Reflections on Tax Practitioners Board’s Investigations and Sanctions

This article brings to light our recent examination published in the Australian Tax Review of the Tax Practitioners Board’s (TPB) investigations and sanctions found within the TPB annual reports for the period 2018-2023.

Our examination explores targeted areas of the reports, including sources of complaints referrals, matters examined by the Board Conduct Committee and decisions, as well as Tax Agents Services Act 2009 (TASA2009) breach allegations.

Changing regulative landscape

Following the independent review led by Keith James in 2019 and the high-profile PwC tax leak scandal in early 2023, Treasury recently announced a significant reform agenda for regulating the tax profession.

Among the changes was the Tax Agent Services (Code of Professional Conduct) Determination 2024 that introduced eight additional obligations for tax practitioners. The updated Code of Professional Conduct initially covered larger firms with more than 100 employees. Following the new financial year having now begun, the remainder of the tax profession is now under the mandate of the new obligations.

Draft legislation is also expected to be released on the expansion of sanctions scheduled to be available from 1 July 2026 as well as reform to the registration framework from 1 July 2027.

While perhaps the pace of reform we have seen may have been spurred on following the PwC scandal, many aspects of its makeup reflect the recommendations from the 2019 James review. These reforms reflect the most substantial changes since the introduction of the TASA2009 and form part of the package Treasury announced in August 2023 aimed to:

• strengthen the integrity of the tax system;
• increase the powers of our regulators; and
• strengthen regulatory frameworks to ensure they are fit for purpose – Treasury, p1.

Table: Brief summary of recent reforms

Note: May not be complete listing.

The role of TPB

Practitioners providing tax agent services for a fee or other reward are required to be registered with the TPB, which leads to significant oversight by the TPB and remedies for misconduct.

The role of the TPB centred on consumer protection and community assurance that tax practitioners will practice with appropriate standards of behaviour. To do so, the TPB has significant powers to “do all things necessary or convenient” to perform its functions such as administering, investigating, sanctioning and issuing guidance.

The TPB is therefore not intended to be simply a passive registry.

In its early conception, the TPB has been described as tending towards a more educational focus. However, in recent years this has transitioned more towards the regulation of behaviour.

Governed by Sub-division 60-E of the TASA2009, the TPB has an 8-step process for investigating misconduct:

1. identifying potential breach
2. making preliminary enquiries
3. please explain letter issues
4. notice of investigation issues
5. investigation begins
6. outcomes of an investigation
7. notification of decision
8. review and appeal.

It is noteworthy that almost half of matters reviewed by the TPB come from complaints. Of such, the source being majority from the public, however also from the Australian Taxation Office (ATO), registered tax practitioners and other sources.

Such complaints are triaged based on level of complexity. For example, the TPB indicated that lower complexity may result in intervention and advice, whereas higher complexity may result in investigations and sanctions.

Sources of complaints

In reviewing the sources of complaints and trends therein, it is unsurprising that we observe programs and campaigns run by the TPB and ATO drive trends.

For example, investigative activities across hot spots ebb and flow with such things as:

• the ATO’s focus on work-related-expense claims, leading to ATO source complaints
• practitioners’ personal tax obligations and continued professional education
• black economy
• radio campaigns to encourage the report of unregistered service providers
• COVID-19 stimulus measures resulting in ATO referrals and public complaints.

Consequently, the cooperation between key stakeholders is particularly pertinent (for example, ATO and the Australian Securities and Investments Commission).

We also consider what might occur following the introduction of breach reporting under the updated Code of Professional Conduct that requires practitioners to ‘dob-in’ bad actors. Will we see increased complaints from tax practitioners? Given the controversy of such, the TPB’s accountability in following through with their investigations are critical.

Yet, we found a reduction in quantitative statistics indicating such information. For example, from 2023 we did not observe the same level of breakdown of sources of complaint.

Conduct committee matters and decisions

In analysing the spread of decisions by the TPB, we note firstly that there are inherent challenges in reconciling allegations reported in the annual reports and the investigation outcomes over time. Also, there is a level of aggregation imposed in the data collated in the reports, with the TPB counting the highest-level sanction imposed as the outcome of the case.

With this in mind, we observe more serious outcomes are occurring in recent years. We may therefore contemplate the support flowing to the reforms and measures enacted to crackdown on undesirable behaviours. However, this may simply follow the scheduled programs leading the trend in allegations and complaints.

Notwithstanding the particular trends, what was a continued standout was the statistics on breaches/allegations pertaining to personal tax obligations and continued professional education. For example, the TPB noted a third of cases presented to the conduct committee in the 2019-20 year came about through these two categories. This followed the launch of a targeted program the year before. Allegation frequencies of breaching compliance with personal affairs ranged from 65 to 187 cases per year examined.

Nonetheless, we again observed a reduction in the level of disclosure in this respect.

Breach allegations

When it comes to what the potential misconduct looks like, we observe a wide variety of issues observed from eligibility for registration (Division 20-A), to the full breadth of Code of Professional Conduct items within Section 30-10 as well as civil penalty provisions within Part 5 of the TASA2009.

Again, it is pertinent to note that the collation of data is at the level of breach allegation rather than the tax practitioner. As such, a single tax practitioner may have multiple breach allegations so statistics observed will exceed the number of practitioners under investigation.

Notably, we observe that unregistered practitioner statistics are a relatively small proportion compared to some of the other alleged breaches. For example, of 2,661 allegations in 2022, only 133 relates to breaches relating to unregistered practitioners providing tax agent services (even less for those advertising or presenting that they are registered).

As with the conduct committee matters and decisions, we noted once again a reduction in the level of disclosure for allegation statistics. From 2023, we did not yield the same quantitative statistics for this area of analysis.

This is a relevant consideration as we contemplate for example the infringement notices being introduced in the current tranche of reform awaiting drafting.

Such proposed reform would allow the TPB to impose the notice on alleged contraventions, but there is a risk that these notices would just be considered as a cost of doing business by egregious tax practitioners.

Final reflections

Overall, we see not only strategic campaigns by agencies impacting the TPB investigative activities, but so too will the significant tranches of regulatory reform.

In theory, we could see an increasing number of complaints sourced from tax practitioners, although early numbers haven’t suggested as such with regards to breach reporting. Nevertheless,  we envisage this strengthening the oversight of the TPB through the reporting of the tax community itself.

However, this power comes with a need for accountability. We observed a transparency issue in the TPB annual reports. With the fallout from the PwC scandal increasing the visibility of the TPB, it is desirable and an opportunity for the board through reporting to evidence the benefits of reform. On this basis, we raised a question over the reporting format and content to ensure the tax community understands the effectiveness of such new obligations.

Moreover, there is a warning inherent in the data itself – the statistics on breaches in relation to the tax practitioner’s own tax affairs and continued professional education. Such compliance is subject to self-declarations at the time of renewal of registration, which therefore raises the concern over the frequency of false declarations. We argue therefore that the move to annual renewal offers an opportunity to reflect on data matching and real-time data verification.