Government announces major crackdown on tax adviser misconduct

The Albanese government has announced it will introduce a package of reforms this year aimed at strengthening the integrity of the tax system and increasing the powers of regulators in response to the PwC tax leaks scandal.

Treasurer Jim Chalmers said the reforms would “rebuild people’s faith in the systems and structures designed to keep Australia’s tax system and capital markets strong” with the PwC scandal “exposing severe shortcomings in regulatory frameworks”.

“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,” said Dr Chalmers in a recent statement.

“We’re also cracking down on the scourge of multinational tax avoidance and making sure multinationals pay their fair share of tax in Australia.”

Bigger penalties for tax scheme promotion

The government will look to significantly increase the penalties for tax agents who advise client’s to avoid Australia’s tax laws.

Under the proposed reforms, the maximum penalty for advisers and firms who promote tax exploitation schemes will increase from $7.8 million to over $780 million. The tax promoter penalty laws will also be expanded to make it easier for the ATO to apply to advisers and firms who promote tax avoidance.

The time limit for the ATO to bring Federal Court proceedings on promoter penalties will also be increase from four year to six years after the conduct has occurred.

New powers for regulators

The reforms will also provide the regulatory with increased powers for identifying and disciplining those involved with misconduct.

The new measures will remove limitations in the tax secrecy laws that were a barrier to regulators acting in response to PwC’s breach of confidence.

They will also enable the ATO and Tax Practitioners Board to refer ethical misconduct by advisers (including but not limited to confidentiality breaches) to professional associations for disciplinary action and protect whistleblowers when they provide the Tax Practitioners Board with evidence of tax agent misconduct.

The Tax Practitioners Board will also be given more time – up to 24 months – to complete complex investigations.

The government will also improve the Tax Practitioners Board’s public register of practitioners, so that people have more transparency over agent and firm misconduct.

Treasury to review systemic issues in response to PwC matter

Dr Chalmers said the PwC scandal has raised questions about the adequacy of regulations applying to large consulting, accounting and auditing firms and how this misconduct was able to occur and go undetected without consequence for so long.

“This includes whether there are appropriate governance obligations on these firms in areas such as transparency, executive responsibility, management of conflicts of interest and dealing with misconduct,” he said.

“Treasury will be co‑ordinating a whole of Government response to the PwC matter and the systemic issues raised.”

The work undertaken by Treasury will deliver options to Government progressively over the next two years, he said.

Consultation to ensure options are targeted and effective will begin in coming months. It will include:

• Implementing remaining recommendations from the independent review of the TPB, including strengthening the range of sanctions available to the TPB.
  
• A Treasury review of the promoter penalty laws to ensure they address the types of promoter activity prevalent today, including schemes that are bespoke, complex, and/or operate across jurisdictional boundaries.
  
• A Treasury review of emerging fraud and threats to clamp down on systemic abuse of our tax system perpetrated by tax agents and other bad actors.
  
• A Treasury and Attorney‑General’s Department joint review of the use of legal professional privilege in Commonwealth investigations, with options for Government to respond to concerns that some claims of privilege are being used to obstruct or frustrate investigations.
  
• A Treasury examination of the regulation of consulting, accounting and auditing firms to consider whether reforms are needed. This work will require collaboration with states and territories, given cross‑jurisdictional regulation of partnerships, as well as engagement with ongoing Parliamentary committee inquiries.
  
• A Treasury review of the compulsory information gathering powers of the ATO to ensure it has the right tools to perform its role effectively and enable it to assist law enforcement agencies to investigate serious criminal offences perpetrated against the tax and superannuation systems.
  
• A Treasury review of the secrecy provisions that apply to the ATO and Tax Practitioner Board to consider whether there are further circumstances in which it is in the broad public interest for information obtained by these regulators to be shared with other regulatory agencies.
  
• A Department of Finance review into the use of confidentiality arrangements across all Government agencies to ensure they are fit for purpose, legally binding and enforceable. The review will also identify opportunities to strengthen the management of conflicts of interest in contracts.
  
• A Department of Finance review to explore options to increase the transparency and visibility of where Commonwealth contracts have been terminated for material breach.

Reforms to strengthen consumer confidence in tax agents, says Tax Institute

The Tax Institute said reform measures to increase the integrity of the tax systems, increase powers for regulators and improve collaboration between government agencies and professional associations were a positive development.

“Greater legislative mechanisms for government agencies to appropriately address misconduct and deliberate ethical breaches can only be a step in the right direction,” said Tax Institute general manager of tax policy and advocacy Scott Treatt.

“Members of The Tax Institute are subject to our by-laws, and increased collaboration with the Tax Practitioner’s Board (TPB) to address issues and concerns with the behaviour of members is a positive step for the integrity of our system.”

Mr Treatt said an improved regulatory framework will also enable greater consumer confidence in all tax agents who do consistently act in accordance with the Code of Conduct.

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

“We are pleased to see the Government’s approach to continued consultation, as the announced reform package must be implemented with appropriate consultation, transparency and scrutiny. For example, the implementation of the remainder of recommendations from the independent review of the TPB, which have a number of intricacies, must be handled with appropriate care.”

CA ANZ said the proposal to allow the ATO and Tax Practitioners Board to refer ethical misconduct by advisers to professional associations for disciplinary action was an important step.

“Chartered Accountants ANZ (CA ANZ) welcomes the opportunity to engage with the Albanese Government to ensure Australia’s regulatory frameworks work in a way that delivers the best outcomes for Australian taxpayers and our profession,” the association said.

“CA ANZ has confidence in our conduct and disciplinary framework and we have already taken steps to strengthen it through our Professional Conduct Framework Review. Many of its recommendations, including steps to extend our framework to respond more effectively to firm events, will be put to a member vote later this year.”