Clients’ rights and obligations under the taxation laws

As a client of our practice, we are obliged to advise you of your rights and obligations under the taxation laws in relation to the services we provide to you.

It is also important that you understand our obligations as a tax agent, including to you, under the taxation laws (including the Tax Agent Services Act 2009 and the Code of Professional Conduct contained within that Act) and your obligations to us.

Set out below is a brief explanation of the main areas of the taxation system you should be aware of. If you have any concerns or issues with any of matters discussed below, please feel free to contact us.

The self-assessment system

The Australian tax system operates as a self-assessment system. This means that when your tax return, FBT return or BAS is lodged the ATO accepts the information in the return at face- value and issues you with an assessment notice based on that information. It is important to understand that this does not mean the assessment is final as the ATO can conduct a review or audit of the information provided in the return at a later time, subject to the time limits discussed in the topic below. Importantly, as a taxpayer, you have an obligation to comply with the taxation laws. If you do not meet your obligations under the taxation laws, the ATO may impose administrative penalties (fines), apply interest charges, seek criminal prosecutions (in some cases) or initiate debt recovery.

The Commissioner’s ability to amend an assessment

As stated above, the ATO accepts the information lodged in your return at face value. However, the ATO also has the power to amend the assessment if they find it to be incorrect. The following rules generally apply:

Individuals

For most individuals, the ATO can amend an assessment within two years after you receive your notice of assessment. If the individual carries on a business and i not a Small or Medium Business Entity, that period extends to four years.

If the individual is a partner in a partnership or a beneficiary of a trust, the period is also two years. If the partnership or trust carries on business and is not a Small or Medium Business Entity, the period extends to four years.

Companies

The ATO can amend a company assessment within two years after the company receives a notice of assessment where the company is a Small or Medium Business Entity. The same period applies where the company is a partner in a partnership or beneficiary of a trust that is a Small or Medium Business Entity.

In any other case, the period is four years.

Trustees

The ATO can amend an assessment within two years after the trustee receives the notice of assessment if the trust is a Small or Medium Business Entity.

If the trustee is a partner in a partnership or a beneficiary of a trust that is not or Medium Business Entity, that period extends to four years.

In any other case, the period is four years.

If the ATO amend an assessment this will potentially involve, apart from increased taxes, penalties and interest. If you discover an error in the information declared in the return, lower penalties generally apply for making a voluntary disclosure.

Note: There are no time limits on the ATO amending an assessment where they believe there has been fraud or evasion.

Obligation to keep records

The tax laws specifically require taxpayers to keep records that properly explain the transaction they have entered into.

Individuals

Individuals claiming deductions for work-related expenses are subject to the substantiation rules in the tax laws. This requires taxpayers to keep receipts, invoices etc, of the expenses they incur. Where the expenses relate to a taxpayer travelling interstate or overseas, a travel diary may also need to be kept. Where the expense relates to a motor vehicle, a record of the journeys taken such as a log book may need to be kept.

A failure to keep the appropriate records can lead to the ATO denying a particular deduction which may involve the imposition of penalties and interest. Substantiation records must be retained for five years.

Businesses

The tax laws specifically require a taxpayer that carries on business to keep records that record and explain all the transactions they have entered into. This includes all the documents that explain how the income and expenditure of the taxpayer was determined.

Where the tax laws allow or require a taxpayer to make a choice, election, estimate or calculation, documents containing particulars of these matters must be kept.

All these records must be retained for a period of five years after lodgement of income tax returns. This includes capital gains tax records which must be retained from date of purchase until 5 years after sale. There are penalties for taxpayers who fail to do so.

Obligation to provide complete and accurate records

In order for our practice to be able to lodge returns on your behalf, it is your responsibility to provide us with complete and accurate records. Further, in order to lodge your return on time we will require you to provide us the relevant information as and when requested.

Where you are unable to provide us with complete and accurate records, we may be unable to prepare and lodge your return. Tax agents are subject to a Code of Professional Conduct contained in the Tax Agent Services Act 2009, which prevents us from acting for a client where insufficient records or information exists so as to be able determine the amount of the client’s income or deductions.

We also reserve the right to question any claims for deductions or credits that in our reasonable judgment might be considered as being excessive, and we may ask for more substantiation or records to prove that such a claim is allowable under the law.

If we believe that a claim is excessive and it cannot be substantiated, we reserve the right not to include such a claim in your income tax returns or BAS, but you will have the right to lodge an objection after receiving your notice of assessment. There may be further costs in doing so, and we will advise you accordingly.

Records for clients operating in the cash economy

Because of the ATO’s concerns with dealings in the cash economy, there are particular recording imperatives for clients who operate in that sector. In particular, the ATO has a program of "benchmarking" standardised revenue returns for a wide range of cash businesses.

In circumstances where it is dissatisfied with a taxpayer’s records or recording systems, the ATO will often assess income tax and/or GST on what it considers to be an appropriate “benchmark” amount (plus penalties and interest) and then put the taxpayer to the task of disproving that assessment.

Where that occurs, the taxpayer is at a serious disadvantage and can be put to a great deal of cost and effort in disputing the assessment.

Taxpayers who operate in the cash economy are therefore urged to have a robust and reliable system for recording and reporting all cash transactions and to ensure that the recorded figures are accurate.

If you need assistance in setting up or reviewing your recording and reporting systems, we will be happy to do so and will advise you of our rates for doing so on request.

Right to seek a Private Binding Ruling

When preparing your return, we may identify one or more issues that are not clear under the tax laws. Where we have pointed out such issues to you, you have a right to request a Private Binding Ruling from the ATO. Upon providing the ATO with all the relevant facts, they will provide you with a ruling setting out their view on the proper tax treatment of the issue requested to be ruled upon.

Objecting to an assessment

If the ATO issues you with an assessment that you do not agree with, you have the right to lodge an objection to that assessment. The objection must be lodged with the ATO within either two or four years. As to which period applies, this is determined in the same way as the discussion above under the heading ‘The Commissioner’s ability to amend an assessment’.

Where the ATO issues an amended assessment, the period for objecting is the greater of:

• 60 days from the time the amended assessment is received; or
• two or four years (whichever is applicable) from the time the original assessment was received.

If you remain dissatisfied with the outcome of the objection, you have the right to have the matter reviewed by the Administrative Appeals Tribunal or to appeal the matter to the Federal Court.

Onus of proof falls on the taxpayer

It is important to be aware that in any disputed assessment before the court or the Administrative Appeals Tribunal, the onus of proof is placed on the taxpayer. In other words, if the Commissioner asserts that your income should include a certain amount or that a deduction claimed in a return is not allowed, it will be up to you to establish that the Commissioner’s view is incorrect.

Your protections under TASA

The Tax Agent Services Act 2009 (TASA), including the Code of Professional Conduct contained within TASA, provide statutory protections for taxpayers who engage registered tax agents.

The Code of Professional Conduct is a set of statutory ethical and professional standards that registered tax practitioners must comply with.

The TASA, including the Code of Professional Conduct, and associated regulations and determinations are administered by the Tax Practitioners Board (‘TPB’).

We are required under the Code of Professional Conduct to provide you with general information about the obligations that tax practitioners have to their clients under the taxation laws, including the TASA and the Code of Professional Conduct.

The following information has been adapted from the TPB’s factsheet, Information for Clients for these purposes.

Our Obligations require us to:

• Act lawfully in your best interests and with honesty and integrity in the performance of our duties;
• Uphold and promote the ethical standards of the profession;
• Manage any conflicts of interest;
• Take reasonable care to ascertain your state of affairs and apply tax laws correctly;
• Keep your information confidential unless there is a legal duty to disclose;
• Provide services competently;
• Not knowingly obstruct the administration of the tax laws;
• Advise you of your rights and obligations under the taxation laws (refer above);
• Account to you for money or other property on trust;
• Not make false or misleading statements to the TPB or the ATO, and in some cases, withdraw our engagement with you and notify the TPB or ATO of certain matters;
• Address any false or misleading statements we are responsible for;
• Engage with clients to address other false or misleading statements, exploring options to correct;
• Keep proper records (including records of tax agent services provided);
• Keep you informed of certain matters so you can make informed decisions.

If we Fail to Meet our Obligations:

• Our registration/s can be suspended or terminated, meaning we cannot practice;
• We could receive a caution or orders from the TPB – for example, undertaking education or working under the supervision of another registered tax practitioner;
• Have fines imposed on us by the Federal Court;
• Your tax and superannuation matters may not be accurate;
• You may be subject to enquiries or audits;
• Any tax shortfalls may attract penalties and interest;
• You may have litigation options to review decisions and recover debts;
• In the case of fraud or criminality, penalties may lead to prosecutions.

In addition, as the client of a registered tax agent, you have statutory “safe harbour” exemptions from penalties in certain circumstances.

When did the new safe harbour provisions commence?

The ‘safe harbour’ can only apply for returns lodged on or after 1 March 2010.

How does the new safe harbour work?

In order to benefit from the ‘safe harbour’ should the need arise, it is a requirement for you to ensure that you provide us with all of the relevant tax information. This includes any records, or documents we request from you plus any other information relevant to the preparation of your tax return. The information provided must be truthful, complete and accurate.

It is equally important that you provide us with this information by the time it is requested so as to allow lodgement of the return by its due date. The safe harbour from late lodgement penalties can also apply where a Business Activity Statement, Instalment Activity Statement, or Fringe Benefits Tax return is lodged late.

What does the new safe harbour apply to?

Whilst the safe harbour can apply to exempt the penalty for an error made in a tax return, it is important to note that the tax and interest charges will be still be payable.

What if the safe harbour does not apply?

Even if you are not eligible for the safe harbour, it is still possible to request the ATO remit or reduce the penalty.

Additional Information

Confidentiality

Information acquired by us in the course of conducting this engagement is treated as strictly private and confidential.  Information will not be disclosed by us to other parties unless it is in accordance with our privacy policy. We will not disclose information relating to your affairs to a third party without your permission, unless we have a legal or ethical duty to do so.

From time to time our firm may engage external IT service providers (including in relation to ‘cloud computing’ services) in the performance of services under this engagement.  In such circumstances, we will take reasonable steps to ensure that the external IT service provider complies with Australia’s privacy policy legislation in relation to your information.

The list of “cloud computing” service providers currently used by our firm in the provision of services which are not outsourced services, to whom client information may be disclosed, is as follows:

• MYOB Australia (for the processing of Client data and the production of financial reports for taxation and compliance purposes)
• SuperConcepts Pty Ltd and Class Super Pty Ltd (for the processing of Client data related to Self-Managed Super Funds (SMSFs)
• EFEX (to provide resources and manage the back-up of Client data)
• eSTM Pty Ltd (for the processing of Client data relating to capital gains tax calculations and records)
• ATOmate (for the processing of Client data relating to Australian Taxation Office communication)

Your data will be stored in servers physically located in Australia (unless otherwise specified) and in accordance with the security practices of the third party service provider and our privacy policy. We will notify you of any change to this list from time to time.

IT Security

We will take all reasonable measures to securely store electronic data containing your personal information, including steps to protect the content of emails originating from our firm, to prevent the interception of electronic data by third parties. However, we cannot be held liable for any loss you incur as a result of a third party accessing, copying, or procuring any data containing your personal information, where that private information has been stored or transmitted from any medium or device we use.

In the event that, despite our firm having taken reasonable precautions to securely store your private information, you suffer any losses arising from unauthorised cyber-activity, you agree to release us from any claim for your losses.

We hold cyber insurance which may cover losses arising from adverse cyber-activity.

Ownership of Documents and Data

All original documents obtained from you as a result of this engagement shall remain your property.  However, we reserve the right to make copies of the original documents for our records.

Our engagement may result in the production of documents provided to you in either hard copy or electronic format. Ownership of these documents will vest in you.  All other documents and data produced by us in respect of this engagement, including general working papers, general ledger and draft documents will remain the property of the firm.

In accordance with our statutory obligations under the TASA, we will also retain all records of the tax agent services provided to each client in the Group. We will retain these records for at least five years after the relevant services have been provided, even if our engagement is terminated.

If our services are terminated (by either party), you agree that we shall be entitled to retain all documents until payment is made in full of all outstanding fees from all clients in the Group. Where copies of any documents released to you are required for our records, you will be charged for the cost of photocopying at our normal rates.

Conflict of Interest

If, during the engagement, you become aware of any current or potential conflict of interest, you must advise us. Events which may give rise to a conflict of interest include deaths, matrimonial disputes, threatened or actual litigation, changes in the nature or structure of your business, or changes in your business relationships. If a conflict of interest arises, we will take steps necessary to remedy the conflict which may include terminating this engagement.

Compensation arrangements

We hold professional indemnity insurance in respect of our professional services, which covers all the professional services you are provided, even if they were provided by a person who is no longer our employee, or a partner of our firm.

Limitation of Liability

To the maximum extent permitted by law, our liability is limited by a scheme approved under Professional Standards Legislation and applicable regulations of the Professional Body. The limit of that liability is broadly related to the quantum of fees charged to you for our services. Full details of the scheme are available from the Professional Standards Councils’ website www.psc.gov.au.