Treasury’s tax adviser crackdown could unfairly hit small business accountants

The federal government has pledged its largest-ever “crackdown” on tax adviser misconduct after the PwC scandal, in a warning shot to industry professionals who fear small business accountants already face significant compliance burdens.

In a joint statement, Treasurer Jim Chalmers, Finance Minister Katy Gallagher, Attorney-General Mark Dreyfuss, and Assistant Treasurer Stephen Jones on Sunday declared the Treasury plans to establish and upgrade regulations guarding against tax avoidance and exploitation.

“By increasing penalties, giving regulators stronger teeth to investigate and prosecute perpetrators and boosting transparency, collaboration and coordination within government, we are acting to restore public confidence and help prevent this from happening again,” they said.

Proposals include increasing the financial penalties for advisers and firms which promote tax exploitation from $7.8 million to over $780 million.

Penalty laws targeting tax promoters — broadly speaking, advisers who outright market those schemes to clients — will be expanded, to “make it easier for the [Australian Taxation Office] to apply to advisers and firms who promote tax avoidance”.

The ATO will be given more power to initiate Federal Court proceedings against alleged perpetrators, with the time limit expanded from four years to six years after the relevant conduct took place.

The tax office and Tax Practitioners Board (TPB), the official body which regulates the conduct of tax practitioners, will be empowered to refer alleged ethical misconduct to professional bodies for disciplinary action.

Notably, Treasury will also examine the “regulation of consulting, accounting and auditing firms to consider whether reforms are needed”, with any reforms likely to impose new or enhanced compliance standards on those firms.

Those proposals, among others, arrive in the fallout of the PwC tax leaks scandal, in which a senior partner at the firm shared confidential government tax plans with other partners.

It was revealed this year that figures at PwC then used that confidential information to drum up business with clients.

“The PwC scandal has shown some regulatory frameworks are not fit for purpose… Treasury will be co‑ordinating a whole of Government response to the PwC matter and the systemic issues raised,” the joint statement read.

Consultations to ensure those proposals are “targeted and effective” will begin in the coming months.

Small business accountants should be considered through consultation

Efforts to strengthen the integrity of Australia’s tax system have been welcomed by industry representatives.

Yet consultation will be vital to ensure the rules do not level onerous new compliance burdens on smaller agencies and tax professionals dealing with small business clients, they say.

The Tax Institute, the industry body representing tax educators, has formally welcomed the federal government’s push for greater legislative tools to weed out misconduct and intentional ethical breaches.

“We are all – government, regulators, professional associations and practitioners – custodians of the tax system. This is a positive step toward joint accountability and consistent but fair due process,” said Scott Treatt, the Tax Institute’s general manager of tax policy & advocacy.

“That kind of transparency is crucial in maintaining trust and fairness in our tax system.”

But consultation is both welcome and necessary to ensure those new compliance tools are targeted, he added.

“We will be working actively through the consultation process to help ensure that the many positive recommendations put forward by the independent review of the TPB are appropriately implemented without unintended consequences,” Scott said.

The proposals are “good policy”, said Lisa Greig, a small business tax expert and principal at Perigee Advisers.

However, “my concern is there’s all this additional compliance on our small guys that look after small businesses,” she said.

“We’re going, ‘how are we going to manage that?'”

The new rules should still allow tax agents to exercise their best technical and ethical judgment, she added.

“There’s a big difference between tax minimisation, tax planning, and tax avoidance and tax evasion,” she continued.

“So where does it sit on that paradigm? Even look at it from a basic [perspective], if we have a small client that tries to claim a deduction for their work-related expenses, and they don’t have a receipt for it, and we don’t put that through, where does that lie on the continuum?”

Tax agents already facing new compliance burdens

Accountants working with small business clients already face stringent client onboarding and identification rules, Greig said, and are likely to face fresh anti-money laundering and counter-terrorism financing (AML/CTF) through a separate reform process led by the Attorney-General.

Greig is not alone in questioning how those specific compliance burdens could affect accountants.

In a June joint statement to the Attorney-General’s Office, Chartered Accountants Australia & New Zealand, CPA Australia, and the Institute of Public Accountants warned extra compliance measures could test smaller firms.

“We wish to emphasise that small accounting practices, in particular, will find it difficult to meet their new AML/CTF obligations, regardless of the help provided,” it said.

“Many are facing skills shortages and are therefore already stretched meeting existing statutory and professional obligations, and their clients’ needs (which often involves aiding their client to meet their own statutory obligations or assisting them to access government initiatives).”

Local accounting firms working with small businesses have to know their clients well to operate in the first place, Greig added, questioning extra measures to ensure the resiliency of those firms against criminal misuse.

“We are the point person for everything — we know if their marriage is going to break down, for God’s sake,” she said.

“We know them very well.”