House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)

Chapter 3: PwC response - Tax Practitioners Board reform

Outline of chapter

3.1 Schedule 3 to the Bill aims to enhance public confidence in the regulation of the tax profession by implementing the second tranche of amendments arising from the TPB Review to improve the Register and boost the TPB's investigation powers. The amendments increase the information published on the Register, remove the 12-month time limit for certain information to remain on the register, extend the timeframe that the TPB has to conduct an investigation, and better target the TPB's delegation powers.

Context of amendments

3.2 The object of the TAS Act is to ensure that tax agent services are provided to the public in accordance with appropriate standards of professional and ethical conduct, as set out in section 2-5 of the TAS Act.

3.3 Tax practitioners in Australia are regulated by the TPB, which is established under the TAS Act and the TAS Regulations. Tax practitioners comprise tax agents and BAS agents, which can be individuals, partnerships or companies.

3.4 Under that legislative framework, the TPB administers the system for registering tax practitioners. It also decides applications for registration and investigates conduct that may have breached the TAS Act, including the Code of Professional Conduct. Where there has been a breach, the TPB may impose sanctions including orders, suspension or termination of registration. These powers enable the TPB to regulate the profession and ensure that tax practitioners are compliant with the legislative framework.

3.5 The Register is a public database of current, and in some cases, former tax practitioners, which is maintained by the TPB. The Register supports the TPB's other functions and is searchable by members of the public who may have an interest in identifying and learning more about tax practitioners. In particular, the Register assists the public who require tax agent services and employers who are seeking to engage tax practitioners to assist them in providing tax agent services. The Register is published on the TPB's website.

3.6 An independent review, announced by the former Government on 5 March 2019, considered the TPB and the TAS Act. The terms of reference for the TPB Review stated it was to consider the suitability and effectiveness of the legislative framework for the TPB within the context of its objectives and "to ensure that tax agent services are provided to the public in accordance with appropriate standards of professional and ethical conduct".

3.7 The final report of the TPB Review was released on 27 November 2020. The recommendations of the final report of the TPB Review included:

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expanding the details of tax practitioners that are currently included on the Register (recommendations 8.1(a) and 6.3);

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removing time limits on how long certain information appears on the Register (recommendation 8.1(c)); and

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removing the six-month timeframe to conduct an investigation (recommendation 6.2(c)).

3.8 The amendments in this Bill respond to the above recommendations. This is the second tranche of amendments, following an initial tranche of amendments to the TAS Act which form Schedule 3 to the Treasury Laws Amendment (2023 Measures No. 1) Bill 2023. The amendments in this Bill are introduced within the context of recent parliamentary and public scrutiny of disreputable tax practitioner conduct in Australia.

Comparison of key features of new law and current law

Table 3.1 Comparison of new law and current law

Detailed explanation of new law

3.9 The amendments provide greater transparency to the public on the misconduct of tax professionals and enable the TPB to conduct more fulsome investigations where they suspect there has been a breach of the TAS Act.

3.10 The main changes under the amendments include:

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updates to sections 60-125 and 60-135 of the TAS Act to enable the TAS Regulations to specify the circumstances in which unregistered entities are to be included in the Register and to specify how long the information must remain on the Register;

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an update to paragraph 60-125(3)(a) to extend the standard timeframe in which TPB investigations can be conducted; and

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an update to section 70-30 to clarify and better target the TPB's delegation powers.

Information on the Register

3.11 Schedule 3 to the Bill amends section 60-135 of the TAS Act, requiring additional information to be published on the Register. The Register records information about both registered and formerly registered tax practitioners. The additional information is made available to the public to help inform their decisions about engaging a tax practitioner. Members of the public can search the Register for useful information about tax practitioners prior to engaging them for tax agent services. In this way, the additional information enhances transparency and contributes to the restoration of public confidence in the tax profession and its regulation.

3.12 The amendments provide that the TPB must establish and maintain the Register in accordance with the TAS Act and the TAS Regulations. The TAS Regulations can set out the specific information that must be published about an entity in particular circumstances. 'Entity' is defined in subsection 960 100(1) of the ITAA 1997 to include individuals, body corporates, and partnerships. [Schedule 3, item 1, subsection 60-135(1) of the TAS Act]

3.13 A key function of the Register is the display of all tax practitioners who are currently registered and able to provide tax agent services to the public. Each tax practitioner has a record on the Register and this information remains publicly available for the entire period of their registration. [Schedule 3, item 1, subsection 60-135(2) of the TAS Act]

3.14 The TAS Regulations may prescribe circumstances in which unregistered entities must be included on the Register. This addresses a previous loophole where a tax practitioner who was found to breach the TAS Act could avoid being included on the Register if their registration lapsed during an investigation.

[Schedule 3, item 1, subsection 60-135(3) of the TAS Act]

3.15 An entity that is not a registered tax practitioner can include:

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an entity that was previously registered but whose registration has lapsed, and they have either not applied for renewal, or their application for renewal was rejected;

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a tax practitioner that had a surrender request approved by the TPB, which then results in that entity's termination;

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an entity whose registration was suspended by the TPB, although this only applies for certain purposes;

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an entity whose registration was terminated by the TPB; and

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an entity that has never been registered by the TPB.

3.16 Although the TAS Regulations may require unregistered entities to be published on the Register, these entities must not be entered or remain on the Register unless this is done consistently with a requirement under the TAS Act or Regulations. A requirement of the TAS Act would include where the TPB exercises their discretion under new subparagraph 60-125(2)(b)(v). If information is incorrectly published on the Register, then it must be removed by the TPB. [Schedule 3, item 1, subsection 60-135(3A) of the TAS Act]

3.17 Further to the information specified in the TAS Act about registered tax practitioners, the TAS Regulations can prescribe additional information to be kept on the Register about tax practitioners and unregistered entities. [Schedule 3, item 1, subsection 60-135(3) of the TAS Act]

3.18 Where information is published about a tax practitioner or unregistered entity, the TAS Regulations will specify the timeframe for which the information must remain on the Register.

[Schedule 3, item 1, subsection 60-135(3) of the TAS Act]

3.19 Whereas previously there was a 12-month time limit for information about former tax practitioners who had their registration terminated to remain on the Register, the amendments enable the TAS Regulations to specify the relevant time period, which could vary depending on the entity and circumstances. [Schedule 3, item 1, subsection 60-135(3) of the TAS Act]

3.20 The ability for the TAS Regulations to specify information to go on the Register is pre-existing under the TAS Act. It is appropriate to use the TAS Regulations to specify when an unregistered entity can be included on the Register, what information should be included and the time period for information to remain on the Register, rather than specifying this in the TAS Act. There are a range of different circumstances in which an entity will not be currently registered but could be subject to a finding of misconduct and a decision by the TPB. There are also a range of different decisions and actions that the TPB can take when they find a breach. It is appropriate to enable the TAS Regulations to deal with these different scenarios in different ways, and to be able to adapt these as appropriate. It allows the level of detail provided on the Register and the publication period to be proportionate to the significance or seriousness of the misconduct.

3.21 The TAS Act previously limited the ability to include unregistered entities on the Register to those who had had their registration terminated other than for a reason prescribed by the TAS Regulations. This limitation in the TAS Act enabled a loophole where an entity that breached the TAS Act in a way that justified termination could allow their registration to lapse and avoid being listed on the Register. There was not sufficient flexibility provided by the TAS Act to address those issues in the TAS Regulations. Delegating more of the details to the TAS Regulations in Schedule 3 to the Bill will help avoid similar situations arising in the future. In the context of recent public scrutiny of misconduct in the tax practitioner profession, the amendments are appropriate in better balancing the rights of individuals providing tax agent services with the public good sought under the object of the TAS Act.

Investigations by the TPB

Period for making decisions

3.22 This amendment extends the default period of time that the TPB has to conclude investigations into potential breaches of the TAS Act. The default period of time is extended from 6 months to 24 months. As previously, the timeframe can be extended further if the TPB is satisfied that for reasons beyond its control, a decision cannot be made in 24 months. [Schedule 3, item 3, paragraph 60-125(3)(a) of the TAS Act]

3.23 The extension of the time period in which to conclude investigations recognises the shortcomings of mandating a 6-month period. Apart from where the TPB was able to justify an extension of the investigation timeframe for reasons outside their control, the 6-month period was insufficient for the TPB to be able to conduct detailed reviews of complex cases. Extending the standard investigation timeframe to 24 months ensures the TPB can address the underlying risks of a case and investigate a wider scope of issues raised by a potential breach.

3.24 The timely completion of each TPB investigation remains important. Further, it is acknowledged that an investigation process may be stressful or disruptive to the professional and personal lives of tax practitioners. Despite the extension of the timeframe in which to complete investigations, it is not intended that the vast majority of investigations should require the full 24 months in which to be completed. The TPB will publicly report on its investigation statistics, the time taken to complete investigations and any extensions. Reported information will be aggregated and anonymised. This will enhance the TPB's ongoing reporting to stakeholders via annual reports.

Publishing results of investigations

3.25 In addition to the extension of the investigation timeframe, the amendments create a new option for the TPB following the conclusion of an investigation and a decision that there has been a breach of the TAS Act, by allowing the TPB to publish specified information about an entity, such as the findings of the investigation, on the Register. Publishing investigation findings can be the only action that the TPB takes, or it can be in addition to other actions such as administrative sanctions or civil penalties. When a TPB investigation finds that conduct has breached the TAS Act, the TPB must either decide to take no further action, or take one or more of the following actions:

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impose one or more sanctions;

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terminate an entity's registration;

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apply to the Federal Court for an order to pay a pecuniary penalty;

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apply to the Federal Court for an injunction; or

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decide that the contravening entity that engaged in the misconduct be published on the Register, with information to be published and the period of time for which it must be published to be as prescribed by the TAS Regulations. [Schedule 3, item 5, paragraph 60-125(2)(b)(v) of the TAS Act]

3.26 The ability to publish findings of an investigation on the Register has been added as scenarios may arise where there has been a breach of the TAS Act, but pursuing sanctions is not a reasonable course of action. In particular, this can occur where entities were registered at the time the investigation commenced, but had their registration expire without renewal before the conclusion of the investigation. In these circumstances, publishing findings of misconduct from investigations provides the TPB with an additional option to ensure the public is aware of the entity's misconduct.

3.27 A minor editorial amendment is made to the note at the end of subsection 60-125(2) to accommodate for the addition of a second note. [Schedule 3, item 6, subsection 60-125(2) of the TAS Act]

3.28 A second note is added at the end of subsection 60-125(2) to identify the register referred to in that subsection as the Register kept under section 60-135 of the TAS Act. [Schedule 3, item 7, subsection 60-125(2) of the TAS Act]

3.29 Where the TPB decides to publish findings of an investigation where there has been misconduct, the relevant information about the contravening entity must be entered on the Register. [Schedule 3, item 8, section 60-125(2A) of the TAS Act]

3.30 The amendment introduces a definition of the term 'register', which is referred to in section 60-125 of the TAS Act. The term is defined as being the register kept under section 60-135 of the TAS Act. [Schedule 3, item 9, subsection 60-125(10) of the TAS Act]

Administrative Review

3.31 The decision to publish findings of investigations on the Register can be appealed to the AAT. This is consistent with the availability of administrative review of a TPB decision to pursue administrative sanction, following an investigation that finds there has been conduct breaching the TAS Act. Enabling merits review for a TPB decision allows those that are subject to investigations an avenue for appeal with an independent tribunal that can provide a determination on whether the correct decision was initially made. [Schedule 3, item 10, subsection 70-10(ha) of the TAS Act]

Delegations

3.32 Part 3 of Schedule 3 to the Bill clarifies the operation of section 70-30 permitting delegation by the TPB. It also enables the decision to terminate registration due to death or surrender to be delegated more widely to ensure more timely decision-making and better use of the TPB's resources.

3.33 A new subheading is added before subsection 70-30(1A) to clarify that this provision refers to functions and powers that are not delegable. [Schedule 3, item 13, before subsection 70-30(1A) of the TAS Act]

3.34 The amendments clarify the delegation process that applies specifically to reviewable decisions by the TPB, which refers to where an application for merits review of a TPB decision may be made to the AAT under section 70-10 of the TAS Act. [Schedule 3, item 15, subsection 70-30(5) of the TAS Act]

3.35 In line with the current operation of the TPB, the amendments provide that most reviewable decisions can only be delegated to a committee if it has 3 or more Board members. This recognises that reviewable decisions can have significant impacts on a tax practitioner, and as such, should be carefully considered by a sufficiently qualified committee. [Schedule 3, item 14, subsection 70-30(2) of the TAS Act]

3.36 The only exceptions to this rule for reviewable decisions are the decisions to terminate the registration of an individual, partnership, or company as a result of surrender, an individual's death or a company ceasing to exist. These decisions can be delegated to a Board member, committee of any composition, APS employee made available to the TPB, or a person engaged by the TPB. [Schedule 3, item 14, subsection 70-30(2A) of the TAS Act]

3.37 Although these decisions are reviewable, in the case of an individual's death or a company ceasing to exist, termination is required under paragraphs 40-5(2)(b) and 40-15(2)(b) of the TAS Act. There is no discretion involved in those scenarios, or any judgment to exercise that would require particular training, qualification, skills, or experience. Further, the consequence of a decision to terminate has no practical impact on a person who is deceased, or a company that does not exist, and is done more for the purpose of assisting a member of the public or potential employer searching the Register for a tax practitioner to hire or engage. These termination decisions can appropriately be delegated to an APS employee or person engaged by the TPB.

3.38 In relation to an entity surrendering their registration, there is a discretion under the TAS Act for the TPB to not accept the surrender. The TPB can decide not to accept the surrender if the TPB considers that it would be inappropriate to terminate registration due to a current investigation or the outcome of an investigation, or a decision to commence an investigation within 30 days after receiving the surrender notice.

3.39 This discretion exists because prior to the amendments in this Schedule, not terminating registration was the only way to preserve the option of imposing orders or sanctions and including an entity on the Register in the event that the investigation found a breach of the TAS Act. The benefit for a tax practitioner to surrender registration in those circumstances could largely be to limit the TPB's options if they find a breach. Due to the amendments in this Schedule, however, the decision whether to terminate registration has less impact because the TPB can terminate registration and still include the entity on the Register if it finds a breach of the TAS Act, consistent with the TAS Regulations.

3.40 The decision can appropriately be delegated to an APS employee or person engaged by the TPB for the following reasons.

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The fact of a decision to commence an investigation within 30 days, or an investigation being underway or concluded is easily established, and a decision to investigate is already delegated to APS employees or persons engaged by the TPB.

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The available decisions are that either the tax practitioner is granted termination of registration, which is what they requested in surrendering their registration, or the status quo is confirmed, and their registration continues for the purpose of preserving options should the TPB find a breach of the TAS Act.

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Whether or not a termination decision is made, the TPB can still include the entity on the Register consistent with the TAS Act and TAS Regulations.

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The decision is subject to administrative review.

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The delegation of this decision making is supported by the TPB's internal processes and governance procedures.

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The ability to delegate these decisions further than a specific committee allows the TPB to increase efficiency in decision-making and creates space for committees to have sufficient time to devote to more complex decisions requiring its expertise. The TPB will exercise its judgement regarding the appropriate level of delegation for these decisions.

3.41 All decisions to terminate that may be subject to the TPB's discretion under subsections 40-5(3), 40-10(2A) and 40-15(2A) continue to be subject to merits review by the AAT.

3.42 For the avoidance of doubt, decisions made by the TPB under subsections 40-5(2), 40-10(2) or 40-15(2) are treated the same as decisions that are not subject to review by the AAT, in that they can be delegated to any person or body mentioned in paragraphs 70-30(1)(a), (b), (c) or (d) including a committee that does not meet the requirements set out in paragraph 70-30(2)(b) of the TAS Act.

Commencement, application and transitional provisions

3.43 The amendments commence on 1 July 2024 or the first 1 January, 1 April, 1 July or 1 October after the Bill receives Royal Assent, whichever occurs later.

3.44 The amendments will apply at the same time as commencement, except where any of the following provisions apply.

Application and transition of information on the Register

3.45 The transitional provision clarifies that the Register as established and maintained prior to commencement of this Bill is taken to have been established for the purposes of subsection 60-135(1) of the TAS Act, as amended by Part 1 of Schedule 3 to the Bill. [Schedule 3, item 2(1), transitional provision]

3.46 Regulations made after commencement of this Bill may require certain information about a current tax practitioner or unregistered entity to be published on the Register. This can include information about the entity that may have occurred prior to commencement of this Bill. [Schedule 3, item 2(2), application provision]

Application of extended investigation timeframe

3.47 The amendment extending the standard timeframe for the TPB to conduct an investigation applies to investigations conducted by the TPB under section 60-95 of the TAS Act which start:

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on or after the commencement of the Bill; or

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prior to the commencement of the Bill where:

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the TPB had not yet made a decision under subsection 60-125(2) or been taken to have made such a decision; and

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the TPB had either not determined that a longer period was needed to make a decision under subsection 60-125(4) or had extended the investigation to a period of less than 24 months. [Schedule 3, items 4(1) and (2), application provision]

3.48 This provides the TPB with a standard timeframe of 24 months for new investigations and any existing investigations where a decision is yet to be made.

3.49 Additionally, investigations which began up to 6 months before commencement, and have not had their timeframes extended or been finalised at commencement, have their timeframe extended for the remainder of 24 months. These investigations remain subject to the TPB's capacity to further extend the timeframe for circumstances beyond its control.

3.50 If an investigation's timeframe was extended to less than 24 months prior to commencement, the amendments disregard the original determination by the TPB to extend the investigation's timeframe and instead extend it to a total of 24 months. However, in these circumstances the TPB cannot extend the timeframe again under subsection 60-125(4). The standard 24-month investigation timeframe therefore applies to all these investigations. [Schedule 3, item 4(3), application provision]

3.51 Alternatively, where the TPB has determined that a period longer than 24 months was needed for an investigation before commencement of Schedule 3 to the Bill, this period is not impacted by the 24-month timeframe and a decision must be delivered within the longer period determined prior to commencement.

Application of decision to publish investigation findings

3.52 The TPB has the option to publish specific information about contravening entities on the Register, following an investigation finding of conduct that breaches the TAS Act.

3.53 These amendments apply to investigations conducted by the TPB under section 60-95 of the TAS Act which started:

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on or after the commencement of the Bill; or

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on or after 1 July 2022, and before commencement of the Bill where:

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the TPB had not yet made a decision or advised the entity of the decision under subsection 60-125(2); or [Schedule 3, items 11(1) and (2), application provision]

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before commencement of the Bill where:

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the TPB had found that the entity breached the TAS Act;

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the TPB made a decision on or after 1 July 2022 but before commencement of the Bill that no further action would be taken under paragraph 60-125(2)(a); and

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the contravening entity had ceased to be a tax practitioner at the time the decision was made. [Schedule 3, item 12(1), application provision]

3.54 For new investigations, the TAS Regulations may prescribe that information relating to matters that occurred prior to commencement must be published on the Register. The Regulations may also provide that information must be published on the Register for a period of time beginning prior to commencement. [Schedule 3, item 11(3), application provision]

3.55 Where the TPB decided to take no further action between 1 July 2022 and commencement because the entity was previously registered but was not registered at the time the decision was made, the TPB is able to make a new decision to publish findings. The TPB has 6 months from commencement to remake these decisions and publish relevant information on the Register in accordance with the TAS Regulations. [Schedule 3, item 12(2), application provision]

3.56 If the TPB remakes an original decision to take no further action and instead decides to publish findings on the Register (a publication decision), then this decision is taken to be valid irrespective of subsection 60-125(3) of the TAS Act which imposes time limits on decision making, and the TPB's original decision to take no further action is disregarded. These publication decisions will be displayed on the Register for 5 years starting from the date of the original decision. This is to ensure equity and prevent investigations that concluded prior to commencement from being on the Register for over 5 years from the original decision. [Schedule 3, item 12(3), application provision]

3.57 For a publication decision made after commencement relating to investigations where a no further action decision was made on or after 1 July 2022, the TPB must follow the notification process outlined at subsection 60-125(8). Entities will then have the option to pursue merits review with the AAT under subsection 70-10(ha) of the TAS Act.