The Government has updated the legislation governing registered tax practitioners to mandate the reporting of significant uncorrected errors to the Tax Commissioner.
The Government has introduced several changes to the Tax Agents Services Act 2009 that include additional requirements for registered tax practitioners and how they work with clients. The reforms are a response to the recommendations of a Senate inquiry into the actions of the accounting group PwC and the consulting industry in Australia. The inquiry was initiated after confidential information was disclosed by a former PwC Partner, stemming from Treasury consultations and his interactions with the Board of Taxation.
Apart from signing multiple confidentiality agreements, the Partner shared this sensitive information with PwC partners and others in Australia and overseas, seeking to help existing and new clients avoid some proposed anti-avoidance tax laws.
The Senate inquiry estimates that the scandal put at risk $180 million in tax revenue per year and produced new income of at least $2.5 million for the first phase of PwC’s services, which assisted clients in “sidestepping the new laws”.
The scandal revealed flaws in regulating tax practitioner services, the investigative powers of the Tax Practitioners Board (TPB), and inter-departmental information sharing.
Tax practitioner registration
The Tax Practitioners Board registers and regulates tax practitioners in Australia. Only licensed practitioners are allowed to provide you with BAS or tax services.
The rise in business bankruptcy
Corporate business failure is up to 39% as compared to last financial year, according to ASIC’s annual insolvency data. The industries with the highest representation were accommodation, construction and food services at the top of the list. In 2023-24, restructuring appointments increased by over 200%. Small business restructuring allows those companies whose liabilities don’t exceed $1m plus other criteria to retain control of their business while it creates a plan to restructure its affairs.
A restructuring practitioner helps companies enter a restructuring plan with creditors. Of the 573 companies that restructured between January 1, 2021, and June 30, 2024, 89.4% are still registered, 5.4% have liquidated, and 5.2% have been deregistered. Reserve Bank of Australia Governor Michelle Bullock noted that the business sector is facing pressure and the outlook isn’t as positive, with productivity also lagging.
Managers must identify and manage issues before it’s too late. When a business can’t pay its debts on due dates, it becomes insolvent. The main reasons why companies fail are:
- Poor strategic management
- Inadequate cashflow or high cash use
- Trading losses
The common problem areas are:
- Considerable below-budget performance.
- Significant increases in fixed costs without an increase in revenues – Fixed costs are expenses you incur regardless of your business activity level. When fixed costs increase, they affect your profitability.
- Your gross profit margin is the margin between your sales and the cost of goods sold.
- You are supporting your business with debt rather than equity finance.
- A drop in sales can have a cascading impact on your business, reducing profits and stalling growth.
- Even with strong sales, insufficient cash flow can lead to delays in settling your obligations to creditors.
- Spending more than your current cash flow allows you to rely on future income to cover today’s expenses.
- Running your business without clear financial insights is like driving with a blindfold on!
- Growing sales faster than your business can handle, potentially leading to unsustainable growth.
- Dealing with customers who refuse to pay and inventory that remains unsold.
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