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Tax integrity protections

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Tax agent removal criteria

If the Commissioner of Inland Revenue believes that accepting an application to be a tax agent would adversely affect the integrity of the tax system, she must refuse the application. The Commissioner may also remove a person from the list of tax agents if she is satisfied that the applicant is not eligible to be a tax agent, or if their remaining on the list would compromise the integrity of the tax system.

Listing a person as a tax agent (or allowing them to stay on the list) may be determined to have an adverse effect on the integrity of the tax system if the applicant (or a “key office holder” of the applicant):

  • is an undischarged bankrupt
  • is a liquidated company
  • is a company under voluntary administration or in receivership
  • is not allowed by the Registrar of Companies to be a company director
  • has been notified of a breach by the disciplinary body of a professional organisation they belong to
  • has been convicted of any criminal offence involving dishonesty
  • has a record of non-compliance with any of the Inland Revenue Acts, including overdue returns or payments, or social policy that Inland Revenue administers.

The above criteria are cited in the form Application to be listed as a tax agent or update a tax agent’s details (IR791) but the Commissioner may also consider other factors to determine whether listing a person as a tax agent would adversely affect the integrity of the tax system.

Consideration has been given to whether more regulation of tax intermediaries (like in Australia, for instance) might be justified. An argument can be made that setting some minimum standards for eligibility to apply for listing as a tax agent would reduce the likelihood of an unsuitable advisor being listed. These standards could require certain qualifications, years of relevant experience or membership of an approved professional body.

Requiring membership of an approved professional body could be considered to reduce the tax integrity risk because professional accounting bodies have their own code of conduct and disciplinary procedures for members who contravene that code.

There would be a case for regulation if it can be determined that the resulting tax integrity benefit would outweigh the additional costs imposed. However, this is unlikely to be the case. Instead, imposing higher barriers to entry is likely to increase the price of tax intermediary services (by reducing the supply of those services) and therefore increase taxpayers’ advisory costs. It is also possible that people who do not qualify will seek access as nominated persons, rather than as tax agents.

As well as delisting, other measures are currently used to discourage the types of behaviour by intermediaries that would adversely affect the integrity of the tax system. These include sanctions such as promoter penalties and criminal prosecutions for aiding and abetting (or directly engaging in) fraud. If taxpayers have incurred penalties due to a mistake or unscrupulous behaviour by their intermediary, they have a remedy in contract law and in general consumer law to recover their loss from the person.

Currently, the number of declined applications and delistings is relatively low. This is not expected to change, even with a wider intermediary group being subject to potential delisting due to the expanded tax agent definition.

Intermediaries’ access as nominated persons

The Commissioner can only disregard a nominated person’s authority to act for a taxpayer at the taxpayer’s request – even if the person has been convicted of fraud and is acting on behalf of the taxpayer for a fee. As a result, there is a risk that an individual removed from the list of tax agents for integrity reasons could come back into the system as a nominated person.

To deal with the problems caused by a small minority of nominated persons, the Government proposes that the Commissioner be granted the discretion to refuse to accept a nominated person application if that person has been delisted for tax integrity reasons, or if allowing that person access would adversely affect the integrity of the tax system.

The criteria that the Commissioner might apply in exercising this discretion could be the same criteria used to remove a person from the list of tax agents. Hence, the Government does not intend to introduce a prescriptive set of criteria into the legislation.

The discretion to refuse to accept a nominated person application is proposed to be limited to situations where the person is acting on behalf of a taxpayer for a fee or otherwise acting in a professional capacity. It is important that taxpayers still have the freedom to have a friend or relative of their choosing (or a volunteer in the case of a non-profit body) act on their behalf in relation to their tax affairs if they wish.

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