Academic journal article Melbourne University Law Review

An Admirable Safe Harbour? Safe Harbours from Administrative Penalty for Taxpayers When Engaging Tax Agents and the Effects on the Uniform Penalty System

Academic journal article Melbourne University Law Review

An Admirable Safe Harbour? Safe Harbours from Administrative Penalty for Taxpayers When Engaging Tax Agents and the Effects on the Uniform Penalty System

Article excerpt

[The Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009 (Cth) creates safe harbours that protect taxpayers from administrative penalty for false or misleading statements and late lodgement. These will affect the vast majority of taxpayers because around 74 per cent of individual and 95 per cent of business taxpayers lodge income tax returns via a tax agent. This article provides an evaluation of these safe harbours in isolation and in light of the recent policy discourse of the Henry Review and taxation initiatives aimed at reducing the need for tax agents. While this article concludes that the safe harbours are mostly admirable, certain issues have been identified which require further consideration and action due to policy reasons.]

CONTENTS

I   Introduction
II  The Uniform Penalty System
    A Overview of Part 4-25
    B Subdivision 284-B--Former Shortfall Penalties
    C Subdivision 286-C--Failing to Lodge Documents on Time
III Safe Harbour Provisions
IV  Issues with the Safe Harbours
    A Distinctions between Taxpayers--Whether or Not a Tax Agent Is
    Engaged
    B Distinctions between Taxpayers--When a Taxpayer Also Fails to
    Take Reasonable Care
    C Interpretive Issue--When a Taxpayer Fails to Take Reasonable
      Care, Is Reckless or Has Intentional Disregard
    D Evidentiary Onus
    E Too Narrow a Harbour?--The Tax Agent's Intentional Disregard or
      Recklessness
    F Too Narrow a Harbour?--Only Agent-Lodged Documents Covered
    G Too Narrow a Harbour?--The Other Failure to Lodge Penalty
    H The Problems with an Absolute Absolution
    I Has the Bar of Reasonable Care Been Lowered?
    J The Safe Harbours Evaluated in Isolation
V   Taxation Policy
VI  Conclusion

I INTRODUCTION

   [T]here is no absolute safety even in 'safe harbours'--a
   reflection on Pearl Harbour and the Rainbow Warrior will attest to
   that. But there are many examples that show their potential to
   reinforce the trend towards efficient risk management by both
   taxpayers and the Tax Office in our complex system. (1)

A 'safe harbour' was once solely a concern of men like Nelson, Villeneuve, Gravina and Decatur, but the phrase has taken on an importance for ordinary taxpayers; it still indicates protection and certainty, but from economic sanction rather than a lee shore. A safe harbour can be provided by legislation or by the Australian Tax Office and virtually guarantees that compliance with the conditions of the safe harbour will result in protection from liability. (2) Safe harbours can reduce compliance costs and taxation risks and 'oil the wheels of the tax system.' (3) Therefore, it is not surprising that new safe harbours have been enacted recently in relation to the use of tax agents by taxpayers. With tax agents lodging around 74 per cent of individual returns and 95 per cent or more of business returns, (4) these safe harbours will affect the vast majority of taxpayers.

The Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009 (Cth) ('TAS TPCA Act') (5) inserted the safe harbours into pt 4-25 of the Taxation Administration Act 1953 (Cth) ('TAA'), which contains the uniform taxation penalty system, and shifted some of the risk from the taxpayer to the agent. Broadly speaking, the new safe harbour provisions ensure that a taxpayer who engages a registered tax agent and provides all relevant information to that tax agent is not liable for an administrative penalty for making a false or misleading statement or for failing to lodge a document on time when either is caused by the tax agent's failure to take reasonable care. (6) The safe harbours have been enacted in conjunction with a broader reform of tax agent regulation. (7) Tax agents are now encouraged to take reasonable care by the heavier sanctions that may be available to the new and empowered national Tax Practitioners Board under the new tax agent services regime of which the safe harbours are a part. …

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