Emily Pritchard answers your burning questions relating to duty and the establishment of trusts. […]
Don’t Cross the Line
Stephen Harvey, current as of: 17 February 2017.
It can sometimes be challenging to navigate the sensitivities of providing sound counsel to clients, and potentially stepping into the grey space dividing accounting from legal advice.
All Australian states have laws that prohibit any person, other than a qualified legal practitioner, from providing legal advice or engaging in legal practice. Each professional accounting body, including the CPA, publishes guides for accountants that set out what services they may offer, including:
- Traditional accounting services;
- Business advice and planning;
- Tax advice; and
On the other hand, the guidelines are clear that an accountant cannot:
- Advise in relation to the legal effect of a transaction or a law (including a tax law);
- Prepare and supply legal documents; or
- Recommend a specific estate plan to a client.
Watch your step
The difficulty lies in determining where the line is between acceptable accounting activities and legal practice, whether you’re a director, partner or manager in an accounting firm.
Unfortunately, current legislation and available case law provide little guidance, although it is clear that producing and supplying a legal document (such as a trust deed) and/or establishing or advising on the legal effect of a document, is categorized as legal advice or engaging in legal practice.
The problem is that many accountants’ daily activities include:
- Ordering trust deeds and company constitutions (either using a template or precedent they have acquired, or going to a web-based template document provider);
- Preparing and supplying trustee and company resolutions, whether for year end distributions or other purposes;
- Preparing and supplying trust deed amendments;
- Advising on the legal effect of tax laws (e.g. ITAA, GST and FBT laws, state duties and land tax legislation);
- Advising on company officer duties, responsibilities and liabilities (e.g. under the Corporations Act 2001 (Cth));
- Interpreting and advising on the legal impact (including the tax effect) of a range of agreements or documents (e.g. trust deeds, loan documents, Div 7A loan agreements, wills, governance agreements and legal contracts);
- Advising on in-house asset rules for SMSFs; and
- Advising on the application of CGT concessions in the tax laws.
Everyone has been there. A template is available for a Div 7A loan agreement, which an accountant assumes has been validated and scrutinised. It appears to be a simple case of filling in the details and receiving the final documents. The risk lies in the fact that a legal document has been completed without the appropriate legal scrutiny, leaving the accounting firm vulnerable from a compliance perspective.
The risks can’t be ignored
The risks for accountants undertaking any of the above activities include:
- Prosecution for breaching the legislative prohibitions against unqualified legal practice;
- Loss of cover under the accountants’ professional indemnity policy; and
- Being sued by a client for any loss suffered without access to that cover.
It’s important to be clear on the potential for crossover, and the risks in venturing into the legal domain. Feel free to contact us at any time if you are unsure how the guidelines may apply to you.