Author: Megan K

Written by: Sheoni Dunlop | Senior Tax Trainer

On 8 October 2024 the revised Legislative Instrument titled Tax Agent Services (Code of Professional Conduct) Amendment (Measures No. 2) Determination 2024 (the LI) was registered.

On 24 October 2024 the Tax Practitioners Board (TPB) released six draft TPB Information Sheets in relation to the final legislative instrument.

What does this mean to you?

In this article we will identify what the changes mean to tax practitioners in relation to the two most controversial code items being False or misleading statements and Keeping your clients informed.

The TPB draft Information Statements (IS) in relation to False or misleading statements and Keeping your clients informed are available on the TPB website

The original position in respect of the eight additional code items is outlined in the Banter Blog article https://taxbanter.com.au/new-code-obligations-for-tax-agents/

False or misleading statements

This code item has become colloquially known as “dob in a client”.

This item requires registered tax practitioners to correct statements that the practitioner knows are false or misleading or indeed not to make or direct someone else to make a false or misleading statement in the first instance. Perhaps the most controversial part of the requirements is that if a tax practitioner advises their client to correct a false or misleading statement and the practitioner is not satisfied that their client has corrected it, the practitioner will be required to withdraw their services from the client and will potentially be required to report them to the TPB or the Commissioner and take whatever further action is necessary in the public interest.

What are the notable changes in the revised LI?

The revised LI clarifies that innocent or genuine errors aren’t intended to be captured by the obligations. Tax practitioners will have an obligation to take action where there has been a failure to take reasonable care or there was intentional disregard or recklessness.

What does the draft TPB IS add to our understanding?

While the IS includes questions for consultation it also attempts to provide more detail than the LI in respect of the terms used and the obligations from a more practical perspective. An example of this is that the LI clarifies that where a tax practitioner is required to withdraw their services from a client, they are also required to withdraw from all professional relationships they have with the client. If the tax practitioner also provides other services such as business advisory, accounting, audit or financial services, they must also be withdrawn.

The IS also provides case studies and exceptions to taking further action. However, even with the guidance provided in the IS it will be necessary for tax practitioners to exercise judgement in determining whether:

• there is an obligation to correct a false or misleading statement
• they are required to withdraw services and other professional relationships they have with a client
• they have an obligation to report a client to the TPB or Commissioner
• they have to take further action in the public interest

Keeping your clients informed

This code item item requires registered tax practitioners to advise all current and prospective clients, in writing, of any matter that could significantly influence the decision on whether to engage the practitioner.

A major concern in relation to the original LI was that it could be interpreted to require the tax practitioner to disclose matters that do not relate to their ability to provide tax agent services as a fit and proper person, perhaps extending to matters such as suffering from mental health issues.

What are the notable changes in the revised LI?

The revised LI sets out an exhaustive list of the matters and events that must be disclosed to current and prospective clients in writing if they have occurred within the last 5 years. These broadly include:

• registration being suspended or terminated by the TPB
• matters relating solvency of the tax practitioner
• any conviction relating to serious tax offences
• any conviction relating to fraud or dishonesty
• serving or being sentenced to a term of imprisonment in Australia for six months or more
• any sanction or order in relation to promoting or engaging in a tax avoidance or evasion scheme under the tax law
• the Federal Court has ordered the tax practitioner to pay a pecuniary penalty for contravening a civil penalty provision under the Act
• any conditions applying to current registration

If applicable, disclosures should be made when engaging or re-engaging the client or within 30 days if the existing client has not otherwise been advised.

What does the draft TPB IS add to our understanding?

Consistent with the IS regarding false and misleading statements, while this IS includes questions for consultation, it also attempts to provide more detail than the LI in respect of the terms used and the obligations from a more practical perspective. An example of this is that the LI notes that the TPB will consider that the tax practitioner has given information to all their current and prospective clients if they:

• publish the information on a publicly accessible website that the registered practitioner uses to promote the tax agent services they offer
• include the information in letters of engagement or re-engagement, given to each of their clients
• provide their clients, upon engagement or re-engagement, with a copy of the TPB’s factsheet on general information for clients

The IS also provides three case studies in respect of whether the tax practitioner would have breached the code in the scenarios put forward.

Written by: Letty Chen | Senior Tax Writer

On 6 August 2024, the Tax Practitioners Board (TPB) issued two exposure draft Information Sheets setting out the TPB’s proposed guidance in relation to three of the eight new obligations for registered agents under the Code of Professional Conduct in the Tax Agent Services Act 2009 (TASA).

The Ministerial Determination introducing the new obligations was registered on 2 July 2024, with a commencement date of 1 August 2024. On 31 July, the Assistant Treasurer announced transitional arrangements which generally postpone the new obligations until 1 January 2025 for larger firms (more than 100 employees) and 1 July 2025 for smaller practices (100 or fewer employees).

Refer to our recent Banter Blog articles for more information on the new obligations:

New Code obligations for tax agents

TPB’s transitional approach for new Code obligations starting 1 August

Last minute reprieve for tax agents — Code changes postponed

These articles summarise the requirements of the Determination and guidance provided in the Explanatory Statement to the Determination — these will not be reproduced in the present article.

The draft guidance

The exposure draft Information Sheets are:

TPB(I) D54/2024 False or misleading statements to the TPB or Commissioner

TPB(I) D55/2024 Managing conflicts of interest and maintaining confidentiality in dealings with government

There are a number of consultation questions for each draft Information Sheet. The closing date for submissions is 3 September 2024. The TPB anticipates releasing final guidance in late September.

This article will focus on TPB(I) D55/2024 in relation to conflicts of interest and confidentiality in government dealings.

Refer to our other article First tranche of draft TPB guidance on new obligations — false or misleading statements for a summary of TPB(I) D54/2024.

Draft guidance in relation to managing conflicts of interest (government agencies)

The obligation

Section 20 of the Determination requires registered tax practitioners, in relation to any activities they undertake for an Australian government agency in a professional capacity, to:

• take reasonable steps to identify and document any material conflict of interest (real or apparent) in connection with an activity undertaken for the agency
• disclose the details of any material conflict of interest (real or apparent) that arises in connection with an activity undertaken for the agency to the agency as soon as the registered tax practitioner becomes aware of the conflict
• take reasonable steps to manage, mitigate, and where appropriate and possible avoid, any material conflict of interest (real or apparent) that arises in connection with an activity undertaken for the agency (except to the extent that the agency has expressly agreed otherwise).

A breach of this obligation may result in the TPB imposing one or more sanctions.

Activities undertaken for an Australian government agency in the registered tax practitioner’s professional capacity

An ‘Australian government agency’ is defined as the Commonwealth, a State or a Territory, or an authority of the Commonwealth, or of a State or a Territory.

The scope of ‘professional capacity’ includes activities that are and are not tax agent services. This includes providing any advice, assistance, or feedback to the government, whether paid or otherwise. It does not extend to activities that are of a personal nature.

These activities may be undertaken through either a formal engagement (such as through a procurement process, or a confidential consultation process) or an informal engagement (which may include internal meetings and discussions, or informal consultation processes).

Conflict of interest

A conflict of interest is where a registered tax practitioner has a personal interest or has a duty to another person which is in conflict with the duty owed to the government agency.

A conflict of interest may be direct or indirect, and real or apparent (or perceived). Also, it can arise before the registered tax practitioner accepts an engagement or at any time during the engagement.

Whether a conflict of interest is ‘material’ will depend on the facts and circumstances and whether a reasonable person, having the knowledge, skill and experience of a registered tax practitioner, would expect it to be of substantial import, effect or consequence to the other entity. Relevant facts and circumstances may include:

• the information known to the practitioner about the activities
• the consequences for the government agency if the practitioner’s personal interest is such that it could give rise to a real or apparent conflict of interest that could affect their ability to discharge their duties and/or obligations to the government agency.

A material conflict of interest may arise in circumstances that include where a practitioner:

• is engaged by a government agency to consult on proposed government law reform that may result in a potential or perceived benefit or gain to the practitioner and/or their clients
• may benefit or gain financially from their engagement with the government agency directly or indirectly (a benefit to the practitioner, their employer, client and/or other associate)
• misuses confidential information which may result in a potential or perceived benefit or gain to the practitioner
• interferes in government decision making which may result in a potential or perceived benefit or gain to the practitioner.

What are ‘reasonable steps to identify and document any material conflict of interest’?

Relevant factors in determining whether a practitioner has taken reasonable steps may include the following:

• the size of the tax practitioner entity
• the type of work undertaken by the tax practitioner
• the client base of the tax practitioner
• the likelihood of conflicts of interest arising
• the sensitive nature of the activities undertaken for the government agency
• any possible adverse consequences for the government agency should a conflict of interest arise
• whether the registered tax practitioner has provided training to staff on identifying, disclosing and documenting conflicts of interest
• whether the registered tax practitioner has established procedures for the disclosure and record-keeping of potential conflicts of interest
• whether the registered tax practitioner has established procedures for identifying and documenting conflicts of interest.

Disclose details of any material conflict of interest as soon as you become aware of the conflict

The obligation is not limited to a practitioner disclosing information about their own material conflicts of interest. It extends to any material conflict of interest of any employee, associate, contractor or other relevant entity that the practitioner is aware of.

Details to disclose to the government agency may include the following:

• the nature of the conflict
• the extent of the conflict
• what interest, association or incentive gives rise to the conflict
• the identity of the registered tax practitioners or others related to the conflict and the extent to which they have been involved in the services provided to the government agency
• when the conflict was first identified
• how the advice or services provided to the government agency might have been different had there not been a conflict of interest
• any benefit, financial or otherwise, obtained due to the conflict of interest
• whether any actions have been taken or are proposed to avoid the conflict or to mitigate any damage arising from the conflict.

Where a practitioner is unsure as to whether a conflict of interest arises or whether the conflict is material or not, they should err on the side of caution and disclose the details of the potential conflict of interest.

Managing and mitigating a conflict of interest

Reasonable steps to manage and mitigate a conflict of interest may require a practitioner to:

• assess and evaluate the conflict of interest
• implement appropriate mechanisms to manage or control the impact of the conflict of interest on the practitioner’s advice or decisions, or the decisions of the government agency
• implement appropriate mechanisms to mitigate the conflict of interest.

Examples of reasonable steps include the following:

• enforcing procedures for managing, mitigating, and avoiding conflicts of interest
• allocating staff to projects in a way that manages or avoids potential conflicts of interest
• having internal governance policies in relation to conflicts of interest that include consequences for failing to comply with those procedures
• maintaining a conflict of interest register and information handling procedures that utilise technology to limit information access to those with a legitimate need to know.

Additional techniques may include:

• placing a positive onus on employees or anyone else providing relevant services on behalf of the practitioner to declare conflicts of interest
• developing a register of private interests
• reviewing conflict of interest declarations periodically
• relevant training
• seeking advice from an independent third party, which may include legal advice.

In some cases, conflicts will be unmanageable and the only way to adequately manage the conflict is for the practitioner to decline the engagement. Otherwise, the continued engagement by the government agency of the practitioner will be at the discretion of the agency.

Case studies

There are three case studies in relation to the conflicts of interest Code item, including the following:

Click here for more information.

Draft guidance in relation to confidentiality in dealings with government agencies

The obligation

Section 25 of the Determination gives rise to two obligations in relation to maintaining confidentiality in dealings with Australian government agencies:

• subject to some exceptions, not disclose any information received, directly or indirectly, from an Australian government agency in connection with any activities undertaken for that agency in a registered tax practitioner’s professional capacity
• subject to some exceptions, not use any information received, directly or indirectly, from an Australian government agency in connection with any activities undertaken for that agency in a registered tax practitioner’s professional capacity, for their personal advantage, or for the advantage of an associate, employee, employer or client of the registered tax practitioner.

Obligation to not disclose information

‘Information’ refers to the acquiring or deriving of knowledge obtained in connection with the activities undertaken. This information could be acquired either directly or indirectly from the government agency or other sources. Examples include:

• proposed government reform, including potential legislative changes
• information about procurement processes, including tender or pricing information, an agency’s project budget, pre-tender estimates, or evaluation methodologies
• personal information about entities
• cabinet in-confidence documents or market sensitive information.

A third party means any entity other than the practitioner and the government agency and includes:

• an entity to which the practitioner outsources work (e.g. another registered tax practitioner, a legal practitioner, a contractor, or an overseas or offshore entity)
• an entity that maintain offsite data storage systems (including unencrypted ‘cloud storage’).

In what circumstances can a registered tax practitioner disclose information to a third party?

A practitioner may only disclose the information if:

• it is reasonable to conclude that the disclosure was authorised by the agency and the disclosure was done consistently with the agency’s authorisation; or
• there is a legal duty to do so.

Reasonable to conclude further disclosure of information was authorised by the government agency

If a reasonable person, possessing the required knowledge, skill and experience of a registered tax practitioner, objectively determined, would conclude that the further disclosure of the information was authorised by the government agency, this will be sufficient. It is not necessary to determine the question with any certainty. For example, it would be reasonable to conclude that further disclosure of the information was authorised where:

• the further disclosure was expressly authorised by the government agency, either in writing or otherwise (for example, the formal engagement letter included a clause authorising the disclosure of information); or
• authorisation of the further disclosure was implied by the government agency, either in writing or otherwise.

Other relevant factors may include the following:

• comments made by the government agency when providing the information to the registered tax practitioner; or
• the availability of the information provided to the registered tax practitioner from other sources.

The TPB recommends that the practitioner should, prior to any disclosure, clearly inform the agency that there will be such a disclosure and obtain permission.

Legal duty to do so

Examples where a practitioner may have a legal duty to disclose such information to a third party include:

• providing information requested by the TPB in undertaking enquiries about the practitioner’s conduct
• providing information to the TPB under the breach reporting obligations
• providing information to a court or tribunal pursuant to a direction, order, or other court process
• providing information to AUSTRAC in accordance with reporting obligations anti-money laundering laws
• providing information or documents to the ATO pursuant to a s. 353-10 notice
• providing information to an AFS licensee pursuant to the Corporations Act 2001.

A practitioner should consider whether any of the documents may be subject to LPP.

Inadvertent disclosure

The following are some examples of where registered tax practitioners need to be particularly mindful of their obligations:

• leaving information in unsecured locations which may be accessed by third parties
• disposing (such as trading in or selling to a second-hand market) of IT equipment or mobile devices that contain / store data that may be accessible by third parties
• the use of shredding and data disposal services
• the use of external service providers which may include, for example, IT consultants, virtual assistants, and cleaners
• the use of virtual meetings to discuss information when third parties may be in attendance
• the use of public Wi-Fi or unsecure network when providing services for a government agency
• the use of unencrypted cloud storage.

Obligation to not use information for personal advantage

A practitioner may only use information received for their personal advantage, or the advantage of an associate, employee, employer (which may include the recognised professional association of the registered tax practitioner), or client, if:

• it is reasonable to conclude that the information received from the agency was authorised by the agency to be used in a way that may provide for such a personal advantage
• any further use of the information was done consistently with the agency’s authorisation.

The TPB is of the view that a personal advantage refers to interests that involve potential gain, financial or otherwise, for the practitioner. It may be direct or indirect. The mere possibility that the information has the potential to result in a personal advantage is enough to trigger the obligation.

In determining whether it is reasonable to conclude that the agency authorised such use of the information, the following factors may be relevant:

• the use of the information for the personal advantage of the practitioner (or others) was expressly authorised by the government agency; or
• the use of the information for the personal advantage of the practitioner (or others) was implied by the government agency.

Case studies

There are five case studies in relation to the confidentiality Code item, including the following: