Cafferty and Tax Agents' Board of NSW

[2004] AATA 560

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2004] AATA 560

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No N2003/1391

GENERAL ADMINISTRATIVE DIVISION		)
Re		SEAN EDWARD PATRICK CAFFERTY

Applicant

And TAX AGENTS' BOARD OF NSW

Respondent

DECISION

Tribunal Michael Sassella, Senior Member

Date2 June 2004

PlaceSydney

Decision The decision under review is affirmed.

[sgd] M J Sassella

Senior Member

CATCHWORDS

TAX AGENT REGISTRATION – applicant employed by accountant not a registered tax agent – applicant has not engaged in relevant employment as required

Income Tax Assessment Act 1936 ss 251BC(1)(b)(ii), 251JA, 251L, 251N

Income Tax Regulations 1936 regulation 156(1)(a)(ii)(A), (B), (C), (2)

Tax Agents’ Board of Queensland v Seymour (1990 21 FCR 357

Re Underwood v Tax Agents’ Board of Queensland (1993) 93 ATC 2137

REASONS FOR DECISION

2 June 2004 Michael Sassella, Senior Member           

RESULT

Mr Cafferty does not qualify at this time for original registration as a tax agent because he has not engaged in relevant employment on a full time basis for not less than a total of 12 months in the five years preceding the date of his application for registration.  He has not been employed by a registered tax agent.

BACKGROUND

1.      On 2 April 2003 Sean Edward Patrick Cafferty (“the applicant”) applied to the Tax Agents’ Board of NSW (“the respondent”, “TAB”) for registration as a tax agent.  On 31 July 2003 the TAB wrote to Mr Cafferty to inform him that his application was rejected because, on the information before it, the TAB was not satisfied that Mr Cafferty had completed the relevant employment requirements prescribed in regulation 156(2) of the Income Tax Regulations 1936 (“the Regulations”)[1]. Regulation 156(1)(a) of the Regulations requires that an applicant for registration has been engaged in relevant employment on a full time basis for not less than a total of one year in the preceding five years. On 11 September 2003 Mr Cafferty applied to the Administrative Appeals Tribunal (“the tribunal”) for review of the TAB’s decision. An extension of time was granted by the tribunal as Mr Cafferty’s application was received after the last due date.

[1] Section 251JA of the Income Tax Assessment Act 1936 (“the Act”)[2] provides as relevant that a person can achieve original registration as a tax agent and the TAB shall register the person as a tax agent if the person satisfies the TAB that he or she is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters. 

[2] Section 251BC(1) of the Act goes on to state when a person will not be such a fit and proper person. Section 251BC(1)(b)(ii) states that this will be the case where the person does not hold such qualifications (whether academic, by way of experience or otherwise) as are prescribed.

4. Regulation 156(1) of the Regulations prescribes the required qualifications. In short they are certain academic qualifications, which Mr Cafferty has, and a requirement in regulation 156(1)(a)(ii)(A) that he has been engaged in relevant employment on a full time basis for not less than a total of 12 months in the preceding five years. Under regulation 156(2) “relevant employment” means employment by a person or partnership or as a member of a partnership in the course of which there has been substantial involvement in income tax matters including preparation or examination of a broad range of income tax returns, preparation and examination of objections to assessments issued in respect of such returns and provision of advice in relation to income tax returns, assessments or objections.

5.      The substantial issue is whether Mr Cafferty has been in relevant employment in a total of 12 months in the five years preceding the date of application in August 2002.  There are three matters relevant to resolving the issue.  One is that Mr Cafferty has worked for an accountancy firm that is not a registered tax agent and which contains no registered tax agent.  The other is that Mr Cafferty worked in the Australian Taxation Office (“ATO”) from 6 March 1995 until 22 June 2000, service that might suffice for regulation 156.  Regulation 156(1)(a)(ii)(B) and (C) permits the TAB to have regard to employment equivalent to that referred to in regulation 156(1)(a)(ii)(A). 

FINDINGS ON MATERIAL QUESTIONS OF FACT WITH REFERENCE TO THE EVIDENCE AND OTHER MATERIAL IN SUPPORT OF THOSE FINDINGS

6.      Mr Cafferty’s based his claims to have engaged in relevant employment on:

·     His ATO work from 2 April 1998 until 22 June 2000.  However, at the hearing Mr Cafferty explained that he no longer relied on the ATO employment.

·     His work for G Mailath & Associates Pty Ltd (“Mailaths”), public accountants, commencing in March 2002 and continuing.

7.      If either or both of these employments is “relevant employment” under regulation 156 Mr Cafferty will have satisfied the statutory requirements for registration. 

8.      As regards the work at Mailaths Mr Cafferty said he was spending 30 to 43% of his total work time dealing with income tax matters.  This was said by Mr Allatt, for the TAB, to convert to a total of between four and 5½ months of relevant employment for the purposes of regulation 156(2).  Mr Cafferty said that in the five years between 1998 and 2003 he prepared or examined:

·     30 – 40 individual income tax returns in each year; and

·     10 – 20 partnership and trust returns in 1998, 1999 and 2000; and

·     a smaller number of partnership and trust returns in 2001 and 2002.

He also completed superannuation returns and in 1998, 1999 and 2000 he dealt with five to 10 objections. 

9.      Mr Cafferty did not accept Mr Allatt’s 5½ months calculation.  He argued that the period is longer.

10.     Mr Allatt argued that it is an appropriate requirement that the person certifying that an applicant has engaged in relevant employment be a registered tax agent under whose control and supervision the applicant for registration has completed the relevant employment.  Mr Allatt cited the decisions in Tax Agents’ Board of Queensland v Seymour (1990) 21 FCR 357 and Re Underwood v Tax Agents’ Board of Queensland (1993) 93 ATC 2137 as supporting authority. In Seymour Pincus J addressed whether a person seeking registration could fulfil the relevant employment requirement by working for himself preparing tax returns and objections without being registered. Such work is not illegal or unlawful but, under s 251L of the Act, is work for which no payment can be received. Pincus J held that such experience cannot satisfy regulation 156 because it is improbable that working in that way would permit the applicant to accumulate sufficient experience to satisfy regulation 156(1)(a)(ii)(C). He jumped from those propositions to identifying as the appropriate model the aspiring tax agent working as an employee or partner under the supervision of a registered person.

11.     In Underwood Senior Member (now Deputy President) Muller reasoned in paragraph 14 from s 251N of the Act that the work of preparing returns and objections for fees is to be done only by registered tax agents, their partners and employees. The combined effect of the Act and the Regulations is that “for employees to be engaged in ‘relevant employment’, they must be under the type of supervision and control contemplated in Section 251N.”

12.     Mr Cafferty called attention to the full provisions in regulation 156(1)(a)(ii):

Prescribed qualifications for the purposes of subparagraph 251BC (1) (b) (ii) of the Act

156. (1) For the purposes of subparagraph 251BC (1) (b) (ii) of the Act, the following qualifications are prescribed:

(a)       the person:

(i)        shall have completed the academic requirements for the award of a degree, diploma or other qualification from an Australian university, college of advanced education or other tertiary institution of an equivalent standard, and have passed examinations in such subjects, under whatever name, which an appropriate authority of the university, college of advanced education or other tertiary institution certifies to the Board to represent a course of study in accountancy of not less than 3 years' duration and in commercial law of not less than 18 months' duration or shall possess such other qualifications as the Board regards as equivalent to those qualifications;

(ii)       shall have:

(A)      been engaged in relevant employment on a full-time basis for not less than a total of 12 months in the preceding 5 years;

(B)      otherwise been engaged in relevant employment to an extent that the Board regards as equivalent to that referred to in sub-subparagraph (A); or

(C)      been engaged in such other employment and for such time as the Board regards as equivalent to being engaged in relevant employment as referred to in sub-subparagraph (A); and

(iii)      shall have, by written examination, successfully completed a course of study in Australian income tax law acceptable to the Board; (Tribunal’s emphasis)

Mr Cafferty relied on regulation 156(1)(a)(ii)(B) and (C), notably the phrases above in bold, to justify his argument that he has had relevant employment for 12 months in the five years to April 2003.

13.     Referring to regulation 156(2):

(2)       In this regulation relevant employment means employment by a person or a partnership or as a member of a partnership in the course of which there has been substantial involvement in income tax matters including:

(a)       the preparation or examination of a broad range of income tax returns;

(b)       the preparation or examination of objections to assessments issued in respect of such returns; and

(c)       the provision of advice in relation to income tax returns, assessments or objections.

Mr Cafferty submitted that the provision simply states that “relevant employment” must be “employment by a person or a partnership”.  This excludes the self-employed, as was decided in Seymour [10]. Mr Cafferty stated that the TAB has merely said that he has not been employed by a registered tax agent. He argued that the TAB has not said that he fails to meet the criteria in regulation 156(2) requiring “substantial involvement” in preparation or examination of tax returns, preparation or examination of objections to assessments and provision of advice relating to returns and objections.

14.     Mr Cafferty then relied on a lengthy list of tax returns of various types he has been involved with at Mailaths.

15.     Mr Cafferty provided written submissions dated 29 March 2004.  He made the following points:

·     He has worked at Mailaths for 26 months.  Mailaths is a firm of public accountants.  George Mailath has been a public accountant for 26 years.  Mr Cafferty works directly to him.

·     Mr Cafferty had said at the hearing that he spends 30 to 43% of his time dealing directly with tax matters.  In the rest of his time he prepares management reports, business activity statements and financial statements.  “As these tasks evolve into tax returns, then I can claim that I spend 100% of my time in dealing with tax related matters”.  The monthly management reports he prepares at Mailaths include all relevant financial information such as profit and loss accounts and balance sheets.  These are fed into the BAS statements.  At the end of the year these figures are used in preparing tax returns.

·     He keeps up to date in his tax knowledge.

·     He achieved 97% in the Income Tax Preparers course in preparation of tax returns. 

·     While working at Mailaths Mr Cafferty has taught “Tax for Tax Agents” at Wollongong TAFE.  He passed the CPA taxation module in 2003.

·     He prepares the tax returns himself and gives them to Mr Mailath for checking.  He is also supervised by Mr Mailath in an ongoing sense.  At no time does he “take matters into his own hands and send off unchecked work”. 

16.     On 27 May 2004 Mr Allatt replied to these arguments.  His main point was that the list of tax returns provided by Mr Cafferty did not suffice for the purposes of regulation 156(2) to suggest relevant employment.  The particular points made were:

·     The list refers to work done in the 2003 tax year.  It does not cover the year up to when Mr Cafferty applied for registration.  Mr Cafferty said at the hearing that the 2003 list substantially replicated the 2002 list, if such a list were to be exhibited.  Mr Allatt randomly reviewed a number of the client returns on the list.  These showed certain discrepancies. 

·     First, some company returns indicated no tax file number (“TFN”), an odd omission in a tax return, he said. 

·     Several of the companies filed no return in 2002 and one had filed none since 2000. 

·     Some superannuation funds listed had not lodged returns for 2002 and 2003.

·     Some returns appear to have been lodged by the taxpayer leaving uncertain the involvement of the applicant.

·     No returns cite Mr Cafferty as contact in Mailaths.

·     Among the individuals’ returns a number did not lodge in either or both of 2002 and 2003.

·     Mr Allatt said that these findings on a random sampling raise issues concerning Mr Cafferty’s claims to have prepared the returns. 

·     Several authorisations by Mailaths’ clients addressed to the ATO authorising the ATO to deal with Mailaths refer only to Mr Mailath and not to Mr Cafferty.

·     Mr Cafferty has not dealt with objections.

·     Regulation 156(1)(c)(ii)(C) applies where a person works for a large company such as BHP preparing tax returns under tax agent supervision or where a person works at the ATO at Executive level 1 or above. 

·     Mr Mailath’s supervision of Mr Cafferty involves a model whereby Mr Cafferty is largely unsupervised in his day to day work but Mr Mailath clears whatever leaves the office.  Mr Mailath gave evidence to that effect at the hearing. 

·     Mr Cafferty’s management reports appear from samples provided to be high quality but do not relate to “tax matters” in the breadth and depth described in regulation 156(2).  Preparation of BAS statements and the like does not constitute employment experience which assists in determining whether a person is appropriately qualified to be registered as a tax agent as such material can be prepared by a competent book-keeper. 

17.     Mr Allatt submitted that supervision by a registered tax agent is essentially a non-negotiable requirement. 

18.     In oral evidence I learned the following from Mr Cafferty:

·     He has done no fringe benefits tax returns work but all he needs is an opportunity to prepare these.

·     In Mailaths they settle objections informally.  He sees the role of the accountant and the tax agent as having changed under the New Tax System introduced in July 2000.

·     Mr Cafferty works eight hours a day seven days a week. 

·     Mr Cafferty understood that Mr Mailath used to be a registered tax agent in the 1980s.  He thought Mr Mailath gave it up as he had no interest in going through the TAB processes.  He assists clients with tax matters by obtaining authorities from them that he uses with the ATO.  Mr Mailath gave oral evidence that he has never been a registered tax agent.  He had run his practice with nominees who were registered tax agents employed in the office. 

·     Mailaths’ main business involves provision of accounting services and management reports for petrol stations, shops, small businesses and transport.  They have about 60 clients with some clients breaking into two or more entities. 

·     Mr Cafferty would prefer not to have to leave Mailaths’ employment in order to qualify as a tax agent. 

·     Mr Cafferty wants tax agent registration to ease his dealings with the ATO.  Using the client authority system is cumbersome.  He would like to be able to lodge returns electronically.

19. It is perhaps unfortunate that the Regulations do not mandate that an applicant for original registration as a tax agent must have been employed by a registered tax agent for the appropriate period. As the Regulations stand they emphasise the person having to be an employee or a partner who is involved in a range of tax matters. It is little wonder that applicants such as Mr Cafferty consider that they may be able to surmount the informal requirement of employment by a registered tax agent. They do this by pointing to tax returns and tax objections experience of significant breadth and depth as adequate to justify their registration even in the absence of their employment by a tax agent.

20.     I am satisfied that the Underwood decision [10] is soundly based in its reasoning from s 251N of the Act that an employee must be supervised by a registered tax agent in order to have engaged in relevant employment under regulation 156(2). Mr Cafferty’s position at Mailaths, with supervision coming into the picture only at the end of the process, has some similarities to the position of a self-employed accountant such as was discussed in Seymour [10] where the applicant failed to achieve registration.

21.     I also see merit in most of Mr Allatt’s specific arguments in [16] above.  If Mr Cafferty were to be able to mount a solid case under regulation 156(1)(a)(ii)(C) he would need stronger evidence regarding the full range and depth of tax work he had done, and he would need to show some form of acceptable supervision. 

CONCLUSION

22.     I have concluded that Mr Cafferty does not qualify at this time for original registration as a tax agent because he has not engaged in relevant employment on a full time basis for not less than a total of 12 months in the five years preceding the date of his application for registration.

DECISION

23.     The decision under review is affirmed.

I certify that the 23 preceding paragraphs are a true copy of the reasons for the decision herein of Michael Sassella, Senior Member

Signed:         .....................................................................................
  Associate

Date of hearing  23 March 2004
Date of final submission           27 May 2004
Date of decision  2 June 2004
Counsel for the applicant          Self-represented
Counsel for the respondent      Mr M Allatt
Solicitor for the respondent      Australian Government Solicitor