These are challenging times to be a tax accountant.
We all know that a career in tax is one marked by constant change. Frequent law amendments, ATO announcements and the outcome of court challenges all mean that none of us are unused to disruption in our working lives, indeed many of us thrive on the ever shifting nature of the tax system and our role within it.
But recently both the pace of change and the types of change facing us have combined to produce an existential threat to many practitioners.
The digital future
The government’s overall “digital-by-default” strategy has had a particular impact on our industry. At the same time that millions of dollars has been invested in solutions geared towards enabling taxpayers (both individuals and small businesses) to interact with the ATO directly, with the potential to sideline many tax practitioners, the ATO has also been working towards the introduction of SBR technology in its on-going interactions with tax agents.
Whilst the potential is there over the medium term for that to improve the quality of the technological interface agents have with the ATO, in the short term there are real business risks presented by the need for practitioners to adopt revised software, deal with transitional issues and possibly even with downtime at busy periods caused by unexpected glitches with the new system. With further investment by the ATO in an enhanced MyTax, many practitioners simply can’t afford to lose a single client because of a failure of fundamental technology, whether caused by glitches with their software, with ATO systems or their own lack of technological knowledge.
The end of the Accountants Exemption
The ‘accountants’ exemption’ under regulation 7.1.29A of the Corporations Regulations 2001 permits accountants to provide advice on the establishment of self-managed superannuation funds (SMSF), without the need for an AFS license.
This exemption is being removed from 30 June 2016 and a new regulatory framework is being put in place which will apply to recognised accountants wanting to provide non-product strategic financial advice and advice on the establishment of SMSFs to their clients.
From 1 July 2016, accountants wanting to provide any financial advice, including advice relating to SMSFs will need to hold an AFSL or operate under an AFSL.
Our understanding is that many accountants who rely on fees around the provision of advice for self-managed superannuation funds have not yet obtained the necessary license. Some have taken the view that such a license isn’t necessary – a rather dangerous gamble perhaps – whilst others have simply chosen to walk away from the provision of this sort of advice, with a potentially significant impact on their fee base.
Tax Reform – A Better Tax System?
Many tax practitioners have become increasingly frustrated with the governments zig-zag approach to tax reform. What started out as an ambitious but well-planned program of review and reform has turned into a hotchpotch of ideas floated then dispatched when the inevitable political outcry surfaces.
At the time of writing, it isn’t clear what – if anything – will come out of this but what is clear is that some – including many influential figures within the tax system – would like to see a wholesale winding back of the deductions available to workers and even small businesses.
This isn’t the place to discuss the fairness and equity of those ideas for taxpayers but suffice to say, the removal of such deductions would have major impacts on the role of tax practitioners in the system, and even the design of the system itself (and if you want to see where the logical outcome of that conversation takes you, take a look at the UK’s current move towards digital tax accounts for individuals and small businesses, effectively abolishing tax returns altogether for all but the largest corporates).
Even if these ideas go nowhere this time, they have a nasty habit of resurfacing every few years. Tied into the move towards digital services, expect many at the ATO in particular to keep lobbying for change in this area.
And the solution?
Well, to be honest, there are no easy answers here. Many practitioners will learn to adapt and thrive by moving towards a business model based on added value advisory services. In a population already heavily skewed towards to the 50+ demographic, others will opt for some sort of exit.
That could be achieved by introducing new partners. Alternatively, a succession plan might be put in place to hand over the reins to the next generation of existing staff. Increasingly, the owners of many practices are looking at a clean break, opting to crystallise the value of their firm by selling to other practices which are better equipped to navigate through these turbulent waters.
H&R Block has been acquiring practises specialising in individual tax returns for some time now and over the past year that focus has expanded to include a much broader cross-section of small firms including those specialising in small business compliance and advisory work.
With increasing numbers of deals on the table, it is clear that many firms are attracted by the idea of coming under the umbrella of a national organisation which can provide a generous and structured payment for the existing owner-practitioner, as well as on-going technical support, business development opportunities and a smooth transition to a new, digitally enabled future within a recognised, growing brand.
If you haven’t already considered where your practice will fit into the world, the time has come to do so. Whatever path tax accountants choose to follow, the profession is changing and is likely to look very different in 5 years.
Ever wondered how much your practice is worth? Click below to find out.