Explanatory Memorandum(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)
Chapter 2 - Regulation impact statement - Creating a regulatory framework for tax (financial) advice services and other amendments
2.1 This Regulation Impact Statement was prepared by the Department of the Treasury at the original decision making stage and was assessed as adequate by the Office of Best Practice Regulation. It was publicly released on 8 November 2012.
2.2 A Regulation Impact Statement is a document prepared by departments and, as such, this Regulation Impact Statement reflects the Department of the Treasury's assessment of the costs and benefits of each option at the decision making stage. Accordingly, this Regulation Impact Statement does not reflect changes arising from further consultation during the legislative development of these amendments.
Regulation Impact Statement: A new regulatory framework for financial advisers  providing tax advice
Regulation of tax advice by the Tax Agent Services Act 2009
2.3 The Tax Agent Services Act 2009 (TASA 2009) introduced a national regulatory framework for tax agents and BAS agents. The TASA 2009 regime commenced on 1 March 2010. It consolidated previous state-based arrangements into a streamlined national regime and strengthened consumer protection available to recipients of tax agent services, including tax advice.
2.4 The policy objectives of the TASA 2009 framework were to strengthen the integrity of the tax system; enhance the protection of consumers of tax agent services, thereby reducing the level of uncertainty for taxpayers and the risks associated with the self-assessment system; and to improve consistency in registration and to regulate the provision of tax agent services in an appropriate, but flexible, way.
2.5 The introduction of the TASA 2009 was accompanied by a regulation impact statement. That regulation impact statement was published in Chapter 6 of the Explanatory Memorandum accompanying the Tax Agent Services Bill 2008 (which on passage through Parliament became the TASA 2009).
2.6 Providers of tax advice are ordinarily regulated by the TASA 2009. Section 90-5 of the TASA 2009 defines a 'tax agent service' to include 'advising... about liabilities, obligations or entitlements... that arise, or could arise, under a taxation law'.
Position of financial advisers under the TASA 2009
2.7 Financial advisers may provide their clients with tax advice without being subject to the application of the TASA 2009. This is because financial advisers are legislatively exempt from the application of the TASA 2009. Anecdotal evidence suggests that there may be anywhere between 8,000 and 17,000 financial advisers who could be providing tax advice for a fee or other reward.
2.8 Because financial advisers are exempt from the TASA 2009, they are also exempt from having to comply with the professional requirements it imposes upon tax agents in order to guarantee the standard of tax advice. This creates a number of issues, which are discussed in more detail below under the 'Problem' section.
Development of a new framework for financial advisers providing tax advice
2.9 Because of the problems generated by the present exemption of financial advisers from the TASA 2009, the Government has been developing a new policy framework for regulating financial advisers who give tax advice. This is discussed in more detail in the 'Consultation' section of this regulation impact statement.
2.10 Financial advisers have been exempted from the application of the TASA 2009 to allow the Government sufficient time to settle the details of the regulatory model to be settled, resolve implementation issues associated with the new framework, and enable necessary legislation to be enacted with effect from 1 July 2013.
2.11 Financial advisers are able to provide tax advice to their clients without being subject to the ethical and professional standards imposed by the TASA 2009. This situation is undesirable. A new regulatory framework for financial advisers providing tax advice is proposed to ensure they are appropriately regulated.
2.12 The current situation is undesirable for three reasons, which are that:
- the provision of tax advice by tax agents is regulated but the provision of tax advice by financial advisers is not - this is a regulatory anomaly;
- as a result of this anomaly, the current situation poses risks to consumer protection, professional accountability, and the integrity of the tax system; and
- there is a lack of legislative clarity regarding the legal position of financial advisers who provide tax advice.
2.13 In relation to the first issue - the TASA 2009 currently applies to tax agents providing tax advice, but not to financial advisers who provide tax advice. This means that financial advisers are not subject to the professional and ethical standards that the TASA 2009 imposes on providers of tax agent services through its mandatory Code of Professional Conduct. The TASA 2009 also provides disciplinary sanctions which the Tax Practitioners Board (TPB) may apply against tax agents for breaches of the Code of Professional Conduct. Because financial advisers are not subject to the Code of Professional Conduct, they are also not subject to sanctions. This creates an inequality between financial advisers and tax agents, as tax agents are subject to more onerous professional standards.
2.14 In relation to the second issue - this situation creates several underlying risks in the absence of regulation of those financial advisers who provide tax advice. Firstly, consumer protection may be compromised as the TASA 2009 regime only affords key protections to clients of tax agents who provide tax advice (and not the clients of financial planners who provide tax advice). Secondly, there are different standards of accountability between tax agents and financial advisers providing tax advice as only tax agents can be held accountable for misconduct under the TASA 2009. Thirdly, the integrity of the tax system could be compromised by tax advice being provided by non-registered and non-regulated providers of tax agent services.
2.15 Finally, there remains a lack of legal clarity about which aspects of tax advice services will fall within the definition of a 'tax agent service' in section 90-5. When the TASA 2009 was first introduced, there were concerns regarding the nature of tax related services that may be provided by a financial adviser and how they relate to the definition of tax agent services. It remains ambiguous as to precisely what financial advice services fall within the ambit of the TASA 2009, and consequently whether financial advisers will need to register with the TPB to provide services to clients.
2.16 The current regulatory regime therefore has undesirable consequences, which the Government may wish to take policy action to remedy.
Objective of the Government
2.17 The objective of Government action is to ensure that all tax advice provided for a fee or other reward is consistently regulated, irrespective of whether that tax advice is provided by a financial adviser.
2.18 Specifically, the policy objectives of the new framework for regulating financial advisers who provide tax advice are:
- for financial advisers providing tax advice - to ensure they are regulated as providers of tax agent services in an appropriate, but flexible manner to ensure that an unfair burden is not placed on the industry;
- for taxpayers - to enhance their consumer protections and to promote the provision of quality financial advice services; and
- for the tax system - to ensure the integrity of the tax system and the tax industry are strengthened, so that providers of tax advice are treated in a similar manner.
2.19 In April 2011, the then Assistant Treasurer outlined a possible model to achieve these objectives after consultation with industry. This is the model discussed in Option 1 below.
Options that may achieve objectives
2.20 Three courses of action that could be taken in response to the present situation are:
- implementing a co-regulatory model - to streamline regulation of financial advisers to ensure that the provision of tax advice is consistently regulated;
- extending the TASA 2009 exemption for financial advisers indefinitely - so that financial advisers would be able to provide tax advice without needing to comply with the TASA 2009 requirements; or
- maintaining the status quo - when the TASA 2009 exemption expires on 30 June 2013, financial advisers will need to comply with all the requirements of the TASA 2009 regime from 1 July 2013.
Option 1: A co-regulatory framework
2.21 The regulation of financial advisers providing tax advice could be addressed using a co-regulatory framework, as discussed with industry stakeholders. Financial advisers who provide tax advice for a fee or other reward, and are not otherwise registered with the TPB as tax agents, will be required to register in order to continue providing tax advice.
2.22 The essence of this proposal is to introduce a regulatory system in which Australian Securities and Investments Commission (ASIC) and the TPB jointly regulate those financial advisers who provide tax advice as part of their financial advice services. To allow the financial services industry to adjust to the new system, the co-regulatory framework could be introduced in three separate phases. Such a co-regulatory framework would only apply to the financial advisers referred to below in paragraph 2.23 in this document (and not to the ones in paragraph 2.24).
2.23 Financial advisers who will be subject to the co-regulatory framework are those who can:
- provide tax advice in the context of providing personal financial advice for a fee or other reward, but not to the extent they lodge tax returns or make representations to the Commissioner of Taxation;
- provide personal financial product advice which includes tax advice that can be relied on by consumers; or
- advise clients as part of their job, profession or business in exchange for a fee (directly or indirectly) or any other reward or remuneration.
2.24 Financial advisers who will not be subject to the co-regulatory framework are those who:
- provide only general tax information and not tax advice tailored to a client's circumstances; or
- provide tax agent services, such as lodging tax returns and making representations to the Commissioner of Taxation, as they are currently required to be regulated by the existing the TASA 2009 framework and therefore they are (or should be) registered tax agents.
Possible features of the co-regulatory framework
2.25 Under the co-regulatory framework, financial advisers may need to be registered with the TPB and ASIC in order to provide tax advice in the context of their financial advice services.  These registered financial advisers may then be subject to ongoing regulation under the TASA 2009.
2.26 Under the co-regulatory framework, financial advisers providing tax advice may need to meet obligations imposed on them by both the TASA 2009 and the Corporations Act 2001 (Corporations Act),  as applicable. The TASA 2009 requirements would need to be extended to cover financial advisers providing tax advice and these would need to be introduced as part of the legislative amendments.
2.27 ASIC could act as a 'shop front' facilitating the co-regulatory framework and be the initial point of contact for financial advisers and consumers in relation to the regulation or receipt of financial advice.
2.28 ASIC could on-share information with the TPB about financial advisors who are licensed or authorised under the Corporations Act. ASIC and the TPB would communicate with each other as appropriate to facilitate the success of this co-regulatory approach. Legislative changes will need to be introduced to enable the TPB to share information with ASIC and for ASIC to share information with the TPB for no fee.
2.29 The TPB could administer the registration of financial advisers who provide tax advice, however ASIC could provide a link on its website to assist financial advisers to obtain the information about the new requirements. The TPB could also be responsible for enforcement activities and relevant professional standards for tax advice.
Possible implementation phases
2.30 Should the co-regulatory framework be implemented, it would be preferable to institute it in distinct phases, such as: a notification phase (1 July 2013 to 31 December 2014); a transitional phase (1 January 2015 to 30 June 2016); and a long-term phase (1 July 2016 onwards when the co-regulatory framework is fully implemented).
2.31 During a notification phase, no registration fee would be payable by financial advisers, but during transitional and long-term phases registration fees would be payable by financial advisers.
2.32 During notification and transitional phases, a financial adviser would not be required to meet education and experience requirements. However, during both notification and transitional phases financial advisers would need to apply for registration, meet fitness and propriety requirements, and adhere to the Code of Professional Conduct.
2.33 Once the co-regulatory framework enters into the long-term phase, applicants would also need to meet education and experience requirements in order to be able to renew their registration.
2.34 A high level overview of the different features of each implementation phase is contained in the table below.
1 July 2013 - 31 December 2014
1 January 2015 - 30 June 2016
1 July 2016 onwards
|Applying for registration||✓||✓||✓|
|Registration requirement - experience||x||x||✓|
|Registration requirement - education||x||x||✓|
|Registration requirement - fitness and proprietary||✓||✓||✓|
|Code of Professional Conduct||✓||✓||✓|
Possible registration requirements - education and experience
2.35 Relevant financial advisers should need to demonstrate that they also have appropriate professional experience. Experience could be demonstrated by having worked with a registered tax agent or could perhaps be obtained through working with an already registered adviser. The TPB has recently launched new CPE requirements, discussed in Attachment A.
2.36 If financial advisers who provide tax advice become voting members of recognised associations, and demonstrate that they meet certain experience requirements, then they could be exempted from undertaking the additional education requirements. However, if they are not exempted, then under the co-regulatory framework they may need to complete appropriate courses from the start of a long-term period (from 1 July 2016).
2.37 Financial advisers who provide tax advice will also be expected to maintain and update their skills through a continuing professional education (CPE) regime which will complement the continuing professional development regime as outlined by ASIC. The TPB is in the process of developing a framework of CPE expectations for financial planners who provide tax advice.
Development of a co-regulatory framework option
2.38 On 23 April 2010, the Government announced that it would seek the public's view on the most suitable regulatory oversight arrangements for tax agent services and advice provided by financial planners. In November 2010, the Treasury issued an options paper, 'Regulation of tax agent services provided by financial planners', which canvassed possible options and how those options could be implemented.
2.39 The options paper presented two options for consideration:
- Option 1 - To bring tax agent services provided by financial advisers permanently within the tax agent services regime, including regulation by the TPB, but done so as to minimise additional compliance burdens;
- Option 2 - To investigate and implement changes to the Australian Financial Services Licence (AFSL) regime or its enforcement powers, to ensure financial advisers offering tax agent services are regulated to the same standards as those expected of tax agents. The AFSL regime does not cover the provision of tax advice. Legislative changes would need to be made to extend the ambit of the AFSL regime to cover tax advice.
2.40 On 15 December 2010 the then Assistant Treasurer met with representatives of finance and accounting bodies. The outcome of that meeting was a decision that Treasury, ASIC and the TPB would work through options using ASIC as the 'one-stop shop' to regulate financial advisers. Subsequently, the co-regulatory framework, a hybrid model application of options 1 and 2 that were presented in the November 2010 Options paper, was developed when Treasury consulted with ASIC and the TPB.
2.41 The proposed hybrid model accommodates the stakeholder views that were expressed when the two options were initially considered. In particular, it aligns the regulation of financial advisers (as ASIC regulates them) with modifications to the TASA 2009 to ensure that tax advice provided by financial advisers is consistently regulated by the TPB. This model seeks to avoid any unnecessary duplication of administrative efforts associated with registration and enforcement activities without compromising the regulation of tax advice provided by financial advisers.
2.42 On 10 February 2011, the then Assistant Treasurer announced a number of principles that should underpin the development of the regulatory arrangements for the potential co-regulatory regime. These principles included: consumer protection, ASIC being the key agency for interacting with financial advisers and consumers in relation to tax services provided as part of their financial planning services; and ASIC being supported by a strong and collaborative arrangement with the TPB.
Option 2: Extending the financial advisers exemption from the TASA 2009
2.43 Option 2 is to indefinitely extend the exemption of financial advisers from the application of the TASA 2009, and subject them only to regulation by ASIC insofar as they provide financial product advice.
2.44 While financial advisers would continue to be subject to the AFSL regime to the extent they provide financial product advice, tax advice which financial advisers provide would not be subject to the TASA 2009 regime. As such, the quality assurance provided by the TASA 2009 would not be available for tax advice provided by financial advisers.
2.45 It is difficult to identify a sound reason why financial advisers who provide tax advice should be indefinitely exempt from the operation of the TASA 2009 regime, especially since financial advisers may provide tax advice as part of the ordinary advice they already provide to their clients. For instance, financial advisers may already provide advice in relation to the deductibility of superannuation contributions, the extent to which superannuation benefits would be subject to tax in the hands of the recipient, the implications of receiving franked dividends and income splitting. Providing such advice would constitute the delivery of 'tax agent services' as defined in the TASA 2009.
2.46 Currently there is an anomalous situation with financial advisers being able to provide tax advice without needing to comply with the TASA 2009 requirements, which others (who provide tax agent services) need to comply with when providing similar advice.
2.47 This is the preferred option, as financial advisers would face no compliance requirements and benefit from not being subject to the TASA 2009 when they provide tax advice. This is contrary to the Government's objective to improve consumer protection.
2.48 The Tax Agent Services Regulations 2009 (TASR 2009) subregulation 13(2), which provides the current temporary exemption, would need to be amended to put into effect an indefinite exemption.
Option 3: Status quo
2.49 The current exemption for financial advisers will lapse on 30 June 2013. If the Government decides to take no action and maintain the status quo, then the TASA 2009 will apply to financial advisers in full from 1 July 2013. This will mean that financial advisers will need to comply with all the requirements of the TASA 2009, including the Code of Professional Conduct, education, experience and other requirements from 1 July 2013 (as opposed to the three phases outlined above with the co-regulatory framework option).
2.50 This option has the benefit of bringing all providers of tax agent services into the TASA 2009 regime, thereby regulating tax advice provided by financial advisers, plus 'levelling the playing field' between financial advisers and tax agents. However, allowing the exemption to end without any transitional safety-net arrangements may be detrimental to the regulators (ASIC and the TPB) and to affected financial advisers.
2.51 There are approximately 18,000 financial advisers in Australia, however, not all financial advisers will be providing tax advice for a fee or other reward in addition to the financial advice that they would be providing. Anecdotal evidence suggests that there may be anywhere between 8,000 and 17,000 financial advisers who could be providing tax advice for a fee or other reward. Some may already be registered with the TPB as tax agents.
2.52 The Government is likely to incur implementation costs under both Options 1 and 3. There may also be costs in the setting up of additional registration mechanisms or adding financial advisers who provide tax advice to the TASA 2009 register, however, these are likely to be minimised with requirements to use existing systems.
2.53 Over the long-term, the requirements of Options 1 and 3 will not be different, as the level of regulatory oversight will be the same.
2.54 A quantitative estimate of these possible costs was not available at the time of writing.
Impact of option 1
2.55 The consumer protection provided by the TASA 2009 would be in place and implemented under this option. The protections that would come into effect from the commencement of the co-regulatory framework (1 July 2013) include: registration, compliance with the fitness and propriety requirements, and with the Code of Professional Conduct. Financial advisers will need to comply with these key protections from the start of their registration. Subsequently, those financial advisers may need to meet further education and experience requirements.
2.56 Streamlining the regulation of tax advice through a co-regulatory framework, jointly administered by ASIC and the TPB, will mean that financial advisers will not generally have to provide the same details to two separate regulators in order to secure licencing, registration or renewal.
2.57 Certainty and consumer protection would be enhanced under this model, as there is a proposed requirement that financial advisers ensure that their professional indemnity insurance (PI insurance) will cover them not only for the financial advice that they provide, but also for their tax advice.
2.58 A co-regulatory framework should raise the standard of advice provided by financial advisers who provide tax advice, as professional standards would be increased because financial advisers will be subject, for the first time, to explicit tax-related obligations and education standards, Code of Professional Conduct requirements, and disciplinary standards.
Impacts on financial advisers and financial advice businesses
2.59 Financial advisers will continue to face the costs associated with obtaining or maintaining an appropriate AFSL licences (that is, the proposed co-regulatory framework will not impact on those). However, financial advisers who provide tax advice would also need to ensure that their licences, registrations or renewals cover them for the provision of tax advice services. The co-regulatory model should minimise the time financial advisers spend applying to regulators for licencing, registration or renewal. In addition, for the first time financial advisers could be subject to explicit requirements that tax agents are currently subject to under the TASA 2009, such as the specific tax-related conduct obligations and education standards.
2.60 Financial advisers may face costs such as registration and renewal fees, as well as education costs (additional taxation training and CPE developed by the TPB, and PI insurance costs if the financial adviser's existing PI insurance does not cover them for the tax advice). However, financial advice businesses may choose to bear the costs associated with obtaining and maintain registration on behalf of financial advisers that they employ. Financial advice businesses may therefore incur costs such as registration and renewal fees, as well as education costs and PI insurance costs.
2.61 Financial advisers who wish to provide tax advice will need to ensure that their PI insurance extends to covering them for the tax advice that they may provide. This may or may not require them to pay an addition premium on their existing PI insurance.
2.62 Registration fees collected by the TPB could initially be waived for financial advisers who are being regulated for the first time. To assist with this transition, fees could be delayed until the commencement of a transitional phase on 1 July 2015. After this point though, a proposed fee structure could be:
- $400 - for three-year registration as a financial adviser who carries on a business as a financial adviser; and
- $200 - for three-year registration as a financial adviser who does not carry on a business as a financial adviser.
2.63 During the initial notification phase, financial advisers could benefit from a delay in the requirement to pay registration fees from 1 July 2013 to 1 July 2015. As such, they will be able to register and be able to provide advice without needing to immediately pay the registration fee.
2.64 Financial advisers intending to provide tax advice would become subject to the qualification and experience requirements which apply to registration and renewal of tax agents (in line with items 201 to 206 in Schedule 2, Part 2 of the TASR 2009). If they do not qualify for an exemption or do not meet the education requirements, under the co-regulatory framework the financial advisers who wish to provide tax advice may need to complete the education requirements from 1 July 2016 (the start of the long term period).
2.65 Apart from needing to invest time to complete the required courses, financial advisers or their employers are likely to incur educational expenses such as course fees and course material costs to assist them meet the educational requirements.
2.66 This is the preferred Option, as it meets the objectives of the Government.
Possible costs of meeting the education requirement
2.67 The TPB is proposing that an Australian taxation law course that some financial advisers may need to undertake should be at the Diploma level, and their preliminary view is such a course would be of 100 to 130 hours duration and could cost between $680 and $1,060. This would equate to one quarter of a semester's full-time workload.
2.68 Some financial advisers may have already undertaken a course of study that covers the course content. Further, some financial advisers should be entitled to sit an exam that tests their prior knowledge and experience. In those cases, there may not be an additional cost impost (in the course of prior study) or a reduced cost impost (by undertaking a test).
2.69 Financial advisers who provide tax advice will also be expected to maintain and update their skills through CPE. This would also require an investment of time, possible additional costs to attend short courses, and the need to maintain a record as evidence of the CPE. Membership with accredited associations which impose CPE requirements upon members may also count toward meeting the TASA 2009 CPE requirements.
Impacts on recipients of tax advice from financial advisers
2.70 Recipients of tax advice from financial advisers would benefit from the enhanced certainty that comes with these advisers being registered in a similar manner to tax agents under the TASA 2009. Consumer protection will be strengthened as a result of a requirement that relevant financial advisers will have PI insurance policies that cover them for the tax advice that they may provide. This will provide consumers with a further safety-net.
2.71 The competency of financial advisers who provide tax advice will be enhanced, and recipients of tax advice can be assured that the standard of advice that is received would be of a similar professional standard to that provided by tax agents that are currently regulated under the TASA 2009.
2.72 Some benefits to consumers could be deferred for three years, as under Option 1, CPE and education requirements will apply from 1 July 2016, rather than 1 July 2013 (the date after the exemption expires).
2.73 As financial advisers would face new costs and outlays for registration and education, they may pass some of the additional costs to the receipts of the tax advice that they provide.
Impact of option 2
2.74 Financial advisers will not face financial costs or additional compliance burdens under this option. However, the underlying risks associated with the absence of regulating financial advisers who provide tax advice, and the concerns associated with those, would remain unresolved.
2.75 Financial advisers who provide tax advice would remain unaccountable for the tax advice that they provide, and would not face disciplinary action or be subject to penalties under the TASA 2009. Consumer protection afforded by the TASA 2009 would not be available to the recipients of tax advice from such financial advisers.
2.76 Recipients of tax advice from financial advisers could potentially face uncertainty as they would not be able to rely on sanctions under the TASA 2009 or the Code of Professional Conduct that they could rely on if similar advice was obtained from a registered tax agent.
2.77 This is not a preferred option, as it does not meet the objectives of the Government.
Impact of option 3
2.78 Under this option, financial advisers would be subject to all obligations under the TASA 2009 regime from 1 July 2013.
2.79 Consumers of tax advice could benefit from the protection that the TASA 2009 provides, and would be assured that the same scrutiny would be applied to a financial adviser who provides tax advice, as would be applied against a tax agent. Financial advisers, who wish to provide tax advice as part of their services would need to register under the TASA 2009, meet the propriety test, agree to be bound by the Code of Professional Conduct, as well as show that they meet the education and experience requirements upon registration.
2.80 Financial advisers who provide (or advertise that they can provide) tax advice for a fee or other reward, and who do not register under the TASA 2009, would face civil penalties for not complying with the TASA 2009 regime. Offending individual advisers could face civil penalties of up to 250 penalty units (or currently $27,500) while body corporates committing similar offences could face civil penalties of up to 1,250 penalty units (or currently $137,500).
2.81 In addition, financial advisers who wish to provide tax advice will be required to meet the education and experience criteria, and they may or may not have met those criteria at the time that the TASA 2009 exemption expires. Those who have not met the criteria will not be permitted to register and provide tax advice, and will be subject to civil penalties if they do provide such advice.
2.82 This is not the preferred option, as it does not meet the objectives of the Government.
2.83 Consultation on this matter commenced in November 2010 with the release of the options paper, 'Regulation of tax agent services provided by financial planners'.
2.84 The options paper presented two options: to either regulate financial advisers within the tax agent services regime or through regulatory supervision by ASIC. Twenty-two submissions were received with two suggesting that financial advisers providing tax advice be given a permanent exemption from additional regulation, while a handful supported the option for the regulation to be within the tax agent services regime. However, the majority supported the option for the regulation to be undertaken by ASIC under the existing AFSL regime to avoid unnecessary complexity and confusion for the public and financial advisers, but also accepted that significant background support from the TPB would be appropriate to avoid unnecessary duplication and costs.
2.85 Between December 2010 and April 2011, the then Assistant Treasurer met several times with representatives of the financial planning, tax and accounting bodies, the Treasury, the TPB and ASIC to discuss how financial planners who provide tax agent services should be regulated.
2.86 The outcome of the then Assistant Treasurer's meeting with representatives on 15 December 2010 was that Treasury, ASIC and the TPB would work through options using ASIC as the 'one-stop shop' to regulate financial advisers.
2.87 Subsequent meetings developed a broad set of principles, which the then Assistant Treasurer announced on 10 February 2011. Also, key aspects of a possible model to regulate financial planners who provide tax advice within the context of providing financial advice were announced by the then Assistant Treasurer on 7 April 2011.
2.88 Broadly the agreement centred on a model of regulation, where collaborative approaches streamline arrangements to be implemented as far as practicable. The aim of the new arrangement is to avoid duplication of regulation and red tape, reduce unnecessary burden and costs for financial planners, as well as raise competencies and strengthen consumer protection.
2.89 On 27 February 2012 Treasury conducted a further confidential consultation meeting with stakeholders, including representatives of the financial planning, tax and accounting bodies, the TPB and ASIC to further develop the regulatory framework for financial advisers providing tax advice. Following this meeting, Treasury held further discussions with the various stakeholders to develop a paper to focus on matters to implement a proposed new regulatory framework for financial advisers providing tax advice.
2.90 Stakeholders' comments showed support and agreement with the proposed regulation of relevant financial planners (who are not otherwise registered tax agents or legal practitioners) by the TPB. The Self Managed Superannuation Funds Professionals' Association of Australia advised that it supports the co-regulatory framework for financial planners providing tax advice in conjunction with the provision of financial advice as outlined in the draft discussion paper. The Association of Financial Advisers confirmed that it does not have any major issues with information sharing between the TPB and ASIC which is one of the key matters to enable the proposed option to work effectively.
2.91 Following further consultation with representatives from the financial planning, tax and accounting bodies, the TPB and ASIC, the Assistant Treasurer announced on 30 April 2012 the decision to grant an extension to the exemption for financial advisers providing tax advice. This extension has been granted in order to allow for the details of the regulatory model to be settled and ensure resolution of implementation issues associated with bringing financial advice under the scope of the tax agent services regime.
2.92 The Government will undertake further consultation on proposed legislation and regulatory amendments and seek to ensure that the legislation and regulations are introduced before the changes will take effect on 1 July 2013.
Further consultations on exposure draft legislation and regulations
2.93 Subject to agreement with this framework, a further broad consultative process based on exposure draft legislation, regulation and supporting material will be held. Draft legislation and explanatory materials will be released for public comment to enable not only representatives of affected professionals, the TPB, and ASIC, to further comment but to provide the wider community with an opportunity to comment.
Conclusion and recommended option
2.94 The proposed co-regulatory framework (Option 1) most fully meets the Government's objectives, as it addresses not only the anomaly in relation to the current regulation of tax advisers, but also effectively addresses the underlying risks for consumers as it seeks to clarify the legal implications on financial advisers who provide tax advice. In addition, it reflects the discussions held with industry.
2.95 Under the co-regulatory framework, from 1 July 2013 the financial advisers who wish to provide tax advice in addition to the financial advice that they are providing would need to apply for registration under the TASA 2009, meet the fitness and propriety test and comply with the Code of Professional Conduct under the TASA 2009 and ensure that their PI insurance cover extends to the tax advice that they could be providing. This will maintain the integrity of the tax system and ensure that financial advisers who wish to provide tax advice as part of their service to their clients are accountable for the service that they provide their clients in similar manner that tax agents are under the TASA 2009. This option also provides financial advisers with transitional arrangements that do not compromise consumer protection.
2.96 The proposed phased introduction of the new co-regulatory arrangements should minimise the impact on financial advisers, as they would not need to pay registration fees until the commencement of the transitional period on 1 January 2015, and not need to show that they meet the education and experience requirements until 1 July 2016 when the long term phase commences, and if additional education requirements need to be proven these would not become mandatory until 1 July 2016 when the long term phase commences.
2.97 While the framework does not introduce the entire the TASA 2009 regime at once, the key requirements need to be met at the nomination and registration phase and this ensures consumer protection and the integrity of the TASA 2009 are upheld. The other requirements are met in the longer-term and these strengthen and fully apply the TASA 2009 requirements.
Option 1 is the preferred option
2.98 Option 1 is the preferred option. The co-regulatory framework would bring financial advisers who provide tax advice into the TASA 2009 regulatory framework, thereby maintaining the integrity of tax advice and protecting consumer interests. Ultimately, it will ensure that financial advisers providing tax advice are regulated in a similar manner to tax agents providing advice under the TASA 2009. Option 1 provides a phased-in approach to bringing financial advisers within the ambit of the TASA 2009, thereby allowing the financial advice industry to adapt to the new regulatory environment and meet industry needs.
2.99 Option 2 would not meet the Government's objectives, as financial advisers would continue to be exempt from the TASA 2009 requirements under this option and it would not ensure consistent regulation of tax advice being provided.
2.100 Option 3 (maintaining the status quo) would meet some of the Government's objectives, but does not address financial advisers' concerns, as they would need to continue to register and comply with AFSL requirements for the financial advice that they provide, and in addition register and comply with all the TASA 2009 requirements as soon as the current exemption expires (from 1 July 2013). Financial advisers who wish to provide tax advice as part of their service to their clients would be required to become registered under the TASA 2009, meet all the TASA 2009 requirements, pay registration fees as soon as the exemption lapses (that is, from 1 July 2013).
Implementation and review
2.101 Option 1 would be implemented by amending legislation and regulations. These amendments would commence when the current exemption from the TASA 2009 expires on 1 July 2013. Given the number of advisers who may apply for registration, it is envisaged that transitional arrangements will be necessary to assist both industry, ASIC and the TPB in adapting to the new regime.
2.102 It is expected that further consultation will take place on the draft legislation and regulations that will give effect to the new arrangements. This would occur in the second half of 2012.
2.103 Also, the TPB and ASIC will need a period of time to introduce and fine-tune their administration mechanisms to ensure that the co-regulatory framework (including required information sharing mechanisms) is implemented so as to avoid providing the same information to different regulators.
2.104 A review could then be undertaken as directed by the Government.
Attachment A - Board launch of a new continuing professional education 
2.105 On 4 June 2012, the Board launched a new CPE policy for tax and BAS agents.
2.106 From 1 July 2012 all tax practitioners should begin their continuing professional education in accordance with the Board's policy to maintain their professional knowledge and skills. Agents should maintain a record as evidence of their CPE from 1 July 2012.