Financial planners are going to be fundamentally affected by the Tax Agent Services Act but, as Cecilia Storniolo explains, there will be many unanswered questions almost right up until the day the legislation is tabled in the House of Representatives.
Just when you thought financial services was undergoing enough significant reforms along comes the Tax Agent Services Act (TASA) which will apply to financial advisers who provide tax advice in the context of financial planning services from 1 July 2013.
While the TASA was intended for tax and BAS agents who provide tax advice for a fee, the language of the Act means it will cast a wider net.
More than three years ago, the industry made representations to Government to highlight the issues with the Act and its implications for financial planners.
That is, financial planners would have to become tax agents under the TASA. The then Assistant Treasurer – the Hon Nick Sherry – confirmed that this would be the case in a media release issued on 23 April 2010.
He said: “I am of the view that financial planners, in many respects, do offer what amounts to tax advice – this is also the view, as provided to me, of the Tax Practitioners’ Board and of ASIC.”
Subsequently, the government via three successive Assistant Treasurers has provided the financial services industry with three annual exemptions from the TASA.
This was seen as a stop-gap measure while the government, Treasury, ASIC and the new Tax Practitioners’ Board developed a legislative framework applicable to tax advice providers in the context of financial planning services.
Notwithstanding the long gestation period of TASA, the first time the industry had a chance to see and comment on the proposed framework was in early February 2013 when the government issued Exposure Draft Tax Laws Amendment (2013 Measures No. #) Bill 2013 for public consultation.
The next time the industry will see the Bill and accompanying regulations is expected to be when they are tabled in Parliament during the last two weeks of June this year, just in time for the commencement on 1 July 2013.
Come 1 July, financial advisers who give tax advice as part of their financial planning services must become registered tax agents, unless the government passes legislation to amend TASA, or provides the industry with an exemption.
TASA replaced the six state-based Tax Agent’s Boards with one National Tax Practitioners Board. It aims to ensure that all tax services provided by tax and BAS agents are under the same consistent ethical and professional standard. That is, delivered by agents with a minimum level of education and experience.
Whilst the Bill needs amendment to give effect to the government’s intent, broadly speaking the new three tiered regime will apply as follows:
- Advice providers giving generally available factual taxation information which is not specific to a client’s circumstances will not be required to register with the Tax Board.
- Advice providers who provide taxation advice in the context of financial advice for a fee or other reward, (but not lodging tax returns or making representations on behalf of their client to the Commissioner of Taxation) will be required to register with the Tax Board for financial adviser services as a tax (financial product) advisers.
- Tax Agents, BAS Agents and other advice providers who provide tax agent services are required to register with the Board as tax agents.
As a minimum, financial advisers will need to be registered as tax (financial product) advisers unless they only intend to provide generally available, factual, tax information.
The framework will work alongside ASIC as a co-regulatory regime. ASIC will be responsible for all licensing and conduct which is non tax-related.
The Tax Board will carry responsibility for the tax related matters including registration, competency, monitoring and disciplinary action.
The proposed Bill provides transitional arrangements for advisers although they are not as generous as the six year transition proposed to apply to accountants as a result of the removal of the financial services licensing regime exemption under the Corporations Act.
Whilst there are some queries on how the transition works, broadly speaking financial advisers licensed under an AFSL prior to 1 July 2013 must complete a Tax Board approved application form, will not be required to meet the Tax Board’s education and experience competency requirements, will need to comply with the Tax Board’s Code of Conduct and must hold Tax Board approved professional indemnity cover.
AFSL holders who did not register during the notification period must register with the Tax Board during the transition period which operates for 18 months from 1 January 2015 to 30 June 2016.
Financial advisers who register during the transition period will be required to pay the Tax Board a registration fee but it is understood that the Tax Board will waive the education and experience requirements.
After the Transition Period ends on 30 June 2016, financial advisers will need to demonstrate that they meet the full Tax Board eligibility requirements including education and experience and must not provide tax advice unless the Tax Board confirms their registration.
New financial advisers who are not able to register during the Transition period and who do not meet the Tax Board’s education and experience requirements from 1 July 2016 will need to be supervised by a registered tax (financial product) adviser.
Currently, it is not clear how an adviser will be able to meet FOFA’s best interest advice requirements whilst under a supervised model.
That is, who will be responsible for giving the tax advice, who is the advice provider under the law and which complaints body prevails.
The Tax Board will monitor tax advice providers and those who should be registered to provide tax advice.
It may also take disciplinary action if an adviser is providing tax advice and are not registered to do so. Where ASIC suspends an AFSL, the Tax Board may also suspend the applicant’s registration.
Critically, the Tax Laws Amendment (2013 Measures No. #) Bill 2013 and related regulations require considerable amendments to ensure once it’s enacted it gives effect to a framework the government intended.
The industry will not know if any of its recommendations have been incorporated into the TASA until the Bill and regulations are tabled in Parliament in the last two weeks of June 2013 – 14 days shy of them coming into effect.
The accounting profession had 11 years of consultation on the creation of TASA and over four years consultation on the legislation.
In contrast, the financial planning industry has had just five months to consider a new regime that will fundamentally impact how advice is given and the roles and responsibilities of advisers today and well into the future.
Cecilia Storniolo is a senior policy manager with the Financial Services Council.
