A regulatory crackdown motivated by “bad actors” and “systemic abuse” unfairly tars the profession.
Why accountants must speak up or be punished for sins of the few
On 6 August the Treasurer issued a press release entitled, “Government taking decisive action in response to PwC tax leaks scandal” and the first line says, “The Albanese government will oversee the biggest crackdown on tax adviser misconduct in Australian history.”
The announcement is meant to deal with what the media release calls the “PwC scandal”. It says the scandal exposed severe shortcomings in the regulatory frameworks that were (according to the government) largely ignored by the Coalition. The government therefore is “taking significant steps to clean up the mess”. It would also be “cracking down on the scourge of multinational tax avoidance and making sure multinationals pay their fair share of tax in Australia”.
The media release goes on to speak about three priority areas for action:
- Strengthening the integrity of the tax system.
- Increasing the powers of regulators.
- Strengthening regulatory arrangements.
The proposal is to increase penalties a hundredfold for those who promote tax exploitation schemes and to expand the tax promoter penalty laws so that they are easier for the ATO to apply to advisers and firms who promote tax avoidance.
Further, there will be other changes that will give increasing powers to government agencies such as the ATO and the TPB. Among other things, the ATO and the TPB will be empowered to refer ethical misconduct by advisers (including but not limited to confidentiality agreements) to professional associations for disciplinary action.
Stronger regulatory arrangements
Under “strengthening of regulatory arrangements” there are a number of points in the media release that describe initiatives the government is going to put in place progressively over the next two years. Among other things, this will include:
- “A Treasury review of emerging fraud and threats to clamp down on systemic abuse perpetrated by tax agents and other bad actors.”
- A Treasury and Attorney-General’s Department joint review of the use of legal professional privilege in Commonwealth investigations. This responds to concerns, mainly expressed by the ATO, that people are using claims of legal professional privilege to frustrate government investigations.
- A Treasury examination of the regulation of consulting, accounting and auditing firms to consider whether reforms are needed.
- A Treasury review of the compulsory information gathering powers of the ATO to ensure it has the “right tools to perform its role effectively” and to enable it to assist law enforcement agencies in investigating serious criminal offences perpetrated against the tax and superannuation systems.
The announcement is a strong reaction to the PwC scandal in which, as I understand, certain individuals within that accounting firm have breached confidentiality agreements with the ATO and used confidential information to further the interests of their clients.
This kind of behaviour should rightly be condemned. But I question whether the existing laws are already sufficient to deal with the behaviour of these people. Is there not already enough power in the hands of government agencies to deal with these issues? Are we dealing here with a lack of regulations or a lack of will?
My concern is that these proposed changes will be a method of achieving overreach with government regulations in relation to the actions of tax agents and accountants. Also, lawyers need to be very concerned about the impact of the possible eroding of rights given to clients of law firms through legal professional privilege. Could it be that the right to claim legal professional privilege will be removed for ATO investigations?
I am concerned that the actions of a very small number of individuals will be used to justify an overreach by the government regarding the regulation of tax professionals, the penalties that could apply to them and the investigative powers of government agencies. Unless the professions speak up against this possible overreach, tax agents, accountants and tax lawyers may have new laws that will impose undesirable restrictions and compliance procedures on them.
I am particularly concerned with the tone of some parts of the media release and the implied accusation that tax agents are villains engaged in a continual process of ripping off the Australian people. There is a tone in the media release, one cannot help picking up, that tax agents, as a cohort, are engaged in an unending quest to determine every trick in the book to enable clients not to pay their fair share of tax. This impression is regrettable and is also very far from the truth.
I am a chartered accountant and a tax agent. I have spent most of my time over the last 15 years advising and training tax agents and accountants. Over this time I have dealt with hundreds of tax agents. My almost universal experience is that tax agents desperately want to do the right thing. Only a very small minority of tax agents push the envelope in relation to the tax laws. Most are very conservative and extremely careful in the way they advise their clients. Their overriding concern is to ensure that whatever they advise their clients is sanctioned by the ATO and is well within the bounds of what the tax law permits.
The unfortunate phrase that I quoted before – that there needs to be a Treasury review of emerging fraud and threats to clamp down on “systemic abuse by our tax system perpetrated by tax agents and other bad actors” – tars all tax agents with one egregious brush. I am sure that most tax agents would be very disappointed in the tone of the government announcement. I am concerned that the reviews that were heralded in the media announcement on 6 August will result in a raft of rules and regulations that will impose even greater restrictions and hardships on the beleaguered tax agent community when, for the most part, they are unnecessary.
Tax agents critical to the system
The role of tax agents is critical to the function of the taxation system and without them, it would collapse. Most people and businesses use tax agents to comply with their taxation affairs. This is because the laws are complex, and it is easy for people to make mistakes and be penalised. Tax agents “stand in the gap” between the public and the ATO.
In order to be a tax agent, a person requires qualifications, experience and an ongoing commitment to rigorous self-education. Due to this, only a very limited number of people can be tax agents. What has been placed on tax agents, particularly since the introduction of the self-assessment regime, is a plethora of responsibilities for making the tax system function properly. These responsibilities and impositions on tax agents grow continually.
Who will speak up for tax agents?
I am not criticising the government for reacting to the PwC scandal. However, my concern is for the imposition of new regulations that may be overlaid on the tax agent and accounting profession (and also the legal profession) following the reviews that will be conducted by the government.
Tax agents are in a position of low power. There is no one who speaks up for them strongly and their power in political spheres is very weak. This creates a situation where the government, almost without restraint, could impose even more difficult laws and regulations upon tax agents and no one will be able to adequately speak up for them to oppose these imposts.
Tax agents already have an incredibly difficult set of laws and regulations imposed upon them. This includes requirements from the law, the ATO, the TPB and professional associations.
Who will give balance to the government’s considerations? Who will inform the government of all of the impositions currently placed on tax agents? Will the professional associations representing accountants fulfil this service for their members?
I hope that the professional associations will be very effective in making representations to the government during the various reviews of regulations and laws referred to on 6 August so that there is no overreach with the new laws. If this does not happen, it will be almost certain that accountants and tax agents are going to have to carry a heavy burden of further impositions placed on themselves, their staff, their clients and their businesses.
John Jeffreys is a director of John Jeffreys Tax Pty Ltd.