House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 2 - Provision of BAS services by people other than registered tax agents

Outline of Chapter

2.1 This Chapter explains the amendments made by Schedule 2 to this Bill to section 251L of the ITAA 1936. The amendments will:

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clarify the type of tax agent services that can be undertaken only by a registered tax agent for a fee;

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provide an exclusion to allow a barrister or solicitor to provide certain tax agent services;

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provide an exclusion to allow certain other persons to provide tax agent services relating to the BAS; and

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outline the treatment of refunds of 'BAS amounts'.

Context of Reform

2.2 Section 251L of the ITAA 1936 currently restricts a person from demanding or receiving a fee for the preparation of an income tax return or objection or the transaction of any business in income tax matters on behalf of a taxpayer, unless the person is a registered tax agent. A parallel restriction applies to FBT work under section 119 of the FBTAA 1986. As the BAS contains information about income tax and FBT matters, these restrictions mean that only registered tax agents would be allowed to prepare and lodge a BAS on behalf of taxpayers.

2.3 The Commissioner is concerned about the ability of tax agents to meet the demand for this work and the consequences for small businesses of not having an agent to assist in meeting their obligations. This could lead to taxpayers falling outside of the new tax system. These concerns have been supported by statements made by tax practitioners and reports in the press.

2.4 These measures will address those concerns by allowing either members of a recognised professional association, or bookkeepers working under the supervision of registered tax agents, to provide BAS services on behalf of taxpayers. Entities that provide payroll bureau services to employers will also be able to provide BAS services in relation to PAYG withholding matters.

Date of effect

2.5 This measure will apply from 1 July 2000.

Detailed explanation of new law

2.6 Subsection 251L(1) of the ITAA 1936 is being amended to clarify the type of work that can be undertaken only by registered tax agents. Previously, this provision only related to income tax. It is being amended to become a generic provision that will apply to all taxation laws. A taxation law is defined to have the same meaning as in the tax dictionary, subsection 995-1(1) of the ITAA 1997. That is, a taxation law is any Act for which the Commissioner has the general power of administration, and any regulation under such an Act. [Schedule 2, item 33, section 251A]

2.7 A person must be a registered tax agent to be able to charge or receive a fee for the provision of tax agent services. It will be an offence for a person to provide these services for a fee without being registered. Tax agent services include:

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preparing and lodging returns and other documents;

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giving legal advice about taxation laws;

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preparing and lodging objections, and applying for reviews on objection decisions; and

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transacting any business with the Commissioner on behalf of a taxpayer.

[Schedule 2, item 34, subsection 251L(1)]

2.8 There will be 2 exclusions to the restriction on who can provide tax agent services. First, legal practitioners will be able to:

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give legal advice about taxation laws;

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prepare and lodge objections and apply for reviews on objection decisions; and

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in their capacity as a trustee:

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prepare and lodge returns and other documents; and

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transact any business with the Commissioner on behalf of a taxpayer.

[Schedule 2, item 35, subsection 251L(8)]

2.9 Legal practitioners are currently allowed to undertake certain tax services without having to be registered as tax agents. This amendment clarifies the type of tax agent services they can undertake for a fee without being registered as tax agents.

2.10 The second exclusion will allow certain people other than registered tax agents to provide limited tax agent services for a fee in relation to obligations under the new tax system. This work is limited to the provision of a 'BAS service' which includes:

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

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giving advice about a BAS provision; and

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transacting any business with the Commissioner on behalf of a taxpayer in relation to a BAS provision.

[Schedule 2, items 31, 32 and 35, subsection 251L(7)]

2.11 The only people allowed to provide a BAS service, other than registered tax agents and legal practitioners, to the extent permitted by new subsection 251L(8) are:

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members of a recognised professional association;

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bookkeepers working under the direction of a registered tax agent; and

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entities that provide payroll services to employers.

[Schedule 2, item 10, section 119 of the FBTAA 1986; item 35, subsection 251L(6) of the ITAA 1936]

2.12 Payroll service providers can only provide a BAS service for PAYG withholding obligations. This includes, for example, the preparation and lodgment of a notification of a PAYG withholding amount and PAYG payment summaries in respect of those amounts. However, payroll service providers can provide other BAS services where they provide bookkeeping services to clients, under the direction of a registered tax agent, or where a member of a recognised professional association carries on the payroll service business.

2.13 A recognised professional association is an organisation that represents accountants and tax practitioners. To qualify as a recognised professional association an organisation must satisfy 9 criteria concerning professional standards, education requirements, disciplinary procedures, size and not-for-profit character. [Schedule 2, item 36, section 251LA]

2.14 Members of recognised professional associations will be able to provide BAS services through a partnership or company. This will allow a company to offer BAS services where a director or employee of the company is a member of a recognised professional association. Where a member operates through the entity, the member is the person responsible for the provision of the BAS services. [Schedule 2, item 35, subsection 251L(9)]

2.15 Bookkeepers do not have to be employees of a registered tax agent to provide BAS services. Working under the direction of a registered tax agent would require the tax agent to have procedures and systems in place to ensure that the work undertaken by the bookkeeper is reviewed for accuracy and completeness.

Offence

2.16 It will be an offence for a person to knowingly or recklessly charge a fee for the provision of taxation services if they are not a registered tax agent or a person excluded from the requirement. The penalty is a maximum of 200 penalty units. [Schedule 2, item 34, subsection 251L(1), item 35, subsection 251L(10)]

2.17 The current subsections 251L(2) and (3) allow unregistered persons, with the approval of the Tax Agents' Boards, to derive up to $40 per year from providing tax agent services. This de minimis provision is being repealed.

Refunds of BAS amounts

2.18 One of the risks in the new tax system is the possibility of fraudulent claims for refunds of GST input tax credits. Under the refund provisions in Division 3A of Part IIB of the TAA 1953, all refunds of BAS amounts must be paid into an account at a financial institution nominated by the entity. The account must be maintained at a branch or an office of the institution that is in Australia. This allows an entity to request a refund to be paid into the account of any other person.

2.19 The risk of fraudulent claims needs to be reduced by restricting the accounts into which the entity can request a refund to be paid. Subsection 8AAZLH(2) of the TAA 1953 is supported by an amendment which will restrict the nominated account to an account held by:

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the entity, or a joint account of the entity;

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the entity's registered tax agent; or

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a legal practitioner acting in the capacity of trustee or executor of the entity.

[Schedule 2, item 76, subsection 8AAZLH(2A)]

2.20 A taxpayer who uses a person authorised under section 251L to provide BAS services will remain vicariously liable for any penalty on a shortfall amount or scheme shortfall amount arising from the actions of that person.

Proposed tax agents' legislation

2.21 In the 1998 Budget, the Government announced a proposed new regulatory regime for tax agent services. At the request of representatives of the tax profession the proposal was deferred because of the significant amount of preparatory work necessary for the new tax system. Consultations on the tax agent proposals will resume with a view to having an exposure draft of the legislation released later this year.

2.22 There are a number of matters which will have an impact on the BAS service measures and will be considered as part of this review. These include:

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the concept of giving clients of registered tax agents a safe harbour from shortfall penalties where the taxpayer satisfies a reasonable care test;

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the role of tax advisers. Tax agent services include giving legal advice about taxation laws. This could cover advice given about taxation laws by different people, for example, advice provided by financial planners;

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the meaning of a recognised professional association; and

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the supervisory standards expected of tax agents.