Budai and Tax Agents Board of New South Wales
[2002] AATA 1154
•8 November 2002
DECISION AND REASONS FOR DECISION [2002] AATA 1154
ADMINISTRATIVE APPEALS TRIBUNAL )
) No N2001/1828
GENERAL ADMINISTRATIVE DIVISION )
Re FERENC BUDAI
Applicant
And TAX AGENTS BOARD OF NEW SOUTH WALES
Respondent
DECISION
Tribunal Ms G Ettinger - Senior Member
Date 8 November 2002
PlaceSydney
Decision The decision under review of the Tax Agents Board of New South Wales dated 1 November 2001 is set aside and in substitution therefor the registration of Mr Ferenc Budai as a tax agent is suspended pursuant to section 251K(2) of the Income Tax Assessment Act 1936 from the date of cancellation on 1 November 2001 and ceasing on 31 May 2003.
..............................................
Ms G Ettinger
Senior Member
CATCHWORDS
Tax Agent - registration cancelled due to involvement in and production of fraudulent scheme - remorse - parties involved made a claim regarding negligent behaviour - Palmer J in Supreme Court found for the Applicant - whether Applicant fit and proper person to be a tax agent – considerations of whether the public needs to be protected from the Applicant
Legislation
Income Tax Assessment Act 1936 ss 251BC(1), 251JA(1)(a), 251K(2), 251K(3C)(a)
Case Law
Zelino and Ors v Budai [2001] NSWSC 501
Fiorello and Tax Agent's Board of Queensland (1998) 39 ATR 1008
Re Prudzinski & Tax Agents' Board of Victoria (1997) 36 ATR 1026
Re Prudzinski v Tax Agents' Board of Victoria (No2) (1997) 36 ATR 1089
Re Chapman v Tax Agents' Board of South Australia (1984) 15 ATR 691
Russel J Alexander Pty Ltd v Tax Agents' Board of Victoria (1999) 43 ATR 1163
New South Wales Bar Association v Evatt (1968) 117 CLR 177
Re Perusco v Tax Agents' Board of New South Wales (1982) 13 ATR 649
Re Stasos v Tax Agents Board (NSW) (1990) 21 ATR 3673
Stasos v Tax Agents Board (1990) 21 ALD 437
Re Denton v Tax Agents' Board of South Australia (1983) 13 ATR 921
Re Tighe v Tax Agents' Board of Victoria (1996) 31 ATR 1295
Re Su and the Tax Agents' Board of South Australia (1982) 82 ATC 4284
Re Carbery & Associates Pty Ltd v Tax Agents' Board of Queensland (2001) 46 ATR 1106
Quick v Tax Agents' Board of Victoria (2000) 45 ATR 1009
Dahia v Tax Agents' Board of Victoria (1997) 36 ATR 1124
Re Houvardas and Tax Agents' Board of New South Wales (1991) 91 ATC 2032
Australian Securities Commission v Kippe and Another (1996) 67 FCR 499
New South Wales Bar Association v Hamman [1999] NSWCA 404
Hardcastle v Commissioner of Police (1984) 53 ALR 593
REASONS FOR DECISION
8 November 2002 Ms G Ettinger – Senior Member
The decision under review before the Administrative Appeals Tribunal ("the Tribunal") was the decision of the Tax Agents Board of New South Wales ("the Board") of 1 November 2001 (T8), the Respondent in these proceedings, in which the Board had resolved to cancel the registration of Mr Ferenc Budai, as a tax agent pursuant to section 251K(2)(a) & (d) of the Income Tax Assessment Act 1936 ("the Act"). In its decision, it stated that:
"The Board also considered the fact that you admitted you had knowingly prepared false income tax returns. Having regard to the serious nature of the matters concerned within the judgment and your response to the show cause letter, you have failed to satisfy the Board that you are 'fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters'."
Mr Budai the Applicant in these proceedings was represented at the Hearing by Dr Pamela Budai, his wife, a legally qualified, non-practising lawyer, and the Respondent, by a solicitor of the Australian Government Solicitor, Mr Greg Peek.
ISSUE BEFORE THE TRIBUNALThe issue before the Tribunal was to consider the appeal of Mr Budai against the Board's decision to cancel his registration pursuant to section 251K(2)(a) & (d) of the Income Tax Assessment Act 1936.
In considering the appeal, the Tribunal was mindful that admissions had been made by the Applicant acknowledging the breach of section 251K(2)(a) of the Act, in that he had admitted to masterminding a fraudulent scheme in relation to taxation matters related to a group of venturers.
THE LEGISLATIONThe relevant legislation in this matter was the Income Tax Assessment Act 1936 in particular section 251K(2), which follows as relevant:
"SECTION 251K
Cancellation or suspension of registration of tax agents
(1) …(2) A Board may suspend or cancel the registration of any tax agent upon being satisfied that:
(a) any return which has been prepared by or on behalf of the tax agent is false in any material particular; unless the tax agent establishes to the satisfaction of the Board that he had no knowledge of the falsity or that the falsity was due to his inadvertence;
(b) the tax agent:
(i) has neglected the business of a principal; or
(ii) has been guilty of misconduct as a tax agent; or
(c) a registered nominee of the tax agent is not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters;
(d) if the tax agent is a natural person—the tax agent is not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters;
(e) if the tax agent is a partnership:
(i) in the case of a partner who is a natural person—the partner:
(A) has not attained the age of 18 years; or
(B) is not of good fame, integrity and character; or(ii) in the case of a person who is an executive officer of a partner that is a company—the person:
(A) has not attained the age of 18 years; or
(B) is not of good fame, integrity and character; or(f) if the tax agent is a company—an executive officer of the company:
(i) has not attained the age of 18 years; or
(ii) is not of good fame, integrity and character."
BACKGROUND
I noted by way of background that the parties' Statements of Facts and Contentions (Exhibits A1 and R2) comprised many agreed facts. In summary, Mr Budai in his capacity as a tax agent had advised a group of investors/developers ("the Venturers"), and devised a fraudulent scheme in order for them to evade tax. This had been done by way of undervaluations for which units were sold, with attendant overvaluations of the costs involved which led to substantial undervaluation of income.
The matter Zelino and Ors v Budai [2001] NSWSC 501 had been decided on 24 July 2001, with the parties in that case claiming that Mr Budai had been negligent in advising them. They had been unsuccessful on all three counts. At paragraph 234 of the judgment (PT4/73), Palmer J had stated:
"There were three broad claims of negligence against Mr Budai, namely, that he negligently advised that tax was payable because Mr and Mrs Tesoriero had derived income from a profit-making scheme or undertaking, that he negligently advised that the sum of $170,890 should be inserted in their tax returns and, finally, that he negligently failed to procure the issue of special rights units. Mr Budai's successful defences to the first and third claims did not depend upon his illegal conduct and there is no reason in public policy that he should be deprived of his costs on those issues."
It was only when litigation was commenced by the Venturers that Mr Budai disclosed to the court that he had been involved in a fraudulent scheme. This had led to the action by the Board, and subsequent appeal to this Tribunal. Palmer J had stated in Zelino (supra):
"It would be an affront to justice and to all professional people striving to maintain the ethical standards of their calling if the Court, having become aware of possible serious breaches of the law by members of a profession, turned a blind eye and failed to draw those matters to the attention of the relevant authorities and professional regulatory bodies for further investigation." (paragraph 238)
"The Australian Taxation Office, the Tax Agents Board, the Australian Institute of Chartered Accountants and the Public Accountants Registration Board should investigate the conduct of Mr Budai for the purpose of determining whether he is a fit and proper person to remain a registered tax agent, a Chartered Accountant and a Public Accountant." (paragraph 240)
EVIDENCE BEFORE THE TRIBUNAL
The Tribunal had before it documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975, the T-documents as Exhibit R1 and the following other documents.
Item Date Exhibit Number
Applicant's Statement of Facts and Contentions 8 March 2002 Exhibit A1
Statement of Leon Lurie 12 March 2002 Exhibit A2
Statement of Rabbi Richard Lampert 13 March 2002 Exhibit A3
Statement of Robert Mann Undated Exhibit A4
Page 265 of the transcript of the Zelino proceedings 25 May 2001 Exhibit A5
Pages 35-36 of the transcript of the Zelino proceedings 22 May 2001 Exhibit A6
Various documents under cover of letter of Dr Pamela Budai 20 June 2002 Exhibit A7
Fax of Australian Government Solicitor to Brian Camilleri 14 December 1998 Exhibit A8
Respondent's Statement of Facts and Contentions 18 April 2002 Exhibit R2
Oral evidence was given by the Applicant, Mr Budai, and character witnesses, Mr Leon Lurie, Rabbi Richard Lampert, and Mr Robert Mann.
evidence of the applicant – mr ferenc budaiI noted that Mr Budai, whose date of birth was 21 July 1947, had studied commerce, majoring in accountancy and that he has been a member of the Institute of Chartered Accountants for more than twenty years.
Mr Budai said that the background to the entry into the fraudulent tax scheme was given in the Applicant's Statement of Facts and Contentions, but said that basically the Venturers consisted of five principals who were building an apartment block at Cremorne Point. He said that two persons who were his clients had sought his advice regarding the taxation implications, and that he had at first proceeded on incorrect facts which they had supplied. As a consequence they were displeased with the subsequently given advice which was different from the initial advice, he said. Mr Budai said that the Venturers accused him of misleading them. In that regard an opinion was sought from a Queen's Counsel which confirmed his advice, Mr Budai said. This involved confirming that what had been earned was taxable income. The displeasure of the clients "badgering" him, and the embarrassment, finally caused him to devise a scheme which was illegal, he said. Mr Budai said that as the five principals could not agree, he did not believe they would proceed with it, but acknowledged in his evidence that whether they acted upon it or not, it had been improper to devise the scheme.
Mr Budai told me that because of the disagreement, returns were not lodged for months afterwards, and the actual returns for the trust were never lodged. Mr Budai said that he had prepared the tax returns for the five individuals involved, but that they had lodged them themselves. Mr Budai acknowledged he should have filled out the questionnaire in relation to the tax returns in full (T7/85) and acknowledged that he had breached his duties in not doing so. He explained that he had intentionally not completed the questions and agreed in cross-examination that he had hoped the Australian Taxation Office ("the ATO") would overlook the point. He agreed it was misleading, but added that he felt it would have been worse to make a false statement rather than to omit an answer.
I was mindful however that in contrast to what he said at the hearing, Mr Budai wrote as follows at PT7/82:
"I clearly and carefully left the way open for the Australian Taxation Office to question the truthfulness of the income tax returns prepared by me for Mr and Mrs Tesoriero for 1988. However, the person(s) who assessed the returns did not consider it necessary to follow up the fact that five questions were unanswered."
I noted that of the six questions to the tax agent at T7/85, only one was answered, and that related to books of account kept. The unanswered questions were as follows:
By whom are those books of account kept? (State name and address).
Are the books of account audited each year? If so, by whom?
Is the return in accordance with those books?
If the return is not in accordance with those books, on what basis and upon what information has the return been prepared?
Have you satisfied yourself and if so, how, that the books of account or other sources of information upon which the return is based are correct and disclose the whole of he taxpayer's income from all sources?
Mr Budai conveyed to the Tribunal that he had been uncomfortable with the arrangements, and when asked what had occurred with Mr Tesoriero in May 1999, Mr Budai replied that he was pleased that Mr Tesoriero had approached a solicitor, and that he too had been referred to Mr Phillip White, the solicitor.
Mr Budai said that Mr White had told him he would only act for the parties if disclosure regarding the scheme was made to the ATO, and that he, (Budai), had no reason to believe Mr White would not do that. Mr Budai agreed with Mr Peek in cross-examination that Palmer J had correctly listed all the falsely represented sales and value figures in relation to the special rights units issued to the various venturers as documented in the "bogus Zelino minutes of 13 January 1986" (paragraph 168 of Palmer J's judgment at PT4/56). At Mr Budai said that he was arraigned three years after his disclosure to Mr White, and agreed he had taken no steps to follow up his disclosure to Mr White. Mr Budai said that it was his understanding that the matter had been notified to the ATO back in 1989 by Mr White. He agreed with Mr Peek that he had not taken any independent action to notify the ATO, and had not made full disclosure until the court case before Palmer J.
When asked why he himself did not disclose all to the ATO, Mr Budai said that he understood the client was doing so, and it would have been inappropriate for him to do so on the client's behalf.
Mr Budai was asked whether Mr White, the Tesorieros and Greenwood Challoner whom they had consulted, had informed the ATO of the scheme. He answered that having seen their documents, it was clear they had not. He said that he then arranged for Mr Camilleri to inform the ATO for him, and agreed in cross-examination that he fully conceded, as he had in the Supreme Court before Palmer J, that he had devised a fraudulent tax scheme.
Mr Peek asked Mr Budai in cross-examination whether the consequences of devising a fraudulent scheme were apparent to him at the time, to which Mr Budai said that he had photocopied the appropriate sections of CCH and informed the parties of the potential penalties they faced. He added that he seriously doubted they would proceed. Mr Budai said in evidence in chief that proceeding with it had all been a bad error of judgment by him. Mr Budai said that although he had been paid, the total fee was less than $5,000. He acknowledged in cross-examination that his actions were wrong, and that he regretted having been "worn down" by the pressure of the clients, acknowledging that this did not excuse his actions. He said that he would pay for it for the rest of his life.
Mr Budai told the Tribunal that the undeclared income had amounted to approximately $1,000,000. He agreed in cross-examination that there had been a series of minutes of meetings fabricated, concocted directors' meetings, undervaluations for the units sold, and overvaluation of the costs involved. He agreed that his skills as a tax accountant were a necessary part of devising the scheme.
When asked about the negligence suit the Tesorieros brought, Mr Budai said that it arose because they felt they had to pay too much tax. He said that he told Mr White that there was no negligence, that what he had done was wrong, and that he did not think they could sue him for negligence.
Mr Budai was asked whether there had been anything about the fraudulent scheme concealed since May 1989. Mr Budai answered that nothing had been concealed from that date, and that he regretted having been in that position. He said it had resulted in a huge personal cost, both to his reputation and financially. He said that he had suffered reduced assets in that he had had to sell investments and still owed his barrister $100,000. Mr Budai said that he defended his position in the court case because he had not been negligent, and did not believe in blackmail, which had been threatened. He added that it would have cost less money if he had paid the Tesorieros instead of defending the case.
As to the effect on his clientele; Mr Budai said that he asked his clients to find other advisors because he was afraid they could be tainted by his actions. He said that some clients showed their support and stayed with him. Mr Budai said that his financial situation was parlous; he was still registered as a public accountant but had been unable to work in tax for the past 18 months. He said he had a dependent disabled daughter aged 22 and contributed to a niece's upkeep. He detailed the serious (health) circumstances of the two young people.
Mr Budai said that among his current activities was pro bono accounting work for an aged people's home consisting of 15 - 20 hours a month.
Mr Peek questioned Mr Budai regarding what the role of a tax agent should have been in 1988 in relation to his clients, to which Mr Budai replied that the role was to comply with the law and prepare tax returns in compliance with the law.
As a final question, I asked Mr Budai whether he had been involved in any illegal scheme or action at any other time, either before the Cremorne Trust or afterwards, or even at the present time. He told me in his reply that he had not, and that he was certain that there could be no recurrence in the future.
evidence of mr leon henry lurie – character witnessMr Lurie, whose statement of 12 March 2002 was before the Tribunal as Exhibit A2, gave oral evidence. He told the Tribunal that he was an accountant, but no longer in practice.
Mr Lurie said that he had first met Mr Budai in 1988, and worked with him in connection with work for charitable organisations, such as Bnai Brith. He said that he was also a friend and saw him socially, but had little detailed knowledge of Mr Budai's business activities.
Mr Lurie said that he was aware of the Supreme Court proceedings. He said both in his oral evidence and in his statement, that he was confident Mr Budai would not repeat any such wrongdoing. He said it must have been an aberration. In his statement, he said: "I was surprised to learn of his involvement in the fraud, as he does not condone tax evasion."
evidence of rabbi richard g lampert – senior rabbi, north shore temple emanuelRabbi Lampert whose statement dated 13 March 2002 was Exhibit A3 before the Tribunal, gave oral evidence. He wrote in his statement that:
"Frank has been very direct and open with me concerning his misdemeanour. He is, I believe, extremely sorry and remorseful about his mistake which I consider to be an aberration and out of character."
In reply to Mr Peek in cross-examination, Rabbi Lampert said that he did not know details of the business problems Mr Budai had encountered, but knew it involved the giving of advice many years ago, and knew that he was really sorry about it.
When asked whether he would change his view of Mr Budai if he now knew that the mistake involved a fraudulent scheme involving more than a million dollars, Rabbi Lampert said that he would not change his view. He said that people made mistakes, that Mr Budai was remorseful, and it had been an aberration.
evidence of mr robert mann – productivty consultantMr Mann who is an accountant, and has worked as a financial controller gave oral evidence before the Tribunal. His statement was Exhibit A4 before the Tribunal. Mr Mann said that he knew the details of Mr Budai's scheme, and that Mr Budai had acted for him from the late 1970s to the late 1980s.
He stated that:
" I have read the judgement of Palmer J. In my opinion, the wrongdoing by Mr Budai is not likely to be repeated. Mr Budai has had to endure an extended period of painful self examination.
…
I believe Mr Budai is competent in his practice as an accountant and tax agent, and I do not believe that he will become involved in any further fraudulent activity."In his oral evidence Mr Mann said that Mr Budai had nothing to gain from the scheme, that he was trying to support clients, but that he should have walked away.
SUBMISSIONS AND CONCLUSIONSIn coming to the correct and preferable decision regarding whether the decision to cancel Mr Budai's registration as a tax agent should be affirmed, set aside or varied, I had to take into account all the evidence, the submissions of the parties, legislation and case law.
The relevant sections of the Act as Mr Peek pointed out in his closing submissions, were section 251K(2)(a) and (d) of the Act. Mr Peek submitted that the tests in both sub-sections of the Act had been made out, in that Mr Budai had pursuant to subsection 251K(2)(a), on his own admission, prepared a return which was false in material particulars. He submitted that the test in subsection 251K(2)(d) of the Act had also been made out, and Mr Budai had been held to not be a fit and proper person to prepare income tax returns.
I was mindful that standing in the shoes of the decision maker in reviewing the decision to cancel Mr Budai's registration as a tax agent, I exercised the same powers.
applicant's closing submissionsDr Budai made closing submissions on behalf of the Applicant, followed by Mr Peek. She commenced by reviewing 17 cases, decided cases with regard to tax agents' registration. In summary, having analysed the case law, she told me that there were 17 cases of cancellations of registrations, of which 13 were appealed.
I have noted the main ones of these briefly below. Many deal with similar issues. Others mentioned by Dr Budai included:
Fiorello and Tax Agent's Board of Queensland (1998) 39 ATR 1008, Re Prudzinski & Tax Agents' Board of Victoria (1997) 36 ATR 1026, Re Prudzinski v Tax Agents' Board of Victoria (No2) (1997) 36 ATR 1089, Re Chapman v Tax Agents' Board of South Australia (1984) 15 ATR 691, Russel J Alexander Pty Ltd v Tax Agents' Board of Victoria (1999) 43 ATR 1163, New South Wales Bar Association v Evatt (1968) 117 CLR 177, Re Perusco v Tax Agents' Board of New South Wales (1982) 13 ATR 649.In reply to the discussion of the case law, Mr Peek said that notwithstanding the number of decided AAT cases, there had not been one where the factual situation dealt with large scale fraudulent activity as the present case encompassed.
I have discussed the following cases below, and shall deal with the relevant case law again in my findings.
Re Stasos v Tax Agents Board (NSW) (1990) 21 ATR 3673
Noted that Stasos had been a tax agent for five years when in 1980 he embarked upon a course of tax evasion by understating his income. The activity ceased when the ATO became aware of it and after Stasos had repaid the total tax avoided, plus penalties. The Board cancelled his registration in September 1989 on the basis that he was no longer a fit and proper person to carry on business as a tax agent. The AAT affirmed the decision and Stasos appealed. The Federal Court in Stasos v Tax Agents Board (1990) 21 ALD 437, dismissed that application finding there had been no error of law. It is noted that Hill J made observations concerning the role and conduct befitting a tax agent.
Re Denton v Tax Agents' Board of South Australia (1983) 13 ATR 921
Noted that Mr Denton suffered 38 convictions comprising of several in respect of income tax returns, as company secretary, as company director and as group employer. His actions ranged from delays in lodging his own tax returns, lodgment of the returns of others, failure to pay group tax, an untruthful reply to the Tax Agents' Board in its annual notice requiring tax agents to disclose whether they had convictions in the previous 12 months, designating himself on a sign outside his office and on his letter head as a chartered accountant after his membership had been cancelled, and other items. The AAT affirmed the decision to cancel Mr Denton's registration as a tax agent. Davies J held that Mr Denton had reached a stage where he was no longer able:"adequately to distinguish between what professional behaviour is right and what is wrong. … The question in issue is whether Mr Denton meets the criteria which a tax agent is called upon to meet, that is to say, whether he has such competence and integrity that he can be relied upon to give proper advice and to prepare and lodge with reasonable skill and care returns of income that are proper. In my view, he did not at the date of the Board's decision and does not presently have those qualities."
Re Tighe v Tax Agents' Board of Victoria (1996) 31 ATR 1295
Noted that Tighe conducted his accounting practice through a corporate structure resulting in a liquidator being appointed; failure to remit group tax which was alleged to have been due to financial difficulties. As a result, Tighe was charged with 27 offences and under the Taxation Administration Act 1953 and convicted. There was a further conviction for failure to lodge his personal income tax. Tighe was held not to be a fit and proper person to be registered as a tax agent. The AAT affirmed the decision to cancel Mr Tighe's registration as a tax agent.
Re Su and the Tax Agents' Board of South Australia (1982) 82 ATC 4284
Noted that Mr Su's registration as a tax agent was cancelled after four convictions were recorded in respect of lodgment of his personal income tax returns, and failure to remit group tax in his capacity as employer. On appeal by Su to the AAT, Davies J stated that "I would not myself have thought that, standing alone, the convictions would have justified that conclusion". However, in affirming the decision, his Honour took into account offences over a period of years, failure over three years to correctly answer annual questionnaires of the Tax Agents Board regarding whether he had been convicted in the previous 12 months, and evidence before the AAT which was either untruthful or misleading.
Re Carbery & Associates Pty Ltd v Tax Agents' Board of Queensland (2001) 46 ATR 1106
Noted that the Board refused to register the applicant as a tax agent. Senior Member Fayle of the Tribunal found in the appeal, that Carbery left an impression that he was not organised, neither adequately prepared for the hearing. He found him to be confused, evasive, vague and inclusive. The Senior Member noted that there were two separate but critical events central to the refusal to re-register the applicant. They were the failure by Carbery to provide a factual answer to a question raised in the application form for re-registration and his continual failure to provide written responses to the Respondent in relation to relevant questions and issues raised concerning his application for registration. Another issue arose from complaints by certain clients about the conduct of the tax agency business, and his failure to lodge his own income tax returns. The AAT affirmed the decision of the Board in finding that Mr Carbery was not a fit and proper person to be registered.
Quick v Tax Agents' Board of Victoria (2000) 45 ATR 1009
Noted that Mr Quick was convicted of offences and sentenced to imprisonment, with a suspended sentence. He had been registered as a tax agent (1970) and had that registration cancelled in 1993 due to bankruptcy. Noted that there were long delays (some nine years), in matters regarding Quick coming to the notice of the Board, and that Senior Member Pascoe posed the question in his decision: "A question which might be asked is how long is long enough before a person can recommence their profession after serving a period of cancellation." The Senior Member, after considering the time elapsed, decided a suspension of registration for 12 months was more appropriate than cancellation.
Dahia v Tax Agents' Board of Victoria (1997) 36 ATR 1124
Noted that Dahia had been convicted of two offences of failing to file his tax returns, and fined. Deputy President McDonald observed "The exercise of a discretion to disqualify a person from being a tax agent is not to be used in punishment of that person" (O'Connor J in Re Houvardas and Tax Agents' Board of New South Wales (1991) 91 ATC 2032 at 2039) "The purpose of the power to disqualify tax agents is to protect the public." The Deputy President found that having regard to the total circumstances of the case, including the fact that there had been no complaints by any client of the applicant, the decision to cancel the applicant's registration instead of suspension was too harsh.
Re Houvardas and Tax Agents' Board of New South Wales (1991) 91 ATC 2032
Noted that Houvardas had a large client base and incurred complaints to the Board regarding late lodgments. He had also been convicted of a number of tax offences, and had also replied (incorrectly) in the negative on an annual notice required by the Board on which he had to disclose whether he had had any convictions in the previous twelve months. In affirming the cancellation of Houvardas' registration, the AAT found that:
"The primary purpose of exercising the discretion to cancel is to protect the public. It is not to punish the tax agent for past wrong doing. Considerations of personal hardship cannot override this primary purpose."
Dr Budai submitted that Quick (supra), was the case most relevant to the Applicant's. She drew my attention to the statement of Senior Member Pascoe made in Quick (supra) which follows: "A question which might be asked is how long is long enough before a person can recommence their profession after serving a period of cancellation." She submitted that Quick had had his registration cancelled through bankruptcy, and had been charged with offences under the Crimes Act 1958 (Vic). He had continued to lodge tax returns without registration, and had not shown remorse. Dr Budai submitted that ultimately, because of the time lapse of nine years, Senior Member Pascoe had seen fit to suspend Quick's registration.
Mr Budai had committed his indiscretion some 14 years previously, Dr Budai submitted. She asked that I take into consideration his attitude and remorse, his financial situation, the fact that he had to support his daughter and his niece, and that he was undertaking pro bono work.
Dr Budai referred to the situation of Mr Budai warning the Venturers that the scheme was illegal in that he photocopied relevant pages of the CCH and told them about possible consequences of an illegal scheme. She drew to my attention that the Respondent had not disagreed with that evidence in the Supreme Court case, and that Mr Tesoriero had agreed in cross-examination that he had been warned.
Dr Budai submitted that the Applicant had informed Mr White and provided him with documents expecting him to deal with the disclosure to the ATO. She submitted he had no reason to disbelieve that Mr White would do so.
Referring to the five questions on the tax return which Mr Budai had not completed, Dr Budai submitted that he had left them blank as a way for the ATO to query the tax return. He had not been prepared to fill in a false certificate she submitted.
Dr Budai submitted that Palmer J had found Mr Budai to be a credible witness. She submitted that the Applicant had not prepared any false income tax returns since the events of 1988/89, and that it was not necessary to protect the public interest by cancelling his registration as they had not been at risk since that time. Dr Budai submitted that the Applicant had been punished already with the decline in income from not being able to practice as a tax advisor; he had been deprived of costs notwithstanding the case against him decided by Palmer J had been dismissed; and he had suffered embarrassment.
respondent's closing submissionsSummarising Mr Peek's submissions, I noted the following points:
Referring to the legislation, Mr Peek submitted that sections 251K(2)(a) and (2)(d) of the Act had been made out;
A review of the Tribunal's cases with regard to the registration of tax agents revealed that there had not been such a large scale fraudulent scheme before the Tribunal on another occasion;
The principles with regard to a "fit and proper person" pursuant to the legislation were canvassed in Su (supra) and Denton (supra);
Referring to Mr Budai's evidence that he warned the Tesorieros about lodging false returns, Mr Peek submitted there could be no excuse for submitting false returns and that this impacted on Mr Budai's integrity;
Referring to the evidence regarding contact with Mr White, Mr Peek submitted that Palmer J did not deal with this, and even if the Tribunal accepted Mr Budai's evidence on that count, his disclosure to Mr White was insufficient to constitute disclosure. Mr Budai did not follow up Mr White or the disclosure and there was no disclosure until that made before Palmer J;
As to not replying to questions to the ATO in the tax return; Mr Peek submitted that Mr Budai nevertheless misled the ATO;
As to the lapse of time; Mr Peek submitted that this strengthened the inference that there may have been other conduct during the period which was not disclosed;
Mr Peek submitted that the character witness evidence should be given little weight as the character witnesses had little knowledge of Mr Budai's business activities;
As to income implications; Mr Peek submitted that Mr Budai was still registered as a public accountant, and could re-apply for registration even if the decision was affirmed.
TRIBUNAL'S ASSESSMENT OF PARTICULAR ASPECTS OF THE MATTER
re warning the venturers
Dr Budai directed me to paragraph eight of the Applicant's Statement of Facts and Contentions (Exhibit A1). It was as follows:
"Mr Budai warned the venturers that what they were contemplating was tax evasion and advised them of the penalties for tax fraud which included imprisonment. He photocopied an extract from the CCH Master Tax Guide setting out the penalties for tax evasion, and highlighted the offences involved in the fraudulent scheme. He advised them not to evade tax."
She informed me that Mr Tesoriero had agreed in cross-examination in the Supreme Court proceedings, that this had occurred (Exhibit A5).
Dr Budai indicated that the Respondent had not rebutted that evidence. I noted from paragraph eight of the Respondent's Statement of Facts and Contentions (Exhibit R2) as follows:
"Agree that the evidence given by the applicant in Supreme Court proceedings supports the factual claims now made. Even allowing that Mr Budai so advised the venture partners he nonetheless constructed the scheme."
Mr Peek submitted in closing that the Respondent accepted Mr Budai's evidence that he had warned the Venturers about the dangers of lodging false returns, but submitted that notwithstanding all the warning, Mr Budai had in fact lodged these. His integrity was therefore at stake.
I accepted the submissions of the Respondent in that regard, noting that notwithstanding his warnings to the clients, Mr Budai concocted the fraudulent scheme whereby tax was evaded. I noted further that notwithstanding his knowledge of tax, and his duties as a registered tax agent, he lodged false tax returns, in breach of section 251K(2)(a) of the Act. I agreed with the Respondent that Mr Budai's integrity was accordingly challenged.
five out of six questions in the tesoriero tax return were not completedDr Budai submitted, referring to Mr Budai's evidence, that he did not complete the tax agent's questions in the 1988 tax return for Mr and Mrs Tesoriero (T7/85) which he submitted to the ATO. She emphasised he had said that he did not fill in the answers to the questions because he did not want to be untruthful, and left it open to the ATO to query it, which they did not do. I was mindful that that was what Mr Budai stated in his letter at T7/82, but that in his oral evidence he stated that he hoped the ATO would overlook it.
Mr Peek submitted that Mr Budai should not have lodged an incomplete return, which I noted Mr Budai had in his evidence agreed was a breach of his duty, and the legislation. Mr Peek submitted that if Mr Budai was not satisfied that the returns were based on correct information, he should have terminated his retainer.
I was mindful that the tax legislation, in particular section 251K(2)(a) of the Act, makes it quite clear that it is mandatory tax returns must be completed in full and correctly, and that any return which has been prepared by or on behalf of a tax agent which is false in any material particular, (unless the agent establishes to the satisfaction of the Board that he had no knowledge of the falsity or that the falsity was due to his inadvertence), may attract suspension or cancellation of the tax agent's registration. The intentional non-completion of the five questions by Mr Budai was a breach of section 251K(2)(a) of the Act.
phillip whiteReferring to paragraph 22 of Exhibit A1, (the Applicant's Statement of Facts and Contentions), Dr Budai submitted that it was the Applicant's evidence that he went to a meeting with Phillip White, solicitor for Mr and Mrs Tesoriero because the latter had expressed concern about the scheme, and had wanted to take action to have matters remedied. Dr Budai said that Mr Budai attended on Mr White and that his evidence was he had supplied detailed schedules to Mr White of the tax avoided by the Tesorieros and Zelino Pty Ltd. She submitted that Mr Budai did this in reliance on the assurance of Mr White that he was assisting the Tesorieros to disclose to the ATO, the false statements which had been made.
Dr Budai submitted the Applicant relied on Mr White's representations and had no reason to disbelieve him. She submitted that Mr Budai knew that Mr White as a solicitor, had a duty to the court, and that he had said that he would not act for the Tesorieros unless the disclosures regarding the false accounts were made.
Dr Budai also submitted that Mr White had agreed with Mr Budai's evidence on this point during the Supreme Court proceedings, and that Palmer J had found Mr Budai to be a witness of truth.
Mr Peek, noting that Palmer J did not deal with the situation of Mr Budai approaching Mr White in 1988, submitted that Mr Budai had not followed up what disclosures he understood Mr White was to make, neither had he himself approached the ATO. This was insufficient to constitute disclosure, Mr Peek submitted.
I noted from paragraph 22 of Exhibit R2, the Respondent's Statement of Facts and Contentions, that:
"The facts as alleged are not disputed however it is noted that the applicant acted in reliance on an assurance given by a solicitor otherwise unknown to him and that that solicitor would declare the illegality involved to the Authorities when the applicant was in the best position to do so in any event."
I accepted Mr Budai's evidence that he relied on Mr White, but was mindful that he should have followed up to ensure that the relevant disclosures were made. I was mindful that Palmer J at paragraph 38 of his judgment, stated with regard to disclosure:
"I bear very much in mind the fact that, on his own evidence, Mr Budai deliberately devised a fraudulent tax evasion scheme for the venturers and made public disclosure of his wrongdoing only when it became necessary by way of defence to Mr and Mrs Tesoriero's claim in these proceedings – a circumstance which must severely reflect on his credit. However, he did not seek to justify his conduct nor to minimise its gravity. When confronted with his own wrongdoing, he gave frank, direct answers."
In that regard I was mindful also of the evidence of Mr Budai, that instead of defending the action brought by the Venturers, he could have paid them out and remained silent. Instead he disclosed his wrongdoing. I accepted that evidence, but was mindful of his Honour's comment that the disclosure came only when it became necessary to do so, and Mr Peek's statement that the ATO, the Board and others were only apprised of Mr Budai's fraudulent activities after the Supreme Court decision was handed down.
financial considerations
Dr Budai submitted on the Applicant's behalf that he worked on a pro bono basis providing accounting services for charitable organisations such as retirement homes, but that it was difficult for him to work without registration as a tax agent. Dr Budai noted that Mr Budai still held public accounting registration, but that clients tended to want to go to one person for all their accounting needs, and accordingly his practice had suffered. She submitted that he accordingly found it hard to manage as he had dependents, in particular given the serious health problems of their daughter and niece, as stated in his evidence. I noted that legal costs were also high, and that Palmer J had awarded only a part of the costs in the Supreme Court action.
Dr Budai submitted that in Quick (supra), Quick had continued to lodge returns after his registration was cancelled, he had earlier been bankrupt and had his registration cancelled, and that Senior Member Pascoe had taken time into account in coming to a decision, and as a result, ordered suspension rather than deregistration.
Mr Peek submitted that financial considerations and charitable works could be noted, and submitted that not the whole of Mr Budai's practice was tax related, and indeed that he was still registered as a public accountant. He submitted that the decision to cancel the registration be affirmed, and that Mr Budai could later reapply for registration. He referred me to the discussion of re-registration in Quick (supra). Mr Peek submitted that little weight should be given to the evidence of the character witnesses.
I was mindful that the Tribunal in affirming the cancellation of the registration in Houvardas (supra) stated that: "The primary purpose of exercising the discretion to cancel is to protect the public. It is not to punish the tax agent for past wrongdoing. Considerations of personal hardship cannot override this primary purpose." (my emphasis).
quick (supra) – "how long is long enough"Dr Budai referred me to Quick (supra) with regard to the time lapse which in Quick's case was several years, whereas in Mr Budai's case was 14 years. Dr Budai submitted that Senior Member Pascoe in that case had seen fit to suspend Quick rather than cancel his registration. Dr Budai submitted that in Stasos v Tax Agents Board (1990) 21 ALD 437, the Applicant was found not to express remorse at what he had perpetrated, and that the Federal Court therefore affirmed the decision of the AAT. This was in contrast to the behaviour of the Applicant in this matter, she submitted.
Dr Budai also submitted that the Applicant could have settled with the Tesorieros and the fraud may thus not have been raised in the Supreme Court before Palmer J, with a lesser financial burden to the Applicant, but that he chose to disclose the fraud to the Court.
Mr Peek submitted that I had to assess Mr Budai's credit. He submitted that the length of time taken for disclosure only strengthened the inference that there may have been other conduct which had not been disclosed. Mr Peek submitted on that basis that Mr Budai "got away with practising for 14 years." He suggested I give little weight to the time lapse argument.
I am mindful that as the legislation states, and many of the authorities have reiterated, and as Deputy President McDonald observed in Dahia (supra) "The exercise of a discretion to disqualify a person from being a tax agent is not to be used in punishment of that person" (O'Connor J in Re Houvardas and Tax Agents' Board of New South Wales (1991) 91 ATC 2032 at 2039 "The purpose of the power to disqualify tax agents is to protect the public." I accepted Mr Budai's evidence that he had not, since the events of 1988/89 submitted any false tax returns, and that he was contrite about what he had done, notwithstanding his feeble attempts at disclosure earlier, and his final and successful disclosure in open Court before Palmer J.
character witnessesAs to the character witnesses; Mr Peek submitted that little weight be given to their evidence as they had little knowledge of Mr Budai's business and his conduct therein.
I was mindful that Dr Budai made no submissions with regard to the character witnesses but in bringing their evidence, no doubt wished that I rely on it.
I was mindful that Mr Lurie knew very little about Mr Budai's business activities and worked with him in regard to the charities. He had not been made aware of the Supreme Court proceedings until recently.
Rabbi Lampert took the view that religious leaders do, which was one of forgiveness, and expressed a view of his experience which had taught him people made mistakes.
Mr Mann told me that he had been to court with Mr Budai, and that he recognised the Applicant should not have supported his clients in the way he endeavoured to do. He admitted he had had no business involvement with Mr Budai.
In my deliberations I have given little weight to the character witnesses who in fact have had no business dealings with the Applicant.
fit and proper personIn support of her argument that Mr Budai was a fit and proper person to be registered as a tax agent, Dr Budai submitted what I have already noted above:
Mr Budai had provided Mr White with full information and schedules of figures expecting him to make the disclosure to the ATO;
He had approached Mr Camilleri of counsel to assist with disclosure to the ATO in 1998;
He had disclosed the fraud in defending his case in the Supreme Court;
He had spoken openly and truthfully, as found by Palmer J;
Dr Budai submitted that as a consequence of his actions, Mr Budai had suffered greatly on a personal level, he had suffered embarrassment, he had suffered financially, he had been deprived of one third of the costs available in the Supreme Court and was awaiting the payment by the Tesorieros in order to pay Mr Camilleri. She submitted that the public did not need protection from Mr Budai. He had offended once only, and that was 14 years ago. He had done nothing illegal since, neither was he likely to do so in the future.
Dr Budai submitted that Palmer J had found Mr Budai to be a witness of truth (PT4/20).
Mr Peek on the other hand, drew my attention to the principles discussed by Davies J in Su (supra) and Denton (supra) in regard to what "fit and proper" embodied.
Mr Peek also submitted that although the Respondent accepted that Mr Budai had warned his clients about the consequences of tax fraud, there was no excuse for then lodging false tax returns. It was a matter of integrity he submitted. Mr Peek also submitted that the omission of replies to five questions asked of the tax agent when submitting a return which occurred in the case of the Tesorieros' tax return was no excuse for misleading the ATO.
Mr Peek submitted that Mr Budai should not have succumbed to whatever pressure it was he perceived his clients were applying, and should have terminated the retainer instead of proceeding with a fraudulent scheme. The length of time taken for disclosure only strengthened the inference that there may have been other conduct which had not been disclosed. Mr Peek submitted on that basis that Mr Budai "got away with practising for 14 years." He suggested I give little weight to the time lapse argument.
I was mindful that as section 251BC(1) states, it is not intended to limit the generality of the meaning of the expression "fit and proper person" but it is indicative of factors that should be taken into account. It is relevant to consider the work that is required of a tax agent and the privileges, obligations and responsibilities that the person has in that role. Among the privileges of a tax agent is the privilege that he or she may hold him or herself out to the general public as a person who is regarded as suitable to prepare income tax returns and to transact business on behalf of taxpayers in relation to tax matters. Another is that he or she may charge for the services he or she gives to the general public in these matters. Those privileges, however, come with responsibilities and obligations. In these times of self assessment, there is even greater reliance on the accuracy of tax returns lodged by tax agents, and the relationship with the ATO has assumed even greater importance. The responsibilities and obligations of tax agents were relevantly summarised by Hill J in Stasos v Tax Agents' Board (1990) 21 ALD 437:
"The conferral of this privilege upon registered tax agents carries with it a consequent set of obligations and responsibilities. A person is required, before being registered as a tax agent to demonstrate that he is a fit and proper person to prepare income tax returns and transact business on behalf of clients in tax matters and, inter alia, that as at the date of application he is of good fame, integrity and character. Accordingly it is necessary that he demonstrate that he has the necessary knowledge and experience to equip himself to perform these tasks (cf Tax Agents' Board (Qld) v Seymour (1990) 90 ATC 4262; Re Crowley and Tax Agents' Board (NSW) (1990) 90 ATC 2005; and Re Culmer and Tax Agents' Board (1990) 90 ATC 2018).
Once registered, however, the tax agent must keep up to date with the massive changes to the income tax law, no easy task in the present time, so that he can properly advise and represent his clients. That is a responsibility which comes with the privileged position in which he is placed. Negligence in the performance of his duties will bring not only the normal consequences in damages in tort, but will render the agent liable to the client statutorily under s 251M of the Act.
In addition to the tax agent dealing with his client, he will, almost invariably have dealings with officers of the Australian Taxation Office and perhaps the boards or tribunals to which I have already referred. Those dealings must be able to be carried on in an atmosphere of mutual trust. The commissioner and his officers must be able to accept that, to the best of the ability of the tax agent, returns have been prepared which are true and accurate. This is particularly so now that the commissioner has proceeded to a system of self -assessment, with inaccuracies only coming to light in case of random audit or, presumably, other information coming to the hands of the commissioner.
The commissioner and his officers must be able, also, to accept the word of a tax agent when acting for a taxpayer in negotiations, and a fortiori in matters proceeding in a Board, the Administrative Appeals Tribunal or indeed a court it is imperative that the honesty and integrity of the tax agent not be called into doubt. So it is that it is a requirement, not only of initial registration, but of remaining on the register that a tax agent be a fit and proper person to perform the duties of a tax agent and bear the responsibilities that come with those duties." (pages 443-444)An oft-quoted description of the term "fit and proper person" in the context of section 251K(2) is that of Davies J sitting as the Tribunal in Re Su and the Tax Agents' Board of South Australia (1982) 82 ATC 4282, where his Honour said (at pages 4286-4287):
"The function of a tax agent is to prepare and lodge income tax returns for other persons. A person is a fit and proper person to handle the affairs of a client if he is a person of good reputation, has a proper knowledge of taxation laws, is able to prepare income tax returns competently and is able to deal competently with any queries which may be raised by officers of the Taxation Department. He should be a person of such competence and integrity that others may entrust their taxation affairs to his care. He should be a person of such reputation and ability that officers of the Taxation Department may proceed upon the footing that the taxation returns lodged by the agent have been prepared by him honestly and competently.
There are certain convictions which, in themselves, may be inconsistent with the holding of a tax agent's registration. If a lawyer is convicted of fraud, his name may be struck from the roll of practitioners, for fraud is inconsistent with the practice of the law. If a doctor is convicted of a serious offence relating to illegal drugs, his name may be struck from the register because the offence is inconsistent with the task which medical practitioners perform. If a tax agent is convicted of an offence of tax evasion, his name may be taken from the register, for tax evasion is inconsistent with the role which tax agents are called upon to perform.
If offences for which a tax agent is convicted are not of that character, they may nevertheless justify the removal of his name from the register if, of themselves, or in combination with other factors, they indicate that the tax agent is not a person of such integrity and competence that client's affairs should be entrusted to him or that he is not of such integrity and competence that officers of the Taxation Department may place reliance upon returns prepared and lodged by him."Turning to the facts of this case, there is no doubt that Mr Budai devised a fraudulent scheme, and he so admitted. I noted his evidence that he was pressurised by the Venturers after they claimed he had given them incorrect information regarding their taxation obligations and succumbed to agreement to devise and implement a fraudulent scheme. I noted as I have above, that he eventually admitted it in open court before Palmer J., after feeble attempts to disclose the matter were made earlier (disclosure to Mr White, and incomplete tax returns lodged).
Mr Budai was found by the Board to have knowingly prepared returns which were false and not to be a "fit and proper person" to remain registered as a tax agent.
I was satisfied that the scheme which Mr Budai had devised, and his actions in lodging false tax returns were breaches of the Act, and that accordingly there was a discretion to cancel his registration which had been exercised by the Board. Further on in these reasons, I have taken into account other factors, and the full circumstances of the case, and set aside that decision.
summary of the applicant's submissionsIn summary Dr Budai submitted that Mr Budai had shown remorse with regard to the tax scheme he had devised but that his actions were:
He had provided Mr White with full information and schedules of figures and had anticipated Mr White making disclosure to the ATO.
He had approached Mr Camilleri of counsel to assist with disclosure to the ATO in 1998;
He had disclosed the fraud in defending his case in the Supreme Court;
He had spoken openly and truthfully, as found by Palmer J.
Dr Budai submitted that as a consequence of his actions, Mr Budai had suffered greatly on a personal level, he had suffered embarrassment, he had suffered financially, he had been deprived of one third of the costs available in the Supreme Court and was awaiting the payment by the Tesorieros in order to pay Mr Camilleri. She submitted that the public did not need protection from Mr Budai. He had offended once only and that was fourteen years ago. He had done nothing illegal since, neither was he likely to do so in the future.
summary of the respondent's submissionsSummarising Mr Peek's submissions, I noted the following points:
Referring to the legislation, Mr Peek submitted that sections 251K(2)(a) and (2)(d) of the Act had been made out;
A review of the Tribunal's cases with regard to the registration of tax agents revealed that there had not been such a large scale fraudulent scheme before the Tribunal on another occasion;
The principles with regard to a "fit and proper person" pursuant to the legislation were canvassed in Su (supra) and Denton (supra);
Referring to Mr Budai's evidence that he warned the Tesorieros about lodging false returns, Mr Peek submitted there could be no excuse for submitting false returns and that this impacted on Mr Budai's integrity;
Referring to the evidence regarding contact with Mr White, Mr Peek submitted that Palmer J did not deal with this, and even if the Tribunal accepted Mr Budai's evidence on that count, his disclosure to Mr White was insufficient to constitute disclosure. Mr Budai did not follow up Mr White or the disclosure and there was no disclosure until that made before Palmer J;
As to not replying to questions to the ATO on a tax return; Mr Budai nevertheless misled the ATO;
As to the lapse of time; Mr Peek submitted that this strengthened the inference that there may have been other conduct during the period which was not disclosed;
The character witness evidence should be given little weight as the people had little knowledge of Mr Budai's business activities;
As to income implications; Mr Budai was still registered as an accountant, and could re-apply for registration even if the decision was affirmed as submitted by the Respondent.
FINDINGS
In coming to a conclusion, I was mindful that the issue in this case was whether the decision to cancel Mr Budai's registration as a tax agent was the correct and preferable one. In considering that, I had to be mindful that the cancellation or suspension of the right or entitlement of a person to practise a particular profession or calling is not to be regarded as a penalty upon that person. Rather, a decision to cancel or suspend such a right or entitlement should only be made if it is necessary to do so in order to protect the public, and for the maintenance of proper standards. Such decisions have been considered in the context of a variety of professions. In relation to a dealers representative under the Corporations Law ("the Law"), the Full Court of the Federal Court said in Australian Securities Commission v Kippe and Another (1996) 67 FCR 499 (von Doussa, Cooper and Tamberlin JJ) in relation to a banning order made under sections 829 and 830 of the Law:
"The immediate and direct legal effect intended by a banning order is not to impose a penalty or punishment on the person concerned, but to be preventive in that it removes a perceived threat to the public interest and to public confidence in the securities and futures industry by removing that person from participation therein." (page 508)
This approach is also consistent with the judgement of the New South Wales Court of Appeal in New South Wales Bar Association v Hamman [1999] NSWCA 404, (Unreported, Mason P, Priestley JA and Davies AJA, 29 October, 1999). The Court there considered disciplinary proceedings against a legal practitioner and said:
"… Disciplinary proceedings against a legal practitioner are concerned with the protection of the public (Wentworth v New South Wales Bar Association (1992) 176 CLR 239). The object is not to punish the practitioner but to protect the public and to maintain proper standards in the legal profession. …" (paragraph 21)
Authorities such as New South Wales Bar Association v Evatt (1968) 117 CLR 177 (Barwick CJ, Kitto, Taylor, Menzies and Owen JJ) and Hardcastle v Commissioner of Police (1984) 53 ALR 593 (Bowen CJ, Gallop and Lockhart JJ) acknowledge that, in achieving the objects of public protection and the maintenance of proper professional standards, an order made in disciplinary proceedings may involve great deprivation for the person who is the subject of that order. Despite that, the object of the order is not to punish or to extract retribution from the person, but rather the protection of the public.
Such considerations are equally applicable to the consideration of whether or not a tax agent's registration should be cancelled or suspended. Mr Budai as a professional enjoys certain rights and privileges and his judgment and advice is relied upon by the members of the public who seek his services (Su (supra), Houvardos (supra) and Stasos (supra)).
The first issue to be considered in the context of section 251K(2) of the Act was whether Mr Budai is a "fit and proper person" to prepare income tax returns and to transact business on behalf of taxpayers in income tax matters. By his own admission he breached section 251K(2)(a) of the Act by submitting false tax returns, and I so find. It is not mandatory pursuant to section 251K(2) that the Board cancel or suspend registration upon finding that a person is not a fit and proper person. In this, section 251K(2)(d) of the Act may be contrasted with section 251K(3C)(a) of the Act which requires the Board to cancel registration where a tax agent becomes an undischarged bankrupt as in the case of Quick (supra).
While section 251K(2) does not elaborate upon what is meant by the expression "fit and proper person", section 251BC does so in the context of the registration of a tax agent. Section 251JA(1)(a) provides that the Board shall register a natural person as a tax agent if that person is "… a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters…".
Section 251BC(1) then goes on to provide what is meant by the expression "a fit and proper person" in so far as it provides:
"(1)Without limiting the generality of an expression used in this Part, but subject to this section, a person is not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters, as at a particular time, if:
(a) the person is not a natural person;
(b) both of the following conditions are satisfied:(i)the person was not registered as a tax agent, or as a nominee, for the purposes of this Part immediately before the commencement of section 39 of the Taxation Laws Amendment Act (No.2) 1988;
(ii)the person does not hold such qualifications (whether academic, by way of experience or otherwise) as are prescribed;
(c) the person has not attained the age of 18 years;
(d) the person is not of good fame, integrity and character;(e)the person has been convicted of a serious taxation offence during the previous 5 years; or
(f)the person is under sentence of imprisonment for a serious taxation offence."
Regulation 156 of the Income Tax Regulations 1936 ("the Regulations") prescribes the qualifications for the purposes of section 251BC(1)(b)(ii) of the Act. Various academic qualifications, together with qualifications by way of experience or otherwise, are prescribed in that regulation. There was no problem in that regard in considering Mr Budai's registration.
As section 251BC(1) states, it is not intended to limit the generality of the meaning of the expression "fit and proper person" but it is indicative of factors that should be taken into account. Also relevant to consider is the work that is required of a tax agent and the privileges, obligations and responsibilities that the person has in that role. Among the privileges of a tax agent is the privilege that he or she may hold him or herself out to the general public as a person who is regarded as suitable to prepare income tax returns and to transact business on behalf of taxpayers in relation to tax matters. Another is that he or she may charge for the services he or she gives to the general public in these matters. Those privileges, however, come with responsibilities and obligations. As already noted above, these were summarised by Hill J in Stasos v Tax Agents' Board (1990) 21 ALD 437:
"The conferral of this privilege upon registered tax agents carries with it a consequent set of obligations and responsibilities. A person is required, before being registered as a tax agent to demonstrate that he is a fit and proper person to prepare income tax returns and transact business on behalf of clients in tax matters and, inter alia, that as at the date of application he is of good fame, integrity and character. Accordingly it is necessary that he demonstrate that he has the necessary knowledge and experience to equip himself to perform these tasks (cf Tax Agents' Board (Qld) v Seymour (1990) 90 ATC 4262; Re Crowley and Tax Agents' Board (NSW) (1990) 90 ATC 2005; and Re Culmer and Tax Agents' Board (1990) 90 ATC 2018).
Once registered, however, the tax agent must keep up to date with the massive changes to the income tax law, no easy task in the present time, so that he can properly advise and represent his clients. That is a responsibility which comes with the privileged position in which he is placed. Negligence in the performance of his duties will bring not only the normal consequences in damages in tort, but will render the agent liable to the client statutorily under s 251M of the Act.
In addition to the tax agent dealing with his client, he will, almost invariably have dealings with officers of the Australian Taxation Office and perhaps the boards or tribunals to which I have already referred. Those dealings must be able to be carried on in an atmosphere of mutual trust. The commissioner and his officers must be able to accept that, to the best of the ability of the tax agent, returns have been prepared which are true and accurate. This is particularly so now that the commissioner has proceeded to a system of self-assessment, with inaccuracies only coming to light in case of random audit or, presumably, other information coming to the hands of the commissioner.
The commissioner and his officers must be able, also, to accept the word of a tax agent when acting for a taxpayer in negotiations, and a fortiori in matters proceeding in a Board, the Administrative Appeals Tribunal or indeed a court it is imperative that the honesty and integrity of the tax agent not be called into doubt. So it is that it is a requirement, not only of initial registration, but of remaining on the register that a tax agent be a fit and proper person to perform the duties of a tax agent and bear the responsibilities that come with those duties." (pages 443-444)An oft-quoted description of the term "fit and proper person" in the context of section 251K(2) is that of Davies J sitting as the Tribunal in Re Su and the Tax Agents' Board of South Australia (1982) 82 ATC 4282, where his Honour said (at pages 4286-4287):
"The function of a tax agent is to prepare and lodge income tax returns for other persons. A person is a fit and proper person to handle the affairs of a client if he is a person of good reputation, has a proper knowledge of taxation laws, is able to prepare income tax returns competently and is able to deal competently with any queries which may be raised by officers of the Taxation Department. He should be a person of such competence and integrity that others may entrust their taxation affairs to his care. He should be a person of such reputation and ability that officers of the Taxation Department may proceed upon the footing that the taxation returns lodged by the agent have been prepared by him honestly and competently.
There are certain convictions which, in themselves, may be inconsistent with the holding of a tax agent's registration. If a lawyer is convicted of fraud, his name may be struck from the roll of practitioners, for fraud is inconsistent with the practice of the law. If a doctor is convicted of a serious offence relating to illegal drugs, his name may be struck from the register because the offence is inconsistent with the task which medical practitioners perform. If a tax agent is convicted of an offence of tax evasion, his name may be taken from the register, for tax evasion is inconsistent with the role which tax agents are called upon to perform.
If offences for which a tax agent is convicted are not of that character, they may nevertheless justify the removal of his name from the register if, of themselves, or in combination with other factors, they indicate that the tax agent is not a person of such integrity and competence that client's affairs should be entrusted to him or that he is not of such integrity and competence that officers of the Taxation Department may place reliance upon returns prepared and lodged by him."Turning to the facts of this case, there is no doubt that Mr Budai devised a fraudulent scheme. I noted his evidence that he was pressurised by the Venturers after they claimed he had given them incorrect information regarding their taxation obligations and succumbed to agreement to devise and implement a fraudulent scheme. I noted as I have above, that he eventually admitted it in open Court before Palmer J, after feeble attempts to disclose the matter were made earlier (disclosure to Mr White, and incomplete tax returns lodged).
Mr Budai was found by the Board to have knowingly prepared returns which were false and not to be a "fit and proper person" to remain registered as a tax agent. Accordingly, on 1 November 2001, his registration was cancelled.
I was mindful that there was no evidence before me indicating that there had been any complaints to the Board with regard to Mr Budai, nor that there had been any other action taken with regard to him. I was mindful that Palmer J had at paragraphs 37 – 39 found Mr Budai's evidence to be reliable. His Honour found as follows:
"… I found that Mr Budai endeavoured to be as accurate and precise as possible in his evidence. He had kept contemporaneous diary notes and memoranda during the history of the project and was able to draw upon them to aid his recollection.
I bear very much in mind that fact that, on his own evidence, Mr Budai deliberately devised a fraudulent tax scheme for the venturers and made public disclosure of his wrongdoing only when it became necessary by way of defence to Mr and Mrs Tesoriero's claim in these proceedings – a circumstances which must severely reflect on his credit. However, he did not seek to justify his conduct nor to minimise its gravity. When confronted with his own wrongdoing he gave frank, direct answers.
I could detect no instance in which Mr Budai's evidence in the proceedings was contradictory or implausible. Allowing for inaccuracies of recollection due to the passage of time, I found Mr Budai's evidence to be essentially reliable."I accepted Mr Budai's evidence and his expressions of remorse regarding what he had done in relation to the fraudulent tax scheme he had devised. I accepted that it was on the balance of probabilities highly unlikely he would offend again. I was mindful that the object of the Act is for the protection of the public, and did not consider they needed further to be protected by any actions of Mr Budai.
Accordingly, I took into account in particular principles for re-registration, as enunciated by Hill J and applied Stasos (supra). I also took into account the considerations of Senior Member Pascoe in Quick (supra), in relation to time elapsed, a much shorter time than in Mr Budai's case. I have accepted the admission of Mr Budai that he devised a fraudulent scheme some 14 years previously, admitted it in open Court, and that he is very remorseful. I accepted also his evidence that he had not done any other illegal acts before or since that time, and have accepted that on the balance of probabilities, he would not reoffend. As the object of the Act is to provide for the protection of the public, I find that Mr Budai's registration should not be cancelled. I find that Mr Budai is a fit and proper person to be registered as a tax agent.
However he did offend in a serious manner and that requires acknowledgment. The maintenance of standards in the profession is of the utmost importance. I find that a suspension of Mr Budai's registration rather than cancellation to be the appropriate in the circumstances of this case.
I have therefore decided to set aside the decision under review, and order that the registration of Mr Budai be suspended pursuant to section 251K(2) of the Act, commencing on the date of cancellation on 1 November 2001, and ceasing on 31 May 2003.
DECISIONThe decision under review being the decision of the Tax Agents Board made on 1 November 2001 is set aside, and in substitution therefor the registration of Mr Ferenc Budai as a tax agent is suspended pursuant to section 251K(2) of the Income Tax Assessment Act 1936 from the date of cancellation on 1 November 2001 and ceasing on 31 May 2003.
I certify that the 111 preceding paragraphs are a true copy of the reasons for the decision herein of Ms G Ettinger, Senior Member
Signed: H Sim .....................................................................................
AssociateDate of Hearing 19 June 2002
Date of Decision 8 November 2002
Applicant's Representative Dr P Budai, (wife of the Applicant)
Solicitor for the Respondent Mr G Peek, AGS
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