In this environment of tight banking controls, one of the most vulnerable pieces of information relating to a client’s bank account are the bank account details a tax agent enters on the ATO Portal.
The ATO relies on the integrity of tax agents. It is considered by the ATO that it is the tax agent’s responsibility to ensure that the bank account details entered in respect of each client is correctly entered.
What happens if the tax agent’s integrity is found lacking?
Currently, there are limited controls placed on tax agents who enter incorrect bank account details on the Tax Agent Portal. This becomes an issue in relation to payment of client’s tax refunds. If a tax agent, in the worst of circumstances, entered their own personal bank account details on the ATO Portal in respect of a client’s account, it would broadly be up to the client to find out that the incorrect details were entered.
There have been instances of serious misappropriation by tax agents whereby they have provided income tax returns to clients with refunds of say $5,000 and then filed a return claiming a refund for that client for $12,000 with the bank account details on the portal being that of the tax agent.
The ATO take the entries of the bank account details largely on good faith. In this example, the ATO would be expected to pay the $12,000 refund to the account number entered by the tax agent. If the tax agent pays the $5,000 refund to the client that the client expected, it is only when the client finally sees their information on the ATO Portal do they become aware of the differences. And that is assuming the client can understand the print out from the ATO Portal.
Conscious of these issues and relating to serviceability of loans, lenders have been asking for ATO Portal print outs as part of the information provided with a loan application.
As a practitioner, when you accept a new client, a print out of the ATO Portal should be given to the client to confirm that the refunds claimed have actually been paid to the client.
The client is responsible for the actions of the tax agent and until the client can prove that the tax agent acted without the client’s authority, the client is exposed to penalties. Section 284-25 of Schedule 1 of the Tax Administration Act 1953 provides that for the purposes of the penalty provisions, a statement made by the agent is taken to be a statement made by the taxpayer. As a matter of common law, an agent is personally liable to a third party under contract law or where there is fraudulent or negligent conduct of the agent.
Consequently, in managing a client’s money, it is good practice to check the bank account details entered on the ATO Portal for the client if you have not provided this information yourself. Ensure that the client is made aware of those account details and has signed off that the account details are correct.
Where a tax agent has acted in a manner inconsistent with the authority of the taxpayer, the practical issue is one of proof. It is often the case that proving the tax agent acted in a manner inconsistent with the instructions of a taxpayer involves diligent review of all correspondence between the client and the tax agent and reconciling what the tax agent has actually lodged against what the taxpayer believes has actually been lodged.
If the tax agent has incorrectly or fraudulently prepared returns, the taxpayer still has primary responsibility to the ATO for any tax shortfalls until the taxpayer can satisfy the ATO that the tax agent acted without the taxpayer’s authority.
Noel Beharis, CTA, is a legal practitioner with over 25 years professional experience. He is Chair of The Tax Institute’s Victorian State Technical Committee.
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