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Client Update: New tax agent laws may catch franchisors' services to franchisees

19 February 2010

In brief: New Federal Government laws, which commence on 1 March 2010, will require franchisors to register as an agent with the Tax Practitioners Board if they provide tax or business activity statement services assisting franchisees to meet obligations under tax laws such as those for GST, PAYG and FBT. Partner Tim Golder (view CV) and Senior Associates Robyn Chatwood and Marc Johnston report.

New tax agent laws

In November 2009, the Federal Government passed new legislation1 that requires that a person or entity who provides tax agent or BAS services must register as an agent with the newly created Tax Practitioners Board.

Tax agent or BAS agent service providers may include franchisors or their employees, and the failure by the tax or BAS agent service provider to register with or notify the Tax Practitioners Board will be an offence, with penalties to apply.

Other issues to note are:

  • Penalties:2 Penalties of up to $27,5003 for an individual or $137,500 for a body corporate4 apply for individuals and corporations engaging in activities such as:
    • if unregistered, providing or advertising that you will provide tax agent services or representing that you are a registered tax agent or BAS agent; or
    • if a registered agent, making false or misleading statements, employing or using the services of deregistered entities or signing declarations for documents made or prepared by another entity or agent.
  • Transition arrangements: There are transitional arrangements where BAS or tax agent service providers can notify the Board to transition to registration.5

An entity providing tax or BAS agent services before 1 March, where those services did not require registration under the old laws, (and certain other 'exempt persons') may notify the Board within three months (for tax agent services, and six months for BAS agent services) that the transitional arrangement applies to their service from 1 March and so will be taken to be registered for a two-year period from 1 March 2010.

An entity that will provide tax or BAS agent services from 1 March can apply for registration under the transitional arrangements as a tax or BAS agent. Unlike registration under the ordinary rules, the entity does not need to meet the usual registration requirements if that entity was providing the service to a competent standard for a reasonable period before the application was made. The registration will then continue for a three-year period.

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What is a tax agent service or BAS agent service?

Under the new law, the definition of providing a tax agent service or BAS agent service is very broad.

  • Tax agent:6  A tax agent service is any service (unless excluded by other provisions)7 that relates to:
    • ascertaining liabilities, obligations or entitlements of an entity that arise, or could arise, under a taxation law; or
    • advising an entity about liabilities, obligations or entitlements of the entity or another entity that arise, or could arise, under a taxation law; or
    • representing an entity in their dealings with the Commissioner; and

that is provided in circumstances where the entity can reasonably be expected to rely on the service for either or both of the following purposes:

    • to satisfy liabilities or obligations that arise, or could arise, under a taxation law;
    • to claim entitlements that arise, or could arise, under a taxation law.
  • BAS agent:8 A BAS agent service is similarly defined, except that it relates to the liabilities, obligations or entitlements of an entity that arise, or could arise, under a BAS provision.

Tax agent services would include a franchisor giving a franchisee advice about a taxation law, where the franchisee can reasonably be expected to rely upon it to satisfy taxation obligations, or dealing with the Commissioner of Taxation on behalf of franchisees.

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Services franchisors might provide that could be tax or BAS agent services

The following are examples of franchisor activities that may be tax or BAS agent services:

  • a franchisor advises its franchisees in its training or operations manuals on how the franchisee is to complete its quarterly BAS statement, or calculate payroll tax or PAYG tax;
  • a franchisor configures software (such as MYOB) used by its franchisees to calculate their GST (for example, MYOB is configured for GST codes);
  • a franchisor helps its franchisees set up or record transactions or a chart of accounts in their accounting package, or the franchisor provides some training to the franchisees on this, or the franchisor's operations manuals provide some guidance on these items to the franchisee; or
  • the franchisor assists its franchisees to reconcile their tax statements.

Even if a franchisor does not apply a specific fee for the services provided in the examples above, but it provides the services generally as part of its suite of services for franchisees (for which the royalty or licence/franchise fees are paid by the franchisees), then such franchisor's services will fall within the relevant criteria of 'tax agent service' or 'BAS agent service'.

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What next?

Franchisors should check their agreements, processes, manuals and training to see if any of their activities could be classified as a tax agent or BAS agent service, and review the tax or BAS agent status of any outsourced providers where the franchisor arranged the service for franchisees for a charge.

If you are (or will continue to be) providing tax agent or BAS agent services to franchisees as franchisor, then you need to do one of the following:

  • register with the Tax Practitioners Board to provide the agent service (there are eligibility requirements including that you are a 'fit and proper' person, as well as requirements concerning academic qualifications and relevant experience);
  • outsource the agent service to a registered tax or BAS agent; or
  • stop providing the agent service – this may involve an amendment to the franchise agreement.

For further information, please contact any of the people below.

Footnotes
  1. The new laws are the Tax Agent Services Act 2009 (Cth) (the TASA 2009), which establishes the Tax Practitioners Board and provides for the registration of tax agents and BAS agents; the Tax Agent Services Regulations 2009 (Cth), which provide for the qualifications and relevant experience requirements for registration; and the Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009 (Cth), which deals with the consequential and transitional matters arising from the TASA 2009's enactment.
  2. See section 50 of the Tax Agent Services Act 2009.
  3. Two hundred and fifty penalty units.
  4. One thousand two hundred and fifty penalty units.
  5. See Schedule 2 Part 2 s 4 and Schedule 2 Part 3 s 13 of the Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009. 
  6. Section 90.5 of the Tax Agent Services Act 2009.
  7. Section 90.5(2)of the Tax Agent Services Act 2009.
  8. Section 90.10 of the Tax Agent Services Act 2009

For further information, please contact:

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