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Changes to Breach reporting under the Tax Agent Services Act and Implications for The R&D Tax Incentive

The Tax Practitioners Board (“TPB”) has recently taken steps to reinforce the laws surrounding registered tax agents and BAS advisors in understanding breach reporting obligations. This move comes in response to a series of controversies within the industry.

Significant changes are set to commence from 1 July 2024, which includes new obligations for tax practitioners to report ‘significant breaches’ of the Code of Professional Conduct (Code) in the TASA relating to their own conduct, and conduct by other registered tax practitioners.

Draft guidance released by the TPB consists of a draft information sheet, summary document and high-level decision tree.

These documents explain the additional breach reporting obligations, when the obligations apply, what constitutes a significant breach, the timeframe for reporting a significant breach, and what happens if a significant breach is not reported.

The information sheet outlines that significant breaches of the Code are breaches that satisfy one of the following tests:

• Are an indictable offence, or an offence involving dishonesty, under an Australian law;
• Result, or are likely to result, in material loss or damage to another entity (including the Commonwealth);
• Are otherwise significant, taking into account:

o    The number or frequency of similar breaches by the tax practitioner;

o    The impact of the breach on their ability to provide tax agent services, and

o    The extent to which the breach indicates that their arrangements to ensure compliance with the Code are inadequate, or

• Are prescribed by the Tax Agent Services Regulations 2022.

The breach reporting regime applies only to registered tax practitioners in relation to their own conduct (in the case of self-reporting) or the conduct of another registered tax practitioner (in the case of breach reporting by another practitioner).

A reporting requirement arises where registered tax practitioners have reasonable grounds to believe a breach of the Code has occurred, and that the breach is significant.

The breach reporting obligations are in addition to other existing obligations under the TASA that require tax practitioners to notify the TPB if they cease to meet a registration requirement, about events affecting their continued registration, and other changes in circumstances.

Swanson Reed’s Comments on these Breach Reporting Changes

These changes are in response to several high-profile controversies in the tax system over the past decade.

Some such controversies have involved R&D Tax Matters, and cases such as those involving the Bogiatto, Armede and Birdseye matters have rightly led to scrutiny of the R&D Tax Incentive.

Swanson Reed believes however, that the R&D Tax Incentive currently has a higher level of integrity and compliance than it did some years ago when many of these R&D Tax specific controversies occurred.

Swanson Reed supports strong rules for the integrity of the R&D Tax Incentive and the tax system more broadly. But we also acknowledge the need for safeguards to ensure that tax advisors who are operating ethically and correctly are not burdened with obligations that are excessive or lead to unintended outcomes. Especially given that tax advisors have been under significant pressure in recent years from heavy workload and staff shortages.

We understand that investigations by the TPB can, and often rightly so, put enormous pressure on the firms that are subject to them. The TPB has stated this week  that they have attempted to put safeguards in place to deal with vexatious complaints, and hopefully these are fair and effective.

Stakeholders participating in the R&D Tax Incentive may need to review the breach reporting changes to understand how they may apply in scenarios such as:

• Where a R&D Tax Agent is discussing engaging a prospective client and discovers the work undertaken by the prior R&D Tax agent has issues;
• Where a general Tax Agent receives a R&D Schedule from an R&D Tax Agent that they are not comfortable with;
• Where a R&D Tax Agent becomes aware of issues with a client’s general Tax Agent;

Swanson Reed recognises the important role that regulators, including the ATO and TPB, play in maintaining the integrity of the tax system. We believe that these breach reporting changes, while beneficial to integrity of the tax system, must be balanced with suitable safeguards to protect tax advisors who are doing the right thing from unintended consequences.

Hopefully with consultation and engagement underway in coming months, a suitable suite of changes with clear guidance can be developed.

Please get in touch with our office if you require assistance.