Burnett v Tax Practitioners Board

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[2014] AATA 687 

Division GENERAL ADMINISTRATIVE DIVISION

File Number

2014/0136

Re

Irene Burnett

APPLICANT

And

Tax Practitioners Board

RESPONDENT

DECISION

Tribunal

Deputy President K Bean
Date 19 September 2014
Place Adelaide

The decision under review is affirmed.

......... [Sgd] .............................

Deputy President K Bean

CATCHWORDS

TAXATION AND REVENUE - Tax agents - Whether applicant a fit and proper person to be registered as a tax agent - Decision under review affirmed.

LEGISLATION

Tax Agent Services Act 2009 ss 20-5, 20-15, 30-10

CASES

Re Su and Tax Agents’ Board of South Australia (1982) 61 FLR 1

Stasos v Tax Agents’ Board of New South Wales (1990) 21 ATR 974
Re Carbery & Associates Pty Ltd and Tax Agents’ Board of Queensland [2001] AATA 107

Shi v Migration Agents Registration Authority (2008) 235 CLR 286

SECONDARY MATERIALS

Tax Practitioners Board, Explanatory Paper TPB (EP) 02/2010: Fit and proper person (Tax Practitioners Board, 2010)

REASONS FOR DECISION

Deputy President K Bean

19 September 2014

INTRODUCTION

  1. The applicant, Mrs Burnett, is a chartered accountant and has been a registered tax agent since 1980. However, on 11 December 2013, the Tax Practitioners Board (the Board) decided not to grant her most recent application for renewal of her tax agent registration because it was not satisfied that Mrs Burnett met the statutory requirements for renewal of her registration. In particular, the Board was not satisfied that she was a “fit and proper” person to be registered as a tax agent, as required by s 20-5 of the Tax Agent Services Act 2009 (the TASA).  The Board accordingly also determined that Mrs Burnett’s registration as a tax agent would cease on 6 February 2014.

  2. Mrs Burnett was apparently advised of this decision approximately a month after it was made, by letter dated 8 January 2014. On 13 January 2014, she filed an application for review of that decision by this Tribunal, and an application for a stay of the decision, pursuant to s 41 of the Administrative Appeals Tribunal Act 1975 (the AAT Act). I subsequently granted a stay of the Board’s decision on 4 February 2014, on the condition that Mrs Burnett did not provide tax agent services to any person she had not provided such services to prior to 4 February 2014, and published my reasons for making that order on 24 February 2014.

  3. I will first set out the background to the matter, before outlining the applicable statutory framework, identifying the issues, and addressing those issues by reference to the evidence before me and the submissions of the parties.

    BACKGROUND

  4. On 2 October 2009, officers of the Australian Taxation Office (ATO) visited Mrs Burnett’s practice in order to undertake a review of her files.  As a result of that review, the ATO subsequently directed Mrs Burnett to either provide additional information or make voluntary amendments to two income tax returns (ITRs).  However, she apparently declined to do so, and the two ITRs were referred to audit, resulting in adjustments totalling $80,151.00.[1]

    [1]     Exhibit 1,…

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Details
Case
[2014] AATA 687
Decision Date

CaseChat Overview and Summary

Burnett v Tax Practitioners Board is a case concerning the fitness and propriety of a tax agent, Mrs Burnett, to continue her registration. The Tax Practitioners Board (Board) alleged that Mrs Burnett's conduct breached the Tax Agent Services Act 2009 (TASA) and called her character into question. The primary legal issues were whether Mrs Burnett had failed to comply with the Code of Professional Conduct, and whether her conduct demonstrated that she was not a fit and proper person to be registered as a tax agent.

The court examined the evidence provided by Mrs Burnett, the Australian Taxation Office (ATO), and other witnesses, and found inconsistencies in Mrs Burnett's assertions about changes to ATO policies and her understanding of tax law. The court preferred the evidence of ATO witnesses who testified that there were no significant changes to ATO policies and that Mrs Burnett had a flawed understanding of relevant tax law and ATO requirements.

The court also considered the Board's arguments that Mrs Burnett's conduct called her character into question, including instances where she accessed client records without authorisation and made insulting remarks to ATO officers. The court found that these instances, along with Mrs Burnett's flawed understanding of tax law and ATO requirements, demonstrated that she was not a fit and proper person to be registered as a tax agent.

The court concluded that the Board's decision to refuse Mrs Burnett's application for registration was correct, and dismissed her appeal. The court found that Mrs Burnett had failed to demonstrate that she had the requisite competence and integrity to be a tax agent, and that her conduct called her character into question. The court also found that Mrs Burnett's flawed understanding of tax law and ATO requirements contributed to the results of the audits, and that she had not shown that she had taken steps to address her deficiencies.

In conclusion, the court dismissed Mrs Burnett's appeal and affirmed the Board's decision to refuse her application for registration as a tax agent. The court found that Mrs Burnett's conduct demonstrated that she was not a fit and proper person to be registered, and that she had failed to demonstrate that she had the requisite competence and integrity to be a tax agent. The Board's decision was therefore upheld.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

I will first set out the background to the matter, before outlining the applicable statutory framework, identifying the issues, and addressing those issues by reference to the evidence before me and the submissions of the parties.BACKGROUND On 2 October 2009, officers of the Australian Taxation Office (ATO) visited Mrs Burnett’s practice in order to undertake a review of her files. As a result of that review, the ATO subsequently directed Mrs Burnett to either provide additional information or make voluntary amendments to two income tax returns (ITRs). However, she apparently declined to do so, and the two ITRs were referred to audit, resulting in adjustments totalling $80,151.00.[1][1] Exhibit 1, T7/83. A further review of Mrs Burnett’s practice was carried out by the ATO on 2 March 2011, and audits conducted by the ATO subsequent to that review found that seven ITRs were not “reasonably substantiated”. As a result of the audits, adjustments were made to those seven ITRs, totalling $119,408.00.[2] Penalties were also imposed in one audit as it was considered that the shortfall was a result of “reckless behaviour” and “the errors in the ITRs were considered to be attributable primarily to ‘tax agent error’”.[2] Exhibit 1, T7/84-85. On 30 November 2011, the ATO prepared a referral report relating to Mrs Burnett, based largely on the above information, which it provided to the Board. The Board had also received a complaint dated 7 April 2011 from a person alleging that Mrs Burnett had accessed the records of his clients through the Tax Agent Portal[3] without authorisation on 29 June 2010, 9 September 2010, and 4 April 2011[4] (which will be discussed further below).[3] The Tax Agent Portal is a secure website that is only available to registered tax agents and their employees. It provides online communication with the ATO as well as client account and registration information.[4] Exhibit 1, T6. A further audit of Mrs Burnett’s files was carried out by the ATO in the first half of 2013, relating to 20 clients. Following audit of these files, adjustments were made to the ITRs of all 20 clients (and one further return for the year ended 30 June 2011) totalling $391,466.00. Sixty-two penalties were apparently imposed, with 55 imposed for lack of reasonable care, four imposed for recklessness and three imposed for “intentional disregard”. The ATO considered the errors found were primarily attributable to “tax agent error”. On 15 July 2013, the ATO prepared a further referral report for the purpose of advising the Board of the results of this further audit.[5][5] Exhibit 1, T11. Following receipt of the second ATO referral, the Board wrote to Mrs Burnett, on 1 October 2013, notifying her that it had decided to formally investigate whether her conduct may have breached the TASA.[6][6] Exhibit 1, T12. As a result of the ensuing investigation, on 11 December 2013, the Board ultimately determined that it was satisfied that Mrs Burnett had failed to comply with subs 30-10 (1), (4), (7), (9) and (10) of the Code of Professional Conduct (the Code) in the TASA.

Evidence

Evidence Before The Court

When she was asked about these issues during her oral evidence at the hearing, Mrs Burnett gave similar responses to those outlined in her correspondence to the Board. In particular, she repeatedly indicated that the ATO had significantly changed its policies and/or approach to enforcement in or around 2010. She asserted that the ATO had not previously required her to provide diary entries to substantiate telephone expenses, and that she had not been aware that taxpayers were obliged to keep diaries with respect to their mobile phone expenses. She also asserted that prior to 2010, employee truck drivers had not been required to provide substantiation for incidental expenses. She maintained that at the relevant time, if a bona fide travel allowance was paid and the taxpayer could show time away from home, they could claim for the relevant days and substantiation was not required. She further asserted that from 2010 the ATO changed its policies and/or rulings with respect to the deductions which could be claimed by teachers, and “became aggressive”. She also asserted that in some cases the rulings had remained the same, but the ATO’s interpretation and/or application of them had changed.Other evidence However, this aspect of Mrs Burnett’s evidence was inconsistent with the evidence of Ms Jenny Koudounis and Mr Michael Majoor, both of whom provided detailed witness statements and also gave oral evidence during the hearing. Mr Majoor is currently employed by the ATO as a Senior Technical Leader, and has been qualified to practice as an accountant since 1987. In his statement[35] he referred to the applicable Taxation Rulings and Taxation Determination relating to truck drivers and went on to state:7.Each of the Trucking Determinations differentiated between ‘reasonable travel allowance expense claims’ made by employee truck drivers (covered by Table 6 at [12]) and ‘reasonable travel allowance expense claims’ made by various other taxpayers (covered by Tables 1-5 at [11]).8.Under the Trucking Determinations, employee truck drivers were only permitted to make ‘travel allowance expense claims’ without substantiation for food and drink expenses up to certain specified ‘reasonable amounts’. Other taxpayers could make ‘reasonable’ travel allowance expense claims for certain other expenses such as ‘accommodation’ and ‘incidentals’ in addition to food and drink claims (eg see Table 1 at [11]). However, employee truck drivers were required to provide substantiation for any ‘accommodation’ or ‘incidentals’ expense claims they made.9.This differentiation appears to be based on an assumption that, as seasoned travellers who usually slept in their trucks, employee truck drivers generally did not incur ‘accommodation’ or ‘incidentals’ expenses (eg see TR 95/18 at [172] and TR 2004/6 at [72]). If such expenses were incurred, employee truck drivers were required to substantiate their claims, even before 2010. A rate for truck drivers was first published in Taxation Ruling IT 2601 on 27 December 1990.[36][35] Exhibit 20, Statement of Mr Michael Majoor, dated 23 April 2014.[36] Exhibit 20, p. 2.

Decision

Reasons for decision

Ms Koudounis is currently employed by the ATO as a Tax Agents Compliance Manager, and has worked for the ATO since 1980. As regards nexus and substantiation of work-related expense claims, her evidence was consistent with that of Mr Majoor, and she said in her statement:3.I do not recall there being any significant changes in the ATO’s policies about nexus and substantiation of work related expense claims in or about 2010. In fact, the ATO already required taxpayers to substantiate claimed deductions and establish a nexus between claimed deductions and employment before 2010.[41][41] Exhibit 12, p. 1.Conclusions I have carefully considered the evidence directed to these issues, including the oral and written evidence of Mrs Burnett, Mr Majoor and Ms Koudounis. Having done so, I have ultimately concluded that I accept and prefer the consistent evidence of Mr Majoor and Ms Koudounis as to the relevant rulings, determinations, policies, practices and procedures of the ATO during the relevant period. I therefore also accept that there was no significant change in the applicable rulings, determinations and policies of the ATO in or around 2010. Whilst I accept that Mrs Burnett has or had a genuine belief/perception that such a change occurred, I am not satisfied that that perception was soundly based or accurate. Rather, I am satisfied that that perception arose in part from the fact that prior to and during the relevant period, Mrs Burnett had a flawed understanding of relevant tax law and ATO requirements in the area of WRE deductions, nexus and substantiation, including as they related to truck drivers, teachers and telephone expenses. On the evidence before me, I also consider that this flawed understanding contributed to her profile being different to that of other agents, and ultimately to the results of the 2010 and 2012 audits. Whilst it is not necessary for me to reach a view on this question, I accept it is possible that Mrs Burnett’s perception of the ATO becoming increasingly aggressive toward her was also due, in part, to the fact that, because she was submitting excessively high and unwarranted claims for deductions, from 2009 Mrs Burnett attracted increasing attention and scrutiny from the ATO.[42][42] See Outline of Respondent’s Closing Submissions, dated 12 May 2015 (sic), [7]. I will return to the implications of my findings for Mrs Burnett’s fitness and properness to be a tax agent later in my Reasons.CHARACTER In support of its contention that Mrs Burnett was not a fit and proper person to be registered as a tax agent, the Board relied primarily upon two categories of conduct engaged in by Mrs Burnett, which the Board contended called her character into question. The conduct relied upon by the Board can conveniently be grouped as follows:(a)instances in which Mrs Burnett used the Tax Agent Portal to access records in circumstances where the Board says she was not lawfully authorised to do so; and(b)instances where the Board says Mrs Burnett failed to deal with Ms Koudounis and another ATO employee, Ms Sarvos, in an appropriate manner, failed to cooperate with them, and made remarks to them which could fairly be described as insulting and/or harassing.

Ratio Decidendi

Legal Principle Established

Section 20-25 of the TASA also provides:Registration Grant of application for registration (1)If you have applied to the Board for a type of registration, the Board must grant your application if you are eligible for registration of that type. Otherwise, the Board must reject your application. Authorities The meaning of the term “fit and proper person” in this context has been considered in a number of authorities.[10] [10] In the context of ss 251JA(1) and 251JC(1) of the Income Tax Assessment Act 1936 (repealed). However, the authorities are equally applicable to the terms of the TASA: Kolya v Tax Practitioners Board [2012] FCA 215 at [31]-[32]. In Re Su and Tax Agents’ Board of South Australia,[11] Davies J said: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.[12][11] (1982) 61 FLR 1.[12] At pp. 4-5. In Stasos v Tax Agents’ Board of New South Wales,[13] Hill J agreed with Davies J’s comments “subject to the qualification that his Honour stated too narrowly the functions of a tax agent by limiting these to the preparation of returns”.[14] His Honour also said:Once registered ... 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. ...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 ... Boards or Tribunals ... . 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....... a person who has been shown to be other than a fit and proper person to be registered must satisfy the Tribunal considering his re-registration or cancellation of his registration as the case may be, that he appreciates the significance of his wrongdoing, that he regrets it and that he has rehabilitated himself such that it is truly unlikely that there will be any lapse in the future of the standards which are required of him. The more serious his dereliction from duty the longer may be the time necessary to show this. It will not be sufficient for him to merely express his contrition. The Tribunal must be satisfied on the balance of probabilities that not only is that contrition actually felt, but that he will not again deviate from the high standards required of him as a registered tax agent.[15][13] (1990) 21 ATR 974.[14] At [985].[15] At pp.984-985.