Definitions in dob-in provisions ‘highly problematic’ for practitioners

Tax practitioners will need to form complex legal opinions on whether breaches fall within the definitions of significant breach under the new obligations and in some cases may need to seek legal advice, tax expert and education provider John Jeffreys has cautioned.

Jeffreys said the terms and definitions within the breach reporting obligations are vague and may require registered tax agents to have detailed knowledge of various legal jurisdictions.

The new obligations which apply from 1 July require registered tax practitioners to not only report their own breaches of the code of professional conduct but also breaches by other agents.

Tax or BAS agents are required to notify the Tax Practitioners Board if they have reasonable grounds to be believe that another tax or BAS agent has breached the Code of Professional Conduct and it is a significant breach of the Code

Jeffreys said the meaning of “significant breach of the Code” refers to a tax practitioners engaging in conduct that constitutes an indictable offence under Australian law of an offence involving dishonesty.

“The new legislation clearly requires tax practitioners to form a view about whether the acts of another practitioner may constitute an ‘indictable offence’. Particularly for non-lawyers, this is going to be a problematic aspect of the law,” he said.

“It calls for tax practitioners to form a legal opinion about which they are not qualified. It requires knowledge of all of the various legal jurisdictions in Australia and what those jurisdictions consider to be an indictable offence.”

The information sheet released by the Tax Practitioners Board states that determining whether a significant breach has occurred will depend on the criminal law in the various jurisdictions.

It also noted that the term ‘indictable offence’ is undefined for the purposes of TASA and will therefore vary between jurisdictions.

“With this being the case, what is the expectation of tax practitioners? Is it possible for a non-lawyer to have ‘reasonable grounds’ for believing that a person has engaged in a breach that constitutes an ‘indictable offence’ when the person doesn’t know what the term means?” Jeffreys questioned.

“I would have thought not. The term ‘reasonable’ means - in my view - that the position concluded is capable of having reasons advanced as to why the particular position was taken. If you have come to a view about an action without clearly knowing what the meaning of the action is, how can that be ‘reasonable’?”

Jeffreys said the courts may choose to take a more open view of the provision but this still leaves tax practitioners in an uncertain position now.

Tax practitioners may want to seek legal advice before they provide the breach notice to the TPB to ensure that the breach is actually a significant breach constituting an indictable offence.

The term ‘dishonesty’ is also unclear, he said, as what is considered a dishonest act by one person may not be considered to be so by another person.

“Another problematic part of the definition of ‘significant breach’ is whether the breach results, or is likely to result, in material loss or damage to another entity,” he said.

“I note that the loss can be to any entity, whether it is the taxpayer, their relatives, their associates, their shareholders and so forth. I conclude that this includes an indirect loss as well as a direct loss.”

The terms ‘loss’ and ‘damage’ and ‘material’ are not defined for the purposes of the law, he said.

The TPB refers to the Macquarie Dictionary to find definitions of the ordinary use of the terms.

“The TPB prefers a very wide definition of the terms ‘loss’ and ‘damage’. This could include financial and non-financial loss or damage. It could include loss of reputation or breach of privacy provisions,” he stated.

“The TPB also refers to adverse impacts on the health and wellbeing of clients as a result of the tax practitioner's conduct. No doubt loss would also extend to such things as penalties and interest charges.”

The types of terms and definitions that apply under these obligations are therefore “very problematic” he cautioned.

“What is ‘material’ to one person is immaterial to another. Should a loss to the ATO be compared with the total tax collections of the ATO or should it be some arbitrary dollar figure? Should the loss be compared to an individual’s probable net worth?” he said.

“If a loss is not material to one person, but there is a potential loss of the same amount to many people, will the amount, added together, be a material loss?

“There is no guidance on these questions except the vague discussions in the information sheet and the directive for tax practitioners to use their professional judgement