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Tax Minimisation: What Are My Accountant's Obligations?

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Contributor:
Mary Holm
Mary Holm

Question:

I understood that tax minimisation was one of an accountant's obligations to his client. If I thought my business accountants were attempting to persuade the IRD to charge my company more tax than it needed to pay - especially if I found out that it was because they personally didn't like me - I'd change my accountants immediately and investigate if there were any legal basis of action against them.

What are public accountants' obligations in this regard?

Answer:

Mary Holm:  For answers to your questions, I went to the NZ Institute of Chartered Accountants, who pointed out that "there are a significant number of IRD tax agents who are not chartered accountants, and who are not obliged to adopt the same ethical and professional standards as apply to members of the institute," said Tom Davies, director, professional support. He added that his comments apply mainly to members. You can check whether your accountant is a member by noting whether she or he uses the term "chartered accountant".

There is no automatic obligation for an accountant to minimise tax, said Davies. It depends on the terms of engagement.

"Usually an accountant is engaged to prepare financial statements and related tax returns. If, in the course of this work, the accountant comes to the view that the client could benefit from some change in their tax position, then the accountant will generally bring this to the client's attention and things can flow from there."

However, he added, "How far does an accountant go? He could spend hours and hours of research and come up with not very much - probably the case for the great majority of taxpayers - or create complex structures that the client will not understand, and which might be challenged by the IRD and defended at considerable cost." What's more, Davies noted, if it's "cutting edge" stuff, the defence might not be successful.

"All this research costs the client, and may not generate much in the way of net tax savings," he said. So an accountant would probably first discuss the costs and possible outcomes with the client.

I then asked Davies whether there would be any legal grounds to sue an accountant if he or she was "attempting to persuade the IRD to charge a client more tax than it needed to pay?"

His reply: "For a starter, a client pays tax which is appropriate to the client's tax position, and the tax payable depends on how the tax legislation applies to that tax position." If there's uncertainty, an accountant may discuss this with Inland Revenue - not necessarily revealing the client's name. But "the accountant can't 'persuade' the IRD to charge more tax than is legally due on that tax position."

However, he added, "Perhaps the reader has in mind the possibility that the accountant might dob him in, so to speak, to the IRD for tax evasion or for taking doubtful tax positions.

"Members of our institute, chartered accountants, have an ethical requirement to maintain the confidentiality of their clients' affairs.This means they can't disclose client transgressions, even those of an ex-client, to the IRD except in certain relatively rare situations where they may be legally required to do so." He added that non-member tax agents can make their own decisions on this.

"As to whether a client could sue his accountant for dobbing him in to the IRD, I regard that as a somewhat bizarre question. It's akin to suing a witness for reporting your criminal activities to the police, and thus causing a loss of earnings while a guest of Her Majesty.

"What is the client's loss? The tax that he was legally required to pay? I'm not a lawyer, but I can't see a claim for the loss of evaded tax getting much traction."

Sounds reasonable to me.
 
Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.      

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