Tribunal decision raises questions as to whether taxpayers can rely on accountants advice

Tax body CPA Australia has called for clarification from the Tax Office following a ruling from the Administrative Appeals Tribunal that could mean individuals will be forced to seek legal advice on complex tax issues rather than simply asking their accountant.

The issue stems from a case involving Richard Sinclair, a Melbourne stockbroker and property developer who attempted to claim a $99,000 interest payment on a property as a tax deduction.

After the Tax Office rejected this claim and hit Sinclair with a 25% penalty, he appealed to the AAT. However, the AAT agreed with the ATO’s view of the tax deduction and upheld the Tax Office’s penalty.

While Sinclair attempted to argue that he had taken “reasonable care” to avoid making an incorrect tax deduction by consulting his accountant about the matter, and therefore should not be subject to a penalty, the tribunal found he should have consulted with a tax lawyer.

“I am satisfied that a reasonable person would have sought legal advice from a tax lawyer before claiming the deduction. That means that I am not satisfied that Mr Sinclair acted with reasonable care.”

According to CPA head of business and investment policy Paul Drum, the ruling thus raises significant issues about whether individuals will be forced to consult with lawyers instead of tax agents for complicated issues.

“As tax agents, we would say that we can give this type of advice and that is the way it’s been structured,” Drum says. “Under new laws, that is the intent given to tax agents.”

“Of course, accountants can’t go around giving legal advice. However, a registered tax agent can do that. That is a form of legal advice about tax and that is acceptable.”

“We intend to raise this issue with the commissioner, and with the tax commission board, because it needs to be brought to their attention,” he says.

The ATO was contacted for comment this morning, but a spokesperson said the office was not permitted to comment on individual cases.

While Drum says the ruling is not binding, he says it creates ambiguity around how tax agents can actually distribute advice, and says it raises questions about whether individuals need to see solicitors instead of tax agents regarding complicated tax matters.

“That is the broader implication by the decision. This isn’t a High Court decision, but because of its ambiguity, there are some questions around this and the implications it has for others.”

“This is a precedent and can be used in future court cases. It’s now ambiguous whether advice given by tax agents in the past and future can actually be relied upon by the tax payer.”

Drum says CPA Australia will take up the issue with the Tax Office – and believes the Commissioner may actually want to clarify the ruling as well.

“Even if they didn’t want to appeal it on economic grounds, perhaps this is a case where the commissioner may want to seek the fund to appeal the case to clarify the point of law and provide some guidance.”

“I think the Commissioner may indeed say this is a nuisance because people want to deal with tax agents, and they don’t have to go to lawyers to receive advice about tax.”