ATO modifies its stance on access to deceased's taxes

This article was current at the time of publication.

On average, about 160,000 Australians die each year, often leaving unresolved tax affairs that need to be settled with the Australian Taxation Office (ATO) before an estate can be finalised.

Up until late 2019, registered tax agents could easily deal directly with the ATO on behalf of an estate’s executor to manage outstanding affairs such as lodging income tax returns, business activity statements (BAS) and settling tax liabilities.

It made sense because in many cases final tax obligations can be extremely complex and generally require the support of a specialist tax practitioner.

However, an IT change in November last year now means the ATO has effectively closed the door to tax agents who directly seek what is deemed under the Tax Administration Act 1994 (TAA) to be protected information.

Why the change?

In essence, it wasn’t a legislative change, but it formalised provisions in the TAA that were reformed in 2009.

The TAA prescribes the ATO’s obligations in relation to taxpayer privacy and the ATO was seeking to ensure its processes and policies were consistent with the law. The ATO decommissioned its previous digital tax portal in November 2019 and replaced it with an online services platform designed to strictly adhere to protected information rules under the TAA.

Importantly, the change only relates to the pre-death tax affairs of the deceased and not to that of the deceased’s estate. Tax agents still have full access and representation rights to the affairs of deceased estates when authorised by the executor.

The current process

The tax agent can still manage/access the deceased estate, as it is a trust. It is the deceased’s individual affairs (pre-death taxes) to which they are denied access. The change now means that all liaisons with the ATO regarding the personal tax affairs of the deceased must be undertaken by the legal personal representative (LPR).

It is the LPR’s responsibility to contact the ATO and ask for any historical information concerning the deceased’s tax history up to their date of death.

Once received, the LPR can then provide that information to their appointed tax agent to assist in assessing and managing the pre-death tax issues the LPR needs to resolve.

“Conceptually, the way it’s designed at the moment is that if you’re an executor you have less power and less ability to get technical support than any other taxpayer in Australia, which doesn’t make sense,” says Ian Raspin FCPA, Managing Director of specialist accounting practice BNR Partners and a member of CPA Australia’s Taxation Centre of Excellence.

“The interposing of an LPR as an effective intermediary between the ATO and tax agents will inevitably lead to the administration of the deceased estate being more protracted than has previously been the case, which is most likely to involve greater time and cost.”

The ATO has stated that in some circumstances it may need to speak directly to a person who is not the executor or administrator — but this does not extend to providing broader information that would assist in the administration of an estate. Further, the ATO will not record the person or any nominated representatives as an authorised contact on the deceased taxpayer’s account.

A temporary problem

The good news for tax practitioners is that after having formed a working group that included Raspin to review and find a solution to the TAA problem, the ATO is amending the Act to resolve this issue.

Under what is known as a legislative instrument, the Commissioner of Taxation Chris Jordan AO can modify the operation of the TAA if it is deemed that any aspect of the existing law is not consistent with its intended purpose.

The ATO is backing a modification to clarify the current law so representatives of an executor or administrator of a deceased estate, such as registered tax and BAS agents and legal practitioners, will be considered covered entities.

An application for the TAA amendment, titled the Taxation Administration (Remedial Power – Disclosure of Protected Information by Taxation Officers) Determination 2020, was lodged by the ATO in January.

However, based on the limited parliamentary sitting days scheduled for 2020, the legislative instrument is not expected to take effect before 13 May 2020.

One lawyer contacted by INPRACTICE confidentially confirmed she had pushed through as much of her deceased estate client work as possible before the ATO change in November 2019 and is now waiting for the amendment to come into effect.

Until then, all registered agents of an executor or administrator of a deceased estate will need to rely on an estate’s LPR to apply to the ATO for access to a deceased person’s protected pre-death tax information.

“Hopefully, after the law’s changed, this will all go away and everything will be back to normal again,” Raspin says.