Disqualified entities changes leaves tax agents ‘in the lurch’
Every tax practitioner must treat changes around disqualified entities with great importance and not dismiss them, John Jeffreys has warned.
The director of John Jeffreys Tax has flagged that new disqualified entity requirements under items 15 and 16 of the Code of Professional Conduct will impact every single tax practitioner without exception, and by extension, every person who works for the tax practitioner.
From 1 January this year, the expansion of the code under changes made by the government to the Tax Agent Services Act 2009 (TASA) through Treasury Laws Amendment (2023 Measures No. 1) Act 2023 prevents tax practitioners from employing or using a disqualified entity without approval from the Tax Practitioners’ Board (TPB) or entering into certain arrangements with a disqualified entity.
Ahead of his session on the new TASA obligations at the ACE24 Accounting Conference and Expo 2024, Jeffreys warned accountants that if they employ a disqualified entity, they are required to terminate that entity’s employment and summarily dismiss them.
“The TPB has said quite clearly that they will not advise tax agents on the employment law implications of doing that,” Jeffreys told Accountants Daily.
“This has left tax agents in the lurch because they are required to have these terms in their contracts that will require them to terminate the services of anybody who's become a disqualified entity. But what has not been said by anybody is what the employment law implications are of doing that. The TPB has told tax agents to get advice from a lawyer about this.”
He continued: “If you think about how many people are employed in tax agent firms and the practicalities of consulting a lawyer, it would involve taking advice from employment law firms over and over again.”
Furthermore, complying with changes around disqualified entities will consume more of a tax practitioner’s time, Jeffreys pointed out.
“This is because every employment contract that a tax practitioner has and any contract that is with another person that they had an arrangement with in providing their tax services has to change, according to the TPB,” he highlighted.
“It must include clauses that require the other party to report to a tax agent if they become a disqualified entity. It also must have clauses that enable the tax agent to terminate the services of the disqualified entity if they become disqualified. In the past, no one has ever had such clauses in their contracts.
“The TPB is openly and clearly saying that every one of those contracts have to be changed, although some transitional provisions apply. You can imagine that there's hundreds of thousands of these such contracts, that include employees as well.”
To comply with these requirements, tax practitioners must identify parties that require changes in their contracts, including employees and external advisers, Jeffreys suggested.
Secondly, tax practitioners would have to review every oral and written contract and implement changes to comply with the requirements.
“If you're employing or indeed engaging somebody, you now need those people to sign off that they are not a disqualified entity,” Jeffreys stressed.
“I have recommended to my clients who are all accountants in public practice that they have a checklist of all the items that make someone a disqualified entity and give that to the person and have them sign off that they are not one.”
Tax practitioners must also bear in mind the legislative instrument that puts the onus on them to “keep each other honest and ensure the technical competency of their people”, as these would also require changes in contracts.
“It means that whenever a tax practitioner is dealing with a client, they need to make sure that they are keeping full and proper records of the services that they are required to provide for five years,” Jeffreys said.
The additional work of compiling full file notes and cross-referencing the information will increase the burden on accountants, he added.
“That is going to mean without a doubt that accounting fees are going to rise for the business community,” Jeffreys said.
The final guidance from the TPB will be essential to clarify how these provisions would work in practice, he stated
“The sooner we see that final guidance, the better,” Jeffreys concluded.
To gain clarity from John Jeffreys on the important new changes in the TASA obligations, come along to the ACE24 Accounting Conference and Expo 2024.
It will be held on Thursday, 20 June 2024 at Hyatt Regency, Sydney.
Click here to buy tickets and don’t miss out!
For more information, including agenda and speakers, click here.
