TPB and errant agents with unpaid taxes - an emerging problem

Following a push by the ATO to target errant and recalcitrant tax agents who have failed to comply with their own personal tax lodgments and tax-debt obligations in the vicinity of $115m, the TPB provided a deadline of 31 January 2019, by which the 7% of identified tax agents had to get their tax affairs into order by lodging all outstanding returns and paying all tax debts or entering into payment arrangements.

The TPB is now actively seeking to terminate the registration of a number of tax agents or refuse to allow re-registration, on the grounds that they are either not fit and proper to practise or are in breach of the Code of Professional Conduct (CPC).

Under the CPC, Code Item 2 says that a tax agent must comply with must comply with the taxation laws in the conduct of his or her personal affairs. The TPB expands on this in their information sheet 34/2018 by saying that:

Recognising that registered tax practitioners are taxpayers themselves, it is important that registered tax practitioners, who are entrusted to manage the tax affairs of their clients lead by example by ensuring that they themselves comply with their personal tax obligations.

And there is nothing in wrong in that approach or thinking. The TASA is, after all, consumer protection legislation by regulating the registration and conduct of tax agents for the benefit, and protection, of consumers in the discharge of their own tax requirements as citizen taxpayers.

Personally, I don’t think that any tax agent will receive any sympathy from the public if they choose to ignore their own business and BAS return obligations, have unpaid tax or GST debts, or even worse, have unpaid employee obligations. As advisers to small business, if they can’t get their own affairs in order, how can clients be satisfied that their trusted adviser is on top of their business taxes?

But here’s where me and the TPB diverge in our views:

What if a tax agent is a partner in partnership and is in dispute with the ATO? Hypothetically, a tax agent who is immersed in the objections/appeal stage with the ATO, where there is a genuine dispute on foot, is unlikely to have lodged all returns or paid all tax debts due. The ATO doesn’t have unlimited resources, and so the resolution process is, naturally, prolonged. All of a sudden, it would appear that the tax agent has breached Code Item 2.

The TASA says that a partnership is eligible for registration as a tax agent provided that each individual partner is a “fit and proper person”, and that there a sufficient number of individuals, being registered tax agents, to provide tax agent services to a competent standard, and to carry out supervisory arrangements.

A tax agent who is personally in dispute with the ATO and has failed to lodge returns and pay tax debts that are due, has ostensibly failed the “fit and proper person test”, which also may provide grounds for termination of registration. Further, one can foresee that if, in the unlikely event, the ATO prosecutes a tax agent for failing to lodge returns, it also provides grounds for the TPB to issue a notice to the partnership compelling the removal of the partner. As a side note, how many partnership deeds address that possibility?

The TPB does say that “whether a registered tax practitioner has complied with their obligations under Code Item 2 is a question of fact. This means that each situation will need to be considered on a case-by-case basis having regard to the particular facts and circumstances of that case.”

But the upshot remains that there will be occasions where a natural person tax agent partner will be in genuine dispute with the ATO, and where Code Item 2, on its face, has been breached. It is hoped that the TPB will give some written guidance on how it might deal with these issues, but for now it seems to me that, as a matter of policy, there should be a prescribed "carve-out" by the TPB for these types of events from the over-arching "fit and proper person test".

What do you think, especially if you’re a partner in partnership?

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