Q&A What

What actions can the tax Practitioners Board take if you fail to comply with the professional obligations imposed under the Code?

At the Tax Practitioners Board (TPB) we are working hard to enhance the integrity of the registered tax practitioner profession. One of the ways we’re doing this is by targeting the highest risk tax practitioners with our investigations and compliance programs. We believe that by doing this, we are also protecting the community and supporting those tax practitioners who continue to do the right thing.

We understand that the vast majority of tax practitioners are compliant – they comply with our Code of Professional Conduct (Code) and other legislative requirements. The Australian community has a high level of trust in its tax practitioners, which speaks volumes about the excellent work performed by the professionals in the industry. However, we also know there are a small group that don’t comply, and we classify them as high-risk. These are the ones we need to take firm action on to address their high-risk behaviour and to safeguard the integrity of the tax and super systems.

What is a high-risk tax practitioner?

A high-risk tax practitioner is a tax practitioner that is reckless in their work. They can be both the unknowing accomplice to illegal behaviour, or wilfully blind to their illegal conduct. They can be the facilitator, promoter or implementer of a fraudulent scheme or even an architect and participant in unethical or illegal arrangements. We’ve found that high-risk tax practitioners can also take advantage of jurisdictional differences and information gaps between agencies. They also have little regard for State, Federal and International borders.

Types of high-risk tax practitioners

High-risk tax practitioners may fall into two broad categories. Firstly, they can be registered tax practitioners that:

lodge incompetent, incorrect or false returns and statements for their clients
have a poor history or compliance with their own tax affairs
have allegations of fraudulent or criminal activities against them
promote aggressive tax schemes
don’t comply with their personal tax obligations.

The second category is unregistered providers. These are sometimes hard to identify as they cannot use traditional lodgement and software methods to provide services to the public. Some purport to represent the public while only lining their own pocket. They may not lodge any tax documents that can identify them or may use false details.

How do we identify high-risk tax practitioners?

We identify high-risk tax practitioners by several different ways, including:

complaints received from the public or other tax practitioners
media and public source information regarding disciplinary or criminal proceedings
civil disputes in tribunals or courts
assessments using data and analytics
referrals from other agencies.

Vulnerability of clients and the community

Once we identify these high-risk tax practitioners, we’ll assess and evaluate the risk they pose to the tax system. We also consider the potential vulnerability of the tax practitioners’ client-base, and the community at large, if the conduct were to continue. Essentially, we determine that the higher the harm caused, and the more prevalent or likely it may be, the higher the risk. The nature of higher risk behaviour sits at the top of a spectrum and it can be:

intentional or fraudulent
wilfully blind
recklessly indifferent
incompetent
accidental.

Consequences for failing to comply

There are a number of administrative or civil penalty provisions in the Tax Agent Services Act 2009 (TASA) relating to certain conduct of registered tax practitioners, and activities of those who are acting as unregistered providers.

If we find that a tax practitioner has failed to comply with the TASA, we may impose one or more administrative sanctions or seek a Court imposed civil penalty. The severity of a sanction depends on the nature and extent of the breach and the individual circumstances of each case. Tax practitioners have the right of review with the Administrative Appeals Tribunal (AAT). The AAT provides an independent review.

How to make a complaint

If you know of someone providing tax agent, BAS agent or tax (financial) advice services without being registered, report them to us by completing our simple online form. All reports will be treated in the strictest confidence.

Further information

Last modified: 27 November 2020

This Explanatory Paper is also available as a PDF, download TPB(EP) 01/2010 Code of Professional Conduct (PDF, 505 KB)

Contents

Purpose of explanatory paper

Professional conduct of registered tax practitioners

What is the Code of Professional Conduct?

Who does the Code apply to?

What are the principles of the Code?

(1) You must act honestly and with integrity

(2) You must comply with the taxation laws in the conduct of your personal affairs

(3) You must account for money or other property you receive on trust from or on behalf of your clients

(4) You must act lawfully in the best interests of your client

(5) You must have in place adequate arrangements for the management of conflicts of interest that may arise in relation to the activities you undertake in the capacity of a registered tax agent, BAS agent or tax (financial) adviser

(6) Unless you have a legal duty to do so, you must not disclose any information relating to a client’s affairs to a third party

(7) You must ensure that a tax agent service provided on your behalf is provided competently

(8) You must maintain knowledge and skills relevant to the tax agent services you provide

(9) You must take reasonable care in ascertaining a client’s state of affairs, to the extent that ascertaining the state of those affairs is relevant to a statement you are making or a thing you are doing on behalf of a client

(10) You must take reasonable care to ensure that taxation laws are applied correctly to the circumstances in relation to which you are providing advice to a client

(11) You must not knowingly obstruct the proper administration of the taxation laws

(12) You must advise your client of the client’s rights and obligations under the taxation laws that are materially related to the tax agent services you provide

(13) You must maintain the professional indemnity insurance that the Board requires you to maintain

(14) You must respond to requests and directions from the Board in a timely, responsible and reasonable manner

What are the consequences if a registered tax practitioner fails to comply with the Code?

Appendix 1 – Case examples

This is a Tax Practitioners Board (TPB) Explanatory Paper (TPB(EP)). It is intended as information only. It provides a detailed explanation of the TPB’s interpretation of the Code of Professional Conduct (Code) contained in Division 30 of the Tax Agent Services Act 2009 (TASA), translating the provisions into practical principles that can be applied by the profession.

This TPB(EP) is designed to assist registered tax practitioners, the relevant institutions, professional associations, potential registrants and the wider community to understand the factors that provide the basis for the TPB’s approach to the application of the TASA.

The principles, explanations and examples in this TPB(EP) do not constitute legal advice and do not create additional legal obligations beyond those that are contained in the TASA.

Document history

The TPB released this TPB(EP) in the form of an information sheet as an exposure draft on 7 April 2010. The TPB invited comments and submissions in relation to the information contained in it. The closing date for submissions was 6 June 2010. The TPB considered the submissions made and published the TPB(EP).

On 13 July 2017 the TPB updated this TPB(EP) to incorporate a reference to tax (financial) advisers, and to update currency and clarity.

On 18 October 2021 the TPB updated this TPB(EP) to include an additional factor that may be considered in determining if a tax practitioner has complied with taxation laws in the conduct of their personal affairs.

On 1 April 2022 the TPB updated this TPB(EP) to remove references to tax (financial) advisers and replace references from the repealed Tax Agent Services Regulations 2009 to Tax Agent Services Regulations 2022.

Issued: 16 December 2010

Last modified: 1 April 2022

Purpose of explanatory paper

This Tax Practitioners Board (TPB) explanatory paper (TPB(EP)) is designed to provide assistance and explanation of general principles and matters relating to the Code of Professional Conduct (Code) that may be relevant to the professional practice of registered tax agents and registered BAS agents (collectively known as 'registered tax practitioners'). The TPB(EP) will also be relevant to the TPB’s powers to take certain actions under the Tax Agent Services Act 2009 (TASA).
The object of the TASA is to ensure that tax agent services (which, unless otherwise stated in this paper, includes BAS services and tax (financial) advice services) are provided to the public in accordance with appropriate standards of professional and ethical conduct. The Code was created to assist in achieving this objective.
The Code is legislated and sets out the professional and ethical standards that registered tax practitioners are required to comply with. It outlines the duties that registered tax practitioners owe to their clients, the TPB and other registered tax practitioners.
This TPB(EP) however, does not have the force of law and provides information and interpretative guidance only. Therefore, it is not intended to determine or exhaust the positions or actions the TPB may take in particular cases. Rather, this TPB(EP) provides a decision making tool that the TPB may refer to when considering Code matters. It is also intended to assist registered tax practitioners in providing tax agent services.
This TPB(EP) provides the TPB’s view in relation to the meaning of the Code provisions. This TPB(EP) does not create additional legal obligations beyond those which are contained in the TASA. In particular, a finding by the TPB that a registered tax practitioner has breached the Code does not itself give rise to a civil action against a registered tax practitioner by their client. Whether or not such an action arises is a matter for the client to determine in accordance with the general law.
In applying the Code to particular circumstances, the TPB has an obligation to ensure that its decisions are soundly based and do not constitute an improper use of the TPB’s powers under the TASA. This obligation generally requires the TPB to observe the rules of natural justice when making a decision, ensure that there is enough evidence or other material to justify a decision, exercise its power having regard to any relevant considerations and have regard to the individual merits of a particular case when exercising a discretionary power. In addition, the TPB must exercise its powers in a manner that is not unreasonable.
The principles outlined and the case examples contained in this TPB(EP) provide examples of how the concepts relevant to the principles of the Code have been applied in different contexts. The cases are intended to act as a guide to the meaning and application of the principles in the Code.
Registered tax practitioners that are members of professional bodies may have professional and ethical obligations imposed on them as members of those bodies.[1] While other codes may present similar duties and requirements, the duties created by the TASA are, where applicable, required to be complied with in addition to these other obligations.

Professional conduct of registered tax practitioners

The term ‘professional conduct’ refers to the way in which registered tax practitioners act while in their professional capacity. When providing services, it is expected that registered tax practitioners will display an appropriate, professional standard of behaviour beyond that which is expected of someone who is not acting in a professional capacity.
The TPB has a range of options available to it under the TASA in making findings about the conduct of registered tax practitioners. The options open to the TPB include:
- imposing sanctions for breach of the Code
- applying for a civil penalty for breach of the civil penalty provisions
- terminating a registered tax practitioner’s registration on the basis that the registered tax practitioner is no longer a fit and proper person to be a registered tax practitioner.

Code of conduct provisions

The provisions of the Code are contained in section 30-10 of the TASA.
The Code establishes a set of ethical and professional standards to be observed by registered tax practitioners.
The TPBmay commence an investigation to determine whether there has, in fact, been a breach of the Code.[2] If the TPB is satisfied, following an investigation, that there has been a breach of the Code, it may apply one or more of the sanctions set out in section 30-15 of the TASA.
For further details of the administrative sanctions that may be applied for a breach of the Code, refer to the section of this TPB(EP) titled ‘What are the consequences if a registered tax practitioner fails to comply with the Code?’

Civil penalty provisions

A civil penalty is a pecuniary penalty that is imposed by a court exercising civil rather than criminal jurisdiction. State and Commonwealth government bodies can apply to the courts to have a pecuniary penalty imposed against an individual for breaching a civil penalty provision in some circumstances. Unlike criminal penalties, civil penalties do not include criminal convictions or imprisonment.
While the Code applies only to registered tax practitioners, the civil penalty provisions apply to unregistered persons or entities in addition to registered tax practitioners.[3]
If there is a breach of any of these civil penalty provisions, the TPB has the option of applying to the Federal Court of Australia (Federal Court) for a civil penalty order against the tax practitioner.[4]
The TPB also has the option of applying to the Federal Court for an injunction. An injunction is a court order that requires a person to do, or refrain from doing, something. If a tax practitioner fails to comply with the terms of an injunction as specified in the court order, the practitioner may be guilty of contempt of court.
The TPB may apply for an injunction as an alternative to seeking a civil penalty (in the case of a permanent injunction) or in combination with a civil penalty application (in the case of an interim injunction). An interim injunction will generally remain operative until the Federal Court makes its final determination.

Termination of registration

The TPB may terminate the registration of a tax practitioner if the TPB is satisfied that the tax practitioner no longer meets the ‘fit and proper person’ requirement for registration.
In determining whether a registered tax practitioner is a fit and proper person, the TPB can examine the tax practitioner’s previous conduct. The TPB may consider actions or omissions that occurred prior to the commencement of the TASA on 1 March 2010.

Application of the TASA

Some conduct by a registered tax practitioner that is covered by the civil penalty provisions could equally constitute a breach of the Code. Examples of this conduct may include:
- signing false declarations
- making false or misleading statements
- employing or using the services of a de-registered entity.

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What is the Code of Professional Conduct?

Section 30-10 of the TASA establishes the legislated Code for registered tax practitioners. The Code sets out the professional and ethical standards required of registered tax practitioners. This section also outlines the duties that registered tax practitioners owe their clients, the TPB and other registered tax practitioners.
The Code consists of a list of core principles which are grouped into five categories:
- Honesty and integrity
- Independence
- Confidentiality
- Competence
- Other responsibilities.

Who does the Code apply to?

The Code applies to all registered tax practitioners.

What are the principles of the Code?

Section 30-10 of the TASA contains the Code consisting of the following 14 principles:

Honesty and integrity

(1) You must act honestly and with integrity.

(2) You must comply with the taxation laws in the conduct of your personal affairs.

(3) If:

(a) you receive money or other property from or on behalf of a client, and

(b) you hold the money or other property on trust;

you must account to your client for the money or other property.

Independence

(4) You must act lawfully in the best interests of your client.

(5) You must have in place adequate arrangements for the management of conflicts of interest that may arise in relation to the activities that you undertake in the capacity of a registered tax agent or BAS agent.

Confidentiality

(6) Unless you have a legal duty to do so, you must not disclose any information relating to a client’s affairs to a third party without your client’s permission.

Competence

(7) You must ensure that a tax agent service that you provide, or that is provided on your behalf, is provided competently.

(8) You must maintain knowledge and skills relevant to the tax agent services that you provide.

(9) You must take reasonable care in ascertaining a client’s state of affairs, to the extent that ascertaining the state of those affairs is relevant to a statement you are making or a thing you are doing on behalf of a client.

(10) You must take reasonable care to ensure that taxation laws are applied correctly to the circumstances in relation to which you are providing advice to a client.

Other responsibilities

(11) You must not knowingly obstruct the proper administration of the taxation laws.

(12) You must advise your client of the client’s rights and obligations under the taxation laws that are materially related to the tax agent services you provide.

(13) You must maintain professional indemnity insurance that meets the Board's requirements.

(14) You must respond to requests and directions from the Board in a timely, responsible and reasonable manner.

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(1) You must act honestly and with integrity

What is ‘acting honestly and with integrity’?

Honesty and integrity are terms which have their ordinary meanings.
The Macquarie Dictionary[5] defines each of the terms as follows:

Honesty

1. the quality or fact of being honest; uprightness, probity or integrity

2. truthfulness, sincerity or frankness

3. freedom from deceit or fraud

Integrity

soundness of moral principle and character; uprightness, honesty

The principles of honesty and integrity impose an obligation on a person to ensure:
- straightforwardness
- fair dealing
- a commitment not to mislead or deceive
- truthfulness.[6]

The terms 'honesty' and 'integrity' are not defined in the TASA. Guidance can therefore be obtained from decisions of the courts. The following considerations have been used by the courts in determining when a person is acting with honesty and integrity:
- has the erson acted with good morals and without depravity?[7]
- has the person acted properly and without deceit?[8]
- has the person acted without intent to gain an improper benefit or advantage for himself, herself or for another?[9]
- has the person acted with such carelessness as to demonstrate that no genuine attempt has been made to carry out the duties and obligations imposed on him or her by law?[10]
- is the person of such integrity that others may entrust their taxation affairs to that person’s care?[11]
- is the person of such reputation and ability that officers of the ATO may assume that taxation returns lodged by the registered tax agent have been prepared by the agent honestly?[12]
- has the person, through their behaviour, displayed an inadequate sense of their obligations as a registered tax practitioner and/or an evident reluctance to ascertain and comply with those obligations?[13]
- has the person failed to make full disclosure of a matter in circumstances where that matter is relevant in assessing the suitability of that person to be registered, such as in the case of registered tax practitioners or legal practitioners?[14]
- does the person have a sufficient understanding of what is right and what is wrong so that they can be relied on to carry out their role or function as a registered tax practitioner?[15]
- making a false representation has also been held to be inconsistent with the integrity required for registration as a registered tax practitioner[16]
- accessing a taxpayer's personal taxation information on the Tax Agent Portal without authority has been held to breach the requirement of the Code to act honestly and with integrity[17]
- engaging in rude, inappropriate and uncooperative behaviour toward ATO officers has been held to breach the requirement of the Code to act honestly and with integrity[18]
- failing to notify regulatory authorities, such as the ATO and the TPB, of fraudulent activity that a registered tax practitioner was aware of and that posed a risk to taxpayers and the integrity of the taxation system has been held to be inconsistent with the integrity required for registration as a registered tax practitioner.[19]

(2) You must comply with the taxation laws in the conduct of your personal affairs

What does ‘taxation laws’ mean?

The term ‘taxation law’ under the Code means:

(a) ‘any Act of which the Commissioner of Taxation has the general administration (including any part of an Act to the extent to which the Commissioner has the general administration of the Act);

(b) any regulations under the Acts in paragraph (a) above, and

(c) the Tax Agent Services Act 2009 and the regulations made under that Act.'[20]

The Commissioner of Taxation is responsible for the administration of a number of Acts and regulations concerning, among other things:
- income tax
- indirect taxes (including GST, luxury car tax, wine equalisation tax)
- superannuation
- the Medicare levy
- fringe benefits tax
- franking tax
- withholding taxes
- petroleum resource rent tax
- the administration or collection of the above taxes.

What does ‘personal affairs’ mean?

The term ‘personal affairs’ refers to a registered tax practitioner's personal taxation obligations, including timely lodgement of personal income tax returns and activity statements, payment of superannuation guarantee contributions and PAYG withholding and instalment payments.[21]
In the case of a company or partnership registered tax practitioner, the taxation obligations of the company or partnership mean the personal affairs of the company or partnership registered tax practitioner.
‘Personal affairs’ also includes the affairs of the registered tax practitioner's practice, for example, the registered tax practitioner's duties and obligations with regard to maintaining registered tax practitioner registration.[22]
In particular, a partnership or company registered tax practitioner must ensure that at all times there is a sufficient number of individuals - being registered tax agents (in the case of a tax agent), or registered tax agents or BAS agents (in the case of a BAS agent) - to provide tax agent services (including BAS services and tax (financial) advice services) to a competent standard and to carry out supervisory arrangements.
In other words, the registered tax practitioner must have enough registered individuals to:
- ensure services are provided competently
- exercise supervision over the services provided.

When is a registered tax practitioner complying with the taxation laws, in the conduct of their personal affairs?

Some of the factors that may be considered in deciding whether a registered tax practitioner has complied with the taxation laws in their personal affairs are:
- whether the registered tax practitioner has properly complied with their personal taxation obligations, including the timely lodgement of the practitioner's personal income tax returns and activity statements[23]
- whether the registered tax practitioner has properly complied with the taxation obligations of the registered tax practitioner practice.[24]This requires that the practitioner ensures timely performance of the practitioner's obligations concerning the maintenance of a tax agent or BAS agent registration and communications with the TPB
- whether the registered tax practitioner has taken reasonable care in interpreting the law as it applies to their personal tax affairs[25]
- other particular facts and circumstances of the matter, including the tax practitioner's role or involvement in the entity.[26]

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(3) You must account for money or other property you receive on trust from or on behalf of your clients

What does ‘account’ mean?

The Macquarie Dictionary[27] defines ‘account’ in this context, as follows:
‘Account

…

14. To render an account, especially of money

17. Account for, a. to give an explanation of…’

Under what circumstances will a registered tax practitioner hold money, received from or on behalf of a client, ‘on trust’?

Where money or other property has been received by a registered tax practitioner from a client, in circumstances that indicate the money or other property was to be held on behalf of the client and/or applied for some specific purpose and in accordance with certain terms, that money or other property may be held on trust for the benefit of the client.[28]
Examples of money received on trust may include, but are not limited to, the following:
- subject to the terms of a retainer, money held or received in advance by the registered tax practitioner for the purpose of settling or meeting liabilities
- client tax refunds
- money paid to the registered tax practitioner for the purpose of seeking specialist advice.

What is a registered tax practitioner required to do to account for money received from or on behalf of a client on trust?

To comply with this requirement of the Code, a registered tax practitioner is required to keep money or other property which the registered tax practitioner holds on trust for the client separate from the registered tax practitioner's personal money or other property.
There is no Australia-wide scheme of legislation requiring registered tax practitioners to hold separate trust accounts. Some professional bodies have promulgated rules about how members are to deal with client funds but these are not industry-wide.[29]
The TPB notes that the trust accounting arrangements, outlined in the Code of Ethics for Professional Accountants, while not binding on all registered tax practitioners, may provide some guidance on adequate arrangements that could be adopted. Measures that the registered tax practitioner must adopt to ensure compliance with the Code include, but are not limited to:
- keeping money and other property held on trust separate from the registered tax practitioner’s personal or business assets
- only applying the money or other property the registered tax practitioner holds on trust to the purpose for which it was intended and for which the registered tax practitioner has authority to do so
- maintaining records of account such that the registered tax practitioner can account to entitled persons, on demand, for any money or other property held on trust
- complying with all laws and regulations relating to the custody and accounting for such assets, and/ or
- only disbursing money or other property held on trust in accordance with express client instructions or as required by operation of law.[30]

(4) You must act lawfully in the best interests of your client

What does acting ‘in the best interests of your clients’ mean?

Acting ‘in the best interests of your client’ has been held to mean acting in a representative character in the exercise of the registered tax practitioner's responsibility to the client.[31] This requires a registered tax practitioner to advance and protect their client’s interests to the best of their ability, in all circumstances.
An act or omission by a registered tax practitioner which is inconsistent with the obligation imposed by the Code will be in breach of this provision of the Code.
This duty is similar to the fiduciary duties owed by other professional advisors to clients, and is necessarily limited or circumscribed by the scope of the engagement between the registered tax practitioner and the client.[32]
While the Code does not create a fiduciary duty between a registered tax practitioner and their client, in considering the meaning of ‘acting in the best interests of your client’, the TPB considers that the nature of the duty between a registered tax practitioner and their client is similar to that between lawyers and their clients, or other professional services providers and their clients and therefore the interpretation of these duties will provide an indication of how this obligation should be applied in the context of registered tax practitioners.
Given this, the following discussion of fiduciary duties should not be interpreted as meaning that the Code creates such a duty but rather the nature of these duties and what has been considered breaches of the duties will guide the TPB in determining whether a registered tax practitioner has breached this Code obligation.
Fiduciary duties generally require a person to act in good faith for the benefit of another and to avoid situations where their personal interests conflict with that duty.[33]
Some relationships are automatically considered to be a ‘fiduciary relationship’, for example the relationship between a solicitor and their client. The relationship between a registered tax practitioner and their client is not one of these relationships. However, despite this, registered tax practitioners are required by the Code to act in the best interest of the client.
The nature of the relationship between a client and their registered tax practitioner will be determined by reference to the circumstances of the case, the circumstances of the relationship, the terms of the engagement and the position of the client.
The relationship between a registered tax practitioner and client is not wholly contained within the contract between the registered tax practitioner and the client. This is because the Code creates positive obligations that registered tax practitioners must comply with in providing tax agent services to their clients. Therefore the duties owed by the registered tax practitioner to the client are not wholly contractual.
Characteristics of the relationship between a registered tax practitioner and their client that may be relevant to determining the scope of the duty include:
- the existence of ‘a relationship of confidence’[34] and the duty to maintain client confidence (principle 6 of the Code)[35]
- an undertaking by the registered tax practitioner to perform a task or fulfil a duty in the interests of the client[36]
- dependency or vulnerability on the part of the client that causes them to rely on the registered tax practitioner for the taxation services provided by that registered tax practitioner[37]
- a reasonable expectation that the registered tax practitioner will act in the client’s best interests.[38] While this duty may already exist under the common law, it also arises under a provision of the Code
- the objectives of the TASA[39], which are to ensure that tax agent services (including BAS services and tax (financial) advice services) are provided to the public in accordance with appropriate standards of professional and ethical conduct, and the Code prescribed under the TASA to achieve this purpose.[40]
This duty is designed to prevent registered tax practitioners from being influenced by personal and other interests when acting for clients and to prevent a registered tax practitioner from actually misusing the registered tax practitioner's position for the registered tax practitioner’s personal advantage.[41]
The extent of the duty owed by the registered tax practitioner to the client is determined from the character of the relationship between the registered tax practitioner and the client.
The duty can be determined from the circumstances of the engagement, for example by a letter of engagement, report, advice or other communication between the registered tax practitioner and the client, the duties imposed by the TASA and any relevant course of conduct between the registered tax practitioner and the client.[42]
These duties impose the following obligations on the registered tax practitioners who owe them:
- a duty not to promote the registered tax practitioner's personal interest by making or pursuing a gain in circumstances in which there is a conflict or a real and substantial possibility of a conflict between the registered tax practitioner's personal interests and those of the persons whom the registered tax practitioner is bound to protect[43]
- a duty not to use the registered tax practitioner's position to make a personal profit or gain unless authorised to do so by the registered tax practitioner's client and to account to the client for any such unauthorised profit or gain.[44] Accounting for any unauthorised gain will not operate as an excuse for the initial breach that gave rise to the gain.

What does acting ‘lawfully’ in the best interests of your client mean?

Acting ‘lawfully’ in the best interests of a client requires a registered tax practitioner to act in a client's best interest but only to the extent that their actions are consistent with the law. That is, ‘acting in the best interests of clients’, is not a justification for a registered tax practitioner to contravene or disregard the law.[45]

Example

Michael works in the hospitality industry. He engages Rahul, a registered tax agent, to prepare and lodge his income tax return. He instructs Rahul to claim a deduction for work clothing for the black trousers he is required to wear. Although Michael might believe it is in his best interest to reduce his taxable income, Rahul is aware that Michael cannot claim the cost of his work clothing as an allowable deduction because the trousers are not protective or specific to his occupation. Rahul advises Michael accordingly and must not act in accordance with Michael’s instruction.[46]

When acting for, or on behalf of, a client, the registered tax practitioner must only act where they are authorised to do so, and only if their actions are in accordance with or are sanctioned by the law.
There may also be examples of where the law overrides the duty of a registered tax practitioner to their client. For example, providing information or documents to the ATO following a notice pursuant to section 353-10 in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953).[47] Another example may include providing information pursuant to a court order.

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(5) You must have in place adequate arrangements for the management of conflicts of interest that may arise in relation to the activities that you undertake in the capacity of a registered tax agent or BAS agent

When will a conflict of interest arise?

Registered tax practitioners must ensure adequate arrangements are in place to manage any conflicts of interest that may arise, wholly or partially, in relation to the provision of tax agent services.[48]
Essentially a conflict of interest will arise where the registered tax practitioner has a personal interest or has a duty to another person which is in conflict with the duty owed to a client. A conflict of interest may be an actual or perceived conflict and can arise before the registered tax practitioner accepts an engagement or at any time during the engagement.
A perceived conflict arises where there is a perception, by others, that the service or benefit will not be provided fairly or impartially. Registered tax practitioners have a duty to manage both actual and perceived conflicts of interests.
Examples of where a conflict of interest can arise include, but are not limited to:
- where the registered tax practitioner acts for both clients in a matter e.g. a husband and wife experiencing matrimonial issues. This may be both an actual conflict, in that the interests of each client conflict, and/or a perceived conflict, in that one of the clients believes that the registered tax practitioner is not providing, or may not provide, services fairly or impartially to him or her
- where a registered tax practitioner's personal interest is involved, e.g. where a registered tax practitioner is providing taxation advice in relation to the treatment of a particular transaction and the registered tax practitioner will or may benefit from the transaction occurring or not occurring
- where a registered tax practitioner acts against a client, or a former client, having previously acted for that client in a related matter.

What are ‘adequate arrangements for the management of conflicts of interest’?

Whether a registered tax practitioner's conflict management arrangements are sufficient will be a question of fact having regard to the particular circumstances of the matter in question, including:[49]
- the nature, scale and complexity of the registered tax practitioner's business
- the nature of the services provided by the registered tax practitioner
- any information the registered tax practitioner obtains that is relevant to the actual or potential conflict of interest.[50]
In addition to generally anticipating potential conflict situations before they arise, three mechanisms that registered tax practitioners may use to manage conflicts of interest are:
- controlling conflicts of interest
- avoiding conflicts of interest
- disclosing conflicts of interest.
Further, where a conflict arises or is likely to arise before an engagement commences or tax agent services are provided, the registered tax practitioner will need to determine the appropriate course of action to deal with the conflict before the engagement commences.
Whilst many conflicts of interest can be managed by a combination of internal controls and disclosures, some conflicts cannot be managed in these ways and in such cases the registered tax practitioner should avoid the conflict or refrain from providing tax agent services (including BAS services or tax (financial) advice services) in those circumstances.

Controlling conflicts of interest

To control conflicts of interest, a registered tax practitioner should:
- identify the conflicts of interest relating to the registered tax practitioner's practice
- assess and evaluate those conflicts
- decide upon, and implement, an appropriate response to those conflicts.[51]

Avoiding conflicts of interest

In some circumstances, regardless of the arrangements put in place, the registered tax practitioner will not be able to adequately manage the conflict of interest and therefore should not perform the services for the client.[52]
Again, the registered tax practitioner should have regard to the factors listed above concerning the adequacy of conflict management arrangements in determining whether, in all the circumstances, the registered tax practitioner will be able to manage the conflict.

Disclosing conflicts of interest

Disclosure about conflicts of interest should:
- be timely, obvious, specific and meaningful to the client
- occur before or when the tax agent service is provided, but in any case, at a time that allows the client a reasonable time to assess its effect
- refer to the specific service to which the conflict relates.[53]
Examples of adequate and effective conflict management arrangements may include, but are not limited to, the following:
- continuous disclosure of any conflicts
- informed written consent of the client(s) involved in the conflict of interest, specifically authorising disclosure of the conflict of interest to the other parties involved in the conflict. This may be in the form of a signed waiver or other authorisation
- maintenance of appropriate records and documentation detailing the conflict management policies and procedures of a registered tax practitioner and recording what action has been taken in relation to any conflicts of interest
- maintaining ‘ethical walls’ – a form of physical and intellectual separation between the management of the affairs of the clients involved in an actual or potential conflict of interest. This may include:
  - the physical separation of various departments in order to insulate them from each other
  - having an ongoing educational program to emphasise the importance of not improperly or inadvertently breaching duties to a client
  - having strict and carefully defined procedures for dealing with situations where it is considered that action may need to be taken to avoid a risk of a breach of duty, in addition to the maintenance of proper records when this action is taken
  - monitoring of compliance with the procedures
  - enforcing disciplinary sanctions where there has been a breach of any internal procedures.[54]
For such measures to be effectively implemented, these should be established as a systemic part of the registered tax practitioner's practice in relation to situations giving rise to potential conflicts of interest.[55]
Further guidance in relation to the application of this Code item to tax practitioners is provided in TPB(I) 19/2014 Code of Professional Conduct - Managing conflicts of interest.

(6) Unless you have a legal duty to do so, you must not disclose any information relating to a client’s affairs to a third party

Code item 6 provides that, unless there is a legal duty to do so, registered tax practitioners must not disclose any information relating to a client’s affairs to a third party without the client's permission.
In the absence of client authorisation or a legal duty to disclose, any disclosure of information relating to the affairs of a client will be a breach of this provision of the Code.
This includes allowing clients to view or have access to documents containing information relating to the affairs of other clients in circumstances where the other clients had not authorised the disclosure of their information.[56]
This would also include disclosure of client information to an offshore entity engaged by a registered tax practitioner to provide certain services to the registered tax practitioner. Where relevant information is to be disclosed to offshore or onshore entities by a registered tax practitioner, a registered tax practitioner should obtain client permission, such as in a letter of engagement, report, advice or other communication with the client.
Any unauthorised disclosure of client information held by the registered tax practitioner may result in an administrative sanction under the TASA.[57]
In addition to this principle, the Privacy Act 1988 sets out a number of Australian Privacy Principles (APPs) which govern the collection, use, storage and disclosure of personal information and other conduct by organisations. The Privacy Act 1988 requires that organisations which are subject to the APPs, observe these standards.
Registered tax practitioners should seek their own advice about whether the provisions of the Privacy Act 1988 apply to them. Whether or not a registered tax practitioner is legally required to comply with the APPs, they should be regarded as a benchmark for good information handling procedures that may be appropriately adapted depending on the particular circumstances of the registered tax practitioner.

What is ‘information relating to a client’s affairs’?

The phrase ‘information relating to a client’s affairs’ is not defined in the TASA. Therefore, this phrase should be interpreted consistently with the ordinary meanings of the words contained in the phrase.
The Macquarie Dictionary[58] provides the following definitions in relation to this phrase:

‘Relate…

3. to have reference (to)

4. to have some relation (to)

Affair

1. Anything done or to be done; that which requires action or effort; business; concern

2. (plural) matters of interest or concern; particular doings or interest;

…

4. thing, matter

5. a private or personal concern; a special function, business or duty’

In this context, the phrase ‘information relating to a client’s affairs’ means information in ‘relation, connection, reference or regard’ to the ‘activities, business or concerns’ of the registered tax practitioner's client.[59]
The terms of this provision of the Code do not require that the information relating to the client’s affairs actually be provided to the registered tax practitioner by the client themselves.
To be protected under this principle, it is only necessary that the information relates to the affairs of a client.[60]
When employment changes or a new client is engaged, the registered tax practitioner is entitled to use prior professional experience to assist a client. However, the registered tax practitioner should not use or disclose any confidential information either acquired or received as a result of a professional or business relationship.[61] The registered tax practitioner's duty not to disclose any information relating to a client’s affairs continues beyond the term of the engagement with the client.[62]

What is the meaning of ‘third party’?

A ‘third party’ is any person other than the client to whom the information relates.[63]
A third party may be situated within or outside the firm or organisation that employs the registered tax practitioner.
Further, in relation to a tax agent registered to provide tax (financial) advice services who is an authorised representative of Australian financial services (AFS) licensee, a third party includes the AFS licensee, and vice versa. However, the following is also recognised:
- in the context of an AFS licensee/authorised representative relationship, it is understood that authorised representatives (who are registered tax practitioners) often use ‘fact finds’ other documents to obtain consent from clients and therefore facilitate the flow of client information to the AFS licensee from the authorised representative
- an authorised representative of an AFS licensee is required to provide information to the AFS licensee pursuant to s912G of the Corporations Act 2001 (Corporations Act)[64] if requested, provided the request is made:
  - in connection with the obligations imposed on the AFS licensee under Chapter 7 of the Corporations Act
  - within 7 years after the day on which the personal advice was provided to the client.

Under what circumstances can a registered tax practitoner disclose information relating to a client's affairs?

A registered tax practitioner may disclose information relating to a client's affairs to a third party, only if:
- disclosure is authorised by the client, or
- there is a legal duty to disclose.[65]
Examples of where there is a legal duty to disclose information relating to a client’s affairs include:
- providing information to the TPB under a notice issued pursuant to section 60-100 of the TASA
- providing information to a court or Administrative Appeals Tribunal (AAT) pursuant to a direction, order, or other court process, to provide that information
- providing information or documents to the ATO pursuant to section 353-10 in Schedule 1 to the Taxation Administration Act 1953 concerning taxation laws. This requirement is subject to that material being properly withheld under legal professional privilege
- providing information to AUSTRAC to meet reporting obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006
- if you are an authorised representative of an AFS licensee - providing information to the AFS licensee pursuant to s912G of the Corporations Act.[66]
Further guidance in relation to the application of this Code item to tax practitioners is provided in TPB(I) 21/2014 Code of Professional Conduct - Confidentiality of client information.

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(7) You must ensure that a tax agent service provided on your behalf is provided competently

What does ‘competently’ mean?

A registered tax practitioner should be a person of such competence and integrity that others may entrust their taxation affairs to the registered tax practitioner’s care. The registered tax practitioner should be a person of such reputation and ability that the Commissioner of Taxation may assume that the taxation returns or other documents lodged by the registered tax practitioner have been prepared honestly and competently.[67]
The Macquarie Dictionary[68] provides the following definition of 'competent':

‘Competent

1. properly qualified; capable;

2. fitting, suitable, or sufficient for the purpose; adequate’

Competence, with respect to registered tax practitioners, can therefore be defined as a state of being capable, fitting, suitable or sufficient to provide a tax agent service (including a BAS service or tax (financial) advice service).
A registered tax practitioner will be competent if the registered tax practitioner possesses such skill, ability and knowledge required to perform a tax agent service that clients may entrust their taxation affairs to the registered tax practitioner's care and officers of the ATO may rely upon client returns or other documents prepared by the registered tax practitioner.[69]
The maintenance of competence by a registered tax practitioner requires a continuing awareness and understanding of technical, legal and business developments relevant to the tax agent services provided by the registered tax practitioner.[70]
The assurance of competence by a registered tax practitioner, in the provision of a tax agent service, requires the registered tax practitioner:
- to act diligently in accordance with applicable technical and professional standards when providing a tax agent service[71]
- to maintain knowledge and skills at the level required to ensure that a client is provided with an appropriate standard of tax agent services[72]
- to exercise reasonable care in the provision of a tax agent service.[73]

The Macquarie Dictionary[74] provides the following definition of ‘diligent’:

‘Diligent’

1. constant and persistent in an effort to accomplish something;

2. pursued with persevering attention’

Acting diligently requires a registered tax practitioner to act in accordance with the terms of the client engagement carefully, thoroughly and on a timely basis.[75]
Circumstances that suggest a lack of competence include, but are not limited to:
- providing tax agent services relating to an area of the taxation laws in which the registered tax practitioner is not properly qualified, capable or suitable, without first obtaining the necessary support of a third party expert[76]
- not providing clients with a means of communicating with the registered tax practitioner or otherwise remaining inaccessible to clients[77]
- causing inappropriate delay in the lodgement of client tax returns and other documents[78]
- causing inappropriate delay in forwarding on client tax refunds from the ATO[79]
- not making sufficient enquiries to ascertain the affairs of clients to enable the registered tax practitioner to be reasonably satisfied that documents they prepare and lodge on behalf of these clients are correct[80]
- performance of work of a quality such that it needs to be redone[81]
- failing to lodge the registered tax practitioner's own income tax returns or otherwise failing to adequately manage the registered tax practitioner's personal taxation affairs or those of their practice.[82]

What is a registered tax practitioner required to do to ensure that services are provided competently?

There are a number of steps a registered tax practitioner may take to ensure that tax agent services are provided competently. These include, but are not limited to:
- maintaining adequate knowledge, skill and resources in the area/s the registered tax practitioner provides services
- not accepting an engagement or providing services where the registered tax practitioner has insufficient knowledge and skill to complete the engagement or provide those services competently unless the registered tax practitioner is able to obtain such knowledge and skill, without delay and cost to the client
- not accepting an engagement or providing services where this would breach a condition that has been imposed on the registered tax practitioner's registration[83]
- where a registered tax practitioner has a narrow, specialised area of expertise, not providing tax agent services outside of this area of expertise unless the registered tax practitioner has taken steps to obtain the necessary knowledge and skills[84]
- setting out and agreeing the scope and cost of the services to be provided in a letter of engagement, signed consent, or other communication with the client. This should clearly outline what services are to be performed as part of the engagement based on the needs of the client and the skills, qualification and experience of the registered tax practitioner
- obtaining expert advice and assistance where appropriate
- obtaining knowledge and skill through private study and research
- informing the client of any likely delay and cost for the registered tax practitioner to acquire the requisite knowledge and skill to provide the service competently, and obtaining the client’s consent to the registered tax practitioner providing the service.

What measures can a registered tax practitioner adopt to ensure that a tax agent service provided on their behalf is provided competently?

A registered tax practitioner is accountable for any tax agent services provided on their behalf.
In the case of an individual registered tax practitioner, a person working under the supervision and control of that registered tax practitioner, is permitted to provide relevant tax agent services on behalf of that registered tax practitioner. In the case of a company or partnership registered tax practitioner, a person working under the supervision and control of an individual registered tax practitioner is permitted to provide relevant tax agent services on behalf of the company or partnership registered tax practitioner.[85]
Where those tax agent services are provided on behalf of the registered tax practitioner by any other person or entity, the registered tax practitioner is still required to ensure that those services are provided competently.
Importantly, if an entity not permitted under the TASA to provide tax agent services on behalf of a registered tax practitioner does, in fact, provide those services, the registered tax practitioner may be liable to a civil penalty for allowing this to occur. This may also constitute a breach of the Code to the extent that the registered tax practitioner has not complied with a taxation law and has not acted honestly and with integrity.
To ensure that a service provided on behalf of a registered tax practitioner is provided competently, the registered tax practitioner must ensure that the provider of the service including any subcontractor, has the requisite skills and experience. They must also ensure that adequate supervision and review arrangements are in place to ensure the accuracy of any services provided.[86]
This does not necessarily require the registered tax practitioner to independently verify the technical accuracy of material prepared by a third party expert on the registered tax practitioner's behalf.
The level of supervision will depend upon a range of factors including:
- the educational qualifications and extent of experience of the provider of the service
- the nature of the actual service being provided
- any structures or processes in place within an organisation (for example, supervisory arrangements or quality assurance procedures) to facilitate the competent provision of tax agent services.[87]
The matters that could be considered relevant in determining the adequacy of the level of supervision and control that is being undertaken by a registered tax practitioner, may include, but are not limited to:
- whether the registered tax practitioner has identified the knowledge and skills required of an entity to competently provide a tax agent service on the registered tax practitioner's behalf and has assured that the entity providing the tax agent service both possesses and maintains the knowledge and skills[88]
- the physical proximity of the relevant registered tax practitioner to the person carrying out the work on the registered tax practitioner's behalf[89]
- the level and depth of personal physical or other oversight undertaken by the registered tax practitioner over the provision of tax agent services on the registered tax practitioner's behalf[90]
- the undertaking of ongoing, periodic review of the tax agent services provided on the registered tax practitioner's behalf, rather than only undertaking final review of services performed.[91]

(8) You must maintain knowledge and skills relevant to the tax agent services you provide

What is a registered tax practitioner required to do to maintain relevant knowledge and skills?

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(9) You must take reasonable care in ascertaining a client’s state of affairs, to the extent that ascertaining the state of those affairs is relevant to a statement you are making or a thing you are doing on behalf of the client

Under what circumstances is a registered tax practitioner required to comply with this principle?

A registered tax practitioner is required to comply with this principle if the registered tax practitioner is acting on behalf of a client. This includes, for example, preparing and lodging a return on behalf of a client.[94]

What are a registered tax practitioner's obligations under this principle?

A registered tax tax practitioner is only required to take reasonable care in ascertaining the client’s state of affairs to the extent that the state of those affairs is relevant to a statement the registered tax practitioner is making or a thing the registered tax practitioner is doing on behalf of a client. Therefore, the requirement to take reasonable care is necessarily limited by the scope of the engagement between the registered tax practitioner and the client.[95]

What does 'reasonable care' mean for registered tax practitioners?

The standard of ‘reasonable care’ generally required of a registered tax practitioner is that of a competent and reasonable person, possessing the skills, qualifications and experience that are required to become a registered tax practitioner.[96]
If, however, a registered tax practitioner specialises in any particular areas of the taxation laws, the standard of ‘reasonable care’ required is that of a competent and reasonable person professing to have the skills relevant to the area of specialisation.[97]
'Reasonable care' means what is reasonable in the circumstances. This will depend upon a range of factors, including the scope of the tax agent services being provided and the client’s level of professional knowledge and experience.[98]

What is ‘reasonable care in ascertaining a client’s state of affairs’?

It is considered that ‘more is expected of a registered tax practitioner than a taxpayer completing his or her own return’.[99] This higher standard of care is a reflection of a registered tax practitioner's knowledge, education, experience and skill’.[100]
It should be noted at the outset that this requirement under the Code does not create a requirement that a registered tax practitioner effectively ‘audits’ all of the registered tax practitioner's clients before providing tax agent services to avoid breaching the Code.[101]
Rather, this requirement is a duty of registered tax practitioner to take care beyond placing complete reliance on the accounts prepared, or work done, by a person without considering their level of knowledge and/or understanding of the taxation laws and the correctness of their work to ensure that the information upon which the provision of the tax agent services is based is accurate.[102]
In most cases, this will require that a registered tax practitioner ask the client appropriate questions, based on the registered tax practitioner’s professional knowledge and experience, to ascertain the accurate factual basis upon which the tax agent services are provided and, where appropriate, to obtain supporting documents and records evidencing these facts.[103]
The requirement to take reasonable care relates to the services that are to be provided and is therefore subject to the agreed scope of the engagement with the client. A registered tax practitioner would not be required to make further enquiries and it would be reasonable to rely on information or advice, if the scope of the tax agent services excludes the examination of information provided by the client or requires the registered tax practitioner to rely on the information or advice of another expert.[104] These observations must also be considered in light of other paragraphs in this section and with the obligations under the TASA, which must be complied with.
Taking reasonable care will in many cases require that a registered tax practitioner ask questions based on their professional knowledge and experience in seeking information.[105] Where there are grounds to doubt the information provided by a client, the registered tax practitioner must take positive steps and make reasonable enquiries to satisfy themselves as to the completeness and/or accuracy of that information.[106]
Where a statement provided by a client seems plausible and is consistent with previously established statements and the registered tax practitioner has no basis on which to doubt the client’s reliability or the veracity of the information supplied, the registered tax practitioner may discharge their responsibility by accepting the statement provided by the client without further checking.[107]
However, if the information supplied by a client seems implausible or inconsistent with a previous pattern of claim or statement, further enquiries would be required.[108]
Again, whilst there is no requirement to audit, examine or review books and records or other source documents supplied by a client, a registered tax practitioner does not discharge their responsibility in such a case by simply accepting what they have been told.[109]
Where information has been provided by a suitable, independent, third party expert and there is no prior experience to the contrary, it may be reasonable for a registered tax practitioner to rely on that information without further checking or enquiries.
Further guidance in relation to the application of this Code item to tax practitioners is provided in TPB(I) 18/2013 Code of Professional Conduct - Reasonable care to ensure taxation laws are applied correctly.

(10) You must take reasonable care to ensure that taxation laws are applied correctly to the circumstances in relation to which you are providing advice to a client

What are the obligations of a registered tax practitioner under this principle?

This principle requires a registered tax practitioner o take reasonable care to ensure the correct interpretation and application of the taxation laws to the circumstances in relation to which clients seek advice.[110] These circumstances may be the actual circumstances of the client or hypothetical circumstances provided by the client.[111]
This principle does not require registered tax practitioners to determine the correct application of the law; rather it requires registered tax practitioners to take reasonable care to ensure the correct interpretation and application of the law in the circumstances.[112]
Note:

Section 995-1 of the Income Tax Assessment Act 1997 provides that a ‘taxation law’ means:

(a) an Act of which the Commissioner has the general administration (including a part of an Act to the extent to which the Commissioner has the general administration of the Act); or

(b) regulations under such an Act (including such a part of the Act); or

(c) the Tax Agent Services Act 2009 or regulations made under that Act.

The Commissioner of Taxation is responsible for the administration of a number of Acts and regulations concerning:
- income tax
- indirect taxes (including GST, luxury car tax, wine equalisation tax)
- superannuation
- the Medicare levy
- fringe benefits tax
- franking tax
- withholding taxes
- petroleum resource rent tax
- the administration or collection of the above taxes
- product grants or benefits mentioned in section 8 of the Product Grants and Benefits Administration Act 2000 or the administration or payment of the product grants and benefits
- net fuel amount, or the administration, collection or payment of a net fuel amount.

What is ‘reasonable care’ for the purposes of this principle?

It is considered that ‘more is expected of a registered tax practitioner than a taxpayer completing his or her own return’.[113] This higher standard of care is a reflection of a registered tax practitioner's knowledge, education, experience and skill’.[114]
For the purposes of this principle, taking ‘reasonable care’ in ensuring the taxation laws are applied correctly means giving appropriately serious attention to complying with the obligations imposed under a taxation law at a standard that could be expected of a reasonable person in the registered tax practitioner's position.[115]
Where a registered tax practitioner is uncertain about how a taxation law applies to a particular set of circumstances, taking reasonable care may include seeking clarification from relevant authorities and sources such as:
- legislation and related extrinsic material (for example, explanatory memoranda)
- relevant case law
- rulings and determinations issued by the Commissioner on the topic
- the Commissioner’s instructions in documents such as income tax returns, BAS returns, fact sheets and practice statements
- any other guidance material published by the Australian Taxation Office (ATO), including on its website
- information published or provided by a recognised professional association or other regulatory agency
- information or relevant commentaries published by other experts, registered tax practitioners or specialists
- relevant training material.[116]
In consulting relevant authorities and sources, the registered tax practitioner may choose to seek assistance from another appropriately qualified person who has the ability and resources to provide advice on taxation laws.[117]
Further guidance in realtion to the application of this Code item to tax practitioners is provided in TPB(I) 18/2013 Code of Professional Conduct - Reasonable care to ensure taxation laws are applied correctly.

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(11) You must not knowingly obstruct the proper administration of the taxation laws

What are a registered tax practitioner's obligations under this principle?

A registered tax practitioner must not knowingly obstruct the proper administration of the taxation laws.
A registered tax practitioner does not breach this requirement by relying on the registered tax practitioner's or the client’s rights to withhold documents or to not provide information. Examples of such rights may include legal professional privilege or the ATO accountant’s concession set out in the published ‘Guidelines to accessing professional accounting adviser’s papers’.[118]

What does ‘knowingly obstruct’ mean?

The word obstruction is defined by reference to its ordinary meaning.[119]
The Macquarie Dictionary [120] defines the relevant terms as follows:

Obstruct

2. to interrupt, make difficult, or oppose the passage, progress, course, etc., of

Obstruction

1 something that obstructs; an obstacle or hindrance

2 the act of obstructing

The test for determining whether an act or omission constitutes an obstruction is a test of reasonableness - that is, in doing the act or making the omission, has the person acted reasonably?[121]
This is a question of fact to be answered with respect to the specific circumstances of a particular case.[122] The word ‘knowingly’ requires that the registered tax practitioner had actual knowledge, as opposed to constructive knowledge, of the obstruction caused by the registered tax practitioner's conduct.[123]
In determining whether this test is satisfied, the following considerations are relevant:
- a temporary denial of access on reasonable grounds may fall short of being an obstruction[124]
- denial of documents for an indefinite period may constitute an obstruction[125]
- a positive act of obstruction by a person, from whom access to inspection of documents or other information is sought, is not necessarily a requirement in establishing that there has been an obstruction[126]
- actions essentially negative in character, for example withholding specific information, or knowledge of the means to access that information, from the TPB or the Commissioner may be considered an obstruction[127]
- an act or omission that causes delay may be considered an obstruction where it can be established that the delay sought was for other than a genuine and reasonable purpose[128]
- repeated failure by a person to keep appointments or supply information may be considered an obstruction[129]
- repeated failure by a person to respond adequately to formal requests for information may be considered an obstruction. This will include excessive or repeated delays in responding, not replying to the request for information, giving information that is not relevant or does not address the issues in the request and/or supplying inadequate information.[130]

What does ‘proper administration of’ the taxation laws mean?

The phrase ‘proper administration of’ is not defined in the legislation and so adopts its ordinary meaning.
The Commissioner has primary responsibility for the general administration of the taxation laws.[131]
The TPB is, however, responsible for the general administration of the TASA.[132]The TASA is a taxation law.[133]
The proper administration of the taxation laws includes performing the statutory duties and functions as required by the taxation laws.
A registered tax practitioner will breach the Code where the registered tax practitioner knowingly obstructs the Commissioner or the TPB, or officers properly acting on behalf of the Commissioner or the TPB in performing their respective statutory duties and functions as required by the taxation laws.

(12) You must advise your client of the client’s rights and obligations under the taxation laws that are materially related to the tax agent services you provide

What are a registered tax practitioner’s obligations under this principle?

A registered tax practitioner is required to advise the registered tax practitioner's clients of the client’s rights and obligations under the taxation laws that are materially related to the tax agent services that the registered tax practitioner provides to that client.[134]
In this context, the phrase ‘related to’ will carry its ordinary meaning of ‘associated with’, ‘connected with’ or ‘linked with’.[135]
For a client’s rights and obligations to be materially related to the tax agent services provided, a connection between the rights and obligations and the tax agent services is required. This connection must be substantial, rather than so tenuous that it is immaterial or can be ignored.[136]
Whether a client’s rights and obligations are materially related to a tax agent service in any given case will vary according to the nature of the services provided to the client.
Note:

Section 995-1 of the Income Tax Assessment Act 1997 provides that a ‘taxation law’ means:

(a) an Act of which the Commissioner has the general administration (including a part of an Act to the extent to which the Commissioner has the general administration of the Act); or

(b) regulations under such an Act (including such a part of the Act); or

(c) the Tax Agent Services Act 2009 or regulations made under that Act.

The Commissioner of Taxation is responsible for the administration of a number of Acts and regulations concerning:
- income tax
- indirect taxes (including GST, luxury car tax, wine equalisation tax)
- superannuation
- the Medicare levy
- fringe benefits tax
- franking tax
- withholding taxes
- petroleum resource rent tax
- the administration or collection of the above taxes
- product grants or benefits mentioned in section 8 of the Product Grants and Benefits Administration Act 2000 or the administration or payment of the product grants and benefits
- net fuel amount, or the administration, collection or payment of a net fuel amount.
The registered tax practitioner's obligations under this principle only extend to services within the scope of engagement between the registered tax practitioner and the client.[137]
These rights and obligations could be referred to in a letter of engagement, report, advice or other communication with the client and may include, but are not limited to, providing advice on:
- the nature of self-assessment, including the Commissioner’s ability to amend an assessment within a certain time after the original assessment, impose penalties and issue rulings on which clients may rely
- the client’s obligation to keep proper records and the consequences of not doing so[138]
- that the responsibility for the accuracy and completeness of the particulars and information required to comply with the taxation laws rests with the client
- the application of the safe harbour provisions contained in the Taxation Administration Act 1953
- where necessary, the rights or options available to clients, including how to seek a private ruling and how to object or appeal against adverse decisions made by the Commissioner.[139]
Any letter of engagement, report, advice or other significant communication with the client should be in writing.

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(13) You must maintain the professional indemnity insurance that meets the Board's requirements

What are a registered tax practitioner's obligations under this principle?

Registered tax practitioners are potentially liable to clients for the registered tax practitioner's own professional negligence as well as the negligence of those providing services on the registered tax practitioner's behalf.[140]
It is an ongoing eligibility requirement of registration, as well as a requirement under the Code, that a registered tax practitioner maintains professional indemnity (PI) insurance that meets the TPB's requirements.[141] This requirement serves as an important protection to clients in the event that they are made liable to pay tax or penalties that are imposed as a result of the conduct of a registered tax practitioner, and therefore it is in the public interest that registered tax practitioners are adequately insured.[142]
If a registered tax practitioner fails to maintain PI insurance that meets the TPB's requirements, they will be in breach of this requirement of the Code[143] and may also cease to meet the registered tax practitioner registration requirement under Subdivision 20-A of the TASA that they maintain, or will be able to maintain, PI insurance as required by the TPB.
The TPB's PI insurance requirements for tax practitioners are set out in TPB(EP) 03/2010 Professional indemnity insurance for tax and BAS agents.

(14) You must respond to requests and directions from the Board in a timely, responsible and reasonable manner

What are a registered tax practitioner's obligations under this principle?

If a registered tax practitioner receives a request or direction from the TPB, the registered tax practitioner must respond to that request in a timely, responsible and reasonable manner.
Claiming legal professional privilege or other legal rights on behalf of a client will not be considered an unreasonable response to a direction of the TPB.[144]

What does ‘timely, responsible and reasonable’ mean?

These terms are not defined in the legislation and should therefore take on their ordinary meanings.
The Macquarie Dictionary [145] relevantly defines these terms as follows:

‘Timely

1. Occurring at a suitable time

Responsible

…

2. Having a capacity for moral decisions and therefore accountable; capable of rational thought or action

3. able to discharge obligations or pay debts

4. reliable in business of other dealings; showing reliability

Reasonable

1. Endowed with reason

2. agreeable to reason or sound judgment

3. not exceeding the limit prescribed by reason, not excessive

4. moderate’

Examples of failures to respond to a TPB request or direction in a timely, responsible and reasonable manner may include:
- failing to provide written responses to TPB correspondence within the time period specified for the response[146]
- making arrangements with the TPB to provide information and subsequently failing to provide that information in accordance with the arrangement[147]
- providing responses to TPBrequests and/or directions that are false or misleading[148]
- providing inadequate responses to requests for information from the TPB.[149]

What are the consequences if a registered tax practitioner fails to comply with the Code?

As detailed in paragraphs 16 to 22 of this TPB(EP), conduct that constitutes a breach of the Code may also be relevant to a determination of whether a registered tax practitioner is a fit and proper person or whether the civil penalty provisions will apply to the registered tax practitioner's conduct.

What are the specific sanctions provided for a breach of the Code?

A registered tax practitioner is required to comply with all the obligations set out in the Code. If, following an investigation, the TPB is satisfied that a registered tax practitioner has failed to comply with any of the principles of the Code, it may impose one or more of the following administrative sanctions on the registered tax practitioner:
- a written caution
- an order requiring the registered tax practitioner to take one or more actions including, but not limited to, the following:[150]
  - completing a course of education or training specified in the order by the TPB
  - providing services (for which the registered tax practitioner is registered) only under the supervision of another registered tax practitioner that has been specified in the order, and/or
  - providing only those services specified in the order
- suspension of registration, and/or
- termination of registration.[151]
If the TPB decides to terminate the tax practitioner’s registration, it may also impose a period, of not more than five years, during which the tax practitioner may not apply for registration.[152]In exercising this discretion, the TPB will consider:
- the purpose of the TASA
- general deterrance
- whether the practitioner has already suffered a substantial period of loss of registration
- the administrative burden of assessing registration applications by tax practitioners who have recently been terminated.[153]
The severity of any sanction imposed by the TPB will depend upon the TPB’s consideration of the nature and extent of the breach and the individual circumstances of each case.[154]
If the TPB imposes a sanction, other than a caution, on a registered tax practitioner, details of the sanction will be included on the TPB's public register of registered and deregistered tax practitioners.[155]

What is the effect of an order?

An order is a direction from the TPB requiring a registered tax practitioner to take one or more actions.[156]
If the TPB decides to make an order, it will notify the registered tax practitioner in writing of the order. The order may specify, as appropriate:
- the period of time within which the registered tax practitioner must complete the requirements specified in the order; and/or
- the period of time during which the order applies.[157]

What is the effect of a suspension of a registered tax practitioner’s registration?

If a registered tax practitioner's registration is suspended, the registered tax practitioner must not provide tax agent services for the period of that suspension.[158]
If the registered tax practitioner does provide tax agent services during a period of suspension, the TPB may do one or more of the following:
- impose further administrative sanctions
- apply to the Federal Court for a civil penalty order, and/or
- apply to the Federal Court for an injunction to restrain the registered tax practitioner from continuing to provide tax agent services.[159]

What period of suspension may the TPB impose?

The TPB may determine the period of suspension as it sees fit.[160] If a registered tax practitioner's registration is already suspended when the TPB suspends that registered tax practitioner's registration, the TPB may extend the registered tax practitioner's original suspension for a further period. In this case, the further period of suspension commences at the end of the original suspension period.[161]

Can a registered tax practitoiner apply for renewal of registration during a suspension period?

If a registered tax practitioner's registration is due to expire during the period for which the registered tax practitioner is under suspension, the registered tax practitioner is still permitted to apply for registration or renewal of registration despite the fact that the registered tax practitioner is under suspension.[162]

What is the effect of a termination of a registered tax practitioner’s registration?

If the TPB decides to terminate a registered tax practitioner's registration, the practitioner will receive a written notice, which will include:
- the TPB’s decision to terminate the registered tax practitioner’s registration
- the reasons for the decision
- details of any period during which the registered tax practitioner is prohibited from applying for registration
- the registered tax practitioner's rights of review.[163]

Is the TPB required to notify a registered tax practitioner of a decision to impose a sanction on that registered tax practitioner?

If the TPB decides to impose a sanction on a registered tax practitioner for a breach of the Code, the TPB is required to provide that registered tax practitioner with notification of that decision in writing.[164]

If the TPB makes a decision to impose an administrative sanction (except for a written caution), the registered tax practitioner may apply to the Administrative Appeals Tribunal (AAT) for a review of that decision.[165]

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Appendix 1 – Case examples

In considering whether or not there has been a breach of the Code, the TPB will make a determination based on the specific facts and circumstances of each case that it considers.

The cases have been divided into categories based on the principles of the Code to which they apply. The case examples outlined below include a summary, outline of relevant facts and relevant principles established or confirmed by the case for each relevant Code item that applies.

A summary table categorising applicable Code items for the case examples is also provided below.

Case example Applicable Code items for relevant case principles

Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Air Pilots (1991) 101 ALR 407	Code item 11 – not knowingly obstruct the proper administration of the taxation laws
Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (ACN 113 114 832) (No 4) (2007) 241 ALR 705	Code item 5 – have in place adequate arrangements for management of conflicts of interest that may arise
Bolkiah (Prince Jefri) v KPMG (a firm) [1999] 1 All ER 517	Code item 5 – have in place adequate arrangements for management of conflicts of interest that may arise Code item 6 – not disclose any information relating to a client’s affairs to a third party unless you have a legal duty to do so
Burnett and Tax Practitioners Board [2014] AATA 687	Code item 1 – act honestly and with integrity Code item 7 - a tax agent service provided on your behalf is provided competently Code item 9 - take reasonable care in ascertaining a client's state of affairs Code item 10 - take reasonable care to ensure taxation laws are applied correctly
Chan v Zacharia (1984) 53 ALR 417	Code item 4 - act lawfully in the best interests of your client
Re Collie and Deputy Commissioner of Taxation (1997) 45 ALD 556	Code item 6 – not disclose any information relating to a client’s affairs to a third party unless you have a legal duty to do so
Re Corrs Chambers Westgrath and Commissioner of Customs (1998) 53 ALD 769	Code item 6 – not disclose any information relating to a client’s affairs to a third party unless you have a legal duty to do so
Re Cowlishaw and Ors and Tax Agents' Board of Queensland [1999] AATA 412	Code item 14 – respond to requests and directions from the Board
Grosfeld and Tax Practitioners Board [2014] AATA 100	Code item 2 – comply with the taxation laws in the conduct of your personal affairs Code item 7 - a tax agent service provided on your behalf is provided competently Code item 13 - maintain professional indemnity insurance that meets the Board’s requirements Code item 14 - respond to requests and directions from the Board
Hawkins v Clayton [1988] HCA 15; (1988) 164 CLR 539	Code item 9 - take reasonable care in ascertaining a client’s state of affairs Code item 10 – take reasonable care to ensure taxation laws are applied correctly
Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41	Code item 4 - act lawfully in the best interests of your client
Keitac Pty Ltd ATF McNamara Property Development Trust and Commissioner of Taxation [2007] AATA 1206; (2007) 68 ATR 61	Code item 10 – take reasonable care to ensure taxation laws are applied correctly
Leo Comino and Tax Agents Board of New South Wales 2009 AATA 766	Code item 8 – maintain knowledge and skills relevant to the tax agent services you provide
Li and Tax Practitioners Board [2014] AATA 299	Code item 6 – not disclose any information relating to a client’s affairs to a third party unless you have a legal duty to do so Code item 7 – a tax agent service provided on your behalf is provided competently Code item 9 – take reasonable care in ascertaining a client’s state of affairs
Martinazzo and Commissioner of Taxation [2009] AATA 61	Code item 9 – take reasonable care in ascertaining a client’s state of affairs
Pappalardo v Tax Agents' Board of Victoria [2003] AATA 990	Code item 14 – respond to requests and directions from the Board
Reeders v Federal Commissioner of Taxation 2001 ATC 2334	Code item 9 – take reasonable care in ascertaining a client’s state of affairs
Scanlan v Swan 82 ATC 4402	Code item 11 – not knowingly obstruct the proper administration of the taxation laws
Su and Tax Practitioners Board [2014] AATA 644	Code item 1 – act honestly and with integrity Code item 7 – a tax agent service provided on your behalf is provided competently Code item 9 – take reasonable care in ascertaining a client’s state of affairs Code item 12 – advise your client of rights and obligations under the taxation laws
Su and Tax Agents’ Board of South Australia [1982] AATA 127	Code item 7 – a tax agent service provided on your behalf is provided competently
Re Warne and Defence Force Retirement and Death Benefits Authority (1989) 18 ALD 662	Code item 12 – advise your client of rights and obligations under the taxation laws
Re Woods (No. 1) and Migration Agents Registration Authority [2004] AATA 457	Code item 4 – act lawfully in the best interests of your client

1. You must act honestly and with integrity

Su and Tax Practitioners Board [2014] AATA 644

Summary

Imposition of a non-application period of three years considered in relation to termination of registration for breaches of the Code in the TASA and ceasing to meet the registration requirement of being a fit and proper person.

Keywords: registration as tax agent; termination of registration; rejection of application for renewal of registration; prohibition on applying for registration for three years; whether length of non-application period excessive; whether fit and proper person; breaches of the Code of Professional Conduct; unsatisfactory understanding of role as tax agent; shortcomings in integrity; concerns over competence as a tax agent; lack of insight into the seriousness of shortcomings.

Outline of relevant facts

Over a five-week period from 6 July 2011 to 9 August 2011, the tax agent prepared and lodged 164 tax returns on behalf of taxpayers based on the instructions of intermediaries. The taxpayers had not authorised the intermediaries to arrange preparation and lodgment of their tax returns, and all of those tax returns contained false information including overstated PAYG withholding amounts, incorrect income figures, and deductions that were not allowable.

The agent failed to take any steps to (a) confirm the information and claims made by any of the intermediaries, (b) seek any identification for any of the taxpayers, (c) make personal contact with any of the taxpayers, and (d) use the ATO tax agent portal to check the accuracy of payment summaries provided or any of the details relating to the taxpayers.

The agent did not dispute the findings of the TPB that, by his conduct, the agent had breached subsections 30-10(1), (7), (9) and (12).

The Administrative Appeals Tribunal (AAT) identified four reasons for affirming the TPB’s decision to impose a non-application period of three years:

the agent’s unsatisfactory understanding of the role of a tax agent as evidenced by his failure to acknowledge the importance of testing and confirming information provided by clients
perceived shortcomings in the agent’s integrity arising from his evidence at the hearing regarding (a) information on further potential returns that he deleted and did not disclose to the authorities and (b) his method for charging for the 164 tax returns that he lodged
concerns over the agent’s competence as a tax agent arising from deductions being claimed that were excessive and/or lacked a nexus with the taxpayer’s employment
the agent’s lack of insight into the seriousness of the shortcomings in his behaviour as evidenced by his failure to acknowledge that his performance as a tax agent had been comprehensively unsatisfactory.

Relevant principle/s established or confirmed by the case

The AAT considered that there was “no room in the system for tax agents who do not understand” that “[t]he self assessment tax system requires accurate information to be provided to the ATO. It requires tax agents to do all they can to ensure that the information their clients provide is accurate. From time to time they need to ask their clients hard questions. They need to scrutinise the answers and form a professional judgment as to whether what they are being told is reliable.”

The AAT stated that “[t]he primary purpose of not permitting a person to apply for registration for a period of time is to protect the public and the integrity of the tax system. Whilst [the agent] may see the period of three years as further punishment for his actions, that is not its purpose. It is to protect the public, and the taxation system, from further harm. [The agent] needs time to develop an improved level of integrity and competence, without which he will find it difficult to satisfy the Board that he should once again be registered as a tax agent.”

Burnett and Tax Practitioners Board [2014] AATA 687

Summary

Fitness and propriety of a registered tax agent considered in relation to:

whether the agent was of good fame, integirty and character
findings that the agent breached the Code in the TASA for:
- accessing a taxpayer's records on the ATO Tax Agent Portal without authority
- preparing and lodging tax returns on behalf of clients containing inaccurate and unsupported claims, without making sufficient enquiries with the clients to ascertain their affairs or to confirm the correct application of taxation laws to ensure that these returns were prepared and lodged competently
lack of contrition and understanding and appreciation of the taxation laws and seriousness of the agent’s conduct.

Keywords: fit and proper; good fame, integrity and character; application for renewal of registration; honesty and integrity; competence; reasonable care to ascertain a client’s state of affairs; reasonable care to ensure that taxation laws are applied correctly; relationship with the Board, the Commissioner and the AAT; contrition; knowledge of the taxation laws; appreciation of responsibilities and obligations of a registered tax practitioner; excessive and unsupported claims in clients’ tax returns.

Outline of relevant facts

This case involved an application by the agent to the AAT for review of a TPB decision to reject the agent’s application for renewal of her registration as a tax agent. The TPB had conducted an investigation into the agent’s conduct and, as a result of this investigation, received evidence that:

a number of taxpayers whose 2010 and 2012 tax returns were lodged by the agent were subject to ATO audits. As a result of these audits, the ATO made significant adjustments to claims in these returns, including for work-related expense deductions and tax offsets, and imposed administrative penalties on these clients. These decisions were based on findings that various claims were made without any nexus to a work related activity, were not reasonably substantiated and/or were unsupported estimates. In one case, the agent had created a log book in order to respond to an ATO request for substantiation during the audit
the agent had accessed the taxation records of taxpayers on the ATO Tax Agent Portal on three occasions without authorisation.

In her responses to the TPB during the course of its investigation, the agent maintained that she fulfilled her obligations in the preparation of her clients’ returns by relying on limited information provided by these clients, including their estimates of expenses incurred without making further enquiries or sighting supporting documentation. The agent also submitted that the ATO had significantly changed its policies and enforcement approach in relation to the claiming of deductions and was inconsistent in the interpretation and application of its own policies.

The TPB determined that the agent’s conduct breached the Code in the TASA, specifically the requirements under the Code to:

act honestly and with integrity (subsection 30-10(1))
act lawfully in the best interests of her clients (subsection 30-10(4))
ensure that tax agent services she provided, or that were provided on her behalf, were provided competently (subsection 30-10(7))
take reasonable care in ascertaining a client’s state of affairs, to the extent that ascertaining the state of those affairs was relevant to a statement she was making or a thing she was doing on behalf of the client (subsection 30-10(9))
take reasonable care to ensure that taxation laws were applied correctly to the circumstances in relation to which she was providing advice to a client (subsection 30-10(10).

The TPB decided to reject the agent’s application for renewal of her registration as a tax agent, on the basis that it was not satisfied that she met the ‘fit and proper person’ eligibility requirement for registration. In reaching its decision, the TPB took into account the serious nature of the agent’s conduct which was found to breach the Code and her responses to the TPB’s requests for information regarding her alleged conduct, which demonstrated a lack of understanding and appreciation of the seriousness of her conduct. Having regard to these matters, the TPB found that the agent was not of good fame, integrity and character, and therefore not a fit and proper person to be registered as a tax agent.

The AAT affirmed the TPB’s decision to reject the agent’s application for renewal of her tax agent registration.

In affirming the TPB’s decision, the AAT also had regard to the agent’s conduct during the AAT proceeding. This included denials of any wrongdoing, the making of seriousness and unfounded allegations against ATO officers in response to allegations concerning her conduct and the giving of inconsistent and misleading evidence. This also included the agent’s verbal evidence regarding the ATO’s purported policies and compliance approach, which was contradicted by evidence given by the ATO in the proceeding. This led the AAT to form the view that the agent had a ‘flawed understanding of relevant tax law and ATO requirements in the area of [work related expense] deductions, nexus and substantiation’.

In this regard, the AAT concluded that the agent failed to show contrition and had an insufficient appreciation of her responsibilities and obligations as a tax agent and the seriousness of her conduct. Consequently, the AAT determined that it could not have confidence that she would not engage in similar conduct in the future and that she would pose an unacceptable risk to the community if she were allowed to continue in practice as a tax agent.

Relevant principle/s established or confirmed by the case

A registered tax practitioner’s diligence in providing tax agent services, current knowledge of the relevant legal frameworks (including income tax laws) and competence and professionalism in dealing with both clients and the ATO are relevant to assessing whether the practitioner possesses the integrity and competence required of a registered tax practitioner, such that others may entrust their taxation affairs to their care.
These qualities are also relevant to whether the practitioner is a fit and proper person to be registered under the TASA. This is particularly so in a self-assessment tax regime, in which inaccuracies in returns generally only come to light during random audits and penalties for inaccurate claims and late lodgments can be imposed on taxpayer clients, who rely on the practitioner to properly advise, guide and lodge accurate and timely returns and other tax documents with the Commissioner on their behalf.
The access of a taxpayer’s records without proper authorisation is a matter that is relevant to determining whether a registered tax practitioner has acted without honesty and integrity. Further, the circumstances surrounding the unauthorised access and the practitioner’s explanation of these circumstances and of their conduct are relevant to determining whether they possess the integrity required of a registered tax practitioner, and also whether they have a sufficient level of contrition and understanding of their legal obligations and constraints upon them to be considered a fit and proper person for registration. In this regard, the AAT noted that ‘Mrs Burnett either was or should have been aware that the ability to access tax records through the Tax Agent Portal is a privilege conferred on tax agents on the understanding that they will only access the records of their own clients’.

2. You must comply with the taxation laws in the conduct of your personal affairs

Grosfeld and Tax Practitioners Board [2014] AATA 100

Summary

Fitness and propriety of a registered tax agent considered in relation to:

failing to lodge personal income tax returns and BAS
failing to provide clients with a means of contact
failing to ensure that tax agent services were provided competently
failing to maintain PI insurance as required by the TPB
failing to respond to requests from the TPB.

Keywords: fit and proper; application for renewal of registration; compliance with taxation laws in the conduct of personal affairs; competence; relationship with the Board and the Commissioner; appreciation of responsibilities and obligations of a registered tax practitioner; requirement to maintain PI insurance.

Outline of relevant facts

This case involved an application by the agent to the AAT for review of a TPB decision to reject the agent’s application for renewal of his registration as a tax agent. The TPB had conducted an investigation into the agent’s conduct and, as a result of this investigation, found that:

the agent failed to lodge his 2009 to 2012 personal tax returns and December 2009 to September 2012 BAS by their respective due dates, with periods of delays extending up to over one year
the agent failed to provide tax agent services competently to 14 clients. In particular, the agent had:
- not provided these clients with a means of contact, and remained inaccessible to them for extended periods
- caused inappropriate delays in the preparation and lodgment of tax returns for seven of these clients
- failed to provide tax agent services requested by seven of these clients after accepting payment of fees for these services
- failed to return client source documents, when requested, to nine of these clients
- failed to forward ATO notices of assessment of tax refunds to two of these clients.
the agent failed to maintain PI insurance that meets the TPB’s requirements until April 2013, despite being notified by the TPB of its PI insurance requirement and requested to provide details of his insurance arrangements on previous occasions
the agent failed to provide adequate and timely responses to TPB requests for information on several occasions from April 2011 to February 2013.

The TPB determined that this conduct breached the Code in the TASA, specifically the requirements under the Code to:

comply with the taxation laws in the conduct of his personal affairs (subsection 30-10(2))
ensure that tax agent services he provided, or that were provided on his behalf, were provided competently (subsection 30-10(7))
maintain PI insurance that meets the TPB’s requirements (subsection 30-10(13))
respond to requests and directions from the TPB in a timely, responsible and reasonable manner (subsection 30-10(14)).

The TPB also became aware of findings in Supreme Court proceedings that the agent had breached his duty as executor of a deceased estate. The court found that he was not a fit and proper person to continue as an executor and the grant of probate to the agent was revoked. In particular, the TPB noted that the agent’s conduct that led to the court’s findings involved the withdrawal of significant funds from the estate bank account to the agent’s business account, and that this breach of duty was exacerbated by the fact that these withdrawals were concealed in the description of the payments in the agent’s statement of account.

The TPB decided to reject the agent’s application for renewal of his registration as a tax agent, on the basis that it was not satisfied that he met the ‘fit and proper person’ eligibility requirement for registration. In reaching its decision, the TPB took into account the serious nature of the agent’s conduct which was found to breach the Code and the findings of the Supreme Court regarding his conduct as executor of a deceased estate. Having regard to these matters, the TPB found that the agent was not a fit and proper person to be registered as a tax agent.

The AAT affirmed the TPB’s decision to reject the agent’s application for renewal of his tax agent registration.

In affirming the TPB’s decision, the AAT took into account the persistent and sustained nature of the agent’s breaches of the Code and the agent’s failure to adequately respond to the TPB’s requests for information regarding his alleged conduct, which demonstrated a lack of understanding and appreciation of the seriousness of his conduct. Consequently, the AAT determined that it could not have confidence that he would take adequate steps to ensure compliance with his responsibilities and that such breaches would not reoccur in the future.

The AAT also found that although the Supreme Court findings were unrelated to the agent’s registration as a tax agent, they were relevant to the consideration of whether the agent was a fit and proper person. The AAT noted that the findings related to the management of financial affairs for others that required duties to be discharged with ‘integrity, trust and competence’, which are not dissimilar to the obligations of a registered tax practitioner. Following from this, ‘a finding of misconduct demonstrates the presence of qualities that are inconsistent with fitness and propriety to practice as a tax agent’.

Relevant principle/s established or confirmed by the case

The failure by a registered tax practitioner to lodge a personal tax return or BAS by the relevant legislative due date constitutes a breach of the requirement under subsection 30-10(2) of the TASA that the registered tax practitioner complies with the taxation laws in the conduct of their personal affairs. A breach of this requirement may also adversely impact on the registered tax practitioner’s fitness and propriety for registration under the TASA. This is particularly so given the overriding public protection rationale of the TASA and the premise that ‘incompetence in relation to one’s own affairs more often than not has an effect sooner or later in relation to the affairs of a client’.

4. You must act lawfully in the best interests of your client

Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41

Summary

In relation to a manufacturer and distributor the High Court considered whether a fiduciary relationship existed and whether the manufacturer had breached their duty to the distributor.

Keywords: fiduciary duty; fiduciary relationship; breach; disadvantage or vulnerability; reliance; distributorship agreement; importation of fiduciary duties into commercial transactions; relevance of terms of contract to existence of fiduciary relationship.

Outline of relevant facts

Hospital Products Ltd (the appellant) had entered into a distributorship agreement with the United States Surgical Corp (the respondent) under which the appellant was to be the sole distributor of the respondent’s products in Australia. The appellant subsequently proceeded to produce copies of the respondent’s products and filled orders for the respondent’s products with the copies.

In this case, the High Court had cause to consider whether the appellant owed a fiduciary duty to the respondent and whether that duty had been breached. As the relationship of manufacturer and distributor was not an established fiduciary relationship, the High Court looked at the elements of a fiduciary relationship.

Relevant principle/s established or confirmed by the case

The critical feature of a fiduciary relationship is that the fiduciary undertakes to act on behalf of, or in the interests of, another person in the exercise of a power or discretion which will affect the interests of that other person in a practical or legal sense. [per Mason J]
Underlying the concept of fiduciary obligation is the notion that inherent in the nature of the relationship itself is a position of disadvantage or vulnerability on the part of one of the parties which causes that party to place reliance upon the other. This requires equitable protection, which acts upon the conscience of that other person. [per Dawson J]

Chan v Zacharia (1984) 53 ALR 417

Summary

In relation to the dissolution of a partnership one of the issues considered by the High Court was whether a fiduciary relationship existed and whether the fiduciary duty had been breached.

Keywords: fiduciary relationship; fiduciary duty; breach; partnership; dissolution; assets; constructive trust.

Outline of relevant facts

Both parties were doctors who were operating a medical practice in partnership with each other. The partnership was dissolved and, in the process of accounting for the assets of the partnership, a dispute arose in relation to the lease, specifically an option to renew, held by the partnership. The partners could not agree on if, when or how the option was to be exercised.

During this time, the appellant engaged in separate negotiations with the owner of the leased property which resulted in the owner offering the lease to the appellant individually and not for the partnership. The respondent brought an action against the appellant claiming, among other things, that the appellant had breached his fiduciary duty to the respondent as a partner.

Relevant principle/s established or confirmed by the case

In considering the nature of fiduciary duties, the High Court held the following:

The subject matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties, whether embodied in written instrument or not, but also from the course of dealing actually pursued by the firm’.
The objective of this rule is to preclude the fiduciary from both being swayed by considerations of personal interest and actually misusing the fiduciary’s position for personal advantage.
The statement of the rule provided by Deane J, with whom Gibbs CJ, Brennan and Dawson JJ agreed, was:
- A person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain:
  1. which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between the fiduciary duty and the fiduciary’s personal interest in the pursuit or possible receipt of such a benefit or gain, or
  2. which was obtained or received by use or by reason of the person’s fiduciary position or their opportunity or knowledge resulting from it.

Re Woods (No. 1) and Migration Agents Registration Authority [2004] AATA 457

Summary

In relation to their registration with the Migration Agent Registration Authority (MARA) a migration agent’s fitness and propriety was considered in light of misconduct in the Legal Practice Tribunal and whether this conduct also breached the MARA Code of Conduct.
The AAT affirmed MARA’s decision and found that the agent was not a person of integrity or was not a fit and proper person to give immigration assistance and had not complied with the MARA Code of Conduct. The AAT stated also that the standards of conduct required of migration agents were no less than the standards of conduct owed by lawyers.

Keywords: migration agent; breach of Code of Conduct; conflict of interest; vulnerability; fit and proper person; standard of conduct.

Outline of relevant facts

Woods was a solicitor and migration agent that, in the course of acting for the client in obtaining a visa to enter Australia, entered into a business arrangement with that client whereby a company part owned by Woods, was a shareholder in a business acquired by the client.

In undertaking this transaction, Woods and his associates engaged in conduct that amounted to misconduct in the Legal Practice Tribunal. The question before MARA was whether this conduct could support a determination that Woods was not a fit and proper person to be a migration agent.

Relevant principle/s established or confirmed by the case

As to whether the duty of a migration agent to their clients was any different to that of a lawyer to their clients, the Tribunal held that the standard of conduct of migration agents are no less than the standard of conduct owed by lawyers. Here the Tribunal had regard to the objectives of the Act, the intention of Parliament as evident by the Minister’s speech upon introduction of the Act, the numerous decisions of superior courts referring to the vulnerability of migration applicants and the duty generally of a professional seeking reward and, not insignificantly, the prescription of a Code of Conduct applicable to migration agents.
The Tribunal did not consider it was sufficient for the applicant to submit that a lower standard of conduct ought to be expected of migration agents given the limited nature of the training and qualifications required compared to that of lawyers.

5.You must have in place adequate arrangements for the management of conflicts of interest that may arise in relation to the activities that you undertake in the capacity of a registered tax agent or BAS agent

Bolkiah (Prince Jefri) v KPMG (a firm) [1999] 1 All ER 517

Summary

In relation to litigation, the use of Chinese walls within an accounting firm was considered and whether the actions of the accounting firm were enough to discharge their duty not to allow a conflict of interest to arise between the interests of multiple clients.

Keywords: accountant; conflict of interest; information barriers; Chinese walls; consent.

Outline of relevant facts

The defendant, KPMG, was an accounting firm that had been acting for BIA, the investment agency responsible for managing the general reserve fund of the Government of Brunei as auditors. The plaintiff had been the chairman of BIA until 1998. The plaintiff had engaged the defendant to provide litigation support services for 18 months from 1996 to 1998, during which time the defendant was entrusted with and acquired large amounts of confidential information concerning the assets and income of the plaintiff.

In 1998, the plaintiff was dismissed from his position of chairman at BIA and the Government of Brunei commenced an investigation into the affairs of BIA relating to the period that the plaintiff was the chairman. The Government engaged the defendant to assist in this investigation. The defendant did not consider that there was an unmanaged conflict of interest by agreeing to assist in the investigation as the defendant had established information barriers, referred to as ‘Chinese walls’ within those parts of the firm assisting with the BIA investigation.

The plaintiff’s consent to assist in the investigation of BIA was never sought by the defendant. The plaintiff sought an injunction restraining the defendant from assisting with the investigation.

A key question for the House of Lords was whether the arrangements put in place by the defendant were sufficient to discharge their duty to not allow a conflict of interest to arise between the interests of multiple clients.

Relevant principle/s established or confirmed by the case

A person cannot, without the consent of both clients, act for one client while their partner is acting for another with a conflicting interest. The person’s disqualification has nothing to do with the confidentiality of the client information. It is based on the inescapable conflict of interest which is inherent in the situation.
The court should grant an injunction restraining the defendant acting for the second client unless it is satisfied on the basis of clear and convincing evidence that effective measures have been taken to ensure that no disclosure will occur.
A ‘Chinese wall’ will ordinarily involve a combination of the following:
- the physical separation of various departments in order to insulate them from each other
- an ongoing educational program to emphasise the importance of not improperly or inadvertently breaching duties to a client
- strict and carefully defined procedures for dealing with situations where it is considered that action may need to be taken that might create a risk of a breach of duty, in addition to the maintenance of proper records when this action is taken
- monitoring of compliance with the procedures
- disciplinary sanctions where there has been a breach of any internal procedures.

To be effective, these measures need to be ‘an established part of the organisational structure of the firm, not created ad hoc and dependent on the acceptance of evidence sworn for the purpose by members of staff engaged on the relevant work.’

Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (ACN 113 114 832) (No 4) (2007) 241 ALR 705

Summary

In relation to an allegation that Citigroup had breached the Corporations Act 2001, the Federal Court considered whether a fiduciary relationship existed between Citigroup and Toll and then whether Citigroup failed to manage a conflict of interest. The Court also considered whether a fiduciary relationship could be contracted out of.

Keywords: fiduciary relationship; fiduciary duty; Corporations Act 2001; conflict of interest; Chinese walls.

Outline of relevant facts

This case involved allegations by ASIC that Citigroup had breached its fiduciary relationship with Toll Holdings, a client, as Citigroup had profited from trading in shares in Patrick, the company for which Toll Holdings was making a takeover bid.

ASIC also alleged that Citigroup had failed to establish adequate arrangements for the management of conflicts of interest pursuant to section 912A (1) (aa) of the Corporations Act 2001.

In dismissing the application from ASIC, the Federal Court commented on the requirement to establish adequate arrangements for the management of conflicts of interest.

Relevant principle/s established or confirmed by the case

The requirement to establish adequate arrangements for the ‘management’ of conflicts of interest indicates that this requirement does not necessarily require that those subject to it eliminate conflicts of interest.
Whether the given conflict management arrangements employed by an entity are adequate will be a question of fact to be determined on the basis of the circumstances of a particular case.
In relation to ethical walls generally, this form of conflict management, to be adequate, will need to be an established part of the organisational structure of the business as opposed to an ‘ad hoc’ arrangement.

6.Unless you have a legal duty to do so, you must not disclose any information relating to a client’s affairs to a third party

Re Collie and Deputy Commissioner of Taxation (1997) 45 ALD 556

Summary

In relation to a Freedom of Information application, the AAT considered whether certain documents should not be disclosed because they revealed information respecting the affairs of another person.

Keywords: freedom of information; exemption; affairs of a person; Income Tax Assessment Act 1936.

Outline of relevant facts

This case involved an application to the AAT for review of a decision by the Australian Taxation Office to refuse access (in whole or part) to certain documents requested under the Freedom of Information Act 1982 in the course of proceedings for recovery of amounts owing by the applicant.

The refusal of the request was based on a number of grounds for exemption contained in that Act, including that certain documents revealed information “respecting the affairs of another person” under section 16(2) of the Income Tax Assessment Act 1936. In substituting the original decision, the AAT held that certain information fell within the non-disclosure provision in subsection 16(2) and was thereby exempt.

Relevant principle/s established or confirmed by the case

In applying subsection 16(2) to the information requested by the applicant, the AAT set out a number of guiding principles on the interpretation of the phrase “respecting the affairs of another person” in the context of that provision.

These principles are as follows:

To respect the affairs of another person, it is not necessary that information be capable of identifying the person.
The “affairs” of a person are to receive a broad interpretation. The ordinary meaning of “affairs” extends to the activities, business or concerns of a person.
The interpretation of “affairs” is not affected by the status of the person, i.e. whether the affairs of an individual or corporate entity are under consideration.
To be “respecting” the affairs of a person, information must, in a general sense, be in “relation, connection, reference (or) regard” to such affairs.

Re Corrs Chambers Westgarth and Commissioner of Customs (1998) 53 ALD 769

Summary

In relation to a Freedom of Information application, the AAT considered whether certain documents should not be disclosed because they revealed information respecting the affairs of another person.

Keywords: freedom of information; exemption; affairs of a person; Income Tax Assessment Act 1936.

Outline of relevant facts

This case related to a request for access under the Freedom of Information Act 1982 to documents prepared and compiled as part of a taxation review of a corporate group and its subsidiaries. The documents comprised copies of correspondence with unrelated third parties, a private ruling in relation to an unrelated third party and a note regarding a tax agent’s request for advice concerning an unrelated third party.

The Commissioner refused access on the basis that they were exempted under that Act, in particular as they were “respecting the affairs of another person” pursuant to subsection 16(2) of the Income Tax Assessment Act 1936. The applicant applied to the AAT for review of the decision. The AAT varied the original decision in respect of certain documents, but otherwise held that the remaining were exempt under the ground contained in subsection 16(2).

Relevant principle/s established or confirmed by the case

As in Collie, the case of Corrs highlighted a number of principles on the interpretation of the term “respecting the affairs of another person” under subsection 16(2) of the Income Tax Assessment Act 1936.

These principles are as follows:

The “affairs” of a person need not be their taxation affairs, but may include the personal, professional or business concerns of the person.
The relevant test for determining whether information should be protected on the basis that it respects the affairs of another person is whether or not the recipient or a person viewing the information would know more about the other person if the information were disclosed.
In relation to both an individual or corporate entity, “matters” may include, for example, the amount the person earns, how the person makes money, interactions between the person and others and the relations of a corporation with its employees and the public.
Information may fall within the scope of subsection 16(2) even if it is not identifying information or information respecting an identifiable person.

Prince Jefri Bolkiah v KPMG (a firm) [1999] 1 All ER 517

Summary

Keywords: accountant; duty of confidentiality; conflict of interest; information barriers; Chinese walls; consent.

Outline of relevant facts

This case related to confidential information about the assets and financial affairs of the former chairman of an investment agency (plaintiff), which were acquired and held by a firm of accountants retained to provide litigation support services in the course of private litigation in which the plaintiff was engaged whilst he was the chairman of an investment agency. Following the plaintiff’s dismissal, the client of the investment agency (the Brunei government) commenced an investigation into the conduct of the affairs of the agency and for that purpose sought to engage the same firm of accountants previously retained by the plaintiff.

The firm accepted the retainer and, on account of the confidential information held, erected an information barrier around the department providing the service on behalf of the government. This barrier entailed arrangements to ensure that nobody in possession of the confidential information could undertake work on the investigation and steps to avoid the risk of that information later becoming available to the staff assigned to the investigation. However, the firm neither informed nor sought the consent of the plaintiff prior to accepting the assignment.

The firm submitted that a voluntary undertaking not to disclose or use information acquired in the course of the previous litigation work was sufficient to protect the plaintiff’s interests. The plaintiff successfully appealed against a discharge of an injunction to restrain the firm from continuing the work on the basis that the firm had not discharged its duty to preserve the confidentiality of the information.

Relevant principle/s established or confirmed by the case

The case of Prince Jefri establishes a number of principles relevant to the scope of the duty of confidentiality owed by accountants to their clients, in particular the measures required to be adopted to protect against disclosure of confidential information.

These principles are as follows:

Akin to a solicitor’s professional obligation, an accountant owes a duty to a former client to maintain the confidentiality of information acquired during the course of the professional relationship, which continues beyond the termination of that relationship.
To comply with the duty, an accountant must actively preserve the confidentiality of the information and it is not sufficient merely to take reasonable steps to do so.
The duty of confidentiality extends to an obligation not to misuse confidential information.
Where an accountant is in receipt of confidential information, they must take effective measures to ensure not only against deliberate disclosure but that there was no risk of the information being unwittingly, inadvertently or negligently disclosed to other persons.
A risk of subsequent disclosure may arise where, for example, the accountant later accepts instructions to act for another client with an adverse interest in a matter to which the confidential information is, or may be, relevant.
Where confidential information is held by a section/department within a firm, it will be presumed (in the absence of cogent evidence to the contrary) that the information was being imparted across the firm.
To eliminate the risk of disclosure of confidential information within sections of a firm, the firm must implement special measures as part of its broad organisational arrangements (as opposed to ad hoc measures).
The principles of confidentiality apply equally to all forms of employment that involve confidential relationships between persons and clients with whom they do business.
Following the termination of a professional relationship, the duty of confidentiality requires that there be no risk of disclosure (not merely an insubstantial one). However, to warrant restraint a risk must be a “real one, and not merely fanciful or theoretical.”

Li and Tax Practitioners Board [2014] AATA 299

Summary

Termination of registration, imposition of a non-application period of three years and rejection of application for renewal of registration considered in relation to breaches of the Code in the TASA and ceasing to meet the registration requirement of being a fit and proper person.

Keywords: registration as tax agent; termination of registration and prohibition on applying for registration for 3 years; refusal to renew registration; whether fit and proper person; breaches of the Code of Professional Conduct; unwitting involvement in fraud by third parties; failure to keep client information confidential; failure to take reasonable care in establishing client’s circumstances; failure to provide tax agent services competently.

Outline of relevant facts

Between about mid-August 2011 and about 19 September 2011, the tax agent prepared and lodged (or attempted to lodge) 454 tax returns on behalf of taxpayers based on the instructions of intermediaries. The taxpayers had not authorised the intermediaries to arrange preparation and lodgment of their tax returns, and about 400 of those tax returns contained salary, wages and tax instalment deduction amounts that did not match those recorded on payment summaries lodged by the taxpayers’ employers.

The agent did not (a) meet or request to meet or make direct contact with any of the taxpayers, or (b) use the ATO tax agent portal to check information and did not use the pre-filling function to assist with lodging returns. In preparing the returns, the agent printed the unsigned returns on ‘recycled paper’ (paper previously used to print other returns) and provided them to the intermediaries to have them signed by the relevant taxpayer. 33 of the tax returns that had been printed on ‘recycled paper’ contained information about 85 other taxpayers, of which two were taxpayers that were not connected with the intermediaries.

The AAT held that the agent had breached subsection 30-10(6) of the Code by printing tax returns on ‘recycled paper’ which contained confidential information on the reverse – noting that the agent had admitted to doing this as part of his usual practice.

The AAT held that the agent had breached subsections 30-10(7) and 30-10(9) of the Code by failing to seek verification that the information provided by the intermediaries was legitimate or authorised in circumstances where he ought to have made further enquiries including failing to request substantiation for deductions claimed and speaking with any taxpayers to satisfy himself that expenses were incurred.

In affirming the TPB’s decision to terminate the agent’s registration and impose a non-application period of three years, the AAT noted that there had been numerous serious breaches of the Code and there had been loss and inconvenience to taxpayers. There had been evidence of incompetence and negligent, if not wilful, breach. Whilst the agent had expressed remorse, he had sought to minimise his role and the extent of his responsibility. Finally, whilst it was noted that the agent would suffer hardship from being unable to practice, there was no evidence to suggest that the agent could not find alternative employment until the period of disqualification ended. For the AAT, the public interest favoured termination and a sufficiently lengthy disqualification to ensure that the agent properly reflected on his conduct, the public was protected from harm and other tax agents were deterred from engaging in similar conduct.

Relevant principle/s established or confirmed by the case

The AAT considered that the following factors identified by Santow J in ASIC v Adler[166] were relevant to determining the appropriateness of a termination and the imposition of a non-application period:

“(i) Banning orders are designed to protect the public from harm;

(ii) The banning order is protective against present and future breach;

(iii) A banning order has a motive of personal deterrence, though it is not punitive;

(iv) The objects of general deterrence are also sought to be achieved;

(v) In assessing the fitness of a person to be permitted to provide tax agent services, they have an understanding of their role and obligations;

(vi) In assessing an appropriate length of prohibition, consideration has been given to the degree of seriousness of the contraventions, the propensity that the defendant may engage in similar conduct in the future and the likely harm that may be caused to the public;

(vii) Longer periods of disqualification are reserved for cases where contraventions have been of a serious nature such as those involving dishonesty;

(viii) It is necessary to balance the personal hardship to the defendant against the public interest and the need for protection of the public from any repeat of the conduct;\

(ix) A mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming;

(x) It is necessary to assess matters such as the character of the person, the nature of the breaches, risks to others from the continued registration of the person;

(xi) Factors which lead to the imposition of the longest periods of disqualification include large financial losses, high propensity for the person to engage in similar conduct and lack of contrition or remorse.”

7.You must ensure that a tax agent service provided on your behalf is provided competently

Su and Tax Agents’ Board of South Australia [1982] AATA 127

Summary

Fitness and propriety of registered tax agent considered in relation to:

convictions and fines relating to considerable delays and failure to lodge personal income tax returns
failure to remit group tax instalments in his capacity as an employer
failure to furnish return of company of which he was director
failure to disclose convictions in annual notices to the board.

Keywords: fit and proper; cancellation of registration; convictions; personal income tax affairs; relationship with the Board and Commissioner.

Outline of relevant facts

Refer to the facts outlined above under the case summaries for Principle 2 of the Code.

Relevant principle/s established or confirmed by the case

While particular acts or omissions by a tax agent may not be enough, viewed separately, to warrant removal from the register, it is possible for multiple less serious matters, if sufficient in number, to provide a basis for a board to determine that a tax agent was not fit and proper.
In addition, the failure of a tax agent to comply with their own taxation obligations is relevant to fitness and propriety as it may result in adverse treatment of the clients of that agent and the Commissioner will have reduced confidence in the competence with which those returns were prepared.
Certain offences are so inconsistent with performing the role of a tax agent that conviction for these offences will render a person not fit and proper to be a registered tax agent. The AAT highlighted offences involving tax evasion to be an example of such an offence.
In relation to the failure to accurately complete the annual returns to the Board, someone incapable of accurately completing a simple yet important notice “is not a person of sufficient competence and integrity to hold the privilege of acting for clients in the preparation and lodgment of their income tax returns.”

Li and Tax Practitioners Board [2014] AATA 299

Summary

Outline of relevant facts

Refer to the facts outlined above under the case summaries for Principle 6 of the Code.

Relevant principle/s established or confirmed by the case

The AAT considered that the following factors identified by Santow J in ASIC v Adler [167] were relevant to determining the appropriateness of a termination and the imposition of a non-application period:

“(i) Banning orders are designed to protect the public from harm;

(ii) The banning order is protective against present and future breach;

(iii) A banning order has a motive of personal deterrence, though it is not punitive;

(iv) The objects of general deterrence are also sought to be achieved;

(v) In assessing the fitness of a person to be permitted to provide tax agent services, they have an understanding of their role and obligations;

(vii) Longer periods of disqualification are reserved for cases where contraventions have been of a serious nature such as those involving dishonesty;

(viii) It is necessary to balance the personal hardship to the defendant against the public interest and the need for protection of the public from any repeat of the conduct;

(ix) A mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming;

(x) It is necessary to assess matters such as the character of the person, the nature of the breaches, risks to others from the continued registration of the person;

Su and Tax Practitioners Board [2014] AATA 644

Summary

Outline of relevant facts

Refer to the facts outlined above under the case summaries for Principle 1 of the Code.

Relevant principle/s established or confirmed by the case

Burnett and Tax Practitioners Board [2014] AATA 687

Summary

Fitness and propriety of a registered tax agent considered in relation to:

whether the agent was of good fame, integrity and character
findings that the agent breached the Code in the TASA for:
- accessing a taxpayer’s records on the ATO Tax Agent Portal without authority
- preparing and lodging tax returns on behalf of clients containing inaccurate and unsupported claims, without making sufficient enquiries with the clients to ascertain their affairs or to confirm the correct application of taxation laws to ensure that these returns were prepared and lodged competently.
lack of contrition and understanding and appreciation of the taxation laws and seriousness of the agent’s conduct.

Outline of relevant facts

Refer to the facts outlined above under the case summaries for Principle 1 of the Code.

Relevant principle/s established or confirmed by the case

A registered tax practitioner’s diligence in providing tax agent services, current knowledge of the relevant legal frameworks (including income tax laws) and competence and professionalism in dealing with both clients and the ATO are relevant to assessing whether the registered tax practitioner possesses the integrity and competence required of a registered tax practitioner, such that others may entrust their taxation affairs to their care.
These qualities are also relevant to whether the registered tax practitioner is a fit and proper person to be registered under the TASA. This is particularly so in a self-assessment tax regime, in which inaccuracies in returns generally only come to light during random audits and penalties for inaccurate claims and late lodgments can be imposed on taxpayer clients, who rely on the registered tax practitioner to properly advise, guide and lodge accurate and timely returns and other tax documents with the Commissioner on their behalf.
To ensure that a tax agent service is provided competently, a registered tax practitioner is expected to keep up to date with developments in taxation laws to maintain a proper knowledge of these laws. This may involve research and other enquiries to confirm the application of any relevant ATO policies and guidelines to the circumstances of the client. A registered tax practitioner is also expected to ask sufficient and pertinent questions of their client to enable them to be reasonably satisfied of the accuracy of claims they prepare and lodge on the client’s behalf. This may include sighting specific and necessary evidence to substantiate the claims.

Grosfeld and Tax Practitioners Board [2014] AATA 100

Summary

Fitness and propriety of a registered tax agent considered in relation to:

failing to lodge personal income tax returns and BAS
failing to provide clients with a means of contact
failing to ensure that tax agent services were provided competently
failing to maintain PI insurance as required by the TPB
failing to respond to requests from the TPB.

Outline of relevant facts

Refer to the facts outlined above under the case summaries for Principle 2 of the Code.

Relevant principle/s established or confirmed by the case

Evidence of the following matters relating to a registered tax practitioner’s dealings with a client, among other things, are relevant to determining whether the registered tax practitioner has failed to ensure that a tax agent service they provided, or that was provided on their behalf, was provided competently:
- not providing a client with a means of contact, or remaining inaccessible to a client for an unreasonable period of time
- causing an inappropriate delay in the preparation and lodgment of a tax return or other taxation document on behalf of a client
- not providing a tax agent service that is requested by a client, despite accepting payment of a fee of this service from the client
- not returning source documentation to a client, despite a reasonable request to do so (for example, when the client engages another registered tax practitioner who requires the information to provide tax agent services to the client)
not forwarding relevant ATO correspondence relating to a client’s taxation obligations, liabilities and entitlements, as necessary, to the client.

8.You must maintain knowledge and skills relevant to the tax agent services you provide

Leo Comino and Tax Agents Board of New South Wales 2009 AATA 766

Summary

Fitness and propriety of applicant for tax agent re-registration considered in relation to:

failure to lodge quarterly BAS
prior convictions for failure to lodge income tax returns
failure to lodge personal tax returns.

Keywords: fit and proper; personal income tax affairs; whether special circumstances exist; meaning of ‘special circumstances’; diligence and professionalism.

Outline of relevant facts

This was a review by the AAT of a decision by the Tax Agents’ Board of NSW to refuse an agent’s application for re-registration on the ground that the agent was not fit and proper person to prepare income tax returns. The AAT affirmed the board’s decision to refuse the application.

Among the other facts in this case, the applicant had five previous convictions for failure to lodge quarterly BAS’s in 2006 and 2007. The applicant also had two prior convictions for failing to lodge income tax returns and was late in lodging his personal income tax returns in four different tax years.

Relevant principle/s established or confirmed by the case

It is essential that a tax agent keeps up to date with the changes in the income tax laws.
Maintaining this knowledge requires a level of diligence and professionalism.
Given the importance of a tax agent maintaining knowledge and skills in the areas within which they provide tax agent services, an admission by an agent that they are unable to keep abreast of these changes reflects adversely on the agent’s fitness to provide those services competently.
At [34] the AAT said:

“Mr Comino acknowledged that he had experienced problems with the introduction of the GST and that this had been a factor in the late lodgment of business activity statements. Given the importance of tax agents keeping up to date with the relevant law in order to fulfil their responsibilities in properly advising clients, Mr Comino’s acknowledgement, while a frank admission, does not give the AAT confidence in his ability to keep abreast of changes in the law, especially since the problems with business activity statements occurred in 2006/7, and the introduction of GST took place in 2000.”

9.You must take reasonable care in ascertaining a client’s state of affairs, to the extent that ascertaining the state of those affairs is relevant to a statement you are making or a thing that you are doing on behalf of the client

Hawkins v Clayton [1988] HCA 15; (1988) 164 CLR 539

Summary

The High Court considered whether the legal firm had breached its duty of care to the executor of a testatrix estate for their failure to take positive steps to inform the executor of the contents of the will, a document which only the solicitor was aware of.

Keywords: solicitor; duty of care; standard of care; reasonable care; damages.

Outline of relevant facts

This case involved an appeal from a decision of the New South Wales Court of Appeal to dismiss an action for breach of an alleged contract and a duty of care owed by a firm of solicitors (respondent) to the appellant as executor of a testatrix’s estate. The action arose following a failure by the respondent to take positive steps to locate and disclose to the executor the existence of the will of the testatrix during a period of more than six years after her death. The failure resulted in such losses as the deterioration of the house property (being the principal asset in the estate) and the loss of rent and income that might have otherwise been derived from the house.

The High Court allowed the appeal on the basis that the respondent had, as a matter of fact, breached its duty of care to the appellant in failing to take such positive steps to avoid the damage.

In arriving at its decision, the Court placed particular emphasis on the responsibility undertaken by the respondent for the custodianship of the testatrix’s will after her death and the foreseeability of a risk of damage if the respondent simply retained the will.

Relevant principle/s established or confirmed by the case

The general standard of care owed by a professional to a client is that of “due care, skill and diligence.” This does not require an extraordinary degree of skill and competence, but rather, that the professional exercise the competence and skill that is “usual” among qualified and careful persons in the practice of the profession.
Reasonable care means what is reasonable in the circumstances. This will depend on a range of factors including the scope of the services provided and the client’s level of professional knowledge and experience.

Martinazzo and Commissioner of Taxation [2009] AATA 61

Summary

In relation to an administrative penalty imposed by the Commissioner of Taxation, the AAT considered whether the tax agent’s client’s false and misleading statement to the Commissioner was caused by a failure to take reasonable care on the part of the agent.

Keywords: tax agent; penalty; standard of care; failure to take reasonable care; knowledge, education, experience and skill of agent.

Outline of relevant facts

This case concerned the question of whether amounts purportedly paid to the applicant as “advances in the nature of loans” were in fact income and should have been reported as such in his tax return. The ATO had imposed an administrative penalty under the Tax Administration Act 1953 for making a false and misleading statement to the Commissioner. The amount of that penalty was determined by whether the shortfall in tax was caused by a failure to take “reasonable care to comply with a taxation law” on the part of the taxpayer or the registered tax agent.

The matter went on appeal to the AAT. In this case the AAT found that the agent should clearly have included the amounts in assessable income.

On this and other grounds the decision to impose the penalty was therefore affirmed.

Relevant principle/s established or confirmed by the case

To take reasonable care, in the context of making a statement to the Commissioner, means giving appropriate serious attention to complying with the obligations imposed under a taxation law. It requires an entity to take the same care in fulfilling their tax obligations that could be expected of a reasonable ordinary person in their shoes.
The standard of care is measured objectively (the actual intentions of the entity are not relevant) but takes into account subjective factors such as the entity’s knowledge, education, experience and skill.
A professional person with specialist tax knowledge will be subject to a higher standard of care that reflects the level of knowledge and experience a reasonable person in their circumstances will possess.
The appropriate benchmark is the level of care that would be expected of an ordinary and competent practitioner practising in that field and having the same level of expertise.

Reeders v Federal Commissioner of Taxation 2001 ATC 2334

Summary

In relation to a disallowed claimed deduction and penalty imposed by the Commissioner of Taxation, the AAT considered whether the taxpayer entity and tax agent had demonstrated reasonable care in relation to the claim.

Keywords: Claimed deduction; penalty; reasonable care; knowledge, education, experience and skill of agent.

Outline of relevant facts

In this case the Commissioner had disallowed a claimed deduction for self-education expenses, being the cost of obtaining a pilot’s license. The Commissioner also imposed a penalty under s226G of the ITAA 1936 which allowed a penalty to be imposed where the tax shortfall had been caused by the failure of the taxpayer or of a registered tax agent to take reasonable care to comply with the Act or the regulations and the taxpayer was therefore liable to pay the penalty. In this case the taxpayer objected to the penalty and the case came before the AAT sitting as the Small Taxation Claims Tribunal.

The taxpayer had consulted an accountant before lodging the claim for the deduction and the tax agent had made some inquiries before advising that the deduction was allowable. One of the questions before the AAT was whether there was any indication of a want of care by the tax agent.

Relevant principle/s established or confirmed by the case

More might be expected of a tax agent than a taxpayer completing his or her own return.
The tax agent must act reasonably having regard to the agent’s knowledge, education, experience and skill.
Making reasonable inquiries of a client to determine the nature of certain claims for deductions made by the client and the basis on which those claims were being made would be considered taking reasonable steps to ascertain a client’s state of affairs.

Li and Tax Practitioners Board [2014] AATA 299

Summary

Outline of relevant facts

Refer to the facts outlined above under the case summaries for Principle 6 of the Code.

Relevant principle/s established or confirmed by the case

The AAT considered that the following factors identified by Santow J in ASIC v Adler[168] were relevant to determining the appropriateness of a termination and the imposition of a non-application period: