Risk areas for Tax Agents

As a tax agent, you have responsibilities to ensure that you meet the rules and requirements set out in the Professional Code of Conduct and Tax Agent Services Act 2009. As a tax agent, you have to be an expert in tax law, adapt your processes to various policy or law changes and manage client relationships, all while meeting your personal obligations.

The Tax Practitioner’s Board has been very active in conducting inquiries and investigations into tax agents over the last two years. Most matters we have seen have common issues regarding the tax agents conduct:

• Tax agents over-claiming work expenses on behalf of a client
• Outstanding personal taxation obligations (both lodgement and outstanding debt)
• Lack of supervision of staff by tax agent

Further, following the end of the JobKeeper and Cash Flow Boost incentives, both the ATO and the Tax Practitioner's Board have ramped up audits and investigations of tax agents whom they believe fraudulently made claims where the clients were not eligible.

Steps to ensure deductions are reported correctly for clients

Common work expenses claimed for individual clients include:

• car expenses
• travel expenses
• uniform expenses
• self education expenses; and
• other work related expenses

It is important when claiming such deductions for a client, that you (as the tax agent) have established that there is a nexus between the expense incurred and the salary or wages earned by the taxpayer.

Importantly, you also need to ensure that the expenses can be substantiated with appropriate documentary evidence. In some circumstances a diary or log may need to be kept by the taxpayer to substantiate any claims for deductions. If you do not verify that such substantiation exists, then those claims may be denied by the ATO, leaving your tax agent registration vulnerable.

Personal taxation obligations

The Tax Practitioner's Board has increased reviews into tax agents whose personal taxation obligations (usually any company, trust or SMSF for which the tax agent has responsibility) remain outstanding or were met late.

It is essential that tax agents ensure that their personal tax returns and activity statements are lodged on time, and that any outstanding debts are either paid on time or put on an ATO payment plan (if you are unable to pay on time).

We have also seen instances where tax agents or their associated entities have themselves been subject to ATO audits regarding suspected under-reported income. These matters can have very serious consequences, so particular care needs to be taken to manage such audits by getting expert assistance.

Supervision of staff

Supervision of staff is most problematic where offshore or remote staff are utilised to prepare tax returns. As a tax agent, you are required to have personal, physical oversight of work undertaken by your staff.

A common error tax agents make is reporting to the Tax Practitioner's Board that they have merely checked a return prepared by an unskilled staff member, without determining if the contents of the return have been input accurately. The agent’s supervision of their staff must be substantial and demonstrate a significant degree of control of their activities.

What are the other general risks faced by many tax agents?

Whilst running a business and maintaining requirements for registration as a tax agent common risks seen in tax agent de-registration cases include:

• risk of making errors of law when preparing income tax returns for clients, leading to shortfall in taxes, penalties and interest;
  
• risk of failing to meet lodgement deadlines set by the ATO;
  
• risk of clients being reviewed or audited, and;
  
• risk of client who do not provide adequate information to properly prepare tax returns.
  

How can Tax Controversy Partners help you?

If you are tax agent who is currently under inquiry or investigation by the Tax Practitioner's Board, it is vital that the investigation is managed and your best responses are put forward in support of your registration, skills and abilities. If you or an associated entity are subject to an ATO review or audit, getting the right assistance early in the process can help you manage the risks of a negative outcome.

At Tax Controversy Partners, our experienced lawyers can assist you by representing your interests during a Tax Practitioner's Board inquiry or investigation and in dealing with any ATO review or audit of you or your associated entities. Please contact us using our online contact form, via email at admin@taxcontroverypartners.com.au or by phone at 02 8513 3813.