It is inconceivable that every one of the more than 740 financial advisers who failed to renew registrations with the Tax Practitioners Board in July decided that they no longer give tax-related financial advice to clients. It’s more likely that the failure to renew was an oversight, or happened through ignorance. Either way, it may prove costly.

The TPB revealed last week that 27 per cent, or 742 of 2748 registered tax (financial) advisers failed to renew their registrations as the deadline passed in July.

If more than a quarter of financial planners have decided that they do not give any form of advice that has a taxation dimension to it, and therefore do not need to be registered, it raises the questions why they registered in the first place, and what has changed in the meantime.

They may not have known their renewals were due. Licensees handled initial TPB registrations for many advisers and while the board has sought to alert as many advisers as possible that renewals are due, in cases where an address has changed or an adviser has moved licensees, their contact details may not be up to date.

Once a registration has lapsed, the entire process has to start from scratch and until they are registered, advisers aren’t allowed to give financial advice that has a taxation dimension to it. The TPB states that an adviser is providing a tax (financial) advice service if it is:

  • tax agent service (excluding representations to the Commissioner of Taxation)
  • provided by an Australian financial services (AFS) licensee or representative, (including individuals and corporations) of an AFS licensee,
  • provided in the course of advice usually given by an AFS licensee or representative and relates to ascertaining or advising about liabilities, obligations or entitlements that arise, or could arise, under a taxation law
  • reasonably expected to be relied upon by the client for tax purposes.

An adviser (or a corporate authorised representative) breaks the law if they’re not registered and they charge or receive a fee or other reward for providing a service that they know “or should reasonably know”, is a tax agent service, BAS (business activity statement) service or tax (financial) advice service.

The penalty for this specific offence is $52,500 for an individual adviser, or $262,500 for a corporate AR.

A tax (financial) adviser breaks the law if they’re not registered and they advertise that they will “provide a tax agent service, BAS service or tax (financial) advice service”. The penalty in that case is $10,500 for an individual and $52,500 for a corporation.

Finally, an adviser will break the law if they are not registered and they represent themselves as “a registered tax agent, BAS agent or tax (financial) adviser”.  The penalty in that case is also $10,500 for an individual and $52,500 for a body corporate.

It’s possible to break all of these laws at once, of course, which means individuals could be up for $73,500 in penalties, and corporate ARs could owe $367,500. It’s a high price to pay for forgetting to renew.

An entity providing tax (financial) advice might avoid some of these penalties if they provide a disclaimer to clients that they are not a registered tax (financial) adviser. But the TPB says that “the existence of a disclaimer does not automatically absolve an entity providing the service from being required to be registered with the TPB”.

“The effect of such a disclaimer will generally depend on all the circumstances of the case, including the relative knowledge and skill of the provider and the complexity and/or significance of the service provided,” it says.

Membership’s privileges

 There’s one related but probably less significant issue also floating around at the moment, relating to association membership.

Members of recognised tax (financial) adviser associations do not have to comply with the TPB’s commercial law and tax education requirements, provided they’re  members who have six years’ full-time or equivalent relevant experience out of the previous eight years.

But that route will be closed off if an adviser leaves an association for some reason – say they believe it’s dominated by the big end of town and doesn’t adequately represent their interests – and belongs only to one that the TPB doesn’t recognise.

An adviser then must demonstrate they personally and individually measure up on the education front, or else they cannot register, and can’t give advice involving tax.

At the moment, the only professional associations for tax (financial) advisers are the Financial Planning Association (FPA), the Association of Financial Advisers (AFA) the Self Managed Superannuation Fund Association (SMSFA), and the Stockbrokers and Financial Advisers Association (SAFAA). Other associations have applied for recognition.

Between now and December 31, an estimated further 13,000 advisers are due to renew tax (financial) adviser registrations. If the initial non-renewal rate continues, then 2018 will begin with well more than 4000 advisers who will not be permitted under law to give tax advice. Not a great way to start the new year, for advisers or for clients.

Note: This story was edited on 6/8/17 to clarify what impact a disclaimer can have for an entity providing tax (financial) advice services.

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