PREPARE AND ADMINISTER COMPLIANT TAX RETURNS FOR LEGAL ENTITIES & IMPLEMENT TAX PLANS Tax Agents MTG Ch 32 Text: Chapter 23 Regulatory framework  Tax Agent Services Act 2009 (TAS Act)  From 1 March 2010  Tax Agent Services Regulations 2009 (Regulations)  Sets out the qualification and relevant experience requirements  Tax Practitioners Board (TPB)  National (all of Aust)  Responsible for registering tax agents, monitoring them and investigating complaints Tax agent registration

32-020

 Initial registration  An individual, company or partnership wishing to be registered as a tax agent must apply to the TPB  Registration comes into force on the day that it is granted for a period of three years, unless it is terminated  Individual registration Individual applicants must:  be aged 18 and over  satisfy the TPB that they are fit and proper persons to prepare income tax returns and to transact tax related business on behalf of the taxpayer  meet the requirements in relation to qualifications and experience

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 Fit and proper person

32-025

 Good fame, integrity and character  in past 5 years  Not undischarged bankrupt  Not convicted of a serious taxation offence  Not convicted of an offence involving fraud or dishonesty  Sentenced to a term of imprisonment  Partnership registration  all partners must be natural persons aged 18 or more and be fit and proper persons  the partnership must have sufficient tax agents to provide tax services competently  no partner may be an undischarged bankrupt  Company registration  each director must be a fit and proper person  at least 25% of the voting power in the company must be held by fit and proper persons  the company must not have been convicted of a serious taxation offence during the past 5 years  the company must not be under external administration  Re-registration  Tax agents must apply for re-registration every 3 years  Re-registration requirements are generally the same as for initial registration  Application for renewal must be made at least 30 days before the existing registration expires

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 Academic qualifications and relevant experience  The Tax Agent Services Regulations set out minimum requirements for registration as a tax agent with regard to:  Academic qualifications  and  Relevant experience  Academic qualifications

32-030

 The applicant must have successfully completed the academic requirements for the award of degree, diploma or other qualification from:  an Australian university  TAFE college  other education institution of equivalent standard and  completed a course which the TPB certifies to represent a course of study in accountancy  2 tertiary level subjects in taxation law  Introductory Taxation Law = Prepare Income tax returns from the Diploma  Advanced Taxation Law = Implement Tax Plans and/or Complex Tax from the Adv Dip  200-260 hours of study and tuition  Eg, 18 weeks x 3 hour classes + 3 hours at home study  = 108 hours per subject  Note that there is also a Commercial Law requirement  300-390 hours of study and tuition = 3 subjects  FNSACC403B Make decisions in a legal context  FNSACC604A Monitor corporate governance activities  FNSTPB501A Apply legal principles in corporations and trust  FNSTPB502A Apply legal principles in commercial and property law

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 Relevant experience

32-030

Relevant experience means work by an individual as  A registered tax agent  Under the supervision and control of a registered tax agent  Aust legal practitioner  Another kind that is approved by the Board  The Tax Agent Services Regulations requires that the applicant’s work experience must include a substantial involvement in one or more of the types of tax agent services :  ascertaining liabilities, obligations or entitlements of an entity that arise, or could arise, under a taxation law, or  advising an entity about liabilities, obligations or entitlements of the entity or another entity that arise, or could arise, under a taxation law, or  representing an entity in their dealings with the ATO  Degree  12 months in past 5 years  Diploma  2 years in past 5 years  No formal qualifications  8 years out of past 10 years  Ethics and Professional responsibility Code of professional conduct The core principles are:  Honesty and integrity  Independence  Confidentiality  Competence  Other responsibilities

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 Charging of Fees  Only registered tax agents (or a person exempted from registration) may charge a fee for the preparation of income tax returns or transacting business for a taxpayer in any income tax matter  $42,500 (250 penalty points x $170/point)  Advertising  It is an offence for a person, other than those described in s.251L ITAA36, to describe themself as a tax agent or to advertise their willingness to prepare tax returns or to deal with any other income tax matters  Supervision of employees  An offence is committed if a registered tax agent allows any person, other than an employee, a registered tax agent or a partner to prepare income tax returns or objections or conduct any tax business on the agent's behalf  Negligence  Tax agents may be sued at common law by clients for negligence or breach of contract to recover damages  Tax agent negligence does not relieve the client of liability to pay any fine or penalty to the ATO  Professional Indemnity Insurance (PII)  Tax agents are required to have adequate PII cover that meets the TPB’s minimum requirements  Adequate PII cover is cover that will satisfactorily indemnify an agent against civil liability that may arise in the agent’s provision of tax services

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 Termination of registration  The TAS Act details the events which may affect a tax agent’s on-going registration The events are where a tax agent:  is convicted of a serious taxation offence  is convicted of an offence involving fraud or dishonesty  is penalised for being a promoter of a tax exploitation scheme  is penalised for implementing a scheme that has been promoted on the basis of conformity with a product ruling in a way that is materially different from that described in the product ruling  becomes an undischarged bankrupt or goes into external administration  is sentenced to a term of imprisonment  Right of Appeal  An agent who has had their registration terminated may appeal against the decision to the Administrative Appeals Tribunal (AAT)  An agent who has had their application for registration (or reregistration) refused by the TPB may also appeal against the decision to the AAT  Online services for tax agents  Registered tax agents can choose to use the following tools to deal with the ATO on behalf of their clients:  Tax Agent Portal  Electronic Lodgment Service (ELS)  Update Client Australian Business Number (ABN) details on the Australian Business Register (ABR)  Access Electronic Forms  Safe Harbour a “safe harbour” for taxpayers from tax shortfall penalties arising from making false or misleading statements where it can be shown that the taxpayer took reasonable care in providing the tax practitioner with all relevant taxation information necessary to complete their income tax return Edited by Julie Ogle Sem 1 2013 V2 Sourced from National Core Accounting Publications

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Returns and Assessments MTG Ch 24+25 Text: Chapter 24  Lodgment of Returns

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Every person must, if required by the ATO, lodge an income tax return that must be:  in the form provided  lodged in the prescribed manner  within the specified time  contain information as required  signed by the taxpayer  Most resident individuals whose taxable income exceeds the tax-free threshold of $18,200 are required to file a tax return  Individuals whose taxable income is below $18,200 will also probably be required to file a return if:  PAYG tax was withheld from income derived  they have prior year losses, or a loss in the current year  they were entitled to a distribution from a trust or had an interest in a partnership  tax was deducted from interest or dividends under the TFN provisions  they carried on a business in Australia  they became or ceased to be a resident of Australia  they were issued with an assessment under the Child Support Act  a minor at 30 June deriving unearned income in excess of $416

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 When to Lodge Returns

24-060

 Individuals, partnerships and trusts  31 October  Under the tax agent lodgment program, there are special extension of time arrangement if lodged through a tax agent.  Large/Medium taxpayers  ie. Companies, super funds, partnerships and trusts that have AI > $10m or investments of >$50m  All non-complying super funds  15 January  Companies and super funds with 2 or more years outstanding are penalised from  31 October  All other companies and super funds  28 February  Late lodgment of returns  Taxpayers who fail to lodge an income tax return are liable to pay a General Interest Charge (GIC) 29-510  The GIC applies to the late or under payment of a range of taxes, the late lodgment of returns and the late payment of penalties  Penalties for late lodgment

29-100

 All entities, including individuals, are liable for the “base penalty amount” for each 28-day period (or part period) that the tax document remains outstanding, up to max 5 penalty units  Small entity - $170 for every 28 days overdue  Medium entity – double

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 Large entitiy – 5x

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 Self assessment

25-100

 A system of full self-assessment applies to companies, superannuation funds, FBT, and GST  As far as companies are concerned, the tax return submitted is deemed to be an assessment  The ATO does not issue a Notice of Assessment  Notice of Assessment  A Notice of Assessment is an itemised account issued by the ATO of the amount of tax liability on a taxpayer’s taxable income based on the information provided on that tax return  It may also contain other details that are not part of the assessment such as:  the amount of credit for tax already paid (e.g. PAYG)  any other outstanding tax debts  child support debts  Family Tax Benefit (FTB) debts or Centrelink debts,  These may reduce any refund entitlement  Self assessment

25-100

 There is a partial self-assessment system in operation in relation to individual taxpayer's returns  This means that the ATO works out the taxpayer's refund or tax payable on the basis of the information concerning taxable income and rebates supplied in the taxpayer's tax return  Because the taxpayer has signed the return the information contained in it is taken to be true and correct  Original assessments

25-120

 There is no time limit on the issuance of original assessment notices  However, if a taxpayer has not received a notice of assessment within 12 months of lodging the return they may request that the ATO make an assessment Edited by Julie Ogle Sem 1 2013 V2 Sourced from National Core Accounting Publications

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 Default assessments

25-140

 Where the ATO is not satisfied with the information furnished in the return, or has reason to believe that a person who derived taxable income has not furnished a return, an arbitrary or default assessment may be issued  Such assessments are usually issued after an investigation of the taxpayer's affairs and are often determined on a “assets betterment” basis  i.e. the amount of tax assessed is based on the difference between the taxpayer's net assets at the beginning and the end of the investigation period adjusted for private and other non-allowable exps  Special assessments

25-130

 The ATO is empowered to issue special assessments where a liability to pay tax arises whether or not a return has been submitted  Examples of special assessments include:  assessments issued when persons leave Australia  when partnerships are dissolved  when companies are liquidated  Taxpayer who become bankrupt  Amended assessments

25-300

 The ATO has the power to amend assessments, even though tax may have already been paid  The ATO can charge interest on the amount of any increase in tax payable from the original due date to the date of the issue of the amended assessment  The standard period in which the FCT can amend an assessment for most individual and very small business taxpayers is 2 years from the day on which the ATO gives notice of assessment  Taxpayers with more complex tax affairs are subject to a 4 year amendment period 25-320     

Business or partner in business (but not SBEs Small Business Entities) Trustee of trust Beneficiary of a trust Involved in avoidance schemes High risk categories - see 25-320

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 Fraud or evasion

25-330

 The ATO can amend assessments at any time where there has been an avoidance of tax due to fraud or evasion  i.e. there is no time limit  Shortfall interest charge

25-340

 Where an assessment is amended to increase the amount of tax payable, the taxpayer is liable to pay a SIC  Annual rate is 4% lower than GIC  Post assessment audits

25-200

 The goal of the ATO’s Compliance Program is to detect tax shortfalls (i.e. tax that should have been paid but wasn’t) The Compliance Program includes the following types of audits:  Research audits  Primary audits  Business audits  Complex audits  Special audits  Research audits  Research audits are designed to determine levels of compliance in particular industries or activities  Primary audits  Primary audits cover employees, pensioners and investors and include:  desk audits  income matching  substantiation audits  Business audits  A business audit involves examination of the taxpayer’s business operations, records, accounting systems and other relevant matters

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 Special attention is given to sales, purchases, trading stock, bank accounts, debtors & creditors, substantiation of business expenses, and journal and ledger entries  Business audits are often conducted at the taxpayer's business premises during normal business hours  Complex audits  Complex audits focus upon strategic issues, both domestic and international, such as management fees, royalties, intra-company loans, transfer pricing arrangements and double taxation treaties involving Australia’s largest corporate groups, companies and trusts with complex business and financial arrangements  Special audits  Special audits involve enforcement activity directed to the follow-up of serious fraud cases  Negotiated settlements

25-210

 In some circumstances where there is a need for good management of the taxation system, overall fairness and the best use of ATO and other community resources a negotiated settlement may occur  However, the ATO will usually not compromise, negotiate or make concessions in matters where its view of the law is firm  A negotiated settlement is considered appropriate where the cost of litigation is considered likely to outweigh any possible benefits, a case is problematic in its outcome, or where the settlement will achieve compliance by the taxpayer for the current and/or future years in the most cost effective way  All negotiated settlements are evidenced by a written agreement between the taxpayer and the ATO and represent the final agreed position between both parties  Taxation Ruling system There are 6 types of Rulings for income tax purposes:  Oral Rulings  Public Rulings  Private Rulings  Product Rulings  Class Rulings  Tax Determinations

24-500

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 Oral rulings

24-580

 Taxpayers who have simple tax affairs and a simple tax inquiry can apply to the ATO for an oral ruling which is legally binding upon the ATO  The application may be made either in person or via telephone  Public rulings

24-540

A public ruling is a ruling that applies to tax law generally and may be in the form of:  official rulings and determinations  ATO publications including information booklets, return form guides, and the Tax Pack  speeches of senior ATO officers and media releases  Private rulings

24-560

 A private ruling is a ruling that relates to a particular person's tax affairs  Private rulings are binding on the ATO when they affect the taxpayer's final tax liability  Taxpayers are expected to follow private rulings when completing their income tax returns  Product rulings

24-540

 A product ruling is a type of private ruling that relates to publicly marked investment schemes  Class rulings

24-540

 A class ruling is ruling that provides legally binding advice in relation to a specific class of persons in relation to a particular scheme  Tax Determinations  Tax Determinations are a type of Ruling regarding a very specific point of tax law

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 ATO’s access to information  Rights of access

25-220

 ATO officers have the right of full and free access to all buildings, places, books, documents, papers, for the purposes of obtaining tax related information  ATO officers cannot remove original documents, but have the right to make copies or extracts  Advance warning does not have to be provided by the ATO to the person from whom information is sought  Power to obtain information

25-240

 The ATO is empowered to request, by notice in writing, that the taxpayer or any other person:  furnish all required information,  produce all documents as required,  attend and give evidence concerning income or assessment of the taxpayer under investigation  Freedom and Information and Privacy  Taxpayers have the right to view their tax files  The ATO cannot release a taxpayer’s information to a third party unless the law allows or compels it to do so

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