The Albanese Government has released its plans for what it calls the ‘biggest crackdown on tax adviser misconduct in Australian history’, to address tax adviser misconduct and perceived shortcomings in regulatory frameworks in the wake of the PwC tax leaks scandal.
The Government will introduce legislation later this year.
The proposed reforms focus on three priority areas:
The Government proposes to reform elements of the promoter penalty laws.
The promoter penalty laws — found in Div 290 of Schedule 1 to the TAA — provide that an entity must not engage in conduct that results in:
Exclusions and exceptions include:
To increase maximum penalties for advisers and firms who promote tax exploitation schemes from $7.8 million to over $780 million.
The ATO must apply to the Federal Court of Australia to impose a civil penalty. (The ATO may also consider various forms of corrective action.)
From 1 July 2023, a penalty unit is equal to $313 (previously $275 from 1 January to 30 June 2023).
Currently the maximum penalty is the greater of:
While the media release does not provide details of the proposed new penalty regime, it is clear that the number of penalty units imposed will increase 100-fold for a body corporate, which is $782,300,000 at the current penalty unit value (i.e. the ‘over $780 million’ per the media release). The announcement is silent as to how much — and whether — the maximum penalty for individuals will increase.
To expand their scope so they are easier for the ATO to apply to advisers and firms who promote tax avoidance.
An entity is a promoter of a tax exploitation scheme if:
An entity is not a promoter of a scheme merely because it provides advice about the scheme.
An employee is not taken to have had a substantial role in respect of the marketing or encouragement merely because they distributed information or material prepared by another entity.
It is currently unclear as to which elements will be amended to expand the scope of the promoter penalty regime.
To increase the time limit for the ATO to bring Federal Court proceedings on promoter penalties from four years to six years after the conduct occurred.
The Commissioner must apply to the Federal Court no later than four years after the entity last engaged in the relevant conduct. However, there is no time limit where the scheme involves tax evasion.
The below is a summary of the proposed reforms (what we know so far) compared to the current rules:
To remove limitations in the tax secrecy laws that were a barrier to regulators acting in response to PwC’s breach of confidence.
The tax law secrecy rules in Div 355 of Schedule 1 to the TAA provide that it is an offence for an ATO officer to disclose ‘protected information’. There are existing exceptions for certain disclosures made to a law enforcement agency, court or tribunal for the purposes of law enforcement.
To enable the ATO and Tax Practitioners Board (TPB) to refer ethical misconduct by advisers — including but not limited to confidentiality breaches — to professional associations for disciplinary action.
Where the TPB finds that a practitioner’s conduct breaches the Tax Agent Services Act 2009 (TASA), the TPB is required to notify any recognised professional association of which the practitioner is a member.
To protect whistleblowers when they provide the TPB with evidence of tax agent misconduct.
There are existing whistleblower protection laws for eligible disclosures under Part IVD of the TAA. To qualify for protection the disclosure must be made to an eligible recipient, which includes the ATO and certain entities associated with the entity the subject of the disclosure, but does not include the TPB.
To give the TPB more time — up to 24 months — to complete complex investigations.
The TPB has the power to investigate breaches of the Code of Professional Conduct (which is codified in the TASA) but it must make a decision about the outcome of an investigation within six months after the investigation commences.
To improve the TPB’s public register of practitioners, so that people have more transparency over agent and firm misconduct.
The register discloses any conditions of registration, period of and reasons for suspension, sanctions imposed, and date of and reason for termination. The TASA requires the TPB to maintain a register. Regulations prescribe the details disclosed.
Treasury will be co-ordinating a whole of Government response to the PwC matter and the systemic issues raised. This work will deliver options to Government progressively over the next two years.
Consultation on the following options will begin in the coming months:
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