What questions do I have to ask my client when I prepare their tax return?
You need to ask reasonable and direct questions to get the information necessary for you to ascertain the correct income position and what deduction and tax offset claims can legitimately be made. In relation to deductions, you should ask the client whether the expenditure has been incurred and sufficient further questions to determine whether the expenditure is allowable as a tax deduction. Where the substantiation rules apply, you should also ask what evidence does the client have available that is necessary (for example, receipts) to support the deduction being made.
Do I have to sight the relevant receipts and records?
It is not essential to sight the receipts and records but, if they are available, they should be examined as part of the tax return preparation process. It is good professional practice to request from a client all relevant documentation relating to their claims, noting both what you have seen and what evidence the client advises you he has, but not produced to you.
When preparing a tax return for a client, do I have to conduct a ‘tax audit’ to ensure that the tax return is correct?
No – when preparing tax returns, tax agents are expected to adopt reasonable professional care. You should ask sufficient questions to obtain the relevant information necessary to prepare the tax return. However, tax agents have to rely on the accuracy of the information provided to them by their clients.
What if a client will not produce the records but maintains that the expenditure has been incurred and the records exist?
If you have good reason to believe that the client is seeking to make a false claim or omitting income, you should carefully consider whether or not to continue to be associated with the preparation of that tax return. If, on the other hand, you have reasonably ascertained what records the client has to support the claims being made, and you have no good reason to doubt the accuracy of the information provided, you may rely on that information when preparing the tax return. In relation to deduction items, you should carefully advise the client of the relevant substantiation rules or other requirements to support the claim and point out the significance of the declaration they have to sign on the tax return.
Can I include in a tax return a claim that is clearly not allowable?
No – the government policy embodied in the legislation is quite clear. Paragraph 251 K(2)(a) of the Income Tax Assessment Act 1936 provides that a Tax Agents’ Board may cancel an agent’s registration where they knowingly include on a tax return an item that is false in any material particular. Further guidance has been given by Hill J in the Federal Court in Stasos v. Tax Agents’ Board of New South Wales 90 ATC 4950; (1990) 21 ATR 974 where he said in 90 ATC 4950 at p. 4959 and in 21 ATR 974 at p. 984:
“In addition to the tax agent dealing with his clients, he will, almost invariably have dealings with officers of the Australian Taxation Office and perhaps the boards and tribunals to which I have already referred. Those dealings must be able to be carried on in an atmosphere of mutual trust. The Commissioner and his officers must be able to accept that, to the best of the ability of the tax agent, returns that have been prepared are true and accurate. This is particularly so now that the Commissioner has proceeded to a system of self assessment, with inaccuracies only coming to light in the case of random audit or, presumably, other information coming to the hands of the Commissioner.”
This means that a tax agent cannot include on a tax return a claim where they know that the relevant expenditure has not been incurred or is not allowable. Also, for example, a tax agent cannot include a claim for total work-related expenses, other than car, meal allowance, award transport payments allowance and travel allowance expenses, that exceeds $300 if they have not reasonably ascertained that the client has kept evidence to prove the total amount.
What should I do if a client instructs me to include a false claim on a tax return?
You should advise the client of their responsibility to lodge a correct tax return and of the consequences should a false tax return be lodged and subsequently audited. You should also explain your responsibility as a professional registered tax agent. You should try to persuade the client to exclude any false claim, and if they subsequently insist on lodging a false tax return, you or your staff should have nothing further to do with the preparation of that tax return.
Warren Kruger is an Australian Tax Specialist and Advisor. For a FREE Report “7 Essential Strategies to Reduce Your Taxation NOW!”,enter your name and email address in the Opt In Box located on the top right hand side of this article.
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