Carter and Tax Practitioners Board (Taxation)
[2017] AATA 528
•21 April 2017
Carter and Tax Practitioners Board (Taxation) [2017] AATA 528 (21 April 2017)
Division:TAXATION & COMMERCIAL DIVISION
File Number(s): 2016/5540
Re:Ashley Carter
APPLICANT
AndTax Practitioners Board
RESPONDENT
DECISION
Tribunal:Deputy President Gary Humphries
Date:21 April 2017
Place:Canberra
The Tribunal affirms the reviewable decision of the Tax Practitioners Board dated 13 September 2016.
…………………[sgd]…………………………
Deputy President Gary Humphries
Catchwords
TAX AGENTS – Code of Professional Conduct – registration of applicant’s company as tax agent terminated – registration of applicant as tax agent terminated – applicant banned from reapplying as tax agent for one year - applicant fails to meet ‘fit and proper person’ requirements under relevant Act – multiple breaches of Code – conflict of interest – where large unsecured loans made to applicant by client – renting property from client not a conflict – lack of competency – tax return of clients made to personal account – failure to forward tax return monies to client - honesty and integrity – late stage contrition insufficient for substituted decision in favour of applicant – decision of Tax Practitioners Board to terminate and ban affirmed.
Legislation
Tax Agent Services Act 2009
Cases
Delis v Tax Practitioners Board [2016] FCA 570
Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 60
Kishore and Tax Practitioners Board [2016] AATA 764
Li and Tax Practitioners Board (2014) 141 ALD 201
Stasos v Tax Agents’ Board (1990) 21 ALD 437Su v Tax Agents Board of South Australia (1982) 13 ATR 192
Secondary Materials
Explanatory Paper TPB (EP) 01/2010 Code of Professional Conduct
Explanatory Paper TPB (EP) 02/2010 Fit and Proper Person
REASONS FOR DECISION
Deputy President Gary Humphries
21 April 2017
INTRODUCTION
Mr Ashley Carter, the applicant, is a tax agent operating during the period relevant to these proceedings, from Bowral in New South Wales. He described himself to the Tribunal as a fairly experienced tax agent who was first registered to practise in 2005 through his company, ACA Partners Pty Ltd (the Company). Mr Carter was at all relevant times the sole director of, and supervising agent for, the Company. He had qualified as an accountant a year or two before registration as a tax agent.
Between 2013 and 2015 Mr Carter provided various services to, and entered into contracts with, Mr William Emery, Ms Muelle-Lee Reyes, Mr Anthony Van Der Weiden and Mrs Shakira Van Der Weiden. As a result of those dealings – described in more detail below – complaints were made to the Tax Practitioners Board (the Board) between January and May 2015.
On 14 April 2016 the Company’s registration under the Tax Agent Services Act 2009 (TASA) was terminated by the Board and an investigation into Mr Carter’s conduct launched. On 13 September 2016 the Board issued a notice of termination to Mr Carter, advising that it had decided to terminate his registration as a tax agent under s 40-5(1)(b) of TASA on the basis that he had ceased to meet the tax practitioner registration requirement that you are a ‘fit and proper person’. The Board further decided, in accordance with subsection 40-25(1) of TASA, that Mr Carter was unable to apply for registration again under TASA for one year from the date the termination took effect, that is from 18 October 2016.
On 18 October 2016 Mr Carter applied to the Tribunal for merits review of the Board’s decision of 13 September 2016. The Tribunal (differently constituted) granted a stay of the Board’s decision on 29 November 2016, pending the outcome of the substantive application.
THE CONDUCT COMPLAINED OF
Loans from Mr Emery
In 2012 Mr Carter met Mr William Emery. Mr Emery soon became not only a major client of the Company, but also a personal friend of Mr Carter’s. On 20 February 2013 Mr Emery gave Mr Carter access to a Bank of Queensland account from which Mr Emery conducted his day-to-day banking. On 25 February 2013 Mr Carter transferred $100,000 from the account to an account Mr Carter operated in his and his wife’s name, and on 12 December 2013 he transferred a further $340,000 from the Bank of Queensland account to another account in joint names with his wife. At another point $20,000 was transferred from another account of Mr Emery’s to one operated by Mr Carter. All transfers represented loans to Mr Carter made, apparently, with the approval of Mr Emery. At no stage was an executed agreement made in writing between Mr Carter and Mr Emery setting out the terms of the loans, and the loans were not secured against any asset.
Using his authority to operate Mr Emery’s account, Mr Carter also transferred over $20,000 to Mr Carter’s son Caleb. Mr Carter’s evidence was that this was for painting work on Mr Emery’s home.
The Board asserted that Mr Carter had failed to encourage Mr Emery to seek independent advice on the loans. Mr Carter strongly denied this, saying that he had advised Mr Emery to seek such advice but Mr Emery, having recently been alarmed by steep legal bills, had told him he did not wish to consult his lawyers.
The Board characterised the arrangements around the loans as a comprehensive failure by Mr Carter to ensure the interests of his client were protected by… putting in place procedures or documentation to manage a genuine conflict of interest. Mr Carter said that he had contacted the National Tax and Accountants' Association by telephone, who he says advised him that there was no legal impediment to the arrangements with Mr Emery.
Lease of Mr Emery’s premises
In October 2013 Mr Carter entered into an agreement whereby he began using an area of Mr Emery’s home in Bowral as an office for his business. He rented two rooms and shared use of a storeroom for this purpose. There was, initially, no written agreement reflecting this arrangement.
Rent under this arrangement was paid into an account in Mr Carter’s name. Mr Carter characterised the arrangement in this way:
To avoid any concerns with council, rent was paid to Mr Emery in a way that would avoid any potential issues in regard approval as his property was not officially approved for use as a commercial site,. Mr Emery was below the tax threshold as regards income so there was no detriment to the ATO. Mr Emery had ceased to need to lodge annual tax returns and his ATO account had been marked as such. I had acted to avoid Mr Emery incurring unnecessary costs associated with lodging a tax return when not needed. [sic]
The Board submitted that the rental arrangement was designed to avoid tax obligations on the part of Mr Emery.
Unauthorised receipt of clients’ tax refunds
In July and August 2014 the Company lodged tax returns on behalf of Ms Reyes and Mr and Mrs Van Der Weiden, all directing that any refunds be deposited into the Company’s bank account. There was no authority for the refunds to be so directed.
The Board characterised this as a lack of competency on Mr Carter’s part. Mr Carter conceded that he had not obtained the signed authority of his clients to receive their refunds into his bank account, but argued in relation to this that:
(a)Ms Reyes is the daughter of Mr Emery’s de facto spouse, and that her complaint about Mr Carter’s conduct should be seen in light of the dispute then going on between Mr Carter and Mr Emery. He alleged that Ms Reyes could be biased in her comments;
(b)Mr and Mrs Van Der Weiden don’t seem to have any concerns and they continue to be clients of ours to this day; and
(c)the breaches of the Act were not intentional, resulted in new procedures being put in place by him to avoid the possibility of them happening again and were not serious enough to warrant the suspension of his right to practice as a tax agent. The actions of the Board, he contended, were not at a commensurate level to the level of the alleged breach.
The Tribunal’s attention was also drawn to text messages passing between Ms Reyes and Mr Carter following the lodgement of her tax return. The Tribunal was told that Ms Reyes’ tax refund of $7,669.18 was received by the Company on 28 July 2014. Between October 2014 and January 2015 Ms Reyes sent Mr Carter nine text messages seeking to have her tax refund paid to her. Apart from two texts promising to get back to her, Mr Carter provided no communication to her about her refund until 9 January 2015, despite a clearly distressed tone in some of Ms Reyes’ messages.
Mr Carter told the Tribunal that at about this time he had sold part of his business to Mr Mahesh Naganathan, and he no longer had responsibility for Ms Reyes’ account, despite continuing to be the supervising agent for the business and being responsible for lodging all of the tax returns handled by the business. He conceded that he had not communicated that, however, to Ms Reyes. He was not aware, initially, that the tax refund had been received into his account. He also explained that he had been on holiday from the end of November 2014 until early January 2015, and his business phone had been switched off during that time.
Mr Carter told the Tribunal that his business had earlier formed a relationship with a Queensland firm called EasyTrust, which processed the payment of tax refunds directly to clients. However the firm had collapsed, owing large amounts of money to clients. Mr Carter said he felt this collapse imposed an obligation on his firm to offset the losses. He admitted that the financial impact of this was contributing to the late forwarding of refunds to clients, including Ms Reyes.
Refusal to forward client files
In early 2015 Mr Carter and Mr Emery had a falling out. Mr Emery appointed new accountants, and on 31 March 2015 those accountants contacted Mr Carter by letter seeking the provision of documents he held on Mr Emery’s behalf. Mr Carter failed to provide any documents, saying later to the Tribunal that there were no relevant documents to be sent.
The Board characterised this is a failure to deliver fundamental income tax services to clients, and demonstrates a lack of competency.
Threatening text messages
By letter dated 27 May 2015 Mr Emery’s lawyers lodged a complaint with the Board about Mr Carter’s conduct. On 26 June 2015 Mr Carter sent two text messages to Mr Emery relating to the complaint. In the first, Mr Carter wrote:
Due to the actions of your solicitor i will no longer able to generate income from my accounting practice. Therefore until he withdraws his complaint and i regain a clear standing with the Tax Practitioners Board i will not be making cash payments into your account for interest on the loans. I will be applying an equivalent credit against moneys you owe to me for unpaid shed rent and accounting fees…[sic]
In the second email Mr Carter wrote, inter alia:
If Mr Moloney [Mr Emery’s solicitor] withdraws his complaint and i can return to trading again i will reinstate the weekly payment.[sic]
In responding to the Board’s investigation, Mr Carter described these texts as simply a business decision and not any business of the TPB. The Board, in turn, characterised this behaviour as demonstrating a lack of integrity which do not meet the standard required for tax agents.
THE RELEVANT LEGISLATION
The reviewable decision of 13 September 2016 was made by the Board Conduct Committee as a delegate of the Board, pursuant to s 70-30 of TASA. Based on the findings of an investigation undertaken by a case officer, the Committee concluded that Mr Carter was not a fit and proper person within the meaning of TASA. It found, in particular, that he had breached subsections (1), (5), (7) and (11) of the Code of Professional Conduct (the Code) contained in s 30-10 of TASA. As such, he no longer met the requirements for registration as a tax agent under s 20-5(1)(a). The Committee also determined under s 40-25(1) that Mr Carter may not apply again for registration under TASA for one year from the date the termination of his registration took effect, being 18 October 2016.
In considering the test of a fit and proper person as applied under TASA, the Tribunal is entitled to have regard to two documents produced by the Board: Explanatory Paper TPB (EP) 01/2010 Code of Professional Conduct (Code Paper) and Explanatory Paper TPB (EP) 02/2010 Fit and Proper Person (FPP Paper): Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 60. It was submitted – and the Tribunal accepts – that a breach of the Code, as adumbrated in the Code Paper, may be prima facie evidence that a person is not a fit and proper person under TASA: Li and Tax Practitioners Board (2014) 141 ALD 201 at [47].
The provisions of the Code (in s 30-10) which the Tribunal was told Mr Carter had breached, and the conduct which was said to constitute the breach, are as follows:
(1) You must act honestly and with integrity.
oThe taking of loans from Mr Emery without security or written documentation and without encouraging Mr Emery to seek independent advice about this.
oThe sending of text messages to Mr Emery threatening to cease making cash repayments under that loan agreement.[1]
[1] Although this ground was advanced to the Tribunal at the hearing, it did not appear to form a basis for the Board’s original decision: see reviewable decision at [12]. However this conduct, to the extent that it is relevant to the Tribunal's consideration, can be considered even though it was not before the original decision maker: Shi v Migration Agents Reg Authority (2008) 235 CLR 286 at [99].
(5) You must have in place adequate arrangements for the management of conflicts of interest that may arise in relation to the activities that you undertake in the capacity of a registered tax agent…
oThe taking of loans from Mr Emery without security or written documentation and without encouraging Mr Emery to seek independent advice about this.
oEntry into an undocumented lease of Mr Emery’s house to operate as business premises, and failing to encourage Mr Emery to seek independent advice about this.
(7) You must ensure that a tax agent service that you provide, or that is provided on your behalf, is provided competently.
oThe receipt into his own bank account of tax refunds from Ms Reyes and Mr and Mrs Van Der Weiden without authority.
oFailure to deal professionally with requests from Ms Reyes for access to her tax refund proceeds.
oFailure to forward requested documents to Mr Emery’s new accountant.
(11) You must not knowingly obstruct the proper administration of the taxation laws.
oArranging the payment into his own account of rent payable to Mr Emery so as to avoid Mr Emery’s taxable income being disclosed.
An overview of the scheme of TASA is warranted. Section 2-5 sets out the object of the Act, which is to ensure that tax agent services are provided to the public in accordance with appropriate standards of professional and ethical conduct. The section goes on to indicate that this object is achieved, inter alia, by providing sanctions to discipline registered tax agents.
Section 20-5 provides:
1An individual, aged 18 years or more, is eligible for registration as a registered tax agent or BAS agent if the Board is satisfied that:
(a)the individual is a fit and proper person; and
(b)...
Assistance in determining whether an individual is a fit and proper person is offered by s 20-15:
In deciding whether it is satisfied that an individual is a fit and proper person, the Board must have regard to:
(a)whether the individual is of good fame, integrity and character; and
(b)…
The power exercised by the Board to terminate Mr Carter’s registration is contained in s 40-5:
1If you are a registered tax agent or BAS agent and an individual, the Board may terminate your registration if:
(a)…
(b)you cease to meet one of the tax practitioner registration requirements;
(c)…
The power to determine a period during which Mr Carter is unable to reapply for registration is contained in s 40-25:
1If the Board terminates your registration, the Board may also determine a period, of not more than 5 years, during which you may not apply for registration.
CONSIDERATION
An often-quoted summary of the indicia of a fit and proper person is found in Su v Tax Agents Board of South Australia (1982) 13 ATR 192 where Davies J observed (at 195):
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.
After hearing the evidence, the Tribunal is satisfied that some of the matters which were put to it and which go to the question of whether Mr Carter is a fit and proper person under the Act are made out, but that others are not. I will deal with the latter first.
Lease of Mr Emery’s premises
Mr Carter told the Tribunal that, notwithstanding the lack initially of a written lease agreement, the amount of rent – $300 per week – reflected market rates (the property having been valued by a real estate agent for that purpose). He also told the Tribunal that, by keeping the arrangement informal, problems with local council zoning were avoided. He further said that the inclusion of the rent in Mr Emery’s declared income would not have altered the fact that his income was below the taxable threshold.
The Tribunal was troubled by the lack of transparency in this arrangement for the payment of rent, but notes that the Board was unable to provide evidence of any legal obligations that were avoided – or were likely in the future to be avoided – by dint of the arrangement. The Board submitted that the arrangement had the potential to deprive the ATO of information about Mr Emery’s income, and that therefore this was not a decision that Mr Carter ought to make. The Tribunal doubts, however, that such conduct – apparently in accordance with his client’s wishes – can be equated with knowingly obstructing the operation of tax laws. Accordingly the Tribunal is not satisfied on the balance of probabilities that the arrangement was entered into to allow Mr Emery to avoid his liability to pay tax (or, for that matter, to avoid local government land use policies). As such, it is not satisfied that Mr Carter’s role in the arrangement constitutes a breach of his obligation under the Code to not knowingly obstruct the proper administration of the taxation laws.
Refusal to forward client files
Mr Carter concedes he did not forward any documents to Mr Emery’s new accountants, when requested in March 2015. He told the Tribunal he contacted the new accountants, told them Mr Emery was not required to lodge tax returns due to the level of his income and that Mr Emery had all of his own current documents relevant to his tax affairs. He said that it has been his practice to hand the documents directly to Mr Emery given that Mr Carter’s office was in Mr Emery’s home. The only documents Mr Carter retained were two or three years old as at the time of the accountants’ request. Mr Carter told the Tribunal that he interpreted the accountants’ request as a request for currently-relevant documents, not historical documents.
The Board presented no evidence to suggest that any relevant documents had been withheld by Mr Carter. In the circumstances, the Tribunal is not satisfied that the failure to supply documents pursuant to this request evidences a lack of competence on Mr Carter’s part.
Loans from Mr Emery
Mr Carter explained to the Tribunal that the arrangement entered into whereby he had access to Mr Emery’s bank account, and withdrew loans from it, was both legal and in accordance – at least for the first two years of the arrangement – with the wishes of Mr Emery himself. He explained that Mr Emery’s bank, the Bank of Queensland, had expressed concern about his financial affairs due to the fact that, according to Mr Carter, Mr Emery was unable to meet his tax obligations due to his inability to refuse his de facto spouse funds which she in turn was sending to family members in the Philippines. The bank had apparently issued an ultimatum requiring Mr Emery to either sell his assets or to transfer effective control of his finances to a third party. The relationship of trust between Mr Emery and Mr Carter was, at that time, such as to allow Mr Emery to appoint Mr Carter as that third-party.
The loans served two purposes of Mr Emery’s, Mr Carter told the Tribunal: Mr Carter paid a higher rate of interest than was available from the banks, and it kept the money out of his partner’s hands.
Mr Carter told the Tribunal he had prepared a loan agreement and given it to Mr Emery, but the latter had never signed it. He had prepared the agreement because Mr Emery wanted to avoid the cost of having his solicitors do so. Notwithstanding that the agreement was never executed, Mr Carter insisted that Mr Emery lived by the agreement for nearly 2 years.
Mr Carter emphasised that the law did not require a loan agreement to be reduced to writing, nor that it be secured against an asset or income stream. Mr Emery, he said, accepted those arrangements, and resisted the idea – put to him by Mr Carter – that he needed to obtain independent advice, whether legal or financial, regarding the loans. Mr Carter also contended that the loan was a personal arrangement, not one entered into in connection with the provision of tax agent services. He said we weren’t required to provide a conflict resolution arrangement for a personal loan between Mr Emery and myself.
No evidence – other than hearsay – was advanced in the hearing to substantiate the Board’s claim that Mr Carter failed to encourage his client to seek independent advice on the loans. The Tribunal accepts the evidence of Mr Carter that he did so encourage Mr Emery, and finds the reasons Mr Carter postulates as to why Mr Emery did not follow that advice quite plausible.
Nonetheless, the totality of the arrangements surrounding the loans does Mr Carter little credit. Addressing conflicts of interest necessitates avoiding not merely the actuality of competition between the interests of the principal and the interests of his client, but also avoiding the appearance of such competition. Mr Carter here had access to hundreds of thousands of dollars in his client’s bank account, and drew down hundreds of thousands of dollars for his personal use. The fact that this was done generally with Mr Emery’s approval does not obviate the fact that to a casual observer the arrangement could appear to be highly improper, and an abuse of Mr Carter’s position.
Clearly, an obligation fell on Mr Carter’s shoulders here to address and manage the appearance of a substantial conflict of interest in his dealings with his client, to negate any impression that he might have been taking advantage of his client. That impression would doubtless have been underscored in the eyes of the casual observer by the following:
(a)both Mr Carter’s friendship and professional relationship with Mr Emery had begun not long before the first loan was made;
(b)Mr Emery was about 80 years of age at that time;
(c)At one or more points when Mr Carter withdrew money from his account, Mr Emery was in some financial difficulty;
(d)Mr Emery had recently defaulted on obligations to pay Federal and state taxes;
(e)Mr Emery’s bank had recently insisted that a third party supervise his financial affairs because of deficiencies in his own ability to manage those affairs.
Such factors might suggest to the casual observer that Mr Emery was a person vulnerable to exploitation. Whether Mr Emery was in fact vulnerable or not is, however, immaterial; in dealing with him, Mr Carter ought to have had regard to his professional obligations – set out in the Code – to manage the appearance that he might have been vulnerable, and by addressing the abundant dangers presented when mixing his own interests with those of Mr Emery.
Quite evidently, Mr Carter failed to do this. Faced with this conflict of interest, Mr Carter could have insisted that Mr Emery sign a loan agreement, in default of which the loans would not proceed. He could have taken steps to record in writing the counsel which he says he gave only orally, namely that Mr Emery should obtain independent advice. He could have arranged independent witnesses to these verbal understandings. However, he did none of these things.
The suggestion that these were merely personal loans, giving rise to no conflict of interest, must be rejected. Mr Carter’s own evidence is that the loans served both his own interests and the interests Mr Emery had brought to him, in his capacity as a tax agent, to help manage.
The Tribunal finds that this conduct is manifestly a breach of Mr Carter’s obligations under s 30-10(5) to manage conflicts of interest. Indeed, Conflict of Interest was writ large in this scenario, but from the time of the first loan in 2013 until the Tribunal hearing in 2017 Mr Carter consistently refused to acknowledge this fact. Up until late in the hearing he steadfastly maintained that the legality of the loans was a complete answer to the ethical issues they raised.
Unauthorised receipt of clients’ tax refunds
Mr Carter conceded that he had received the three clients’ tax refunds into his bank account without their authority. Breaches of an obligation under the Code – to provide tax agent services competently – are thus clearly established, and such breaches do weigh in the question of whether Mr Carter is a fit and proper person to hold tax agent registration. However, the Tribunal hesitates to place great store on these breaches; it speculates that many a tax agent over time would have overlooked a client’s missing signature on a particular box on a tax return, and some latitude should be allowed for occasional omissions of this kind.
Of more concern to the Tribunal is the treatment of Ms Reyes’ repeated requests for Mr Carter to account for the proceeds of her tax refund. Mr Carter held a substantial amount of money belonging to her, and failed to account for it, despite many promptings, for a period of nearly six months. Notwithstanding the partial sale of the business at about this time, Mr Carter remained the supervising agent for the firm but paid scant regard to his obligation to assuage Ms Reyes’ mounting concerns. He told the Tribunal that he did not respond to Ms Reyes in part because he was not responsible for her account (it was a waste of my time), but admitted that on two occasions he had texted her promising to look into the matter. Neither alleged bias on Ms Reyes’ part in making her complaint nor Mr Carter being absent on holiday while the refund remained unpaid detract from the observation that his treatment of this client did not paint him as a person of such competence and integrity that others may entrust their taxation affairs to his care: per Davies J in Su at 195. In the Tribunal’s opinion, this episode is at least as persuasive in demonstrating a lack of competence as the failure to obtain his clients’ authority to receive their tax refunds.
The Tribunal also notes the provisions of paragraph 97 of the FPP Paper, which provides:
Specific examples of failure to properly maintain client relationships that may in the circumstances reflect adversely on fitness and propriety for registration include, but are not limited to:
· failure to prepare or lodge client returns in a timely fashion
· failure to respond to client telephone calls and correspondence
· failure to otherwise make oneself available to attend to client matters or to notify of any change to contact details
· failure to pass on correspondence from the Commissioner to clients
· provision of misleading information to clients in relation to the filing of returns with the Commissioner
· imposition of blame on clients or staff for delays caused by the agent in filling returns
· provision of money to clients to influence them against complaining to any official body.
Mr Carter appears to have offended against several of these provisions.
Threatening text messages
Mr Carter did not dispute that the texts in question dated 26 June 2015 were sent by him to Mr Emery. Early in the hearing he asserted that the Board case officer, Ms Davies, had not presented the full content of the texts to the Board Conduct Committee, but later withdrew that assertion.
In his written submissions and in initial oral submissions to the Tribunal Mr Carter defended the probity of the texts. He contended that the texts were advice to Mr Emery that in the circumstances of the complaint to the Board he would be directing any payments due to Mr Emery towards offsetting Mr Carter’s unpaid invoices for tax services and toward unpaid rent Mr Emery owed for use of Mr Carter’s wife’s shed, rather than toward interest on his loans to Mr Carter. He submitted that this was simply a business decision that any reasonable person would make. Under cross-examination he conceded that the texts were probably intimidating, but they were a consequence of his solicitor’s action.
As is the case with the loans, Mr Carter here failed to appreciate the essence of the complaint against him. Mr Carter may well have been legally within his rights to cease or defer paying Mr Emery interest on the loans (though, in the absence of any executed loan agreement, it is hard to be certain about this). What he ought not to have done – consistently with his obligation to act with integrity under the Code – was to threaten to do so unless the complaints lodged on Mr Emery’s behalf with the Board were withdrawn. Issuing any kind of threat against a person who has lodged a complaint of professional misconduct cannot be viewed as consistent with the behaviour of a fit and proper person as articulated by Davies J in Su. Issuing a threat to a person in an attempt to force them to withdraw a complaint may also constitute the knowing obstruction of the proper administration of the taxation laws, which would in turn also breach 30-10(11) of TASA.
Summary
The Code requires Mr Carter to have in place adequate arrangements for the management of conflicts of interest that may arise in relation to his activities as a registered tax agent. In this case, not only did Mr Carter not have adequate arrangements in place to manage the particular conflict of interest his relationship with Mr Emery generated, he appears not to have appreciated that a conflict of interest even existed, either at the time the dealings in question occurred or subsequently. During cross-examination it was put to him that his dual relationship with Mr Emery – that of tax adviser and of friend – put him in a difficult ethical position. He denied this. In relation to entering into a lease arrangement with Mr Emery for the use of his home, Mr Carter said he saw no reason for Mr Emery to obtain independent legal advice, nor did he encourage him to do so. When asked if making payments to his son of over $20,000 from Mr Emery’s account for painting work might be thought to give rise to a potential conflict of interest, Mr Carter replied Not at all… The fact that he was related to me or not, it makes no difference whatsoever. The reality is otherwise: more patent and egregious examples of the appearance of a conflict of interest are hard to conceive of.
In fairness to Mr Carter, it should be noted that this position changed late in the hearing. During the parties’ summing up, Mr Carter conceded:
[The loan agreement] should have been in writing, there should have been something bit more definite about the legal advice… that would have taken all the heat out of this… Stupidity on my behalf, and I stick my hand up and call myself stupid in that regard. I fully accept that.
When asked what he thought the Tribunal should make of this 11th hour admission, Mr Carter claimed to have made a similar concession during the stay proceedings in Melbourne the previous November. He then told the Tribunal:
Today has been an opportunity to sort of reflect on the whole thing… we’ve regurgitated a lot of information we have, and in some ways that’s been beneficial for me to stop and think about it a bit…
He then told the Tribunal that he now saw how the standards applying in TASA could apply to a private contract with a client (I can see that connection now a lot better than I did this morning). He also agreed that the day’s proceedings had made him reconsider the mental separation he had made between his conduct and the conduct of the Company.
Similarly, during examination in chief and in cross-examination Mr Carter strongly defended his actions in relation to his dealings with Ms Reyes, but under later questioning from the Tribunal conceded That was a failure on my behalf… I should have responded better than I did. And again, when put to him late in the hearing that the texts of 26 June 2015 could be viewed as threatening, and a breach of his Code obligations to behave with integrity, he replied I accept that.
The Tribunal has found that some of the matters going to the question of Mr Carter’s fitness and propriety to be registered as a tax agent are made out, but others are not. Some of the matters found by the Board in its reviewable decision to be a basis for cancelling his registration have not been substantiated, though it should be noted that one matter – the threatening texts of 26 June 2015 – was not relied upon by the Board but has been made out to the satisfaction of the Tribunal. The question thus arises as to whether it would be appropriate for the Tribunal, standing in the shoes of the Board, to reduce the penalty already imposed on Mr Carter.
In assessing the appropriateness of the one year ban on reapplying for registration handed down by the Board, the Tribunal is entitled to consider any contrition expressed by Mr Carter for his actions. It is also entitled to assess the extent to which Mr Carter has fully appreciated and understood the basis on which any such contrition is expressed. In Stasos v Tax Agents’ Board (1990) 21 ALD 437 the Federal Court considered an appeal from a decision of the Tribunal to uphold the cancellation of Mr Stasos’s registration as a tax agent. Mr Stasos had engaged in misconduct but 4 years later professed a complete understanding of the error of his ways and sincere contrition that he ever acted as he did. The Tribunal considered that this period was insufficient time to enable it to assess whether the applicant was now a fit and proper person.
In upholding the Tribunal’s approach, Hill J observed (at 442-443, and 445):
Where the issue is whether a person, who has been guilty of misconduct is at a time somewhat after that misconduct a fit and proper person to exercise a particular occupation carrying with it privileges and responsibilities, it will be relevant whether that person has understood the error of his ways. Failure to do so would, in itself, demonstrate his unfitness: New South Wales Bar Association v Evatt (1968) 117 CLR 177 at 184. Thus, where a legal practitioner has been struck off and subsequently seeks readmission to the profession, he may lead evidence that he has redeemed his earlier errors and demonstrate that they did not reflect any permanent defect in character: Ex parte Lenehan (1948) 77 CLR 403 at 424. It will, as Lenehan demonstrates, be a step on the way to show that the applicant now understands that what he did was in error. Failure to admit the error of his ways, and thereby to show his contrition was fatal to the application made by Mr Clyne to be readmitted: see Ex parte Clyne (SC (NSW), 12 December 1961, unreported).
It may be noted that in the proceedings in the Supreme Court in Clyne, Sugerman J said at 8 of his Honour’s judgement: “The court must be convinced that there has been a complete repentance and a determination to preserve in honourable conduct: see In re Weare [1893] 2 QB 439 at 447.”
…
However, a person who has been shown to be other than a fit and proper person to be registered must satisfy the Tribunal considering his reregistration 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.
Until the last hour or so of the hearing, applying the principle articulated in Evatt and Clyne, Mr Carter would not have been entitled to any leniency with respect to penalty; that is, he had failed to admit the error of his ways. That changed in the dying stages of the hearing with his concessions that he had been stupid and there had been a failure on my behalf. The Tribunal is not, however, satisfied that these late expressions of regret meet the standard described in Stasos. The late concessions must be set against Mr Carter’s stentorian defence of his conduct in the early stage of the hearing, and against the fact that he mounted this defence despite having, apparently, conceded error in his conduct as a tax agent when making his stay application in November. This suggests ambivalence on his part about that conduct, and without a clear and unambiguous appreciation of the quality and nature of his breaches of the Code it would be unsafe to relax the period of deregistration imposed by the Board.
Contentions of Mr Carter
A number of contentions were advanced by Mr Carter during the hearing, though it appeared by the end of the hearing that his position on some of those contentions had been vacated. Nonetheless, for completeness the Tribunal addresses them here.
At one point Mr Carter sought to distinguish his actions from those of the Company, at least implying that breaches of the Code by the Company could not be visited upon him. Given that Mr Carter was the supervising agent, and was at all relevant times the guiding force behind the Company, this distinction cannot be sustained. In Delis v Tax Practitioners Board [2016] FCA 570 Davies J endorsed (at [42]) the approach taken by the Tribunal at first instance when it held (at [90]):
Plainly, by breaching the taxation laws in the conduct of his personal affairs which includes when acting as a director of Delis Enterprises, Mr Delis has breached the Code of Professional Conduct which applies to registered tax agents. While the TASA prescribes sanctions for any such breach, failure to comply with the Code plainly says something about the good fame, integrity and character of an individual. Those matters are relevant criteria for determining whether an individual is a fit and proper person (s. 20-15 TASA).
Mr Carter contended that TASA and the Code applied to conduct of tax agents in relation to the provision of tax agent services. He said that some of the conduct about which the Board had complained – in particular, the loans from Mr Emery and the text messages to him – was personal conduct which the Act and the Code could not regulate.
Against this contention must be placed the clear intent both of TASA and the decided cases that the Board is entitled to look beyond particular matters which may be the subject of complaint or which relate only to a person’s activities qua a tax agent. Section 20-15 makes clear that, in assessing whether an individual is a fit and proper person under the Act, the Board must have regard to whether he or she is of good fame, integrity and character. This language is broadly expressed, mandating as part of this enquiry a general overview of an agent’s reputation and conduct, not merely his or her conduct as a tax agent. The approach was affirmed by the Tribunal in Kishore and Tax Practitioners Board [2016] AATA 764 where Deputy President Frost observed (at [25]):
That the Code reaches beyond conduct undertaken in relation to the provision of tax agent services does not conflict with the object of the Act as specified in s 2-5. It is by requiring appropriate standards in all aspects of a person’s personal and professional conduct as a registered tax agent that the Code seeks to ensure that the tax agent services are provided to the public ‘in accordance with appropriate standards of professional and ethical conduct’.
An appreciation of the broad power of the Board to consider the general conduct and character of an agent whose registration is being reviewed disposes of another objection raised by Mr Carter in the hearing. He noted that the Board had terminated the registration of the Company in April 2016, based partly on Ms Reyes’ complaint about Mr Carter’s handling of her tax refund. Using a version of the double jeopardy defence, Mr Carter argued that, having paid a penalty by virtue of the Company’s deregistration based on this complaint, the same complaint could not be used to justify his personal deregistration from practising as a tax agent. On the contrary, it is clear that the Board has the power – indeed the obligation pursuant to s 20-15 – to take into account conduct that may have led to the deregistration of an agent’s personal company in assessing whether that agent is a fit and proper person to be registered under the Act.
Mr Carter described the conduct of the Board as heavy-handed, and of its investigator, Ms Davies, as lacking in integrity and honesty. The process used by the Board and its servants in dealing with complaints about tax agents is not, however, a matter properly before the Tribunal. The Tribunal is charged, under s 70-10 of TASA, with the task of undertaking merits review of the Board’s decision of 13 September 2016, not with supervising the way in which this decision was reached. Complaints about the way in which a body endowed with statutory powers has gone about its duty are more properly matters for the Commonwealth Ombudsman than the Tribunal.
A related point was made by Mr Carter about the complaints which initiated the Board’s disciplinary action against him. He told the Tribunal that he had reconciled with Mr Emery who, he said, now wished to withdraw his complaint to the Board. Similarly, although he was unsure as to why Mr and Mrs Van Der Weiden had made their original complaint against him in relation to their tax returns, he said they were still clients of his firm and seemed happy with his services. In response, the Tribunal notes that the responsibility entrusted by TASA to the Board is a broad one, designed to engage with breaches of the standards of professional and ethical conduct no matter where they occur or how they are brought to the Board’s attention. Although investigations may be launched and sanctions imposed based on consumer complaints, the scheme of TASA makes it clear that such actions are not conditional on such complaints. By the same token the withdrawal of a complaint does not deprive the Board of the power to act on a matter where it feels there has been a breach of those standards.
Finally, the Tribunal considers the effect affirming the reviewable decision would have on Mr Carter and his family. It notes a number of serious financial setbacks Mr Carter has faced in recent years, including a devastating arson attack on his business which was not covered by his insurer, the collapse of EasyTrust and the costs this imposed on his business, and indeed his costs in defending the earlier deregistration of the Company by the Board.
Mr Carter observed that if the Board’s orders were affirmed I’ll be out of business. I’ll be unemployed. Although Mr Carter has experience which may provide him with employment in relation to financial services, it seems likely that deregistration would substantially reduce both his employability and his income. The hardship this would occasion to Mr Carter is a matter the Tribunal takes into account. The Tribunal, however, reminds itself that the object of TASA is to ensure that taxation services offered to the public comply with appropriate standards of professional and ethical conduct, and that those standards can be protected by providing for sanctions for disciplining registered tax agents (s 2-5). The imposition of sanctions against agents who fail to meet the appropriate standards will often entail a loss of livelihood; clearly, the Act envisages that this must be a consequence of serious failures to demonstrate the appropriate standards. The matters which the Tribunal is satisfied did constitute failures of this kind on Mr Carter’s part were serious, and deserve the imposition of some sanction. A suspension of the right to practice as a tax agent for a period of one year falls at the lower end of the range of sanctions offered by s 40-25. To not suspend his registration, given the substantial failures of judgement Mr Carter displayed, would be to send a misleading signal to the public and to other tax agents about the consequences of such failures in the provision of professional services. The Tribunal does not propose to do this.
Accordingly, the Tribunal affirms the reviewable decision of 13 September 2016 of the Tax Practitioners Board, to terminate Mr Carter’s registration as a tax practitioner and to disqualify him from reapplying for registration for a period of one year.
I certify that the preceding 68 (sixty -eight) paragraphs are a true copy of the reasons for the decision herein of Deputy President Gary Humphries
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Associate
Dated: 21 April 2017
Date(s) of hearing: 17 March 2017 Applicant: In person Counsel for the Respondent: Danielle Tucker
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