Borella and Tax Practitioners Board (Taxation)

[2022] AATA 2489

Borella and Tax Practitioners Board (Taxation) [2022] AATA 2489 (8 August 2022)

Division:TAXATION AND COMMERCIAL DIVISION 

File Number(s):2022/4204      

Re:Terry Borella  

APPLICANT

Tax Practitioners BoardAnd  

RESPONDENT

DECISION

Tribunal:Senior Member G Lazanas

Date:8 August 2022  

Place:Sydney

Pursuant to s 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth), the Tribunal decides:

1.    subject to (2), the decision under review is stayed pending final determination of the substantive matter or until further order of the Tribunal;

2.    the Applicant:

(a)  agrees to not take on any new clients;

(b)  undertakes to continue to negotiate with the Australian Taxation Office in good faith in relation to a settlement of his tax debt;

(c)   undertakes to update the Respondent in writing of the progress of the negotiations on a monthly basis on the first business day of each month; and

(d)  must inform his clients, on or before close of business on 22 August 2022, by way of letter in a form approved by the Respondent, of the administrative action taken by the Respondent and the proceedings currently on foot at the Tribunal.

3.    the stay order will lapse if the Applicant fails to comply with the requirements in (2).

...............................[SGD]...................................
Senior Member G Lazanas

CATCHWORDS

PRACTICE AND PROCEDURE – application for stay of decision – termination of tax agent registration and imposition of two year ban – whether conditional stay should be granted pending decision on application for review – whether condition of requiring applicant to notify clients of respondent’s administrative action and proceedings on foot appropriate – factors relevant to the granting of a stay – prospects of success – consequences if stay not granted – public interest – consequences for respondent in carrying out its functions – whether substantive application would be rendered nugatory – stay application granted on conditions including requirement for applicant to notify clients

LEGISLATION

Administrative Appeals Tribunal Act 1975 (Cth) ss 41, 42C

Tax Agent Services Act 2009 (Cth) ss 20-5, 20-15, 40-5, 40-25

CASES

Evans and Tax Practitioners Board [2019] AATA 1408

G J Brown & Co Pty Ltd at Tax Practitioners Board [2016] AATA 740
Le’Sam Accounting Pty Ltd and Tax Practitioners Board [2020] AATA 3041
M & A Corporate Accountants Pty Ltd and Tax Practitioners Board [2021] AATA 4523
McCarthy and Tax Practitioners Board [2021] AATA 641
Poidevin and Australian Securities and Investments Commission [2018] AATA 124
Scott and Australian Securities and Investments Commissioner [2009] AATA 798
Su and Tax Agents’ Board of South Australia [1982] AATA 127

REASONS FOR DECISION

Senior Member G Lazanas

8 August 2022

INTRODUCTION

1. On 31 March 2022, the Respondent, the Tax Practitioners Board (Board) determined that the Applicant, Mr Borella, had breached certain sections of the Code of Professional Conduct in the Tax Agent Services Act 2009 (Cth) (TASA) and therefore ceased to meet the tax practitioner registration requirement that he is a fit and proper person for the purposes of the TASA. Consequently, the Board decided to terminate Mr Borella’s tax agent registration and preclude him from applying for registration for a period of two years.

2. On 26 May 2022, Mr Borella applied to the Tribunal for a review and stay of those decisions. Broadly, s 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) allows the Tribunal to make an order that stays the operation or implementation of the decision under review.

3. On 1 July 2022, the Tribunal ordered, consistent with the agreement reached between Mr Borella and the Board, that the reviewable decisions be stayed on an interim basis until the Tribunal hears and determines the stay application, subject to three conditions:

   (1)Mr Borella does not take on any new clients;

   (2)Mr Borella undertakes to continue to negotiate with the Australian Taxation Office (ATO) in good faith in relation to the settlement of his tax debt; and

   (3)Mr Borella undertakes to update the Board in writing of the progress of the negotiations on a monthly basis on the first business day of each month.

4. On 22 July 2022, the Tribunal heard the stay application. Mr Borella’s legal representative submitted that the stay should continue on the three agreed conditions. The Board does not oppose a continued stay but only on the proviso that the stay is subject to a further condition that mitigates the risk to the public and ensures that Mr Borella’s clients can make informed decisions about their own tax affairs considering Mr Borella’s shortcomings with his personal tax affairs. In other words, the Board argued for another condition or else for the Tribunal not to allow the stay.

5. The fourth condition which the Board argued for, and in respect of which the stay effectively turns on, is in the following terms:

   “on or before close of business on [date of stay order plus 2 weeks], [Mr Borella] must inform his clients, by way of letter in a form approved by the [Board], of the administrative action taken by the [Board] and the proceedings currently on foot at the Tribunal”. (This will be referred to as the Client Notification Condition in these reasons).

6. Mr Borella opposed the Client Notification Condition as being unnecessary in circumstances where he is not accused of any dishonesty or wrongdoing with respect to his clients; rather, Mr Borella’s problem was characterised by his lawyer as Mr Borella being merely late in his personal tax lodgements and tax payments. Furthermore, it was submitted that the existing conditions of the stay on the interim basis provide adequate protections for the benefit of his clients.

7. For the following reasons, I have decided that the stay order should be made but with all four conditions, including the Client Notification Condition.

   THE TRIBUNAL’S STAY POWER

8. The Tribunal’s power to grant a stay is set out in s 41(2) of the AAT Act which states as follows:

   The Tribunal may, on request being made by a party to a proceeding before the Tribunal (in this section referred to as the relevant proceeding ), if the Tribunal is of the opinion that it is desirable to do so after taking into account the interests of any persons who may be affected by the review, make such order or orders staying or otherwise affecting the operation or implementation of the decision to which the relevant proceeding relates or a part of that decision as the Tribunal considers appropriate for the purpose of securing the effectiveness of the hearing and determination of the application for review.

9. The Tribunal’s power to grant a stay arises only in respect of a decision reviewable by the Tribunal. The relevant decisions are the decisions to terminate Mr Borella’s registration pursuant to paragraph 40-5(1)(b) of the TASA and to impose a 2-year period before he may apply for registration pursuant to s 40-25(1) of the TASA.

10. The Tribunal must be satisfied in every case that the stay is sought and granted for the purpose of securing the effectiveness of the hearing and determination of the reviewable decision. In determining whether a stay is appropriate, the Tribunal may consider a range of matters including the prospects of success; the consequences for the applicant of the refusal of a stay; the public interest; the consequences for the respondent in carrying out its functions depending upon whether a stay is granted or not; whether the application for review would be rendered nugatory if a stay were not granted; and other matters that are relevant: see Scott and Australian Securities and Investment Commission [2009] AATA 798.

11. A stay may also be made subject to conditions as set out in paragraph 41(6)(a) of the AAT Act. As already stated, Mr Borella was content with the three agreed conditions (paragraph [3]) but not the proposed Client Notification Condition (paragraph [5]).

12. Mr Borella, as the party seeking the stay, bears the burden of establishing that a stay is warranted and whether or not conditions should be imposed.

    THE FACTUAL BACKGROUND

13. Mr Borella did not file any evidence in support of his stay application but relied on written and oral submissions by his legal representative at the hearing. His legal representative also referred me to certain documents contained in the T-Documents and to certain factual matters outlined in the Board’s written submissions.

14. Mr Borella has been a registered tax agent under the TASA, and its equivalent, since 1995. Over the years, including in 2000, 2004, and in 2016, Mr Borella has had several interactions with the Board (as well as its predecessor agency) in relation to his tax agent registration owing to either his inability or unwillingness to comply with his personal taxation obligations. The information regarding Mr Borella’s interactions in 2000 and 2004 was vague because Mr Borella’s legal representative did not have all the background facts, and those matters predated the Board in its current form.

15. However, it was common ground that the Board had on at least one occasion initiated disciplinary action against Mr Borella which found its way to the Tribunal. In 2020, that dispute was resolved by way of terms of settlement between the parties formalised by a Tribunal order dated 17 June 2020 under s 42C(1) of the AAT Act (42C Agreement).[1] The 42C Agreement required Mr Borella to comply with all his personal taxation obligations  which included compliance with the terms of his current payment arrangements with the ATO in respect of outstanding income tax (IT) and integrated client account (ICA) liabilities until those liabilities are fully discharged. The 42C Agreement also required Mr Borella to complete a course in the TASA and the Code of Professional Conduct within three months of the 42C Agreement.

    [1] A redacted form of the 42C Agreement was included in the T-Documents at T5, pp 56-57.

16. Mr Borella breached the 42C Agreement as he failed to comply with all his personal tax obligations including payment arrangements. He also failed to complete the course within the required timeframe. With respect to his tax payment arrangements, it transpired that on or about 16 January 2021, Mr Borella entered a payment arrangement with the ATO to repay his outstanding IT debt of approximately $76,000 and his outstanding ICA debt of approximately $230,000. On 7 April 2021, Mr Borella defaulted on the payment arrangement for his ICA debt and on 18 October 2021, he defaulted on his IT debt payment arrangement.

17. Moreover, as of 31 March 2022, the date of the reviewable decisions, Mr Borella had failed to lodge three quarterly Business Activity Statements (BASs) by their respective due dates. These include the BASs for the quarterly periods ending 31 March 2021, 30 June 2021 and 30 September 2021. Furthermore, as of 21 July 2022 (the day before the stay hearing), Mr Borella had failed to lodge a further two BASs for the quarterly periods ending 31 December 2021 and 31 March 2022 by their respective due dates. Mr Borella also failed to lodge his IT return for the year ending 30 June 2021 by the due date and this was still outstanding as at the date of the stay hearing.

18. Additionally, as of 31 March 2022, Mr Borella had outstanding tax debts comprising an IT debt of $14,496.62 and an ICA debt of $96,751.32, neither of which were subject to a current payment arrangement with the ATO.

19. The Board acknowledged in its written submissions that Mr Borella had made four payments towards his ICA debt, and one payment towards his IT debt. The final payments made by Mr Borella to his ICA and IT debts were on 23 July 2021 and 22 October 2021 respectively, more than 8 months ago.  As of 18 July 2022, the current outstanding balances for his tax debts were an IT debt of $14,496.62 and an ICA debt of $99,598.51. As of 21 July 2022, Mr Borella still did not have a current payment arrangement with the ATO for his IT debt or his ICA debt.

20. Mr Borella made no attempt to explain to the ATO or to the Board why his BASs and IT return had not been lodged and why he had defaulted on his payment arrangements with the ATO, and no explanation was offered at the stay hearing. His legal representative did, however, point to the fact that Mr Borella had significantly reduced his IT and ICA debts when comparing the amounts outstanding as of 18 July 2022 (paragraph [19]) to the amounts outstanding as of 16 January 2021 (paragraph [16]). The Board’s legal representative noted, however, that the debts were likely to be higher once Mr Borella lodged his outstanding BASs and IT return.

    SHOULD THE TRIBUNAL GRANT A STAY?

21. The Tribunal now turns to consider whether it is appropriate to grant a stay with the Client Notification Condition.

    Prospects of success

22. It is well established that it is not appropriate for the Tribunal to attempt an exhaustive evaluation of the merits of the case for the purposes of the present interlocutory application for a stay order: RePoidevin and Australian Securities and Investments Commission [2018] AATA 124, [39] – [40]. Nonetheless, Mr Borella has failed to demonstrate at a high level that there is a sufficiently arguable case for the setting aside of the Board’s decisions. Mr Borella did not point to the existence of any cogent facts or the possibility of legal error in the Board’s decisions that may be argued at the hearing which may lead to a different result.

23. Mr Borella’s argument focused on the fact that each time he had previously challenged the Board he had substantively won. But Mr Borella was unable to provide details of the prior disputes and, more importantly, how his previous success provided any foundation for the present dispute. On the contrary, the fact Mr Borella has repeatedly shown a disregard for his own personal tax obligations and has failed to rectify his lodgement and debt deficiencies, as well as breached the 42C Agreement, puts him in a more precarious position. The Board referred to Mr Borella’s predicament being essentially the same situation as was canvassed in the recent Tribunal decision McCarthy and Tax Practitioners Board [2021] AATA 641. The tax agent in that case, Mr McCarthy, was found by the Board not to have complied with taxation laws in the conduct of his personal affairs, due to having failed to lodge BASs by their due dates. He also had a large outstanding tax debt and no arrangements in place to pay the debt. The Board also found that Mr McCarthy no longer met the fit and proper person requirements of tax practitioner registration. The Tribunal affirmed the Board’s tax agent registration cancellation decision but varied the decision with respect to the preclusion period and imposed a two-year ban (reduced from four years). The Board submitted that McCarthy provides strong support for the Board in running this matter.

24. Having regard to the nature of Mr Borella’s various failures to adhere to appropriate standards of professional conduct in relation to his personal tax obligations over a considerable period of time, as well as his non-compliance with the 42C Agreement, the reality is that, even if the Tribunal were to accept the substance of his case at the final hearing - which was that he had not engaged in any dishonesty or done any wrongdoing vis-a-vis his clients - the prospect that the Tribunal would ignore his personal tax shortcomings and conclude that Mr Borella should be immediately returned to the register of tax agents is, at best, doubtful.  McCarthy highlights the Tribunal’s approach to such matters. As Mr Borella’s prospects of success are limited, this matter weighs strongly in favour of the Tribunal refusing the stay or only allowing the stay based on conditions.

    Consequences for Mr Borella of refusing a stay or imposing conditions on a stay

25. The Board’s decision regarding the termination of Mr Borella’s tax agent registration is the subject of an interim stay. There was no evidence as to impacts on Mr Borella, any staff or his clients, if the interim stay were not continued or if the stay were made with the additional Client Notification Condition.

26. Mr Borella asserted that a stay is appropriate but that no benefit flows from notifying clients that Mr Borella has been slow in his personal tax affairs. Mr Borella also asserted that his accountancy practice is likely to suffer substantial and lasting financial damage, especially as it would erode confidence that his clients have in him, and it is reasonable to expect that several clients would move their work elsewhere. According to Mr Borella, the Client Notification Condition does not reduce any risk to the public as there is no risk posed towards his clients by his conduct. Mr Borella also asserted that the ATO allowed generous extensions of time and latitude in lodgements and payments for entities affected by COVID-19 related business interruptions and that he should be afforded the same concessions (albeit that it emerged that some of Mr Borella’s tax debts clearly predated the pandemic). Mr Borella surmised that the Board had over many years attempted to deregister him and such efforts had been motivated by reasons other than the performance of Mr Borella’s duties to his clients.

27. These assertions were not supported by any probative evidence and are to be given little weight. In any event, the likely consequences of a conditional stay, including that Mr Borella’s clients may choose another tax agent, are due to Mr Borella’s own failures to adhere to the high standards of professionalism which the community is entitled to expect from a registered tax agent and which the Board is responsible for regulating. These matters weigh to some extent against the Tribunal granting a stay without the Client Notification Condition.

    Public interest considerations

28. The Board argued that the Client Notification Condition is appropriate because there is a public interest in ensuring that Mr Borella’s existing clients are aware of the regulatory action so as to be given the opportunity to make an informed choice about whether they wish to remain clients. The Board argued that Mr Borella risked prejudicing his clients as his inability to manage his own tax affairs meant he had a fractious relationship with the ATO, thus potentially compromising his ability to deal with the ATO on behalf of his clients.[2] In this regard, the Board relied on the decision of Davies J in Su and Tax Agents’ Board of South Australia [1982] AATA 127 where it was held that a tax agent’s failure to comply with tax obligations may in turn reflect on their handling of their client’s taxation affairs and render them unsuitable as a tax agent.

    [2] T-Documents at T6, p 132.

29. The Board also relied on M&A Corporate Accountants Pty Ltd and Tax Practitioners Board [2021] AATA 4523 which concerned a tax agent’s application for a stay in similar circumstances of the tax agent being non-compliant with his personal tax lodgements and payments and where the Tribunal ordered a conditional stay which involved notifying the tax agent’s clients. Mr Borella denied that there is any such public interest requirement and argued that because there are no client complaints, he should be allowed to preserve and protect his reputation and his clients as he was a competent tax agent. He argued that it was premature to take action to notify his clients before the final decision on the reviewable decisions.

30. Mr Borella’s arguments must be considered in the context of the regulatory regime for tax practitioners, which is set out in the TASA and administered by the Board. For an individual to be eligible to be a registered tax agent, the Board must be satisfied that the individual is a “fit and proper person”: s 20-5 of TASA. The Board must have regard to specified criteria to determine whether an individual is a fit and proper person, most importantly, “whether the individual is of good fame, integrity and character”: s 20-15 of TASA. Mr Borella’s conduct involved repeated failures with respect to his personal tax affairs. Those failures, both as to lodgements and payments, were exacerbated by Mr Borella’s failure to adhere to the 42C Agreement. That non-compliance of itself demonstrates that any conditional stay in the present case may afford insufficient protection to the public.

1. I agree with the Board’s contentions that Mr Borella’s view of competence as a tax agent with respect to his clients is too narrow and, specifically, that the Tribunal cannot ignore Mr Borella’s recalcitrance in upholding the requisite standards of professional and competent practice with respect to his personal tax matters. In this regard, it is especially important that the public “is to be protected [against] the risk to the standing of the profession in the eyes of the public. The effective functioning of the tax agent profession is in the public interest …[P]reservation of the general community’s confidence in tax agents is of fundamental concern”: Evans and Tax Practitioners Board [2019] AATA 1408 at [131] (Senior Member Furnell), citing G J Brown & Co Pty Ltd at Tax Practitioners Board [2016] AATA 740 at [82] (Senior Member Cotter).

2. The public interest in maintaining community confidence in registered tax agents weighs in favour of the Tribunal granting a stay with conditions including the Client Notification Condition.

   Consequences for the Board in carrying out its functions

3. I am not satisfied there would be any adverse consequences for the Board if a stay were ordered, especially a stay with conditions. In this regard, the Board also accepted that the proposed stay conditions are consistent with recent Tribunal decisions in granting a stay of a decision regarding the termination of a tax agent registration under the TASA. See, for example, M & A Corporate Accountants Pty Ltd and Tax Practitioners Board [2021] AATA 4523 and Le’Sam Accounting Pty Ltd and Tax Practitioners Board [2020] AATA 3041.

   Would the hearing be rendered nugatory?

4. If Mr Borella were to succeed in the substantive review, the review would not be rendered nugatory as Mr Borella could continue his tax agent business and, to the extent impacted by the conditions, notify his clients and rebuild his business even though there may have been some disruption. This consideration weighs in favour of the Tribunal granting a stay with conditions.

   CONCLUSION

5. The consideration of the abovementioned factors weighs in favour of ordering the stay. In particular, the public interest considerations do not weigh significantly against making a stay order as there does not appear to be unacceptable risk to Mr Borella’s clients. I am also satisfied the stay would promote the effectiveness of the hearing, however, I consider it is appropriate that the reviewable decisions be stayed on conditions.

6. As to the conditions, I am not persuaded that it is desirable to grant the stay without the additional Client Notification Condition. Based on the materials before the Tribunal, I have some reservations at to Mr Borella’s prospects of success. Additionally, the public interest in the integrity of the tax agent registration regime would also not be served by granting a stay that did not involve the Client Notification Condition. I find that it is appropriate that the reviewable decisions be stayed with four conditions, namely, the three agreed conditions and the fourth condition, the Client Notification Condition. 

I certify that the preceding 36 (thirty-six) paragraphs are a true copy of the reasons for the decision herein of Senior Member G Lazanas

…………………[SGD]………………………

Associate

Dated: 8 August 2022

Date of hearing:	22 July 2022
Solicitors for the Applicant:	Mr J Biady, J Biady & Associates Pty Ltd
Solicitors for the Respondent:	Mr R McDonald, TPB Legal Unit