Whats the definition of a professional (re Tax)

Hey all,

So in pretty much any document related with tax you see disclaimers, that you should always seek professional advice before doing something, etc.

However with regards to tax what constitutes a professional? Do you need to be registered with that ATO as tax agent or something? Furthermore if the person you consult with IS registered, and the advice they give you is incorrect, are then liable.

If I ask my account (who for arguments sake is considered a professional) whether some income is tax-free and they say yes (again for arguments sake), but it turns out that it isn't, do I still have to pay the tax.

Is this where the accounts professional liability insurance comes into play?

BTW - This all came from me reading the Macquarie Prime PDS and trying to confirm that interest I pay to them is tax deductible.

 

Strictly speaking you are asking about 2 different things (professional and tax agent), although many will be both, and in the case of the PDS it would really mean a tax agent. This distinction is important, as I will explain below.

A tax agent is someone registered by the Tax Agents Board (a government body) to provide tax services for a fee. Tax agents (and their employees) are the only people allowed to provide tax services for a fee. No one else can do this, although anyone can offer their opinion on tax for free (this is what Macquarie did in their PDS). Macquarie are however telling you to see a tax agent because they can't take the risk of getting sued if their opinion was wrong, as they won't be insured for it.

Having professional indemnity insurance is not necessary to be a tax agent, but I would be surprised if professional bodies (eg ICAA and CPA) allowed their members to practise without it.

If a tax agent gives incorrect advice, then they should be liable for it (this is where the insurance comes in), but make sure you get the advice in writing if you're concerned (most technical advice will be in writing anyway). If there is a grey area than your tax agent will say so and leave the decision up to you.

With your example of the tax free income you end up paying tax on, you will have to pay the tax to the government, but your accountant will be liable to you if it came from their bad advice (ie you need to pursue a separate action). It's up to the accountant to decide whether or not to pay you - you may have to take them to court. Being a tax agent does not mean they will simply pay you if they are in the wrong.

Going back to who can give tax advice, as I said only tax agents can charge for this, so they are the only people you should listen to. Others like bankers, real estate agents, financial planners and salespeople of all stripes will all give their own opinions, but they are frequently wrong. Seek your own advice instead.

If you want to confirm your accountant is a registered tax agent, ask for their tax agent number and check online here:

Tax Agents Board