Confusion with the recent changes affecting disqualified tax agents

All tax agents are, no doubt, aware of recent changes to the Code of Professional Conduct (CPC) in the Tax Agent Services Act. They have been extensive, but one set of changes to the CPC is the introduction of Code Items 15 and 16.

Briefly, Code Item 15 now prohibits a registered tax practitioner from employing or using the services of a "disqualified entity" (DE) for the purpose of providing tax agent services without TPB approval.?

Code Item 16 will prohibit a registered tax practitioner from entering into an arrangement with a DE for the purpose of providing tax agent services.? There is no TPB approval available.

There are positive obligations on a DE to notify another tax agent if they are already disqualified or upon becoming disqualified.

But the more you look at the changes to TASA, the more confusing it gets when DE are involved, because literally construed, the changes seem to cover common ground.

Code Item 15 says (in part): "You" (as a registered tax agent), "must not use the services of a DE to provide tax agent services on your behalf unless permitted by the TPB".?

But Code Item 16 says "You must not provide tax agent services in connection with an arrangement" with a DE.

So, in relation to a registered tax agent and a DE, is there any substantive difference between:

• using the services of a DE to provide tax agent services on your behalf; and
• providing tax agent services in an arrangement with a DE?

The Explanatory Memorandum to the Treasury Laws Amendment (2023 Measures No. 1) Bill 2023 suggests that there is a difference.?

Code Item 15 is meant to deal with employing or retaining DE to provide tax agent services (presumably as contractors), and Code Item 16 covers those arrangements where the DE, whilst not registered with the TPB is the "controlling mind", and who controls the operations of a tax practice in a near risk free environment. These ‘controlling minds’ are not visible to the TPB (and therefore the ATO) through the registration process.

Consider the following (over-simplified) example:

Linda and her firm Linda's Tax Services were recently the subject of a TPB investigation, with the result that both hers and the firm's registration as tax agents were cancelled, and no application could be made to re-register until 5 years had elapsed.? Linda's firm has a substantial goodwill built up over 3 decades of providing tax agent services. It's now all at risk.? Linda had a former trusted employee, Alice, who now provides tax agent services as a sole proprietor. Linda wants to continue to practise despite no longer being registered and Alice is happy to accommodate her.

Putting the DE notification requirements to one side, either Alice could employ or retain Linda as a contractor and enter into an licensing arrangement in relation to Linda's firm's business which then commences to operate again.

Since both Linda and Linda's firm are DE's the approval process in s45-5 could be utilised to seek TPB approval of the arrangement, and that once given, the new arrangement could take effect without a breach of Code Item 15.

But what about Code Item 16?? The licensing arrangement would arguably trigger a breach of the CPC, and that breach cannot be permitted or acceded to by the TPB.

This is not an uncommon example, and anecdotally, I'm aware of such arrangements occurring.? Ignoring the transitional provisions for both Code Items, it seems to me that permitted conduct under one part of the CPC may be a breach of another part.

The moral of the story is that if an application is made to the TPB for a DE's permitted conduct, make sure that any permission clearly covers Code Item 16 of the CPC.?

Feel free to reach out if you have any questions.