22 October 2019: Tax & Super Australia (TSA) says media reports following comments about tax agents by the Tax Practitioners Board (TPB) give an unfairly jaundiced view of the profession and do not consider the numerous challenges that tax professionals must navigate amid an increasingly complex tax system.
Media reports about “dodgy claims” by tax agents followed a speech by TPB chairman Mr Ian Klug to the Tasmanian State Convention of the Tax Institute this month.
As part of the speech, Mr Klug said: “The ATO research reveals that incorrect claims made by tax practitioners are higher than those of self-preparers; 78% for tax agents, and 57% for self-preparers. The very people given the position of trust in the system are those abusing it; deliberately or otherwise.”
TSA senior tax counsel John Jeffreys said this statistic did not take into account the complexity of Australia’s numerous taxation laws in various jurisdictions. “These complexities include dealing with frequent ATO errors, a plethora of ATO communications and day-to-day tax system changes,” Mr Jeffreys said. “That a single tax agent is expected to know it all is nigh on impossible.”
“Of necessity, tax agents must make practical judgements about tax issues. Sometimes these judgements are not correct, but that does not mean they are “abusers” of the system,” Mr Jeffreys added. “The vast majority of tax agents want to do the right thing by their clients, the ATO and Australian society.”
Mr Jeffreys said the statistics quoted don’t consider that many “errors” identified by the ATO may not be errors, but they are too small for tax agents and their clients to spend the time and money contesting. “Most clients will simply not pay for this service as it is not cost effective. Accordingly, these ‘errors’ go unchallenged.”
Mr Jeffreys warned that the comments could discourage taxpayers from using tax agents, which would be a bad outcome for Australian society. “TSA firmly believes more people using tax agents will lead to more revenue collected by the ATO. This is because the Australian tax system is so complex that those who are uneducated in its nuances will not understand what is income (particularly regarding capital gains), is properly deductible and where GST should be paid.”
Other key areas that taxpayers need help from tax agents include understanding the difference between an employee or contractor and when superannuation needs to be paid, and capital gains tax on subdivisions and sale of main residences.
“While TSA fully supports the TPB in its role of ridding the tax system of fraudulent and immoral tax agents, the TPB must also work with tax agents to produce a better tax system that adheres to the highest levels of integrity,” Mr Jeffreys said.
“The TPB should present itself as a helper of tax agents, and not their enemies,” Mr Jeffreys said. “Comments that tax agents are ‘abusing’ the system do not help the relationship between the TPB and tax agents, which is already strained.”
Further notes and comments
Comments can be attributed to TSA senior tax counsel John Jeffreys.
Ian Klug said in his speech to the TIA that: “The ATO research reveals that incorrect claims made by tax practitioners are higher than those of self-preparers; 78% for tax agents, and 57% for self-preparers. The very people given the position of trust in the system are those abusing it; deliberately or otherwise.
It will be very disappointing to the vast majority of tax agents to hear that they are “abusing” the system. They are not abusing it. They are simply trying to deal with a very complex and difficult regulatory regime. Mistakes get made. That’s a result of the mess that has become the Australian tax system.
The reason that the error rate is higher for tax agents include:
- Many “errors” identified by the ATO are simply too small to contest. To contest an ATO amended assessment requires and objection and possible reference to the AAT. Most clients will simply not pay for this service as it is not cost effective. Accordingly, the “errors” go unchallenged.
- Tax agents know a good deal more about the tax system than non-tax agents. Accordingly, tax agents will try to claim items that they think are reasonably arguable. This is not abusing the tax system. This is operating in accordance with it.
- The tax system is so complex that it’s not surprising many errors are made. Each tax agent is expected to keep up to date with the daily shifting sands of the tax system that result from changes to the law, changes to the interpretation of the law by courts and the AAT, changes with interpretation from the ATO and the constant stream of new rulings, determination and ATO website changes. In addition to this, tax agents need to monitor changes to state based tax systems in relation to stamp duty, payroll tax, land tax and other imposts.
The recent media reports can discourage taxpayers from using tax agents to help them with their tax affairs. This would be a bad outcome for Australian society. TSA firmly believes that the more people who use tax agents, the more revenue will be collected by the ATO. This is because the Australian tax system is so complex that those who are uneducated in its nuances will not understand what is income (particularly capital gains), what is properly deductible and on what GST should be paid, among other issues.
An example of this is the legislative mess in relation to employees vs contractors. Tax agents will advise businesses correctly about this distinction.
The result is that more people will be treated as employees. Tax will be collected and superannuation contributions paid.
Another example is the payment of capital gains tax on subdivision and sale of properties involving main residences. The average person has no idea that substantial tax can be payable or that GST could become payable. Tax agents understand this and can advise people about the correct amount of tax to pay.
Another example is the personal services income regime. For the general public, there is widespread misunderstanding about this piece of law which results in a loss of revenue to the ATO. Tax agents will advise correctly and cause PSI to be taxed to the provider of the personal services. This will result in more tax being collected.
The TPB should immediately communicate with all tax agents that they do not consider the vast majority of tax agents are abusing the tax system. The TPB should make it clear to all tax agents that it is a partner with all tax agents in making the tax system better for all Australians.
For further comment, please contact John Jeffreys:
Phone: (03) 8851 4510