Speaking on the ATO’s tax professional’s webcast, ATO assistant commissioner Tim Roach said the agency was committed to ensuring a level playing field for tax agents, and called for agents to help refer rogue agents to the Tax Office.
“Look, in a way, I think don’t feel guilty. Don’t feel bad. And I know that there is, it’s something of an Australian reluctance to call out people that are behaving badly, so first, it’s the right thing to do,” said Mr Roach.
“The second point I would make is that we look at every – we call them referrals, we don’t call them a dob in, we look at every referral that comes through. So everyone gets looked at.
“So sometimes we don’t go back, or we can’t go back and say this was the outcome of what you told us, but trust me, we look at every one that comes through.”
The criminal, the high risk, and the ignorant
While noting that its agent assurance program was not new, ATO director Ben Spargo said the additional $130.8 million funding boost announced in the 2018 Federal Budget had allowed the Tax Office to expand its focus and “refresh” its approach.
In a further analysis of the tax agent population and a breakdown of the three groups of agents demonstrating poor behaviours, Mr Roach said there were less than 100 agents who were exhibiting criminal behaviour.
“At the top, we are seeing criminal behaviour, either defrauding the Commonwealth and or defrauding clients. So some examples of the sort of things we are seeing are tax agents that are preparing returns that are not authorised by the client with highly inflated deductions leading to big refunds, and the client never sees that refund. So, the tax agent is defrauding their clients,” said Mr Roach.
“We also are seeing some tax agents involved in things such as facilitating and organising phoenixing schemes, and at a large scale. So, defrauding the Commonwealth, defrauding the client.
“And as I say, though I stress, it’s a small group. It’s not a major, major number but it’s a major, major risk, because of how, how bad these people behave.”
Further, he noted a larger group displaying risk behaviour around claiming large levels of work-related expenses.
“What we’re seeing here is that large groups of a tax agent’s clients are displaying the same risky behaviour,” added Mr Roach.
“So what I mean by this is we’ll look at the clients of a tax agent and we might see that every one of their clients is claiming really large levels of work-related expenditure. And when we go in and we do an audit we see that most of them can’t be substantiated and most of these high claims don’t hold up when we do an audit. And the common denominator is the agent.
Lastly, Mr Roach said the ATO have identified a group of agents who lack knowledge of the law due to their lack of time of time in the industry or failure to keep up with changes.
“Sometimes we see new agents that come in, or new employees in firms, that don’t have a great understanding of the law, and sometimes we see agents that have been in business for a long, long time that haven’t been able to keep up with the changes, and don’t understand the way things are at the moment,” he said.
“So, with this group where the issues are more about competence or perhaps it is control over employees, our behaviours there are quite different, or our actions are quite different to the actions we take at that pointy end. Our actions down below are much more about support and assistance and trying to get people back on track.”
Mr Roach said the ATO has been working collaboratively with the Tax Practitioners Board to review such agents but stressed that it would not apply a “cookie cutter approach” to dealing with different agents.
“The TPB interaction is critical. With these highly egregious cases, these really bad cases, we start talking to the TPB as soon as we find the cases,” said Mr Roach.
“The TPB is independent, but when it comes to us referring them for investigation to the TPB, and the TPB’s investigation, we’ll talk to the TPB and say we found this, here’s a heads up so that they are ready that when we pass it to them for their independent investigation.
“The actions the Tax Office takes, are very much linked to the behaviours we see. We don’t have a cookie-cutter approach. The worse the behaviour, the stronger and the faster the action is.”
In defence of the profession
Although there is evidence of tax agent behaviour contributing to the individual tax gap, industry advocates like H&R Block director of tax communications, Mark Chapman are quick to point out that the ATO’s report on the $8.7 billion individual tax gap indicating that 78 per cent of agent-prepared returns required adjustments, as compared to the 57 per cent of self-preparers, would not stand up to scrutiny.
“Tax agents would be rightly extremely annoyed by the suggestion that three out of every four tax returns that they lodge are wrong, it’s just not correct,” said Mr Chapman previously.
“In real life, the idea that 78 per cent of tax returns prepared by tax agents have errors in them just doesn’t stand up to scrutiny and we know that from the way the ATO deals with tax agents generally.
“We know the vast majority of tax agents are acknowledged by the ATO to be low risk so I’m not sure what the ATO is stating in relation to that on one hand tallies with the idea that 78 per cent of agent returns are incorrect."
Similarly, the Institute of Public Accountants chief executive, Andrew Conway, believes the ATO’s data is not conclusive or representative of the entire tax agent population.
“It is also important not to tar those agents doing the right thing with the one ATO brush. If a tax agent deliberately flaunts the law, we will work with the ATO and weed them out."