New requirements for tax agents to report ‘significant’ ethical breaches by other agents

On 16 November 2023 the House of Representatives agreed to the Senate amendments to the Treasury Laws Amendment (2023 Measures No. 1) Bill 2023. The Bill received Royal Assent on 27 November 2023. 

Schedule 3 to the Bill — in particular the Senate amendments — introduces significant changes to the Tax Agent Services Act 2009 (TASA) in relation to the regulation of tax agents.

One of the major changes introduced by the Senate is that — from 1 October 2024 — the leadership of tax practices with more than 100 employees will be ineligible to be appointed to the Tax Practitioners Board (the Board). This new law means that the leadership of mid-tier and large accounting and law firms cannot be appointed while they are in the leadership role or within six months of receiving benefits from the practice after their departure.

In addition the Senate amendments impose new mandatory notification requirements — from 1 July 2024 — for a registered agent who has committed a significant breach of the Code of Professional Conduct (the Code) or who becomes aware of a significant breach of the Code committed by another registered agent.

Leadership of large tax practices ineligible to be appointed to the Board

The amendments introduce new restrictions in relation to appointments to the Board.

A Board member must be a ‘community representative’

In appointing an individual as a Board member, the Minister must be satisfied that the individual is a community representative.

An individual is a community representative if they are not any of the following:

• a partner in a partnership that is a prescribed tax agent
• an executive officer of a company that is a prescribed tax agent
• a former partner in a partnership that is currently a prescribed tax agent, if the individual is receiving regular and ongoing benefits, or has within the last six months received a material benefit, from the partnership
• a former executive officer of a company that is currently a prescribed tax agent, if either:
  • the individual is receiving regular and ongoing benefits, or has within the last six months received a material benefit, from the company, or
  • the individual holds shares in the company

A prescribed tax agent is a company or partnership that is a registered tax agent or BAS agent and has more than 100 employees.

An executive officer of a company means a director, secretary or senior manager (within the meaning of the Corporations Act 2001) of the company.

Mandatory notifications of significant breaches of the Code

The Senate amendments also introduce new requirements into the Code of Professional Conduct (the Code) for mandatory notification of breaches of the Code. These requirements commence 1 July 2024.

Notifying clients of Board’s investigation findings

A registered agent will be required to provide written notification to all of their current clients about the findings of the Board’s investigation.

Notifying the Board of own significant breaches

The existing rules require registered agents to notify the Board of certain changes of circumstances relating to the registration of the individual registered agent, or a partner or director in the case of a partnership or company.

The Senate amendments now mandate reporting to the Board where the registered agent has reasonable grounds to believe that they have breached the Code, and the breach is a significant breach.

Notifying the Board of other agents’ significant breaches

Registered agents must notify the Board, in writing, if they have reasonable grounds to believe that another registered agent has breached the Code, and the breach is a significant breach.

If the registered agent is aware that the other agent is a member of a professional association accredited by the Board, the agent must also notify the professional association of the breach.

What is a significant breach of the Code?

A significant breach of the Code is defined as a breach which:

• constitutes an indictable offence, or an offence involving dishonesty, under an Australian law
• results, or is likely to result, in material loss or damage to another entity (including the Commonwealth)
• is otherwise significant, including taking into account any of the following:
  • the number or frequency of similar breaches by the agent
  • the impact of the breach on the agent’s ability to provide tax agent services
  • the extent to which the breach indicates that the agent’s arrangements to ensure compliance with the Code are inadequate, or
  • is of a kind prescribed by regulations.

At time of writing the Board has not provided any guidance in relation to what would constitute a significant breach of the Code.

Consequences of not complying with the new notification requirements

The new notification requirements form part of the Code in Div 30 of the TASA. The Senate amendments do not introduce new consequences for non-compliance with the Code (including the new notification rules).

Where the Board finds that a registered agent has failed to comply with the TASA it may impose one or more of the following administrative sanctions:

• a written caution
• an order requiring the tax practitioner to:
  • respond to requests and directions from the Board
  • complete a course of education or training
  • only provide certain services
  • provide services only under supervision
• suspension of registration for a certain period
• termination of registration.

Details of an administrative sanction (other than a written caution) are listed against the agent on the TPB Register.

(Note that civil penalties only apply to specific types of contraventions listed in the TASA, including providing services while unregistered, making a false or misleading statement to the Commissioner, employing or using the services of an entity whose registration has been terminated, or signing a declaration or statement that was prepared by an unregistered entity who was not working under the supervision or control of a registered agent.)

Other changes to the TASA

The other changes to the TASA contained in the Bill include amendments which:

• update and modernise the objects clause of the TASA — from the first day of the first quarter after Royal Assent
• create financial independence for the Board from the ATO by establishing a special account to enable a special appropriation to be made for the Board — from 1 July 2024
• require tax practitioners to not employ or use a disqualified entity with the Board’s approval, or enter an arrangement with a disqualified entity — from the first day of the first quarter after Royal Assent
• convert to an annual registration period and reducing the maximum time for the Board to determine the outcome of an application to four months — from 1 July 2024
• enable the Minister to supplement the existing Code — from the first day of the first quarter after Royal Assent.

Further guidance & CPD options

• Join us for our final Tax Update of the year (5 Dec 2023)
• Register for our upcoming Ethics presentation (7 Feb 2024)

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