Tax agents: Know your lane to stay out of trouble

When advising clients, accountants need to be aware of, and stay within, the scope of their engagement and their expertise. 

You not only risk breaking the law by providing advice you’re not appropriately licensed to give, but should you fail to deliver services competently, you’ll find yourself in breach of the Code of Professional Conduct or other provisions of the Tax Agent Services Act 2009. 

Overstepping the mark can lead to legal claims, which are escalating as regulations tighten, according to QBE Insurance panel expert lawyers Matthew Curll and Frank Hinoporos of Hall & Wilcox. 

They point to financial penalties, disciplinary action, client loss and increased insurance premiums as common outcomes – “a real double penalty for an accountant and their insurer who is forced to pay out a claim”, Curll says. 

Critically, if a practitioner is found to have contravened the limitations of their professional indemnity (PI) policy – by committing fraudulent or dishonest acts, for example, or tipping clients towards specific investments – they could be left uninsured and severely out of pocket.

Toeing the line

Activities that tend not to be automatically included in accountants’ PI cover range from investment advice and financial planning to mortgage and finance broking, insolvency, corporate advisory work around mergers and acquisitions and buying or selling a business.  

If accountants wish to be properly insured for these activities, they should raise this with their insurer.

For certain other scenarios involving complex law – those events or transactions that go beyond “business-as-usual” compliance – Hinoporos believes practitioners need to self-assess their competency to provide advice, particularly if they don’t handle similar cases on a regular basis. 

Specialist expertise, he says, is often required for common “landmines” such as stamp duty and areas where the Australian Taxation Office (ATO) has an “aggressive compliance focus”, including the small business capital gains tax concessions, shareholder loans (Division 7A), aggressive tax planning involving trusts and complex offshore arrangements.  

It also extends to situations that carry significant tax risk, like ATO audits, or have the potential to snowball over time if mistakes are made that may have implications at a later point or over time, such as when structuring a business. 

“The common thread for all of these things is that they’re complex,” Hinoporos says. 

“They create binary outcomes and the ATO, with the benefit of hindsight, is always going to have the upper hand, with the client trying to defend what they did at the time.”

Mitigating risk

When considering whether they’re the right person for a job, accountants should assess the level of risk involved, factoring in the dollar value of the transaction, the complexity of the issue and their technical limitations. 

If they are confident to take on the brief but wish to mitigate their risk exposure, Curll recommends having their advice sense-checked. 

Likewise, when providing conceptual or “high-level” information, they should make it clear to the client that it is not a definitive answer. 

“It’s really important that a rider, or limitation of liability, gets sent to clients in writing, because the lack of contemporaneous records can be a disaster for accountants if they need to defend their position or are alleged to have provided specific advice.”

If the request is out of scope, practitioners can outsource advice to a specialist tax lawyer or accountant, although Curll says they should first determine that the person or firm they’re referring work to has the relevant expertise and is a good “fit” for their client. 

It also pays to consider whether the specialist will enhance or challenge their own client relationship, Hinoporos adds, suggesting that small practices, in particular, can use external support to their advantage. 

“With a good network of advisers that you can bring in to help you out when things get more complex or risky, you can keep that long-term client relationship and not run the risk of having another firm take it away.”

“Fenton Green is QBE’s broker partner to provide CPA members with Professional indemnity insurance.  They are licenced, authorised and experienced to discuss your practice’s insurance requirements.  Please get in touch with them if you have a specific question about your QBE professional indemnity insurance coverage.”