Chapter 1

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Chapter 1 Introduction

1.1 On 29 May 2013, the Tax Laws Amendment (2013 Measures No. 2) Bill 2013 was introduced into the House of Representatives. This omnibus bill proposes a number of distinct amendments to Australia's tax laws. Two of the schedules—schedules 3 and 4—contained proposed amendments that would bring financial advisers who provide tax advice into the tax agent regulatory regime overseen by the Tax Practitioners Board (TPB).

1.2 On 6 June 2013, government amendments to the bill were passed by the House of Representatives. One of the amendments agreed to was the removal of schedules 3 and 4 from the bill.[1] Later that day, the House of Representatives referred to the Parliamentary Joint Committee on Corporations and Financial Services an inquiry into the creation of a regulatory framework for tax (financial) advice services to be based on the schedules 3 and 4 that were originally part of the bill.

1.3 In conducting this inquiry, the House directed that the committee particularly focus on:

(a) the application (ie definition) of the regime to ensure that the regime is applied to the appropriate persons;

(b) steps that can be taken to minimise regulatory duplication on industry participants;

(c) the interplay of the Tax Agent Services Regime with the Future of Financial Advice (FOFA) reforms, in particular the best interests duty;

(d) ensuring that new advice providers are not prohibited from employment in the future; and

(e) what further transitional relief may be required.[2]

1.4 The House of Representatives set a reporting date of 17 June 2013.

Conduct of the inquiry

1.5 The committee advertised the inquiry on its website and wrote directly to a number of organisations inviting written submissions. To allow the longest possible time for interested parties to provide a submission, the committee agreed to a date of 14 June 2013 for receipt of submissions. The committee received 13 submissions, which are listed in Appendix 1.

1.6 The committee held a public hearing in Sydney on 12 June 2013. It took evidence from relevant industry and professional associations, as well as from Treasury and the Australian Securities and Investments Commission (ASIC). Further details about the hearing can be found in Appendix 2.

1.7 The committee thanks the organisations that lodged submissions and the witnesses who gave evidence at the public hearing, particularly given the short period of time during which the inquiry was conducted.

Structure of the report

1.8 This report is structured as follows:

The remaining sections of chapter 1 provide an overview of the proposed measures.
Chapter 2 provides a discussion on the issues that the proposed measures sought to address. It also discusses the evidence that the committee received regarding the costs and benefits associated with the proposed changes and scrutinises the policy development and consultation processes.
Chapter 3 examines the key issues with the proposed amendments identified by stakeholders and in the inquiry's terms of reference (see paragraph 1.3). The committee's overall conclusions and recommendations can be found at the end of that chapter.

Note on terms used

1.9 Unless otherwise stated, references to 'the bill' refer to the version of the Tax Laws Amendment (2013 Measures No. 2) Bill 2013 that was read a first time in the House of Representatives; not the amended version that was subsequently passed.

Overview of the proposed measures

1.10 Schedule 3 to the Tax Laws Amendment (2013 Measures No. 2) Bill 2013 proposed to amend the Tax Agent Services Act 2009 (TASA) to bring into the existing tax agent regulatory regime entities that give tax advice in the course of giving advice that is usually provided by a financial services licensee or a representative. Schedule 4 proposed various technical amendments to TASA.

1.11 While tax agents and business activity statement (BAS) agents[3] are currently regulated by the TPB, entities that give tax advice in the course of giving advice that is usually provided by a financial services licensee or a representative are not. Under the exemption that currently applies, financial product advice is not a tax agent service provided that such advice is accompanied by a disclaimer in the form set out by the regulations.[4] This issue is discussed further in chapter 2.

1.12 To bring financial advisers into the tax agent regulatory regime, the bill proposed that a new type of regulated service—a 'tax (financial) advice service'—be inserted into TASA.[5] The definition does not extend to the provision to clients of tax‑related factual information.[6]

1.13 To provide tax (financial) advice services, an entity will need to register with the TPB and comply with certain regulatory requirements. Separate registration frameworks were envisaged for individuals, partnerships and companies. Unregistered entities that provide tax (financial) advice services while unregistered may be subject to civil penalties.

1.14 To be considered eligible to become a registered tax (financial) adviser, it was proposed that an individual, partnership or company would need to meet the requirements that apply to tax agents and BAS agents contained in subsection 20-5(1) of TASA. The requirements that would apply are outlined in Table 1.1.

Table 1.1: Proposed eligibility framework for entities seeking registration

Registration type	Eligibility criteria
Individuals	(a) the individual is a fit and proper person; and (b) the individual meets the requirements prescribed by the regulations (including, but not limited to, requirements relating to qualifications and experience) in respect of registration as a registered tax (financial) adviser; and (c) the individual must maintain professional indemnity insurance that meets the TPB's requirements; and (d) for renewal applications, the individual must have completed continuing professional education that meets the TPB's requirements.
Partnerships	(a) each partner (who is an individual) is: (i) aged 18 years or more; and (ii) a fit and proper person; (b) if a company is a partner: (i) each director of the company is a fit and proper person; and (ii) the company is not under external administration; and (iii) the company has not been convicted of a serious taxation offence or an offence involving fraud or dishonesty during the previous five years; and (c) the partnership has a sufficient number of individuals, being registered tax agents or registered tax (financial) advisers, to provide tax (financial) advice services to a competent standard, and to carry out supervisory arrangements; and (d) the partnership must maintain professional indemnity insurance that meets the TPB's requirements.
Companies	(a) each director of the company is a fit and proper person; and (b) the company is not under external administration; and (c) the company has not been convicted of a serious taxation offence or an offence involving fraud or dishonesty during the previous five years; and (d) the company has a sufficient number of individuals, being registered tax agents or registered tax (financial) advisers, to provide tax (financial) advice services to a competent standard, and to carry out supervisory arrangements; and (e) the company must maintain professional indemnity insurance that meets the TPB's requirements.

Registration type

Eligibility criteria

Individuals

(a) the individual is a fit and proper person; and

(b) the individual meets the requirements prescribed by the regulations (including, but not limited to, requirements relating to qualifications and experience) in respect of registration as a registered tax (financial) adviser; and

(d) for renewal applications, the individual must have completed continuing professional education that meets the TPB's requirements.

Partnerships

(a) each partner (who is an individual) is:

(i) aged 18 years or more; and

(ii) a fit and proper person;

(b) if a company is a partner:

(i) each director of the company is a fit and proper person; and

(ii) the company is not under external administration; and

(iii) the company has not been convicted of a serious taxation offence or an offence involving fraud or dishonesty during the previous five years; and

(c) the partnership has a sufficient number of individuals, being registered tax agents or registered tax (financial) advisers, to provide tax (financial) advice services to a competent standard, and to carry out supervisory arrangements; and

(d) the partnership must maintain professional indemnity insurance that meets the TPB's requirements.

Companies

(a) each director of the company is a fit and proper person; and

(b) the company is not under external administration; and

(c) the company has not been convicted of a serious taxation offence or an offence involving fraud or dishonesty during the previous five years; and

(d) the company has a sufficient number of individuals, being registered tax agents or registered tax (financial) advisers, to provide tax (financial) advice services to a competent standard, and to carry out supervisory arrangements; and

(e) the company must maintain professional indemnity insurance that meets the TPB's requirements.

Source: Tax Agent Services Act 2009, s. 20-5; Tax Laws Amendment (2013 Measures No. 2) Bill 2013 [as read a first time in the House of Representatives], schedule 3, items 3–8; schedule 4, items 1–3.

1.15 Once registered, tax (financial) advisers will be subject to the same ongoing obligations as tax agents and BAS agents. A key obligation is compliance with the Code of Professional Conduct contained in TASA. The Code requires registered entities to:

act honestly and with integrity;
comply with the taxation laws in conducting your personal affairs;
act lawfully and in the best interests of your clients;
have in place adequate arrangements for managing conflicts of interests;
maintain client confidentiality except where otherwise required by law or permitted by the client;
not knowingly obstructing the proper administration of the taxation laws; and
respond to requests and directions from the TPB in a timely, responsible and reasonable manner.[7]

Transitional arrangements

1.16 The bill included arrangements for transitioning to the new framework. While the amendments were drafted to commence on 1 July 2013, the full framework would not be in place until 1 July 2016. During this period of time, relaxed registration requirements would be in place, and for the first 18 months entities could continue as they would under pre-1 July 2013 arrangements provided that any advice given to a client is accompanied by a revised disclaimer.[8] The transitional arrangements are examined further in chapter 3.

1.17 From 1 July 2016, all entities would need to meet the ongoing registration requirements to successfully apply to register or to renew a registration obtained during the transitional period.

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