TPB Code changes for ‘disqualified entities’: prescriptive yet vague

This article was current at the time of publication.

A package of Government reforms, designed to crack down on misconduct in the tax profession and maintain the integrity of the tax system, has been described as both overly prescriptive and vague, by CPA Australia, in a joint submission with other peak bodies. 

Some of the reforms became effective from 1 January this year, while others including self-reporting of breaches and reporting other tax practitioners, come into effect from 1 July 2024.

The changes include revisions to the TPB’s Code of Professional Conduct contained in the Tax Agent Services Act 2009 (Cth) (TASA) governing tax practitioners, which involve the addition of new Code Items 15 and 16 under section 5, “Other responsibilities”.

The joint submission parties noted that, in the context of keeping the tax agent’s Code of Conduct concise, clear and capable of practical application, the changes “may diminish and weaken the current TASA  regulatory regime”.

Confusing language v busy workload

Jason Robinson CPA, Director of accounting firm Future Advisory, says some of the language the TPB has used around the code changes is confusing.

“When you talk about not employing the services of an entity, the word entity is interchangeable with not employing a person who could be also an entity, or a company or a trust,” Robinson says.

He also maintains that many practitioners are unlikely to be fully across the TPB code changes, simply because of their heavy workload.

“We’re a very busy profession, we’re short of resources, and we are required to be across not just legislation changes and tax laws changes but also our own agent licence changes. So, I think there’s going to be quite a few people out there [who] miss this or overlook it,” he says.

The reforms include legislative changes requiring tax practitioners, including BAS agents, not to employ, use or enter arrangements with disqualified entities without the Tax Practitioner Board’s approval. These reforms are covered by Code items 15 and 16. 

What is Code Item 15?

Code Item 15 states that registered tax practitioners must not employ, or use the services of, an entity to provide “tax agent services” on their behalf if:

• they know, or ought reasonably to know, that the entity is a “disqualified entity”, and
• the TPB has not given approval to a practitioner to employ, or use the services of, the “disqualified entity” to provide tax agent services on their behalf.

The TPB considers a disqualified entity is neither a registered tax agent or BAS agent, nor a “qualified tax relevant provider”, and who within the last five years has been convicted of a “serious taxation” or other criminal offence, or who has been penalised for implementing a tax scheme, or who has become an undischarged bankrupt or gone into external administration.

Other events within the meaning of disqualified entity include where an entity or individual has had action taken against them and the TPB has imposed sanctions including a written caution, an order, suspension, or termination of registration, or who has had their application for registration or renewal rejected.

Tax practitioners are also required to consider who are the individuals (or entities) employed or used, or seeking to be employed or used, to provide tax agent services on their behalf, and whether any of those individuals (or entities) meet the definition of a disqualified entity.

What is Code Item 16?

Code Item 16 states that registered tax practitioners must not provide “tax agent services” in connection with an “arrangement” with an entity they know, or ought reasonably to know, is a “disqualified entity”.

The item defines different types of arrangements, which may include arrangements where there is no amount payable by the disqualified entity, or arrangements that are not in writing (oral).

Transitional Provisions: devil in the detail

The Tax Practitioners Board has issued draft guidance on Code items 15 and 16.

The TPB notes that there are transitional provisions which provide some extra time for tax practitioners, who may currently employ, use or have an arrangement with disqualified entities in their practice, to ensure that they comply with the new Code items. 

“If a tax practitioner wants to apply to us for approval to employ or use (or continue to employ or use) a disqualified entity to provide tax agent services on their behalf, under Code Item 15 we are now accepting applications. Written consent can be obtained by the disqualified entity completing the Disqualifying events declaration and consent form, notes the TPB.

However, Holding Redlich tax partner Megan Bishop says the changes in Code Item 15 and the transitional period relating to using the services of a disqualified practitioner cover those already employed, who can continue their current employment terms through to 31 December this year.

“But if those terms are renewed or changed before, then most transitional rules don’t apply.”

Bishop says Code Item 15 is “harsh for tax practitioners” who have been suspended or terminated as a consequence of them falling behind in their own tax obligations.

“Code Item 15 says that not only can they not have their own practice, and not only can they not lodge tax returns themselves, they also can’t work under the supervision of another tax agent in doing so unless they’ve obtained specific approval from the Tax Practitioners Board to do so. So, it’s really harsh because it’s actually taking away their ability to earn a living based on their profession.”

The TPB says that it recognises that the new obligations and its guidance are not finalised “so we are taking a pragmatic approach in addressing any compliance concerns between 1 January 2024 (from commencement) and the date the guidance is finalised.

However, the TPB notes it’s important for tax practitioners to familiarise themselves with and establish processes in their practice to adhere to Code Items 15 and 16.

“They are currently reviewing the submissions received and are aiming to finalise their position in the coming weeks. The TPB has published additional guidance and answers to Frequently Asked Questions,” says Bishop. 

Disqualified entities out in the open

Robinson believes that the requirement for practitioners to comply with Code Items 15 and 16 will be particularly onerous.

“Just how much extra effort do we, as tax agents, need to have, to look into these people we’re employing, or entities we’re dealing with, to discover whether they’ve been disqualified or not? How readily available and easily searchable is that information?”.

Robinson says the TPB could take a significant step to assist tax practitioners by regularly publishing a list of disqualified entities, perhaps in a monthly or quarterly update. 

“Then we are reminded, when we get this email, that there are people out there doing the wrong thing, and that we’re fighting the good fight to continue to do the right thing for our businesses and our clients.

“There are too many people out there that continue to do the wrong things. They spruik different tax structures that they claim help people avoid or evade paying tax, or they help people illegally phoenix their companies and they do all these things while having a tax agent number or BAS agent number. Then they get disqualified, and nobody hears about it.

“If we’re going to have Code Item 15 and Code Item 16, let’s also empower the TPB to do more about making noise about these disqualified entities by making that information more available.”