Can accountants advise on state taxes?

This article was current at the time of publication.

Federal tax advice sets clear boundaries for tax and BAS agents, but state and territory taxes fall into a grey zone.

To provide tax advice on federal taxes, these practitioners  must be registered with the Tax Practitioners Board and operate under the umbrella of the Tax Agents Services Act 2009 (TASA).

Under the TASA, tax agent services are defined as ascertaining or advising on the liabilities, obligations or entitlements of an entity that arise – or could arise – under a federal taxation law.

There are also provisions for BAS agents that are specific to BAS obligations.

Taxes and borders

Operating under the TASA entitles registered tax agents to provide advice on matters relating to federal taxes such as income tax, GST and fringe benefits.

However, because the TASA only relates to federal taxation laws, practitioners need to tread carefully when it comes to advice concerning state and territory tax laws.

That’s because of the inherent risks of potentially breaching state and territory prohibitions around unqualified legal practice.

Put simply, because of the complexities around various state and territory laws, even providing specific advice with regards to non-federal tax laws such as payroll tax and stamp duty could be seen as crossing the boundary between accounting and legal advice.

Each state or territory has its legal profession legislation. For example, in Victoria, it’s called the Legal Profession Act 2004, which prohibits any person from engaging in legal practice when they’re not entitled to.

“A tax agent really needs to ensure they’re not giving advice which is straying into giving legal advice to not fall foul of the various state and territory laws that apply,” says Mills Oakley Private Advisory Taxation Partner, Harry Giannakidis. 

Giannakidis says a tax agent could be regarded as having provided legal advice by ascertaining specific rights or obligations around a particular set of facts if the advice involves reason and consideration of the application of common law principles.

This would include interpretation of a legal agreement, deed, will, or anything that is part of determining specific liabilities.

What is legal advice?

“On a lay person’s analysis of what is or isn’t legal advice, generally they would have to do some sort of analysis of what would be expected of a lawyer,” Giannakidis explains.

“That wouldn’t include things such as advising a client of what payroll tax rates are or if stamp duty would be payable if there was a transfer of property, especially where those matters are fairly simple and standard. 

“But it is grey because if it’s advice that can be given without it being an analysis of documents and case law and the legislation, then it’s probably something [accountants] can advise on and it is unlikely to be considered legal advice.”

Regardless, Giannakidis says if circumstances raise doubt or require interpretation over the application of statutes, regulations, rulings and court decisions, tax agents have to leave the answers to a lawyer.

“The TASA won’t protect a tax agent [if they stray] into the provision of legal advice relating to a state tax liability.”

Know the boundaries

Giannakidis notes that when a situation is clear-cut and the client is not expecting legal advice, it’s likely practitioners can advise. He adds that many of the accountants he works with know where the boundaries lie on state taxes and seek advice when applicable.

“In my experience, a lot of accountants do come to us for that advice, but I’m not told everything [about] what they do or advise their clients.”

Giannakidis says it all boils down to whether a tax agent is providing legal advice around a tax issue.

“It’s important to remind tax agents that they need to be careful they’re not performing a broad analysis and forming an opinion without the backing of advice from a lawyer.

“It applies equally with advising on federal tax law. It may be legal advice if it requires you to read a document such as a sale agreement and try and work out what the respective rights of the parties are and interpret what the liability is.”