Life & Death of a Self-Assessor

BY VINCE BAILEY – 1 NOVEMBER 2021

Self-assessment – beneficial but risky

The duty self-assessment regime in Queensland provides significant benefits to law firms, the Government and its revenue authority the Office of State Revenue (OSR).

It shifts the assessment and collection of duty from government to private enterprise resulting in significant cost-savings and efficiencies for the Government and relieves the OSR from a significant administrative burden.

It expedites the stamping process carried out by law firms for their clients as documents can be stamped “in-house” within very short timeframes.

One would have thought this “win-win” scenario would have engendered a co-operative, supportive and perhaps even a symbiotic relationship between the OSR and self-assessors. But, as demonstrated below, the current regime is dictatorial in nature and imposes unacceptable risks on self-assessors.

History of self-assessment in Queensland

Self-assessment in Queensland has an interesting history.

It was introduced when the former legislationi applied. Initially, it only applied to a very limited class of documents – essentially non-contentious residential conveyancing documents. The self-assessor had the option to self-assess or lodge with the then Stamp Duties Office for assessment. Queensland law firms warmly embraced this innovative change and implored the Commissioner to extend the class of documents which could be self-assessed.

Like all good regulators, the Commissioner sensed an opportunity to strengthen the integrity of the stamp duty collection system and, under the guise of enhancing the self-assessment process, a regulation was proclaimed making law firms liable for their client’s stamp duty liability on documents which came into the possession or control of the firm. The writer recalls protesting to local members of parliament who claimed they were completely unaware of such a draconian measure and receiving assurances from officers of the Stamp Duties Office that these powers would either never be enforced or alternatively would only be invoked in exceptional circumstances.

By the time the new Duties Act commenced, the Commissioner and the Government had realised it was a bit rich making lawyers liable for their client’s stamp duty and “reformed” this aspect of self-assessment.

Current statutory framework

Most law firms are mandated by the OSR to participate in the self-assessment regime. The OSR is empowered to force any firm to become a self-assessor.ii If the OSR registers the firm as a self-assessor, the law firm has no choice but to act as a self-assessor.

A self-assessor must self-assess all documents which the Commissioner has specified in the self-assessor’s notice of registration and must not lodge such documents with the OSR for assessment.iii Notwithstanding the Commissioner is empowered to assess such documentsiv, the Commissioner rarely exercises this power.v The Commissioner’s decision not to assess is not reviewable.vi

What does this mean in very simple terms? Firstly, if the Commissioner appoints a law firm as a self-assessor, the law firm must act and continue to act as a self-assessor – the law firm has no choice in the matter. Secondly, the self-assessor is prohibited from lodging with the OSR for assessment even if the self-assessor has doubts about the correct assessment.

Statutory duties

Specific duties are imposed on self-assessors by Chapter 12, Part 4 of the Duties Act 2001 in respect of:

  • lodging returns and accompanying documents;
  • paying duty, unpaid tax interest and penalty tax;
  • stamping documents;
  • endorsing stamped documents;
  • lodging transaction statements and accompanying documents;
  • stamping and endorsing documents relating to transaction documents.

Importantly, the self-assessor is not obliged to lodge returns, pay duty, interest or penalty tax or stamp documents where the self-assessor has not received payment from the person liable to pay.vii

A breach of any of these statutory duties renders the self-assessor liable to be prosecuted for a statutory offence. Alternatively, the Commissioner may impose a penalty on the self-assessor.viii

Chapter 12A imposes duties on parties to a transaction where a self-assessor is involved including duties to:

  • ensure the self-assessor is given all instruments and other relevant documents;
  • pay to the self-assessor the relevant amount of duty, interest and penalty tax;
  • not give documents to the self-assessor containing information the party knows, or should reasonably know, is false or misleading in a material particular (without informing the self-assessor of this or alternatively giving the correct information to the self-assessor);
  • not to give information to the self-assessor the party knows is false or misleading in a material particular.

The Taxation Administration Act 2001 also imposes duties on self-assessors in that the self-assessor must:

  • have regard to directions given by the Commissioner;ix
  • pay the tax payable in respect of a return lodged by the self-assessor on the date the return is required to be lodged;x
  • not give the Commissioner a document containing information the self-assessor knows, or should reasonably know, is false or misleading in a material particular without informing the Commissioner of the extent to which the document is false or misleading and to the extent the self-assessor has, or can reasonably get, the correct information; giving the correct information to the Commissioner;xi
  • not give any information to the Commissioner that the self-assessor knows is false or misleading in a material particular.xii

Section 488(1) of the Duties Act 2001 contains an interesting note which reads-

The self assessor does not commit an offence against the Administration Act sections 122 or 123, if the self assessor gives the Commissioner a return containing information provided by the taxpayer that the self assessor does not know, or could not reasonably know, is false or misleading.

Penalties

The acts or omissions of a self-assessor may result in the Commissioner imposing penalties on the self-assessor if the self-assessor:

  • fails to lodge a return or pay an amount as required;xiii
  • fails to lodge a transaction statement as required;xiv
  • lodges a return or transaction statement containing false or misleading information in contravention of sections 122 or 123 of the Taxation Administration Act 2001.xv

Criminal responsibility

A self-assessor (like any taxpayer) would be criminally responsible if the self-assessor commits a fraud against the revenue authority, attempts or conspires to do so or is an accessory after the fact in respect of the fraud.

An example is section 430 of the Queensland Criminal Code which relevantly states –

Any person who with intent to defraud…..gives any certificate or information that is false or misleading in a material particular…is guilty of a crime. Maximum penalty – 10 years imprisonment.

Legal capacity

The duties legislationxvi provides that a self-assessor acts as a tax agent.

A tax agent is defined as the person who, as agent for a taxpayer, is required or permitted to lodge a return or transaction statement.xvii

A self-assessor is relevantly defined as a tax agent required or permitted to lodge a return or transaction statement.xviii

Accordingly, the legal capacity in which a law firm acting as a self-assessor is as the agent of the client taxpayer and not as agent of the Commissioner. The law firm’s common law duty as agent to take the utmost due care is owed to the client – not the Commissioner.

Duties owed to the taxpayer client

In most self-assessment stamping situations involving a law firm as the self-assessor, the law firm’s client is the taxpayer.

Subject to the retainer agreement, some of the duties owed by the law firm to the client include duties to:

  • advise regarding compliance with the statutory duties imposed on the client under the duties legislation;
  • advise on ways to minimise the client’s duty liability;
  • protect the confidentiality of certain information given by the client to the law firm as part of the retainer.

These duties arise from the solicitor-client relationship and are in addition to the duties arising from the agency relationship created by the duties legislation.

Conflict of duty

Although there is a view there is minimal potential for conflicts between the statutory duties imposed on self-assessing law firms and the duties arising from the solicitor-client and agency relationships, conflicts do arise in practice.

An example is where an increase in duty liability depends on questions of degree or making an assessment by taking into account relevant circumstances (such as aggregation of transactions or determining which dutiable transaction is the most applicable). If the self-assessing law firm blindly follows a public ruling of the Commissioner without considering and advising the client on the lawfulness of the Commissioner’s view of the law then the law firm could be exposed to civil liability to the client.

Other examples are where the law firm has been instructed to advise on structuring a transaction to minimise duty or the client has given confidential information to the law firm which the client instructs (or the law firm considers should) not be disclosed to the Commissioner. In these scenarios the self-assessing law firm could be in breach of its statutory duties arising from being a self-assessor.

Duty to make enquiries

Another troublesome aspect of being a self-assessor is the uncertainty surrounding the extent to which the self-assessor is obliged to make enquiries of its principal taxpayer client, or from other sources, in order to comply with its statutory duties under the duties legislation.

In some circumstances it will not be sufficient for the self-assessor to show it did not have actual knowledge about some of the information contained in the documents lodged with the Commissioner or contained in statements made to the Commissioner being false or misleading in a material particular. Constructive knowledge is imputed to the self-assessor where the self-assessor should reasonably have known the relevant information was false or misleading.

Scenarios where this risk arises are where the parties are related parties, are not transacting on an arm’s length basis or have entered into a collateral agreement which is not disclosed to the self- assessor. Is the self-assessor obliged to make enquiries about whether any of these circumstances exist and, if so, is this obligation satisfied simply by asking the client? An example is where the stated contract price is either under or over the real price being paid by the client. Should the self-assessor make any enquiries at all about this possibility? What if the client or a third party tells the self-assessor about the “secret” cash component or discount?

Case study

Oscar and Lucinda owned neighbouring rural properties. They were long time neighbours. Lucinda negotiated the purchase of Oscar’s “bottom paddock”. Lucinda’s son was studying law and prepared a standard REIQ sale contract showing the price at $1m. Lucinda obtained quotes from several law firms for the conveyancing and went with the lowest quote from the law firm W&P (formerly Wing & A. Prayer Solicitors).

W&P assessed the contract as self-assessor and the conveyancing went thorough without a hitch. W&P did not make any enquiries of Lucinda or anyone else. W&P were more than surprised when a few months later Oscar’s executors contacted them seeking payment from Lucinda of the cash component of the land purchase and the sale price for 100 cattle under the terms of two handwritten sale contracts signed by Oscar & Lucinda. A term of one of these contracts was that Lucinda was to pay all rates and land tax (if any) on Oscar’s remaining land for 10 years.

W&P sought instructions from Lucinda and received instructions that the alleged transactions were “secret deals”, that she and Oscar had been in a long term secret spousal relationship, that these matters must remain confidential and that under no circumstances should W&P disclose any information about these highly sensitive matters to anyone.

W&P are in the unenviable position of either breaching their statutory duties as a self-assessor or breaching the duties they owe their client.

An easier life for self-assessors?

In view of the enormous financial savings which directly benefit the Queensland Government from self-assessment by law firms and the additional costs incurred by law firms acting as self-assessors, it is surprising that the Government and the OSR do not provide more support to self-assessors.

Suggested support could include:

  • direct hot line for technical support and guidance;
  • online training for self-assessors at commencement of registration;
  • regular ongoing training and practice support by webinar or in person visits.
  • notice of any change of practice by the OSR.

In addition, the OSR could provide greater certainty and transparency by permitting self-assessors to obtain timely private rulings on executed instruments to be assessed by self-assessors where any uncertainty regarding the application of the law to the particular facts exists.xix These private rulings could be published online so that they are available to all self-assessors.

Based on these private rulings issued to self-assessors, a collection of more comprehensive and helpful public rulings could be issued and compiled to assist self-assessors making assessments and to protect self-assessors from risk.

The OSR could adopt a more generous approach to exercising its discretion to assess transactions which are required or permitted to be assessed by self-assessors.xx

A better approach would be to amend the legislation to permit self-assessors as of right to lodge any instrument for assessment by the OSR where the assessment involves uncertainty surrounding the application of the law to the particular facts.

An even better approach would be to amend the legislation to permit self-assessors to opt out of the self-assessment regime. It would then be in the best interests of the OSR and the Queensland Government to make the regime better and less risky for self-assessors.


i Stamps Act 1894
ii Section 451 Duties Act 2001 (DA)
iii Section 454 DA.
iv Section 11(2)(a) Taxation Administration Act 2001 (TAA)
v See paragraph 14 Public Ruling DA000.2.9
vi Section 11(3) TAA
vii Section 455(3) DA
viii Sections 488 & 489 DA – essentially the penalty amount is 75% of the assessed duty
ix Section 15 TAA
x Section 30(1)(a) TAA
xi Section 122 TAA
xii Section 123 TAA
xiii Section 488(1)(a) DA
xiv Section 488(1)(b) DA
xv Section 488(1)(d)
xvi The Duties Act 2001 and the Taxation Administration Act 2001
xvii Schedule 2 TAA
xviii Schedule 2 TAA
xix Private Rulings on unexecuted documents and proposed transactions are for the most part issued at the Commissioner’s discretion in very limited circumstances – see Public Ruling DA000.1.3
xx The criteria set out in para. 14 of Public Ruling DA000.2.9 is far too restrictive

Vince Bailey, Principal at Vince Bailey Lawyer

Vince Bailey is the Principal at Vince Bailey Lawyer, Cairns and practises exclusively in estate planning.