Australia: New regime to apply to financial planners and advisers who provide advice on taxation matters

In brief - New obligations and regulation to apply from July 2014

From 1 July 2014, as a result of the passage of the Tax Laws Amendment (2013 Measures No 3) Act 2013 (Cth) (the Act), financial planners who provide clients with advice on taxation issues will be subject to new obligations and increased regulation.

Previous ambiguity of status of tax advice provided by financial advisers

Previously, financial planners giving tax advice were exempt from the regime set out in the Tax Agent Services Act 2009 (Cth) (TAS Act). Financial advisers were regulated by ASIC under Chapter 7 of the Corporations Act, but this supervision did not extend to regulating any tax advice they provided.

On 17 June 2013, the Parliamentary Joint Committee on Corporations and Financial Services published its report: Regulatory Framework for tax (financial) advice services. It was noted that:

  • It was inconsistent for the TAS Act to apply to tax agents, but not financial planners who provided services like those provided by tax agents.
  • There was ambiguity as to the status of tax advice provided by financial planners.
  • The standards imposed upon financial planners were laxer than those imposed upon tax agents, and consequently tax advice given by financial planners might be of a lower standard than that given by tax agents. Accordingly the regulatory inconsistency jeopardised consumers who received tax advice from financial planners, the financial planning profession's accountability and the integrity of the tax system.

The Act amends the TAS Act and makes minor amendments to other taxation statutes. The new regime will take effect from 1 July 2014.

Tax Agent Services Act to include tax (financial) advice services

Previously, the Tax Practitioners Board (TPB) regulated tax agents and Business Activity Statement agents. They provide 'tax agent services' to the public. In general, financial advisers were not regulated by the TPB.

This position has been changed by the passage of the Act. The amended TAS Act will contain a new category of service: "tax (financial) advice service." These services are defined in section 90-15 of the amended TAS Act as services which meet five criteria:

  • The service is provided by a holder of an Australian financial services licence (AFSL holder) or the representative of an AFSL holder (representative).
  • The services are provided in the course of giving advice of a kind usually given by an AFSL holder or a representative.
  • The service relates to 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.
  • The service is provided in circumstances where "the entity can reasonably be expected to rely on the service" in order to satisfy liabilities that arise, or could arise, under a taxation law and/or claim entitlements that arise, or could arise, under a taxation law.
  • Regulations do not exclude the service from the definition of tax agent service.

The preparation of a tax return or a statement in the nature of a tax return does not fall within this definition.

Tax Agent Services Regulations 2009

The Tax Agent Services Regulations 2009 meant that "financial product advice", if given with appropriate disclaimers, was excluded from the definition of "tax agent services". This excluded advisers who made appropriate disclaimers from the TAS Act's regime. This provision expires on 1 July 2014, after which AFSL holders and representatives may be providing "tax (financial) advice services".

Three phases of transitional scheme to assist industry compliance

The amended TAS Act contains transitional arrangements designed to help industry ensure its compliance with this new regime. There are three distinct phases in the transitional scheme. They are:

  • The notification period (1 July 2014 – 31 December 2015)
  • The transitional period (1 January 2016 – 30 June 2017)
  • The commencement of the normal registration requirements of the new regime

Notifying the Tax Practitioners Board

From 1 July 2014 until 31 December 2015, an entity can inform the TPB that it provides tax (financial) advice services. If it is an AFSL holder or a representative, it is deemed to be a registered tax (financial) services adviser. Deemed registration commences on the day the TPB is notified. Entities which notify the TPB at an earlier date have a longer period of deemed registration. The relevant timeframes are set out in the table below.

Accordingly, there is a clear incentive to register earlier for any entities which wish to ensure that they have additional time to ensure their compliance with the new regime.

Provision of tax (financial) advice services during the notification period

Between 1 July 2014 and 31 December 2015, an unregistered entity may continue to provide tax (financial) advice services, as long as the services are provided by either an AFSL holder or authorised representative and are accompanied by an appropriate disclaimer, stating that the provider is not a registered tax (financial) adviser under the new law and the recipient of advice should, if they intend to rely upon it, seek advice from a registered tax agent or registered tax (financial) adviser.

Failure to comply with these requirements after 1 July 2014 may lead to fines for an entity which provides tax (financial) advice services ($42,500 for individuals and $212,500 for bodies corporate).

Commencement of the new registration regime and transitional period

On 1 January 2016, registration under the new regime opens. From 1 January 2016 to 30 June 2017, there is a "transitional period". During the transitional period, the TPB has a discretion to approve applications for registration, even if the applicants do not necessarily meet some of the requirements of the new regime.

The TPB must, however, be satisfied that the applicant "has sufficient experience to be able to provide tax (financial) advice services to a competent standard."

From 1 July 2017 the TPB's discretion to waive compliance with the new regime's requirements expires. Therefore an entity applying for registration from that date must satisfy all of the new requirements. The educational requirements for registration are currently being finalised by the TPB.

New regulatory framework for tax (financial) advice services

Individuals, companies, partnerships and trustees can be registered as "tax (financial) advisers" provided that they comply with the requirements of the TAS Act. The TPB requires that individuals applying for registration are fit and proper persons and meet qualifications imposed by the regulations.

The regulations prescribe certain requirements in relation to qualifications and experience. New regulations detailing the new standards have not yet been released. Interested parties should monitor the Tax Practitioners Board website.

Under the new regime, an unregistered person who advertises, or who knowingly provides a tax (financial) advice service for reward, contravenes the TAS Act and may be subject to civil penalties. (This is subject to the exemptions during the notification period discussed above.)

Financial planners will need to comply with tax agents' Code of Professional Conduct

From 1 July 2014, registered tax (financial) advisers will be required to comply with the Code of Professional Conduct (TAS Act section 30-10) which currently applies to tax agents and BAS agents. This contains a best interests duty and imposes wide-ranging obligations, including:

  • a duty to act with honesty and integrity
  • an obligation to have arrangements in place to manage conflicts of interest
  • a duty of confidentiality
  • a duty to provide services with competence
  • a duty to maintain relevant knowledge and skills
  • an obligation to maintain adequate professional indemnity insurance

AFSL holders and representatives can apply for deemed registration from July 2014

While financial planners are likely to be captured by the amendments to the Tax Agent Services Act, there is still sufficient time to comply with the coming regime. There are no changes that apply before 1 July 2014. After 1 July 2014, representatives or AFSL holders who provide tax (financial) advice services will be subject to the Code of Professional Conduct and will be able to apply for deemed registration.

They will be able to continue to provide tax (financial) advice, although if they are not deemed registered, they must include appropriate disclaimers. They will not be able to advertise the tax (financial) advice services that they provide unless they are registered.

Kemsley Brennan Susannah Maclaren David Hinder
Professional indemnity
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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David Hinder
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