TASA changes to ‘diminish regulatory regime’, joint bodies warn

Draft changes to the Code of Professional Conduct are difficult to understand and create unnecessary red tape, a raft of industry bodies have told the government.

The government released a draft determination in December which proposed adding a raft of additional obligations to the Code of Professional Conduct for tax professionals, as part of its response to the PwC matter.

Joint bodies including the major accounting bodies, The Tax Institute, the National Tax and Accountants Association and the SMSF Association said the proposed rules in the draft instrument may “diminish and weaken the current TASA regulatory regime”.

“They are mostly either prescriptive or vague, which makes them a poor framework for a code of conduct that was designed as a model of principles and ethics for tax practitioners to embody and implement in their practices, to regulate their conduct and how they operate and interact with clients and the tax system more broadly,” the joint bodies said in a recent submission.

A move away from a principles-based code to a partly prescriptive code is a risk to the breadth and generality of the existing code, according to the industry bodies.

“The obligations contained in the existing Code are generally underpinned by clear, broad, flexible, and actionable principles, and are supported by a framework that imposes sanctions on tax practitioners who do not meet their obligations,” the submission said.

“The Joint Bodies are of the view that any modifications or additions to the Code should reflect best practice regulation, embody clear, broad, flexible and actionable principles, and should be supported by detailed guidance in the draft ES. We consider that the draft instrument should be amended to ensure that it meets this standard.”

The submission identified a range of concerns in the drafting and interaction between the new and existing Code items that could “substantially impair the coherency of the Code overall”.

“These concerns include that there are duplications, incongruency and a level of prescription that ostensibly alters the Code from being one of broad principles (how to conduct yourself) to a detailed rule book of activities that must/must not be undertaken (what actions to take and by when, or what actions not to take),” it said.

“We also observe that the existing Code comprises primarily positive duties, whereas the new Code items are predominantly negative duties (prohibitions).

”The Joint bodies also warn that the highly prescriptive obligations in the draft determination would burden small and micro businesses, particularly where there are serious consequences flowing from breaches in the Code.

“We consider that amendments to the draft Instrument should be made to enable efficiencies and better balance the impact on tax practitioners to promote productivity,” the submission said.

The proposed obligation for tax practitioners to advise all prospective and current clients of any matters that may impact the client’s decision to use their services also requires redrafting, according to the joint bodies.

Subsection 45(a) proposes to require tax agents to inform clients and prospective clients of ‘any matter that could be reasonably relevant and material to a decision by a client to engage’ the tax practitioner to provide tax agent services.

The draft ES provides guidance on the types of information envisaged and includes, but is not limited to:

- A prior material breach of the TASA.

- A current or former investigation by the TPB.

- Any sanctions imposed by the TPB.

- Any conditions applying to registration.

- Any potential use of disqualified entities in relation to that client or a potential client.

The examples in the draft ES appear to primarily focus on matters related to the fitness of the adviser to be a tax practitioner, the submission noted.

“However, the drafting of subsection 45(a) has the potential to encompass a much broader range of matters, such as relevant experience, conflicts of interest, the provision of advice on similar commercial matters, or even personal matters, that may factor into a client’s decision to engage a tax practitioner,” it said.

“We are of the view that subsection 45(a) requires re-consideration. If the intention of this proposed obligation is to focus on matters relating to the fitness of the person as a tax practitioner, the subsection should be re-drafted to better reflect this intention.”

The joint bodies said extending the obligation to all prospective clients is also very broad.

“Extending the obligation to all ‘prospective clients’ is also very broad. While subsections 45(b) and (c) are constrained by the words ‘upon engaging/re-engaging’, subsection 45(a) is not so constrained,” the submission said.

“We query how a tax practitioner may comply with subsection 45(a) in terms of informing all persons who could fall within that concept. In theory, it could include any entity that is not a current client. The term is not defined.”