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. 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.

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 is not a Small 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 two years. If the partnership or trust carries on business and is not a Small 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 Business Entity. The same period applies where the company is a partner in a partnership or beneficiary of a trust that is a Small 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 Business Entity.

If the trustee is a partner in a partnership or a beneficiary of a trust that is not a Small 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 which prevents them 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.

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 ‘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) and complimentary amendments to the applicable taxation administration legislation provide statutory protections for taxpayers who engage registered tax agents.

In particular, as your tax agent we are bound by a statutory Code of Professional Conduct which is administered by a national Tax Practitioners Board. That Code requires us, amongst other things, to act lawfully in your best interests and with honesty and integrity in the performance of our duties.

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?

IIn 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 complete and accurate.

It is equally important that you provide us with this information by the time it is requested so as to allow 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 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 (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.

By signing this letter, you authorise us to disclose the information necessary to perform our services covered under this engagement to all such external IT service providers that we may use.

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.

We hold Cyber Insurance to 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 will remain the property of the firm and will be held for a minimum of 5 years after this engagement has ceased.

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. 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.