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Professional Liability Schemes

Each State and Territory has legislation in place that is part of a national framework of professional standards legislation.

This State/Territory-based legislation allows professional associations and other occupational groups to limit the occupational liability of their members to the extent permitted by the legislation and the provisions of an approved profession specific scheme (i.e., 'professional liability scheme').

Professional Standards Councils, established under the legislation in each State and Territory, approve and monitor the schemes, with particular focus on:

• allowing professional associations and other occupational groups to limit the civil liability of members;
• improve professional standards for members by requiring members to meet certain requirements, including compulsory insurance and risk management strategies; and
• protect the interest of consumers receiving services from members of a professional association.

Given the purpose of professional liability schemes, the NTAA thought it prudent to explore the possibility of applying for approval of a scheme, which would apply to Fellows of the NTAA who hold practising certificates.

In this regard, the NTAA consulted with members, insurance brokers, and representatives of the Professional Standards Council, and also looked at the professional liability schemes of other professional accounting associations.

We found that each professional association has differing levels for when their respective scheme takes effect to limit the civil liability of its members.

For example, the schemes for the CPAs and ICAA only apply to limit liability of their members for damages claims that are in excess of $1,000,000.

Their liability is capped to a maximum of 10 times (referred to as the 'multiplier') the fee charged for the work which gave rise to the claim, but only if the damages claim exceeds $1,000,000.

Therefore, if a member of one of these associations is sued for damages of, say, $300,000 by one of their clients in respect of work they performed and for which they charged $5,000, the scheme does not operate to limit the member's liability to $50,000.

In return for this potential limitation of liability, the member of such an association is required to (for example):

• maintain adequate professional indemnity cover and business assets to meet claims made against them;
• have an appropriate level and currency of qualifications and experience;
• disclose on all documents that the member's liability is limited by a scheme;
• adhere to a prescribed code of ethics;
• be subjected to random compliance audits from their association in respect of the above issues; and
• where there is non-compliance, monetary penalties may be applied.

The costs of running the scheme would no doubt need to be passed on in some way to the association's members, possibly through increased membership fees, or loadings.

Ultimately, following a review of the Professional Standards legislation, the NTAA concluded that implementing such a scheme would not be in the best interests of the majority of Fellows of the NTAA.

Some reasons for this are outlined below.

The biggest drawback with the Professional Standards legislation, from the NTAA's point of view, is that it only limits liability for damages claims that are greater than certain thresholds.

As discussed above, for some associations, that threshold is $1,000,000.

The NTAA does not anticipate that it would be granted a threshold any lower than $500,000 at best.

Therefore, if the NTAA were to implement a scheme, it would not limit liability for damages claims of its Fellows that were less than $500,000.

The feedback we have obtained indicates that the vast majority of damages claims against NTAA Fellows do not exceed $500,000, so the implementation of such a scheme will not provide any substantial benefit to most of our Fellows.

Professional Standards legislation only imposes a cap on occupational liability, which is a member's civil liability as determined by a court, arising from an act or omission of a member acting in the performance of their occupation.

Claims are not covered if they relate to matters such as personal injury, breach of trust, fraud, dishonesty or breaches of the Corporations Law.

The fact that the legislation does not apply to all types of liability obviously limits the effectiveness of having a scheme in place.

In addition, having a scheme in place may give a 'false sense of security' to members of those schemes.

Therefore, members of such schemes must also consider insurance cover for additional liability that arises in areas not covered by Professional Standards legislation.

The NTAA does not anticipate any significant reduction in PI insurance premiums as a result of coming under such a scheme.

A scheme will specify which members, or classes of members, of a professional association to which it applies, but members are unable to choose not to be subject to the scheme (unless exempted).

This 'one size fits all' approach to professional liability schemes could be detrimental to a large proportion of NTAA Fellows if introduced, given its lack of relevance to their business circumstances and their inability to opt out of its operation.

Where a scheme exists, the cap only limits the amount of damages that may be awarded for a single claim.

However, it does not limit the amount of damages that may be awarded for all claims arising out of a single event.

Due to the limitations of a professional liability scheme, some of which have been outlined above, along with the additional requirements and costs that Fellows would have to face, the NTAA will not at this time proceed with the implementation of a professional liability scheme for Fellows of the NTAA (at least until such time as it is in the interests of our members to do so).

NTAA to set up a Recognised Professional Association ("RPA")

The current definition of an RPA can be found in S.251LA of the ITAA 1936, which lists associations that are RPAs and the requirements that must be satisfied in order to become an RPA.

The requirements for becoming an RPA will be updated as part of the proposed changes to the legislative regime for tax agents under the Tax Agent Services Act.

With the changes to the regulatory regime for tax agents contained in the Tax Agent Services Act and related legislation, which have been earmarked to take effect from the start of 2010, the NTAA is poised to either become an RPA (or form a new RPA) before the end of 2009 to ensure our members are properly represented.

The RPA will be set up to specifically cater to the interests of tax agents and their practices.

We envisage that this new RPA will:

• provide an alternate way that individuals with suitable experience may qualify to become a tax agent or BAS agent if they do not hold sufficient education qualifications;
• assist members in their dealings with the ATO in relation to their lodgment programs;
• help members whose practices are struggling to keep abreast with changes to the tax law;
• provide one-on-one support and, if necessary, practice management assistance; and
• help members' transition out of the profession and achieve maximum return on their goodwill.

We will be keeping you up to speed with developments on the Tax Agent Services Act, as well as the progress of the NTAA becoming an RPA, in upcoming issues of Voice.