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Birdseye and Tax Practitioners Board

Birdseye and Tax Practitioners Board

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Birdseye and Tax Practitioners Board [2021] AATA 1011 (20 April 2021)
Division:TAXATION AND COMMERCIAL DIVISION
File Numbers:2020/1829, 2020/6693
Re:Nicholas Birdseye
APPLICANT

AndTax Practitioners Board
RESPONDENT

File Numbers: 2020/1830, 2020/6694
Re:Claim IT (SA) Pty Ltd
APPLICANT

AndTax Practitioners Board
RESPONDENT

DECISION
Tribunal:Mr P W Taylor SC, Senior Member
Date:20 April 2021
Place:Adelaide

2020/1829, 2020/1830
Each of the Board’s 20 February 2020 registration termination decisions is affirmed.
2020/6693, 2020/6694
Each of the Board’s 20 February 2020 five year determination decisions is set aside and in substitution for those determinations, the Tribunal determines that there is no period in which the respective review applicants may not apply for registration.
..................................[sgd]......................................
Mr P W Taylor SC, Senior Member
CATCHWORDS
TAX AGENTS – tax agent registration termination – whether applicants breached the Code of Professional Conduct – acting honestly and with integrity – conduct of personal affairs – competent provision of tax agent services – whether applicant is a fit and proper person – lodgement and payment defaults – decisions under review affirmed
TAX AGENTS – re-application determination – applicants ineligible to re-apply for registration for five year period – maximum ineligibility period – consideration of purpose of registration preclusion period – decisions under review set aside and substituted
LEGISLATION
A New Tax System (Goods and Services Tax) Act 1999 (Cth) s 2-30, 27-5, 31-5, 31-15, 31-25, 33-3, 33-5, 162-5, 195-1
Corporations Act 2001 (Cth) s 203A
Fringe Benefits Tax Assessment Act 1986 (Cth) s 30
Income Tax Assessment Act 1936 (Cth) ss 8, 23L, 161, 161A, 162, 163, 166, 167, 168, 169, 252
Income Tax Assessment Act 1997 (Cth) ss 1-7, 5-5, 8, 28-115, 318, 355-100, 995
Industry Research and Development Act 1986(Cth) s 27A
Superannuation Guarantee (Administration) Act 1992 (Cth) ss 17, 19, 22, 23, 33, 35, 43, 46, 49, 57, 59
Superannuation Industry (Supervision) Act 1993 (Cth) ss 6, 11A, 35D
Tax Agents Services Act 2009 (Cth) ss 2-5, 2-10, 20-5, 20-15, 20-25, 20-45, 20-50, 30-5, 30-10, 30-15, 30-20, 30-35, 40-5, 40-15, 40-25, 50-5, 60-95, 60-100, 60-105, 60-110, 60-115, 60-120, 60-125, 90-5
Tax Agent Services Regulations 2009 (Cth) reg 8
Taxation Administration Act 1953 (Cth) ss 3A, 8C, 8D, 8F, 8Y, sch 1
CASES
A Solicitor v Council of the Law Society of NSW [2004] HCA 1; (2004) 216 CLR 253
Aero Marine Consulting Pty Ltd [2003] FCA 1016
Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321
Carter and Tax Practitioners Board [2017] AATA 528
Cheng Li and Tax Practitioners Board [2014] AATA 299
Comino v Tax Agents’ Board of NSW [2009] AATA 766
Delis and Tax Practitioners Board [2015] AATA 820
Delis v Tax Practitioners’ Board [2016] FCA 570
Hancox and Commissioner of Taxation [2012] AATA 836
Hancox v Commissioner of Taxation [2013] FCA 735
Hughes and Vale Pty Ltd v State of NSW (No 2) (1955) 93 CLR 127
Phillip Same Accountants Pty Ltd and Tax Practitioners Board [2010] AATA 439
Proh and Tax Agents’ Board of Victoria [2010]…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2021] AATA 1011
Decision Date: 20 April 2021

CaseChat Overview and Summary

This matter concerned appeals by Mr Birdseye and Claim It (a company of which Mr Birdseye was a director) against decisions of the Tax Practitioners Board (the Board) to terminate their registrations as tax agents. The Board's decisions were based on allegations that Mr Birdseye and Claim It had failed to act with honesty and integrity, had not complied with taxation laws in relation to their personal affairs, and were not fit and proper persons for registration. In Claim It's case, the Board also alleged a failure to provide tax agent services competently. These allegations stemmed from referrals by the Australian Taxation Office concerning client audits, unpaid superannuation, GST shortfalls, and unsubstantiated expense claims.

The Tribunal was required to determine whether Mr Birdseye and Claim It had breached the Code of Professional Conduct, specifically by failing to act honestly and with integrity, by not complying with taxation laws in their personal affairs, and by not being fit and proper persons for registration. For Claim It, the further issue was whether its tax agent services had been provided competently. The Tribunal also considered the Board's imposition of a five-year prohibition on re-application for registration for Claim It.

The Tribunal analysed the purpose of the Tax Agent Services Act 2009 (TASA), which is to ensure tax agent services are provided in accordance with appropriate standards of professional and ethical conduct. It noted that a fundamental aspect of the TASA scheme is the registration regime administered by the Board, which requires applicants to be fit and proper persons, demonstrating good fame, integrity, and character. The Tribunal considered the ATO's findings regarding client audits, which revealed numerous adjustments to work-related and rental property expense claims, resulting in significant tax shortfalls and penalties. It also examined the ATO's concerns regarding unpaid superannuation, GST shortfalls, and unsubstantiated expense claims in companies where Mr Birdseye was a director.

The Tribunal set aside the Board's decisions regarding the five-year ineligibility period for Claim It, finding that the Board had erred in its consideration of the purpose of such prohibitions. The Tribunal substituted its own decision, finding that while the conduct warranted disciplinary action, the five-year prohibition was excessive and did not align with the protective purpose of such preclusion periods. The Tribunal affirmed the termination decisions themselves, finding that the conduct demonstrated a failure to meet the required standards of honesty, integrity, and probity.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

The termination decisions were the subject of an interim, and conditional, stay ordered by this Tribunal on 31 March 2020. That stay came to an end on 8 May 2020, when the Tribunal’s reserved decision formally refused the stay applications Mr Birdseye and Claim It had made.THE GROUNDS FOR THE BOARD’S TERMINATION DECISION The Board’s February 2020 decisions followed investigations it had notified to Mr Birdseye in letters dated 20 September 2019. The notice letters alluded to allegations that Mr Birdseye and Claim It had failed to comply with / satisfy various TASA provisions. The specific, but unparticularised, allegations were that the two tax agents (i) had not acted with honesty and integrity as tax agents, (ii) had not complied with taxation laws in relation to their personal affairs and, (iii) were not “fit and proper” entities for registration. In the case of Claim It, the investigation notice also alleged that the company “may have” failed to ensure that its tax agent services were provided competently. Although the Board’s investigation notices were themselves uninformative, they followed, and were likely prompted by, three misconduct complaint referrals from the ATO. Those referrals had occurred in August 2018, November 2018 and July 2019. August 2018:- The 29 August 2018 referral was the result of the Australian Taxation Office’s (“ATO”), partially completed, audit of 53 income tax returns (“ITRs”) of NB&A clients. Those ITRs predominantly related to the 2015 / 2016 tax year. The ATO’s August 2018 letter explained that the particular clients had been selected for audit because they had large claims for work related expenses, and for rental property expenses. The substance of the ATO audit findings, and related assessments, was that the 31 completed client audits had resulted in: (a)approximately 168 audit adjustments, of which 76 involved work related expense claims, and another 76 involved property expense claims; (b)42 adjustments (the majority of which necessarily involved either work related, or property, expense claims) that had been the result of voluntary disclosure by the taxpayer clients; (c)a total (net) value of $581,724 for all the audit adjustments, and an overall tax shortfall of $193,120.45; (d)an overall total of 147 penalties (121 for lack of reasonable care, and only 23 for recklessness) totalling $46,815.35; (e)only eight instances where the audit assessment had been the subject of objections – and resulted in (i) six objection decisions, (ii) three instances where all the expenses claims had been allowed and, (iii) three instances where the property expense claims had been allowed. November 2018:- The ATO’s 8 November 2018 referral related to three companies of which Mr Birdseye was recorded as being a director. Those companies, and the subject matter of the ATO’s concerns, were as follows:-(a)Medlow Chocolates Pty Ltd:- The company had unpaid superannuation guarantee obligations for at least the period from 1 July 2016 to 30 September 2017, and a vaguely described, but apparently relatively modest, GST shortfall and penalty liability in relation to Business Activity Statements (“BAS”) for the three quarters in the tax year ended June 2015.(b)Sazzii Pty Ltd:- The company had an outstanding tax debt of $124,189. The debt arose from an unsubstantiated research and development expense claim in Sazzii’s 2013 ITR. The 2013 ITR was the only income tax return the company had lodged in the 11 year period from 2008 to 2018.(c)Podpac Pty Ltd:- The company had not lodged its 2013 ITR.

Ratio Decidendi

Legal Principle Established

In imposing a five year registration application prohibition on Claim It, the Board seems to have considered that the prohibition would have some general deterrent effect. The Board relied on substantially the same findings on which it had based its decision relating to Mr Birdseye:- see paragraph ‎18 above. It supplemented those findings with the observation that the “consistent and systemic” (mis)behaviour involved in the submission of unsubstantiated expense claims carried with it an unacceptable risk of repetition, even if Claim It came under the control of another supervising agent. Inherent in that aspect of the Board’s reasoning was the view that the registration application prohibition had some protective effect, in promoting confidence in the integrity of the “registered tax practitioner profession”.TASA PROVISIONS RELEVANT TO AGENT REGISTRATION AND CONDUCT Evaluating the significance of the circumstances on which the Board relies as warranting the affirmation of its decisions requires an understanding of the underlying TASA purpose, and the role of the Code in the statutory TASA scheme. The TASA purpose is to ensure that tax agent services are provided “in accordance with appropriate standards of professional and ethical conduct”:- see TASA s 2-5.[9] The TASA scheme involves the establishment of the Board, endowing the Board with registration, conduct investigation and disciplinary functions, and the enactment of a mandatory “Code of Professional Conduct” for tax agents. The Board administered registration regime is a fundamental means of effectuating TASA’s stated purpose. A person must be a registered tax agent to be able to charge for providing “tax agent services” - unless they do so as a practising lawyer:- see TASA ss 2-10 & 50-5. [9]The expression “tax agent services” is broadly defined, and generally includes providing advice and representation services relating to Commonwealth taxation matters: see TASA s 90-5. A threshold registration eligibility requirement is an applicant’s probity and good repute. An individual registration applicant must satisfy the Board that they are a “fit and proper person”:- see TASA s 20-5(1)(a). A corporate applicant for tax agent registration must satisfy the Board that each of its directors is a “fit and proper person”:- TASA s 20-5(3)(a). Subject to any more specific eligibility requirements, an individual applicant (and any director of a corporate applicant) will likely satisfy the Board they are “fit and proper” if they can adequately demonstrate they are of “good fame, integrity and character”:- TASA s 20-15(a). The considerations that may inform such an assessment are not prescriptively defined:- see TASA s 20-15(b); Toohey v Tax Agents’ Board of Victoria (No 2) [2008] FCA 1796; (2008) 106 ALD 506 at [3]. They must include, but the assessment is neither limited to, nor explicitly determined by, circumstances where, in the preceding five years, the person has:-(a)served, or has been sentenced to, a term of imprisonment:- TASA ss 20-15(b)(i) & 20-45(f); 20-15(b)(iii);(b)had the status of an undischarged bankrupt:- TASA ss 20-15(b)(ii) & 20-45(e);(c)been convicted of any offences involving fraud or dishonesty:- TASA ss 20-15(b)(i) & 20-45(b); and(d)been convicted of a “serious taxation offence”[10] or sanctioned for certain other kinds of tax related misconduct:- TASA ss 20-15(b)(i) & 20-45(a), (c) & (d).[10]A “serious taxation offence” is either (i) a tax liability related dishonesty offence against the Criminal Code (specifically ss 134.1, 134.2, 135.1, 135.2 or 135.4) or, (ii) a “taxation offence” that is punishable by either imprisonment or a fine exceeding 40 penalty units: TASA s 90-1. A “taxation offence” includes any offence against legislation administered by the Commissioner of Taxation: see paragraph ‎38 below.