Reform of promoter penalties, information sharing & TPB
As a part of its response to the recent scandal involving conflict of interest in large consulting firms, on 20 September the government released four tranches of draft legislation for consultation aimed at stamping out the practice and strengthening the integrity of the tax system.
The draft legislation relates to bolstering promoter penalty laws, extending whistleblower protections, increasing the ease of information sharing, and Tax Practitioner Board reforms.
Promoter penalty law changes
The promoter penalty provisions were introduced in 2006 to deter the promotion of tax avoidance and tax evasion schemes as a response to the rise in mass-marketed schemes which began in the 1990s and evolved into more bespoke and complex schemes.
Currently, the promoter penalty laws provide a 4 year period within which the Commissioner may take action against an entity, commencing from the time the promoter last engaged in the promoter conduct.
The government contends that this 4 year period is much too short for modern day schemes which are often complex, requiring the Commissioner to spend a significant amount of time to gather evidence before an application to the Court can be made.
The draft legislation therefore proposes to change this 4 year period to a 6 year period in which the Commissioner can apply to the Federal Court that an entity has contravened the promoter penalty laws.
Promoter penalties will be increased
Under the proposed new law, the penalty will be 5,000 penalty units for an individual or 50,000 penalty units for body corporates or significant global entities (SGEs), and 3 times the benefits received or receivable (either directly or indirectly) by the entity and associates of the entity in respect of the scheme.
In addition, body corporates and SGEs will also be subject to a penalty totalling 10% of the aggregated turnover of the entity for the most recent income year to end before the entity engaged in conduct that contravenes promoter penalty laws (capped at 2.5 million penalty units).
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Extending whistleblower protections
While individuals that make disclosures of information to the Commissioner for the purposes of taxation law are currently protected, there are no similar protections for disclosures made to the Tax Practitioners Board.
To rectify this, draft legislation has been released for comment which ensures that a disclosure of information would qualify for whistleblower protection if it is made to either the Commissioner or the TPB to enable them to perform their functions or duties.
The draft legislation goes further by ensuring that whistleblowers are protected if they make disclosures to several entities for the purposes of obtaining assistance in relation to a disclosure, or to a medical practitioner or psychologist.
Increasing the ease of information sharing
In response to the tax adviser misconduct findings that the current secrecy provisions prevented collaboration and coordination between regulatory bodies and government departments, draft legislation has been released which will allow the ATO and TPB to share protected information with treasury and prescribed disciplinary bodies regarding misconduct.
Treasury will also be able to on-disclose protected information to the Treasurer or Finance Minister in relation to a breach or suspected breach, as well as any proposed measure or action to deal with the breach.
Tax Practitioner Board reforms
The government will also be pushing through the second tranche of amendments to the TPB which were initially recommended in the final report of the TPB review released in 2020, but have taken on new significance since the tax adviser misconduct scandal.
The changes proposed include:
- making additional information available to the public on the TPB tax practitioner’s register and also publishing detailed reasons for tax practitioner sanctions and terminations;
- extending the period of time that TPB has in which to conclude investigations into potential breaches from 6 months to 24 months.
- giving the TPB the option not to pursue administrative sanctions or civil penalties and instead publishing the findings of the investigation on the tax practitioner’s register;
- clarifying the delegation process that applies specifically to reviewable decisions of the Board.
Consultation
Consultation on this suite of measures will run until early October, at which point the government will consider feedback received before the introduction of legislation into Parliament, which was originally planned to occur in 2023.
In addition to the draft legislation released, the government has also highlighted more consultations to come next year in relation to strengthening regulatory arrangements. These include tackling fraud against the ATO, the use of legal professional privilege in Commonwealth investigations, and enhancing ATO’s investigation and information gathering powers.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.