From 1 July 2014, financial services licensees and their representatives may register with the Tax Practitioners Board (TPB) under the Tax Agents Services Act 2009 (TASA) to provide tax advice as part of their provision of financial product advice to a client. The current exemption from needing to be registered with the TPB will cease on 30 June 2014.

Background

The changes to the current TASA legislation were proposed ‘to ensure all forms of tax advice are consistently regulated and provide consumers with appropriate protections when receiving tax advice from a financial adviser’.

From 1 July 2014, there will be an 18 month transitional period, during which time financial planners who provide tax (financial) advice will be able to register with the TPB to become a tax (financial) adviser.

From 1 July 2016 any person who is not registered as a tax (financial) adviser and who provides any form of tax (financial) advice will be in breach of the TASA.

Breaching the TASA carries a penalty of up $42,500 for an individual and $212,500 for a body corporate.

What is tax (financial) advice and what is not?

Tax (financial) advice is defined by five key elements, but in essence it centres on a licensee or a representative of a licensee providing advice that relates to ascertaining or advising about ‘liabilities, obligations or entitlements’ under a taxation law for a fee.

Providing factual taxation information that does not take into consideration a client’s personal circumstances, tax related factual information, and simple calculators do not comprise tax (financial) advice.

What this means for licensees?

It is very possible that a licensee will be providing some form of tax advice as a part of any financial advice given to a client.  Indeed it would be hard to argue that a financial planner could ever realistically provide any form of personal financial advice without taking a client’s individual tax situation into account.

From 1 July 2014 until 31 December 2015, financial planners need only notify the TPB that they: 

  • are a financial services licensee or a representative of a licensee; and 
  • provide tax (financial) advice services.

Once registered, financial planners must comply with the TPB Code of Professional Conduct.

Beyond 2016, a licensee will either need to only provide general statements about the tax efficiency of an investment (tax information) or they will need to ensure they and any representatives they have appointed are registered with the TPB to act as tax (financial) advisers.

Education

After 1 January 2016, to either become registered (or maintain registration) as a tax (financial) adviser the TPB have proposed that a licensee or representative must have relevant experience, some form of tertiary education and have successfully completed an approved course in taxation law that takes a total of 100 – 130 hours of lectures, tutorials and private study to complete.

After initial registration, it is proposed that any licensee or representative registered with the TPB must undergo continuing professional education

This will place an additional cost, compliance and administrative burden on those licensees and their representatives who wish to seek registration with the TPB.

PI Insurance

From 1 July 2014, registered tax (financial) advisers will be required to have PI insurance which meets the TPB’s requirements.  It is currently proposed that cover be for a minimum of $2 million and must cover civil liability arising from an act, error or omission as a tax (financial) adviser under the TASA.

This is yet to be confirmed, however.

What is next?

We are waiting for clarity from the TPB, ASIC. and Treasury on a number of matters.

Most critical is the degree of ‘scalability’ in the provision of such taxation advice as part of financial advice. There is obviously easily identified pure taxation advice, which comes from a suitably qualified and registered taxation specialist and pure financial advice which comes from a suitably qualified and registered AFS Licensee or their representatives.

What is not clear is the grey area in the middle; when does pure financial advice cross over into taxation advice?  How much tax information is able to be provided before it ceases to be general advice?

ASIC will continue to monitor behaviour and compliance under the Corporations Act and the TPB under TASA.  How these will work together in reality, and how complaints will be dealt with through the existing EDR schemes are also yet to be resolved.