Gregory Ross recently worked with Adrian Abbott, Chartered Tax Adviser representing an accounting firm against allegations made by their client to the Tax Practitioners Board, which alleged breaches of the Tax Agents Services Act 2009 – Code of Professional Conduct. The allegations were so serious that the accounting firm may well have been closed, had the charges laid not been disproven.

The Facts

1. A CPA  (Certified Practising Accountant) firm held seminars to explain, amongst other things, how a superannuation fund and a unit trust could joint venture the purchase, ownership and rental of a property. A client of the CPA firm put in place the joint venture arrangement.

2. Following audit, the Tax Office refused to accept the joint venture and the client was required to unscramble the arrangement and to enter into an enforceable undertaking with the tax office.

3. The client complained that the CPA firm had not warned the taxpayer of the ramifications should the ATO have not accepted the arrangement.

4. The client suffered no loss, as on the sale of the property the client made a profit, so they were not claiming from the CPA firm any damages.

5. The property appreciated in value between the acquisition and the disposal. The client could have gone through an objection process, but because of costs decided not to take that course.

Code of Professional Conduct

6. Initially, the Tax Practitioners Board alleged that the CPA firm had breached five of the Codes of Professional Conduct. They allege the breach of:

a. Provision 30-10 (1)
not acting honestly and with integrity.
b. Provision 30-10 (7)
not acting competently.
c. Provision 30-10 (9)
not exercising reasonable care in ascertaining a client’s state of affairs.
d. Provision 30-10 (10)
not acting with reasonable care to ensure that taxation laws were applied correctly.
e. Provision 30-10 (12)
not advising the client of the client’s rights and obligations.

7. Generally, the allegations were that the advice given by the CPA firm to their client was inadequate. It is an unfortunate quirk of the Tax Agents Services Act (2009) that where the Tax Practitioners Board takes action against a tax Agent, it is for the Tax Agent to disprove the allegations, a reversal of the usual onus of proof.

8. The CPA firm could not afford any adverse finding, as that would lead to cancellation of its tax agent registration and so bring to an end the CPA accounting practice. An adverse reference by the Tax Practitioners Board to CPA Australia could have led to CPA Australia imposing its own sanctions against the CPA firm.

9. In our view, initially the Tax Practitioners Board (TPB) may not have been able to do as detailed review of the facts as the circumstances required and so did not appropriately to come to grips with the factual position. TPB relied on a very brief and general complaint by the client of the CPA firm. The client did not raise the issue of honesty or integrity, yet that initially formed part of the allegations of the  TPB. The TPB issued an initial query to the CPA firm which replied in brief terms but the TPB did not see that as adequately answering the allegation of the client.

10. We examined the records of the CPA firm, including the legal opinion obtained, the correspondence between the CPA firm and the client, correspondence with the TPB and obtained expert reports.

11. The first matter in submissions to the TPB was that the allegation of lack of honesty or integrity – code 30-10 (1) was an abuse of process, since the honesty or integrity issues had not been raised by the client and on an even cursory examination of the factual position, there was patently no honesty or integrity issue involved.

12. Our submission showed that the CPA firm had acted competently – code 30-10 (7) in that they had, in advising the client, relied upon a legal opinion, showing that the joint venture arrangement between the superannuation fund and the unit trust was not contrary to any taxation law and the Australian Tax Office was wrong in its opinion. The matter was a dispute as to the correct treatment of the joint venture and was not related to competency.

13. As to the reasonable care obligations – code 30-10 (9) and 30-10 (10), by very detailed examination of all the documentation, including advice received from lawyers, marketing materials and advice given to the clients, we were able to show to the TPB that reasonable care had been demonstrated.

14. Finally, the last allegation that the client had not been advised of their rights and obligations under taxation law – code 30-10 (12). This was disproved. The CPA firm held an opinion of independent lawyers which addressed the issue. The clients had a right to object and to progress the matter through the relevant tribunal and the Courts but chose not to do so.

15. Basically, adequate paperwork was able to be located, which showed that the client was provided with sufficient detail and information, including reliance upon external legal and tax accountant opinions which backgrounded and illuminated the advice given to the client. So, the CPA firm showed it had not breached the Code of Professional Conduct.

16. Key to our success was that we were able to demonstrate, including by the provision of expert evidence from a tax lawyer, that the Tax Office opinion on the substantive issue of whether there was a prohibited joint venture between a superannuation fund and a unit trust, was dubious.

17. We also were able to obtain an expert opinion from a registered superannuation auditor, to confirm that the tax returns and accounts for relevant taxpayers including a superannuation fund, had been properly prepared and that all disclosures required had been made.

18. The part that was somewhat difficult, was that initially the TPB would not accept that a legal opinion sent to the clients satisfied the CPA firm’s obligations as to reasonable care. We were able to convince the TPB that the legal opinion should be accepted and used. Where necessary, we referred the TPB to paragraphs of the Explanatory Memorandum to the Code of Conduct, particularly paragraph 110 which states :

“This does not necessarily require the tax agent or BAS agent to independently verify the technical accuracy of material prepared by a third party expert on the agent’s behalf”.

Moral of the Story

19. The important moral to the story is that the requirements of the Code of Professional Conduct are wide open and generalised motherhood statements, which if turned against a Tax Agent, require precise responses and a clear paperwork trail sufficient to demonstrate compliance with the letter and spirit of the Code of Professional Conduct. Otherwise, defending one’s self in front of the TPB would be difficult.