|Tax returns: can you really trust your tax agent?|
Compiling tax returns is so universally unpopular that 90 percent of the population employ a tax agent to shoulder the heartache. Starting from $150-$200 for a no-frills lodgement, most would say it's money well spent.
But giving up control of your finances and tax to another person can be risky. The biggest risk, of course, is the exposure to the stress of an audit by the tax office due to a tax agent's negligence. The second most-common concern is whether the tax agent is claiming all the appropriate expenses. Few people want to pay more tax than they have to.
There is no doubt that some tax agents are better than others in preparing tax returns, so what should you look for in an agent.
Garry Addison, CPA Australia's senior tax counsel, says competence is the most important attribute, particularly in relation to avoiding agent negligence.
Firstly, the Australian Tax Office demands that all tax agents must be registered with the tax agent's board. You can check to see if your agent is registered by visiting the website www.tabd.gov.au
In regards to negligence, you want to avoid agents that:
Mr Addison advises that consumers should also seek a CPA-registered accountant, or a member of another reputable accounting body.
"Professional accounting bodies have a code of conduct as a condition of belonging to financial body," he says. "The Government is proposing to overhaul the tax agents' legislation which will create a similar code of conduct but until then, there is no better way of ensuring adherence to Australian professional and ethical standards."
Addison also advises seeking a tax agent competent in the areas in which you are seeking advice. This is mainly appropriate for those who need to deal with bigger issues for the purposes of lodging a return.
"Basically, if you have anything out of the ordinary, you may wish to seek specialist advices," says Addison. "However, extra advice does cost and the industry has found most clients very fee resistant."
He lists small businesses with offshore transactions, several companies, and GST complications as those who might warrant specialist advice.
Seeking specialists is easier said than done. Very few agents advertise on the basis of industry specialisation. Your accountant may well be able to refer you to an industry specialist but many are reluctant to do so in case they lose your business. Addison says this state of affairs may change with the new legislation.
Also, not all tax advisors are tax agents. Accountants specialising in tax advisory must also complete 12 months of preparation and lodgement of tax returns to be registered as a tax agent.
Even if you seek out a specialist, you may not get the advice you need. The truth is that very few tax agents are going to be as diligent with your money as you.
If you are serious about ensuring you are paying the right amount of tax, you can purchase the CCH Master Tax Guide, which is produced annually and retails for about $145. This can be money well spent. One acquaintance with a large property portfolio tells the story of seeking out a specialist tax agent.
"We found this woman who came on a good recommendation and we thought great, we can relax now. But at the end of the year, we were faced with a horrendous tax bill. We spent one night reading the tax guide on property and found a point that would save us $30,000. We asked the tax agent the next day if we could do this, and she said 'yes'. Since purchasing the guide a few years ago, we have saved $70,000.
"We were pretty miffed that the accountant hadn't picked up on it. What happens is that many agents hand the work down to juniors so you really have to be on the ball."
Not surprisingly, the most common complaint against tax agents is fees. So, how much should you be paying? Again, there is no simple answer.
More than five million Australians pay over $1 billion in preparing and lodging tax returns — the bulk of which is paid to tax agents — according to the tax office.
Fees range from $150 to $200 for a no-frills lodgement but rises according to the tasks required of the agent. An individual may have several properties and investment interests … the more complex the return, the higher the fee.
Similarly, small businesses may require their BAS to be lodged separately, incurring another fee. For businesses with complex structures, the fee is correspondingly higher as is out-of-the-ordinary advice.
The best strategy is to visit several agents and ask for quotes. Confirm the total cost before contracting their services. The cheapest is not always the best. As the old saying goes, 'you pay peanuts, you get monkeys'. Sometimes word-of-mouth recommendations can be helpful, but this is not infallible either. An accountant that works for one person may not be appropriate for your needs.
A few key questions to ask yourself, or a tax agent, follow:
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