TPB’s guidance lacking clarity on time frames for breach reporting
Determining the exact time at which a practitioner first ought to have reasonable grounds to believe a breach had occurred will be extremely difficult in practice, a law firm warns.
The draft information sheet issued by the Tax Practitioners Board back in April on the new breach reporting obligations fails to resolve a lot of the uncertainty around timing with the new reporting, according to Cooper Grace Ward Lawyers.
Draft Information Sheet (TPB(I) D53/2024) provides guidance on the obligations for practitioners ‘to report significant breaches’ of the Code of Professional Conduct (Code) in the TASA to the Tax Practitioners Board, either relating to their own conduct or of other practitioners.
Under the obligations, notification about a breach must be given within 30 days of the day on which the registered tax practitioners first has, or ought to have, reasonable grounds to believe that another tax practitioner has breached the code and that the breach was significant.
Speaking in a recent TaxLand podcast, CGW lawyers partner Fletch Heinemann said the difficult part about the TPB's information sheet is that it suggests that tax practitioners will know when that is because it will be whenever the practitioner became aware of the breach.
"It an extreme case that might be fine, but for those borderline cases it's going to be difficult," said Heinemann.
CGW Lawyers partner Sarah Lancaster said in cases where a practitioner has had to obtain additional documents or evidence to determine whether a significant breach had actually occurred, it may be difficult to identify at what exact point in time they had reasonable grounds to believe a breach had happened.
"I can see a situation where you've got some documents but then you've got to go and find extra documents and then you may then think 'something has gone awry here. Has someone breached the code?' But they may still not have enough information to have a reasonable belief that there's been a significant breach of the code," said Lancaster.
"Or they may be aware that it's a breach but are unsure whether it's a significant breach, so they have to ask for more documents.
"The question then becomes at what point in time ought you to have had reasonable grounds to believe there had been a breach of the code? Is it at the point you got the first set of documents, the second set of documents or the third tranche of documents?"
Heinemann said the practitioner who discovered the breach would not be reporting the breach until after they received that third set of documents when they were convinced it was a significant breach.
However, someone else looking at it may question why they didn't report the breach when they received the first set of documents, he warned.
The other potential timing trap with the obligations is whether certain breaches fall before or after the commencement date of the obligations, he said.
The TPB information sheet outlines that the obligations apply to breaches that have occurred on or after 1 July 2024.
"There's a question to dig deeper into here around at what point does the breach actually occur. If it's a competence question then does the breach occur at the time the tax return is lodged or at the point that the advice is given?" said Heinemann.
"That could potentially be on either side of that 1 July 2024 [start date]."
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