Senate

Revised 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 an RPA or bookkeepers working under the direction 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. Licensed customs brokers will be able to provide BAS services relating to the importation or export of goods.

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 a range of taxation laws. A definition of taxation law is being inserted in section 251A of the ITAA 1936. The registered tax agent provisions will apply to all laws administered by the Commissioner other than excise and diesel fuel rebate laws for which the Commissioner has responsibility under a delegation from the Chief Executive Officer of Customs. The amendment will also exclude diesel fuel grant and sales tax laws. This will enable sales tax consultants, licensed customs brokers and other indirect tax law consultants to continue to provide services related to those laws without having to be registered as tax agents. [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 on behalf of a taxpayer. It will be an offence for a person to provide the following tax agent services for a fee without being registered:

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preparing and lodging returns and other documents;

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giving advice about taxation laws;

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preparing and lodging objections under Part IVC of the TAA 1953, 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. Subsection 251L(6) allows certain people to provide BAS services and subsection 251L(8) excludes certain services provided by legal practitioners.

2.9 Subsection 251L(8) will replace subsection 251L(4) of the ITAA 1936 and subsection 119(2) of the FBTAA 1986 which currently permit a solicitor or counsel (who is not a registered tax agent), while acting in the course of his or her profession, to:

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prepare any objection;

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undertake litigation or proceedings before a board, the AAT or a court;

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act in an advisory capacity in connection with the preparation of any income tax return, FBT return or FBT objection; or

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act in an advisory capacity in connection with any income tax or FBT matter.

2.10 Subsection 251L(8) specifies the type of tax agent services that can be undertaken by a solicitor or barrister on behalf of a taxpayer for a fee. Legal practitioners, while acting in the course of their profession will be allowed to undertake all tax agent services other than prepare and lodge returns, notifications or statements about a taxpayer's liabilities, obligations or entitlements under a taxation law. This restriction includes seeking a revision of a BAS amount or requesting an amendment to an assessment, other than a request to give effect to a private ruling requested by the legal practitioner following assessment. These exclusions do not apply where the legal practitioner is acting as the trustee of a trust or deceased estate. [Schedule 1, item 35, subsection 251L(8)

2.11 Further consideration of what advice can be provided by registered tax agents, legal practitioners, accountants and other advisers will be undertaken as part of a review of tax agent services, as explained in paragraphs 2.28 to 2.29. Until that review is completed, these amendments will allow current practices in relation to giving advice on tax matters to continue to operate. This will include allowing professional bodies and other organisations that represent business and community groups to charge a fee for providing advice to their members.

2.12 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)]

2.13 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 an RPA, excluding student and retired members;

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bookkeepers working under the direction of a registered tax agent;

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entities that provide payroll services to employers (but only in relation to PAYG withholding amounts); and

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licensed customs brokers (but only in relation to the application of an indirect tax law to imports and exports).

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

2.14 Most RPAs have several categories of membership, including members who are studying for relevant qualifications and members who have retired from practice. Paragraph 251L(6)(a) will prevent student members and retired members of an RPA from undertaking BAS service work.

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.

2.16 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 an RPA carries on the payroll service business.

2.17 Licensed customs brokers will be providing certain indirect tax law work that is ancillary to their customs services. The amendment will allow them to undertake BAS services but only so far as it relates to importations or exports of goods relating to GST, LCT or WET.

Recognised professional associations

2.18 An RPA is an organisation that represents accountants and tax practitioners. To qualify as an RPA 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]

2.19 Under paragraph 251LA(1)(b), an organisation that is not established as a professional body but has a role in providing education, information and training about taxation laws will be able to qualify for RPA status. This will expand the number of people who can provide BAS services by allowing tax practitioners who are not members of the professional bodies, but who are members of taxation practitioner bodies that have an educative or training role, to provide BAS services.

2.20 Subsection 251LA(5) deals with the requirement for a member of an RPA to hold certain qualifications. Student members of RPAs are excluded from this requirement. Similarly, members of RPAs who are exempt from holding certain qualifications are excluded from this rule, so that an organisation with such members can still be an RPA. For example, this would apply to long-serving members of professional bodies who obtained membership prior to the body requiring members to hold qualifications.

2.21 Members of RPAs 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 an RPA. 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)]

Offence

2.22 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)]

2.23 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.

2.24 Subsection 995-1(1) of the ITAA 1997 is amended to remove references to subsection 251L(2) of the ITAA 1936, now repealed from the Dictionary definition of 'recognised tax adviser'.

Refunds of BAS amounts

2.25 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.

2.26 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)]

2.27 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

2.28 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.

2.29 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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whether tax advice is legal advice under State laws only legal practitioners can charge for legal advice;

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the meaning of an RPA; and

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the supervisory standards expected of tax agents.