Key Points:

Mr John Morgan, of the Victorian Bar, delivered a paper, at the Tax Institute’s 2019 National Convention, in Hobart in March. It was titled: “When does ‘tax advice’ become ‘legal advice’ and thus ‘unqualified legal practice’? 

He concluded that, subject to the Tax Agents Services Act 2009 (Cwth) (TASA 2009) being constitutionally valid, Registered Tax Agents were entitled to provide ‘tax agent services’ (broadly, to ‘ascertain’ and ‘advise on’ tax liabilities and represent taxpayers with the Commissioner of Taxation) without breaching State and Territory prohibitions on unqualified legal practice. Outside such protection, however, is supplying legal documents and practicing in State and Territory taxes.


 

EXTRACT

1 Introduction

1)  The intersection between ‘unqualified legal practice’, and the work tax agents do, has interested me for years – no doubt because I’m a lawyer and I practise in tax.

2)  The focus of this paper – ‘tax advice’ and ‘legal advice’, is probably founded in the Victorian Supreme Court, Court of Appeal, case: Felman v Law Institute of Victoria [1998] 4 VR 324; (1997) 142 FLR 383, where Her Honour, Appeal Justice Kenny, said [at pp.383-4]

… a tax agent who gives advice, as to income tax matters … does not give what is ordinarily understood as legal advice …

3)  These (and the surrounding) comments, have been called the ‘Felman bubble’1 – no doubt because they could ‘burst’ at any time, leaving those relying on the bubble, totally exposed.

2 Overview of the area

4)  Accountants and Tax Agents are called on to do, and know, an extra-ordinary amount. They tendto be their clients’ first ‘go-to’ person, for all sorts of matters.

5)  Having said, that, a good many of these matters involve legal issues, which raises the very subject of this paper – where is the cross-over point, when their practice involves illegal unqualified legal practise?

6)  This paper focuses on the boarder between ‘tax advice’ and ‘legal advice’, but my central thesis, is that nearly all ‘tax advice’ is ‘legal advice’. This is because ‘legal’ questions and skills permeatethe whole area. I enlarge on this thesis in my discussion about the Felman case;2 particularly the‘fiction’ that ‘tax advice’ is not ‘legal advice’ (see Heading 5.2.7).

7)  This is not to conclude that Tax Agents are regularly at risk, of breaching prohibitions under local laws, regulating the practice of the law. This is for two reasons.

a)  First, under s109 of the Constitution of Australia, the Commonwealth law (TASA 2009) will prevail over a State or Territory law, blunting any attempt to make illegal, rights given to Tax Agents, by TASA 2009.

b)  Second, there is a ‘carve-out’ from prohibitions, on unqualified legal practice, for conductthat is ‘authorised’ by a Commonwealth law (viz: TASA 2009). Or more correctly, there issuch a ‘carve-out’, in all jurisdictions, except for South Australia (leaving the Consitution to do the same work in SA).

2.1 Effects of unqualified legal practise

8)  If, however, conduct of a Tax Agent did cross the line, into unlawful legal practice, then the results would be serious.

9)  The direct effects are significant.

a)  First, an offence would have occurred. If prosecuted, the Court could record a conviction. In all jurisdictions, a Court can impose monetary penalties. And, under three (3) Acts, the Court could (if serious enough) imprison the offender.

b)  Second, the practitioner is not entitled to any fees or remuneration in connection with the offending conduct. This can be used as a defence, to fee recovery action and there is an obligation to return fees already paid. This would, at least, be an unpleasant surprise to the practitioner and could even ruin his or her business model.

10)  The indirect effects are also significant.

a) The practitioner’s professional indemnity policy is likely to have an exclusion, for illegalconduct. If a practitioner’s client made a claim, the insurance company could deny liability, leaving the practitioner uninsured.

b) It would be hard, for a Tax Agent, to establish the relevant duty of care (to defend aclient’s compensation claim), if the conduct was illegal, under prohibitions on unqualified practise of the law. This would only be exacerbated, by the fact that these prohibitions, have been enacted, for consumer protection purposes (and plainly there would be anaggrieved ‘consumer’ in this scenario).

c) A tax agent could be exposed to disciplinary action, for being guilty of an offence and for breaching the TASA Code of Conduct (in s30-10 of that Act). For instance, a Tax Agent could find it difficult to make out the ‘competence’ requirement, in ss(7), if the Agent was guilty of unqualified legal practise.

d) Accountants and Tax Agents, may (notwithstanding the TASA legislation) expose theirtaxpayer clients to a ‘shortfall penalty’ for lack of reasonable care, if it was clear that a lawyer was needed, to lodge a correct return.3

11)  I will examine all this in greater detail, below.

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