restrain or require certain conduct.

Comparison of key features of new law and current law

Detailed explanation of new law

Civil penalties for prohibited conduct

4.18 The Board may apply to the Federal Court for an order requiring an unregistered entity, a tax agent or a BAS agent to pay a civil penalty for engaging in certain specified misconduct. (The procedure for obtaining a civil penalty order is explained in detail from paragraph 4.59.)

Conduct by an unregistered entity

4.19 Subdivision 50-A provides that an unregistered entity is liable to a civil penalty if it:

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provides a tax agent service or BAS service for a fee or other reward in circumstances where it knows or is reasonably expected to know that such a service is a tax agent service or BAS service;

•

advertises that it will provide a tax agent service or BAS service; or

•

represents that it is a tax agent or BAS agent.

[Subdivision 50-A]

4.20 Exemptions from liability are provided for entities providing exempted legal services and for customs brokers in certain circumstances. These exemptions are explained in paragraphs 4.39 to 4.44.

4.21 The maximum amount of the civil penalty for providing a tax agent service or BAS service for a fee if unregistered is 250 penalty units (currently $27,500) for an individual and 1,250 penalty units (currently $137,500) for a body corporate. ('Penalty unit' has the meaning given by section 4AA of the Crimes Act 1914. ) [Subsections 50-5(1) and (2) and 90-1(1)]

4.22 The maximum amount of the civil penalty for advertising the provision of a tax agent service or BAS service or representing as a tax agent or BAS agent if unregistered is 50 penalty units (currently $5,500) for an individual and 250 penalty units (currently $27,500) for a body corporate. [Subsections 50-10(1) and (2) and section 50-15]

4.23 Refer to paragraphs 4.67 to 4.69 for an explanation of the treatment of partners in a partnership in the case of contravention of a civil penalty provision.

Misconduct by a tax agent or BAS agent

4.24 Subdivision 50-B provides that a tax agent or BAS agent is liable to a civil penalty if it:

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makes a false or misleading statement to the Commissioner;

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employs or uses the services of a tax agent or BAS agent who has had their registration terminated in certain circumstances; or

•

signs a declaration or statement on a document that has been prepared by an entity other than an individual who is a tax agent or BAS agent, or an individual working under the supervision and control of another individual who is a tax agent or BAS agent.

[Subdivision 50-B]

4.25 The maximum amount of the civil penalty per offence by a tax agent or BAS agent is 250 penalty units (currently $27,500) for an individual and 1,250 penalty units (currently $137,500) for a body corporate - refer to paragraph 4.69 for the treatment of partners. [Section 50-20 and subsections 50-25(1) and 50-30(1) to (4)]

Conduct prohibited without registration

Providing a tax agent service or BAS service for reward if unregistered

4.26 To ensure tax agent services and BAS services are provided to the required standard, there are restrictions on who is entitled to provide these services. Only a tax agent is allowed to provide a tax agent service (other than a BAS service or exempted legal service) for a fee or other reward.

4.27 An entity that is not registered as a tax agent is liable for a civil penalty if it provides a service that it knows or ought reasonably to know is a tax agent service (other than a BAS service or an exempted legal service) and charges or receives a fee or other reward for that service. [Subsection 50-5(1)]

4.28 An entity is liable for a civil penalty if it provides a service that it knows or ought reasonably to know is a BAS service (other than an exempted legal service) for a fee or other reward and it is not registered as a tax agent or a BAS agent, or, if the BAS service relates to imports or exports to which an indirect tax law applies, the entity is not a customs broker licensed under Part XI of the Customs Act 1901. [Subsection 50-5(2)]

4.29 The requirement that tax agent services or BAS services be provided 'for a fee or other reward' allows employees (who are unregistered) to provide tax agent services or BAS services to their employer/s for a salary, wage or other benefit (such as a fringe benefit as defined under the Fringe Benefits Tax Assessment Act 1986 ) without contravening the civil penalty provision.

4.30 As for tax agents, an employee whose job entails the provision of BAS services to their employer will not be required to register as a BAS agent.

Example 4.1

Kylie, a bookkeeper, is employed by a business in her local area. Kylie is paid a salary and her work involves preparing and reconciling goods and services tax and pay as you go control accounts and the preparation of BASs from these accounts.

Kylie is not required to register as a BAS agent as she is an employee of the business, and is paid a salary for her work and not a fee.

4.31 A service is taken to be provided for a fee even if the fee for the tax agent service or BAS service is bundled with other fees for other services.

Example 4.2

Gerry is a financial services licensee licensed under the Corporations Act 2001 to provide a range of financial services. Gerry is not a registered tax agent.

One of Gerry's major clients, Petrol Evans Pty Ltd, is about to sell its wholesale petroleum distributorship which comprises a considerable amount of land acquired before 20 September 1985 as well as land, fixtures and goodwill acquired after that time. The company's owner, Larry, seeks Gerry's advice on how the proceeds from a sale of all the distributorship's assets should be invested.

While providing the financial services, Gerry holds himself out to have significant tax expertise and provides tax advice to Larry that Petrol Evans Pty Ltd will be able to shelter any tax on any gain arising from the sale of the distributorship under the small business capital gains tax (CGT) concessions. He does not advise Larry to seek confirmation from a registered tax agent.

In this case, because Gerry held himself out as a tax expert, it is reasonable to expect that Larry would rely on this tax advice not only to determine the proceeds from the sale of the distributorship's assets for investment purposes, but also to claim an entitlement under a taxation law (eg, the small business CGT concessions) in Petrol Evans Pty Ltd's income tax return, without consulting a registered tax agent.

Being a financial services licensee, Gerry ought to know what type of services he is licensed to provide and that the tax advice he provided is a tax agent service. As such, Gerry contravenes the civil penalty provision and is liable for a civil penalty if he charges a fee for the provision of the CGT advice. Gerry is taken to have charged a fee for the CGT advice even if he bundles the fees for the CGT advice with his fees for the financial advice.

4.32 The inclusion of 'or other reward' ensures that situations where services are provided for a reward other than a financial reward (eg, by bartering tax agent services for goods or other services) may be within the scope of the civil penalty provision. Also, future benefits (eg, such as future business, sales or commission) may constitute a 'reward'. For example, providing tax agent services at no charge as a means of attracting or retaining clients may constitute the provision of tax agent services for a reward.

Example 4.3

AdvanceTaxation is a recognised professional association. In an effort to improve the technical proficiency of its members, AdvanceTaxation sets up a technical helpline to advise its members on any difficult tax technical issues in relation to their clients' tax affairs, and answer any related queries. The advice provided by the helpline is often specific to a taxpayer's factual circumstances (rather than merely general advice about the law, such as signpost-type advice). AdvanceTaxation markets the service in such a way that it is reasonable to expect its members to rely on the advice obtained for the purpose of satisfying their clients' obligations or claiming entitlements on behalf of their clients under the taxation laws. Although a fee is not separately charged to members for this service, this is part of a package of services that AdvanceTaxation offers to members as a way of differentiating itself from other recognised professional associations. In this case, AdvanceTaxation would be providing tax agent services for a fee or other reward, and therefore needs to be registered as a tax agent.

4.33 An unregistered contractor contravenes this civil penalty provision if it provides tax agent services or BAS services to tax agents or BAS agents for a fee - refer to paragraphs 2.34 and 2.35 in Chapter 2 of this explanatory memorandum for the application of the definitions of 'tax agent service' and 'BAS service' to these circumstances and to paragraphs 3.42 to 3.44 in Chapter 3 for an explanation of circumstances where unregistered entities may provide services on behalf of an agent.

Example 4.4

ZARA Service Trust employs and supplies professional staff as contractors to Thomas & Partners (which is a registered tax agent and provides tax agent services for a fee). ZARA Service Trust charges a fee for providing services, via the professional staff, to Thomas & Partners. The arrangement between ZARA Service Trust and Thomas & Partners is such that it is reasonable to expect that Thomas & Partners or its clients would rely on the services provided by the employees of ZARA Service Trust to satisfy obligations or claim entitlements under the taxation laws, and Thomas & Partners does not check or review the work performed by the professional staff.

Because ZARA Service Trust is providing tax agent services to Thomas & Partners for a fee, in order to avoid a civil penalty, at least one of the trustees of ZARA Service Trust must be a registered tax agent, and that trustee must ensure the services provided by ZARA Service Trust on their behalf are provided competently.

Example 4.5

XC Pty is not registered as a tax agent. XC Pty employs Bob as its tax manager. Bob provides assistance and advice in respect of tax matters through a shared services arrangement to other companies within the same wholly owned group as XC Pty. The services are provided on a request basis, and XC Pty charges a fee to recover the costs it incurs in providing the services. The related companies rely on the advice provided by XC Pty through Bob and do not generally consult a registered tax agent on the accuracy of the advice provided.

XC Pty is in breach of the civil penalty provision for providing the services for a fee to related companies while unregistered.

4.34 The civil penalty only applies where an unregistered entity that provides a service knows or ought reasonably to know that the service is a tax agent service or BAS service. Whether or not an entity ought reasonably to know that a service that they are providing is a tax agent service will depend on the particular circumstances. This provision ensures that entities that take reasonable care, but provide a tax agent service or BAS service inadvertently, will not incur the penalty. [Paragraphs 50-5(1)(a) and (2)(a)]

Example 4.6

Sarah is a law student. At a family gathering, she is approached by her Uncle for some tax advice. Sarah provides advice based on what she learned as part of her law studies. Her Uncle is really grateful and gives Sarah a gift which she gladly accepts. Sarah offers further help with any other tax related questions her Uncle may have. In this case, if the service is a tax agent service, it is not reasonable for Sarah to know that she is unlawfully providing a tax agent service for a fee or other reward. Sarah is therefore not in contravention of the civil penalty provision.

Advertising a tax agent service or BAS service if unregistered

4.35 An entity is liable for a penalty if it advertises that it will provide a tax agent service (other than a BAS service, or an exempted legal service) and it is not a tax agent. [Subsection 50-10(1)]

Example 4.7

John is a registered BAS agent. He advertises in the local paper that he is able to prepare BAS and other income tax forms for individuals and business. As John is registered as a BAS agent, he is not entitled to advertise tax agent services including the preparation of income tax forms. He is liable for a penalty for unlawfully advertising tax agent services.

4.36 An entity is liable for a penalty if it advertises that it will provide a BAS service (other than an exempted legal service) and it is not a tax agent or BAS agent, or, if the BAS service relates to imports or exports to which an indirect tax law applies, it is not a customs broker licensed under Part XI of the Customs Act 1901. [Subsection 50-10(2)]

Example 4.8

Ronald has been a bookkeeper for the past five years. Ronald advertises in the local paper that he is able to prepare BAS for small businesses. Unless he is registered, Ronald is liable for a penalty.

4.37 An entity is not liable for a civil penalty if it advertises that it will provide a tax agent service or a BAS service and those services would be provided on a voluntary basis under a scheme approved by the Commissioner by notice published in the Commonwealth of Australia Gazette. A notice given by the Commissioner in these circumstances is not a legislative instrument for the purposes of the Legislative Instruments Act 2003. [Paragraphs 50-10(1)(e) and 50-10(2)(e) and subsection 50-10(5)]

Example 4.9

Mai, a retired tax agent, prepares the income tax returns of pensioners and newly arrived immigrants on a voluntary basis as part of the Tax Help Program, a scheme published in the Commonwealth of Australia Gazette, approved by the Commissioner and run by the Australian Taxation Office (ATO). As a result, Mai, although unregistered, is permitted to advertise that she will provide tax agent services as part of the Tax Help Program and she is not liable for a penalty.

Representing that you are a tax agent or BAS agent if unregistered

4.38 An entity is liable for a civil penalty if it represents that it is a tax agent or BAS agent, or both, and that representation is untrue. [Section 50-15]

Example 4.10

Alberto was once a registered tax agent, but let his registration lapse several years ago. Alberto continues to distribute business cards stating that he is a tax agent. Alberto is therefore liable for a penalty for representing himself as a tax agent when unregistered.

Exemption from liability for providing or advertising certain legal services

4.39 Entities such as legal practitioners may provide or advertise tax agent services in certain circumstances without being registered as a tax agent or BAS agent.

4.40 Exemptions from liability to civil penalties apply to unregistered entities that are permitted to provide legal services under a state or territory law regulating legal practice and the provision of legal services (ie, the Legal Profession Acts of the states and territories).

4.41 If an entity is permitted to provide a tax agent service or BAS service (other than the preparation and lodgment of a return or a return-like statement such as a BAS, instalment activity statement, superannuation guarantee statement or pay as you go withholding payment summary statement) as a legal service under a state or territory Legal Profession Act, it may charge a fee or advertise without being registered as a tax agent or BAS agent. [Subsections 50-5(1) to (4) and 50-10(1) to (4)]

4.42 These entities may also prepare and lodge returns or return-like statements for a fee or advertise such services if the entity provides or would provide the service in the course of acting for a trust or deceased estate as a trustee or legal personal representative. [Subsections 50-5(3) and (4) and 50-10(3) and (4)]

Example 4.11

Philip has information about an investment opportunity which advertises significant tax deductions. He contacts his solicitor, Bryce, who is an Australian legal practitioner as defined under the relevant Legal Profession Act but not a registered tax agent, to obtain taxation advice on the investment (this service does not involve preparation or lodgment of a return or statement). Although Bryce provides a tax agent service for a fee, he is not liable for a civil penalty as he is permitted to provide the tax agent service as a legal service under the relevant Legal Profession Act.

Example 4.12

Toby & Co. is an incorporated legal practice and not a registered tax agent. Toby & Co. is permitted under the relevant Legal Profession Act to provide legal services. Toby & Co. provides a range of tax agent services to its clients for a fee, including preparation and lodgment of returns in some cases. Toby & Co. is in breach of the civil penalty provision unless it prepares and lodges returns for its clients only in the course of acting for a trust or deceased estate as a trustee or legal personal representative.

4.43 Where an entity described in paragraphs 4.39 to 4.42, in the course of civil penalty proceedings for charging a fee or other reward while unregistered, seeks to rely on the fact that it prepared and lodged returns or return-like statements as a legal service and for a fee because it was acting for a trust or deceased estate as trustee or legal personal representative, the entity bears an evidential burden in relation to that matter. This is because only the entity providing the service has this knowledge. [Subsection 50-5(5)]

Other exemptions

4.44 Customs brokers licensed under the Customs Act 1901 are not liable for a civil penalty if the BAS service they provide or advertise that they will provide relates to imports or exports to which an 'indirect tax law' (as defined in section 995-1 of the Income Tax Assessment Act 1997 ) applies. [Paragraphs 50-5(2)(e) and 50-10(2)(d)]

Serious misconduct prohibited while registered

Making a false or misleading statement

4.45 A tax agent or BAS agent must not prepare or certify a statement (or permit another person to do so) that they know, or ought reasonably to know, is likely to be made to the Commissioner, in circumstances where they know, or are reckless as to whether, the statement:

•

is false, incorrect or misleading in a material particular respect; or

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omits any matter without which the statement is misleading in a material respect.

[Section 50-20]

4.46 Given that the Code of Professional Conduct (Code) requires tax agents and BAS agents to take reasonable care in their provision of tax agent services and therefore addresses circumstances where the agent is careless in making a statement (eg, see paragraph 3.47 in Chapter 3 of this explanatory memorandum), this civil penalty provision only applies to making a false or misleading statement knowingly or recklessly.

4.47 If a tax agent or BAS agent has reason to believe that their client's records are incorrect or misleading, to avoid exposure to a civil penalty the agent may:

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discuss the matter with the client to clarify any possible misstatement or omission;

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advise the client to disclose the misstatement or omission to the ATO if the relevant documents have already been submitted; and/or

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withdraw from the engagement if the client, after having been advised, refuses to explain or correct any apparent misstatement or omission.

Example 4.13

Tyler is a registered BAS agent and is completing a BAS statement for Eddie, his client. Eddie instructs Tyler to record $2,000 as the amount withheld from his employees' salaries during the quarter. On reviewing Eddie's records, Tyler finds that Eddie has in fact withheld $5,000 from his employees' salaries. When queried, Eddie states that he has had unexpected expenses for the past quarter and therefore intends to record only $2,000 of the withheld amount in this BAS and the remaining $3,000 in the next quarter. Tyler would be knowingly making a false statement if he continues with Eddie's request.

Because Eddie insists that the misstatement be made and Tyler is unable to resolve the issue, to avoid a civil penalty Tyler resigns from the engagement.

Employing a tax agent or BAS agent whose registration has been terminated

4.48 A tax agent or BAS agent must not provide tax agent services for a fee or other reward where its registration has been terminated by the Board.

4.49 Extending this principle, a tax agent or BAS agent must not employ or use the services of an entity to provide tax agent services on its behalf in circumstances where it knows or ought reasonably to know that the entity:

•

is not registered; and

•

was previously registered and had its registration terminated less than one year ago.

[Subsection 50-25(1)]

Example 4.14

Frank is a registered tax agent with a large client base. Due to his heavy workload he decides to employ his friend Cheryl to assist with the preparation of tax returns. Frank is aware that Cheryl had previously been a registered tax agent, and that her registration was terminated by the Board the previous year as a result of a conviction for fraudulent activities.

Frank is liable to a civil penalty for employing a person whose registration has been terminated within one year of the employment.

4.50 However, a tax agent or BAS agent is not liable for a civil penalty if it employs or uses the services of an entity whose registration was terminated as a result of the entity surrendering its registration or becoming an undischarged bankrupt or going into external administration, or because of a reason prescribed by the regulations under the Bill. [Subsection 50-25(2)]

4.51 These exemptions from penalty cater for entities whose registration was terminated for reasons not involving serious misconduct by the entities. For example, it would be unfair for an entity that surrendered its registration or an individual who became bankrupt (eg, as a result of their position as guarantor for a loan) to automatically be prevented from providing tax agent services for another entity.

4.52 This civil penalty provision does not apply to tax agents or BAS agents who employ or use the services of an entity whose registration has lapsed as, in such a case, the entity's registration was not terminated.

4.53 To facilitate compliance with this civil penalty provision, details of certain deregistered tax agents and BAS agents must be maintained on the Board's website - refer to paragraphs 5.126 to 5.129 in Chapter 5 of this explanatory memorandum.

4.54 The prohibition only applies to the employment or use of a deregistered entity during the year following termination. This is to ensure an entity is not prevented from operating in the tax industry for an indeterminate period.

Signing of a declaration or other statement in certain circumstances

4.55 Broadly speaking, a tax agent or BAS agent is liable for a civil penalty if they sign a declaration or other statement in relation to a taxpayer that is required or permitted by a taxation law (or by a BAS provision for BAS agents), where the document that the declaration or statement relates to was prepared by an unregistered entity without supervision and control (which includes, but is not limited to, an employment relationship) by a registered entity.

4.56 For registered individuals, a civil penalty applies if:

•

a tax agent signs a declaration or other statement in relation to a taxpayer that is required or permitted by a taxation law (other than a BAS provision), and the document that the declaration or statement relates to was not prepared by:

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the tax agent;

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an individual working under the supervision and control of the tax agent;

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another tax agent who is an individual; or

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an individual working under the supervision and control of another tax agent who is an individual; [subsection 50-30(1)] and/or

•

a tax agent or BAS agent signs a declaration or other statement in relation to a taxpayer that is required or permitted by a BAS provision, and the document that the declaration or statement relates to was not prepared by:

-

the tax agent or BAS agent;

-

an individual working under the supervision and control of the tax agent or BAS agent;

-

another tax agent or BAS agent who is an individual; or

-

an individual working under the supervision and control of another individual who is a tax agent or BAS agent. [Subsection 50-30(2)]

4.57 For registered partnerships and companies, a civil penalty applies if:

•

a tax agent signs a declaration or other statement on a document in relation to a taxpayer that is required or permitted by a taxation law (other than a BAS provision), and the document that the declaration or statement relates to was not prepared by:

-

a tax agent who is an individual; or

-

an individual working under the supervision and control of another individual who is a tax agent; [subsection 50-30(3)] and/or

•

a tax agent or BAS agent signs a declaration or other statement on a document in relation to a taxpayer that is required or permitted by a BAS provision, and the document that the declaration or statement relates to was not prepared by:

-

a BAS agent who is an individual;

-

a tax agent who is an individual; or

-

an individual working under the supervision and control of another individual who is a tax agent or BAS agent. [Subsection 50-30(4)]

4.58 A tax agent or BAS agent is not liable for a civil penalty if they sign a declaration or other statement that relates to a document which was prepared by an entity other than those listed above, including an unregistered entity which is not supervised and controlled by a registered entity, provided they have taken reasonable steps to ensure the accuracy of the document before signing it. The taking of reasonable steps could be demonstrated by evidence that the agent reviewed the document before signing it or by evidence of appropriate alternative review or monitoring arrangements. In this regard, the agent bears an evidential burden in relation to that matter. [Subsection 50-30(5)]

Example 4.15

Hans, who is not registered to provide tax agent services, has prepared a number of income tax returns for a fee. He arranges for his friend, Joel, a registered tax agent, to sign and submit these income tax returns in exchange for providing Joel with a share of his profits. The returns contain significant errors as Joel did not review Hans' work or otherwise ensure their accuracy prior to signing the returns.

Joel is liable for a civil penalty for signing a tax return that was not prepared by him, another registered tax agent, or a person working under his or another tax agent's supervision and control. He is not exempt from the civil penalty because he cannot demonstrate that he took reasonable steps to ensure the accuracy of the returns before signing and submitting them.

Hans is also liable for a civil penalty for providing tax agent services for a fee while unregistered.

Obtaining an order for a civil penalty and recovery of a penalty

Order to pay a pecuniary penalty for contravening a civil penalty provision

4.59 If an entity contravenes a provision of the Bill imposing a civil penalty, the Board may apply to the Federal Court within four years of the contravention for an order that the entity pays the Commonwealth a pecuniary penalty. [Subsection 50-35(1)]

4.60 The application must be made by the Board, on behalf of the Commonwealth. Although applications for civil penalty orders are more commonly made to the Federal Court by Commonwealth public officials (and, generally, by Ministers), in this case, it is appropriate for the Board - rather than any Commonwealth public official - to make such applications to preserve the Board's independence in the exercising of its functions and powers in regulating the provision of tax agent services. Appropriate accountability for, and transparency of, decisions to make such applications is provided through the requirement that the Board report annually to the Parliament, via the Minister, on its operations - refer to paragraphs 5.123 to 5.125 in Chapter 5 of this explanatory memorandum.

4.61 The four-year limitation for commencing proceedings is consistent with other instances in the taxation laws where a civil penalty is the appropriate remedy (eg, the civil penalties for the promotion and implementation of schemes in Division 290 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)).

4.62 The Board is not required to apply to the Federal Court for an order for every contravention of a civil penalty provision in the Bill. For example, isolated, technical contraventions may not warrant the Board taking action in the Federal Court.

4.63 If the Federal Court is satisfied that the entity has contravened a civil penalty provision, it may order the entity to pay a pecuniary penalty to the Commonwealth for each contravention of that provision. The amount of the penalty is determined by the Federal Court and is payable for each contravention, but the penalty for each contravention must not exceed the amount specified in the relevant civil penalty provision. (The maximum penalty amounts are explained in paragraphs 4.18 to 4.25.) [Subsection 50-35(2)]

4.64 Where conduct contravenes two or more civil penalty provisions, then proceedings may be commenced against the entity for contravention of any or all of those provisions. However, an entity is not liable for more than one pecuniary penalty for the same instance of misconduct (ie, the entity may be penalised for contravening only one of the civil penalty provisions, where conduct contravenes more than one provision). [Subsection 50-35(3)]

4.65 A contravention of a provision of the Bill imposing a civil penalty is not an offence. That means that a contravention is not a violation of the criminal law.

Recovery of a pecuniary penalty

4.66 If the Federal Court orders an entity to pay a pecuniary penalty, then the penalty is payable to the Commissioner, who receives the penalty on behalf of the Commonwealth. The Commissioner may enforce the order on behalf of the Commonwealth as if it were a judgment of the Federal Court. If the entity does not remit the penalty, then it will be held in contempt of court and may be subject to further proceedings. [Section 50-45]

Treatment of partnerships

4.67 For the purposes of the Bill, a change in the composition of a partnership does not affect the continuity of the partnership. However, where a partnership contravenes a civil penalty provision in the Bill, only those partners that were in the partnership at the time of the misconduct may be liable to pay a civil penalty. The civil penalty will not apply to those partners that can prove, on the balance of probabilities, that they:

•

did not engage in the conduct;

•

did not aid, abet, counsel or procure the conduct; and

•

were not in any way knowingly concerned in, or party to, the conduct (whether directly or indirectly or by any act or omission of the partner).

[Subsection 50-40(1) and section 70-20]

4.68 This provision is modelled on subsection 444-30(4) of Schedule 1 to the TAA 1953, which applies to criminal offences in certain taxation laws. The provision deems a partner that was in a partnership at the time of the misconduct to be liable to a civil penalty if the partnership is liable. The rationale for this provision is that it may be difficult for the Board to determine which partner is responsible for a particular misconduct, such as where the partnership employs or uses the services of a deregistered entity.

4.69 In circumstances where a partnership consists of both individual and corporate partners, individual partners are subject to a penalty up to the maximum for individuals when they are in breach of a civil penalty provision (being one fifth of the maximum imposable on a body corporate), and corporate partners are subject to a penalty up to the maximum for a body corporate.

Example 4.16

KKB Services is a partnership providing bookkeeping services, but is not a registered BAS agent. In this partnership, Kristel is an individual partner, and Hood Services Ltd is a corporate partner, and neither partner is a registered agent. The partnership advertises in the local phone directory that its business prepares BAS and provides advice in relation to BAS provisions.

KKB Services is found by the Federal Court to have breached the civil penalty provision that prohibits unregistered entities from advertising that they provide BAS services. Because the partners are different types of entities, the civil penalties for the partners are different. Hood Services Ltd is liable for five times the amount for which Kristel is liable.

Kristel was able to prove that she did not engage or knowingly assist in the conduct of advertising the provision of BAS services, and was not liable for the civil penalty.

Injunction

4.70 Whilst an application to the Federal Court for a civil penalty order may result in an entity being penalised financially, there is no guarantee that the penalty will change the entity's behaviour. In such circumstances, the Board may apply to the Federal Court for an injunction to prevent or compel certain action.

4.71 The Federal Court may grant an injunction against an entity on such terms as it considers appropriate. It may grant an injunction restraining an entity from engaging, or continuing to engage, in an activity or grant an injunction requiring the entity to do something if it is satisfied that the entity has not done that thing and/or is likely not do the thing required without compulsion.

4.72 An injunction may be granted if the Federal Court is satisfied that a tax agent or BAS agent has engaged in the past, or is proposing to engage in the future, in conduct that would constitute a contravention of a civil penalty provision in this Bill. [Subsection 70-5(1)]

Example 4.17

Felix was a registered tax agent, however the Board recently terminated his registration due to a serious breach of the Code. Although Felix's registration has been terminated, he continues to advertise the provision of tax agent services (for a fee) in the local newspaper and continues to act for many of his former clients.

The Board could apply to the Federal Court for a civil penalty order against Felix or an injunction prohibiting Felix from advertising these services and acting for others, or both.

4.73 Injunctions can be used as an alternative to civil penalty proceedings or in addition to them if the Federal Court considers the circumstances of a case warrant both injunctive relief and a civil penalty order.

4.74 Before deciding the Board's application, the Federal Court may also choose to grant an interim injunction. [Subsection 70-5(2)]

4.75 The ability to seek injunctions and interim injunctions allows the Board to take immediate action against entities which engage in conduct prohibited by this Bill, limiting the period during which they can engage in such conduct.

4.76 The Commonwealth may provide an undertaking to pay damages for the losses that an entity suffers due to the granting of an interim injunction if it turns out to be unjustified.