Cheng Li and Tax Practitioners Board
[2013] AATA 669
[2013] AATA 669
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2013/3896
Re
Cheng Li
APPLICANT
And
Tax Practitioners Board
RESPONDENT
DECISION
Tribunal Senior Member A K Britton
Date 20 September 2013 Place Sydney The application for a stay of the reviewable decision is refused.
.........................[SGD]...............................................
Senior Member A K Britton
CATCHWORDS
TAXATION AND REVENUE—Tax agents—Application to stay cancellation of registration as a tax agent—fit and proper person—stay refused
LEGISLATION
Administrative Appeals Tribunal AAT Act 1975 (Cth) – s 41(2)
Tax Agents Services Act 2009 (Cth)
CASES
Australian Securities and Investments Commission v Administrative Appeals Tribunal and Another (2009) 181 FCR 130
Re Dekanic and Tax Agent’s Board of New South Wales (1982) 6 ALD 2
Re Scott and Australian Securities and Investments Commission [2009] AATA 798
Tung and Tax Practitioners Board [2012] AATA 615
REASONS FOR DECISION
Senior Member A K Britton
20 September 2013
Mr Cheung Li commenced operation as a registered tax agent in November 2010. In 2011 he found himself unwittingly caught up in an elaborate scheme designed to defraud the Commonwealth by lodging about 400 tax returns with the Australian Taxation Office (ATO) on behalf of either fictitious persons or taxpayers who had not authorised him to prepare tax returns on their behalf. While some dispute about when Mr Li first alerted the ATO to his suspicions about the scheme, it is agreed that since early October 2011 he has assisted the ATO in its investigation of the scheme.
In June 2013 after conducting an investigation into his role in the scheme, the Tax Practitioners’ Board notified Mr Li of the decision to cancel his registration as a tax agent and to declare that he may not apply for registration as a tax agent for a period of three years (the reviewable decision). The stated reason for that decision was that Mr Li had ceased to be “a fit and proper person”, a requirement of tax practitioner registration under the Tax Agents Services Act 2009 (Cth) (the Act).
Mr Li has applied to the Administrative Appeals Tribunal for review of the reviewable decision. He also seeks an order to stay the decision of the Board. These reasons address the stay application.
POWER TO GRANT A STAY OF THE DECISION
Section 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act) provides:
The Tribunal may, … if the Tribunal is of the opinion that it is desirable to do so after taking into account the interests of any persons who may be affected by the review, make such order or orders staying or otherwise affecting the operation or implementation of the decision to which the relevant proceeding relates or a part of that decision as the Tribunal considers appropriate for the purpose of securing the effectiveness of the hearing and determination of the application for review [emphasis added]
The power to grant a stay is conditioned on the Tribunal holding the requisite opinion after taking into account the interests of affected persons. The Tribunal must identify and consider the relevant interests: Australian Securities and Investments Commission v Administrative Appeals Tribunal and Another (2009) 181 FCR 130 [at 142] (per Downes and Jagot JJ).
In Re Scott and Australian Securities and Investments Commission [2009] AATA 798, (2009) 51 AAR 114 at 115 [4], Downes J stated that in considering a stay application under s 41(2), it is appropriate to consider a range of matters including:
1The prospects of success
2The consequence for the applicant of the refusal of a stay
3The public interest
4The consequences for the respondent in carrying out its functions depending upon whether a stay is granted or not
5Whether the application for review would be rendered nugatory if a stay were not granted
6Other matters that are relevant … includ[ing] the length of time that the [decision] has already been in place and the gap between today and the hearing of the application.
BACKGROUND TO DECISION
The following summary is largely taken from a report prepared at the request of the Board following an investigation into Mr Li’s conduct as a tax agent (the investigation report) and Mr Li’s response to a draft of that report dated 14 June 2013. For the purpose of the stay application I have largely focused on the alleged conduct that underpinned two of the four findings made by the Board, namely that Mr Li had breached s 50-20 of the Act and s 30-10(9) of the Code. (See par [13]) below.)
In early 2013 the Board commenced an investigation into Mr Li’s conduct as a tax agent following information received from the ATO about irregularities in income tax returns he had lodged or attempted to lodge during the 14-week period, 1 July to 12 October 2012.
In an interview conducted by an ATO Compliance Officer Mr Li stated that in August 2011 he was approached by two people, one of whom introduced himself as Mr Saiful Islam. They held themselves out as representing a major recruitment agency and asked Mr Li to prepare and lodge tax returns for people recruited though the agency. According to Mr Li, Mr Islam gave him a copy of his business card, which stated that he was from the recruitment agency. Mr Li claimed that Mr Islam told him that his clients had sought his assistance to lodge their tax returns. At some point, Mr Islam left to go overseas and instructed Mr Li to deal with a person he introduced as “Sam”.
A few weeks later Mr Li was approached by a third person who introduced himself as Mr Sunny Rahman and claimed to be from an employment services agency. Mr Ranham also asked Mr Li to prepare and lodge tax returns for persons who had been recruited by the agency. It is unclear whether Mr Li understood there to be any relationship between Messrs Islam and Rahman. After receiving detailed financial information from Messrs Islam, Rahman and Sam (the third party agents) Mr Li prepared individual tax returns for just under 400 purported taxpayers for the 2011 tax year. Prior to lodgement with the ATO he gave the third party agents a copy of the completed returns and requested that they make arrangements for the relevant taxpayer to sign their return. After receiving the signed returns Mr Li lodged them electronically with the ATO. Mr Li did not speak to, or have any direct contact with, any of the named taxpayers and relied exclusively on information provided by the third parties agents.
The investigation report stated that Mr Li lodged 532 individual tax returns between 1 July 2012 to 12 October 2012 of which:
(a)60 failed to lodge apparently because they were cancelled by the ATO
(b)just under 400 contained information relating to wages, salaries and tax instalment deductions, which did not accord with the payment summary details reported to the ATO by the relevant employers
(c)many contained excessive tax instalment deductions
(d)many contained identical bank account details for the named taxpayers.
The Board obtained statements from 24 people in whose names Mr Li had lodged tax returns. All claimed they had never used Mr Li to lodge a tax return. Most claimed that the information contained in the return lodged by Mr Li in their name was largely incorrect. The Board also obtained statements from 15 employers named in the subject returns lodged by Mr Li. All but one stated that they had never employed the person nominated in the return as their employee. One stated they had employed the named taxpayer but not in the 2011 tax year.
The Board as noted concluded that Mr Li was not a fit and proper person to act as a tax agent. It found that he had breached s 50-20 of the Act by making false and misleading statements to the ATO (that is, in statements contained in the subject tax returns lodged with the ATO). The Board also found that Mr Li had breached the Code of Professional Conduct (“the Code”) contained in s 30-10 of the Act by failing to:
(a)Keep client information confidential (s 30-10(6))
(b)Ensure that services he provided as a tax agent were provided competently (s 30‑10(7))
(c)Take reasonable care to ascertain the state of affairs of 394 purported taxpayers for whom he lodged returns for the 2011 tax year (s 30-10(9)).
Prospects of success
Mr Li contends that in the circumstances the decision to cancel his registration as a tax agent is unreasonable. He also disputes the finding of the Board that he has breached various provisions of the Act.
Mr Li contends that he was the innocent victim of a cleverly and expertly executed fraud. He claims that at all times he held the honest and genuine belief that the third party agents were, as claimed, acting on behalf of the named taxpayers and legitimate. He contends that the following indicates that there was a reasonable basis for that belief. First, the claim made by the agents of being from a recruitment/employment agency. He argues that that claim was not implausible given all were well-dressed, well-spoken and one presented a business card in the name of a well-known recruitment agency. Second, the “only reasonable and indeed possible” explanation for the perpetrators having access to detailed information about the financial affairs of a large number of taxpayers was that they had been given that information by the relevant taxpayers. Third, it was unremarkable for people employed by a recruitment agency to have access to the financial details of the type provided to him by the third party agents: tax file numbers, bank account details and so forth. Fourth, it made “absolute sense” that a recruitment agency would approach a tax agent to prepare tax returns on behalf of a large number of persons who had been recruited through their agency, because it would enable them to negotiate a low “bulk” rate and relieve the relevant taxpayers of the administrative burden of finding and dealing with a tax agent.
Mr Li claims that in the circumstances it was not unreasonable that he made no attempt to make direct contact with any of the persons the third party agents claimed to represent, asserting there is no legal requirement to do so.
It is argued for Mr Li that the conduct found proven by the Board in his case is not as serious as that which led the Tribunal (differently constituted) to terminate the registration of another tax agent and to declare that he may not apply for registration as a tax agent for a period of three years (Tung and Tax Practitioners Board [2012] AATA 615).
At this early stage of the proceedings there is limited material before the Tribunal. The section 37 documents (required under s 37 of the AAT Act) are yet to be filed as are the attachments to the investigation report. While care must be exercised in the assessment of the available material, it would appear there is some evidence, which if accepted, would support the Board’s findings that Mr Li has contravened provisions of the Act. Whether the Tribunal ultimately adopts those findings will be a matter for the evidence available at the hearing of the application for review. In any event it could not be said that Mr Li’s application for review of the reviewable decision has no prospects of success. As he correctly points out, in reaching the “correct and preferable” decision the Tribunal must determine whether the decision under review is proportionate and reasonable having regard to all of the material, including the evidence of the assistance he provided to the ATO in its investigation into the scheme and his otherwise unblemished record as a tax agent.
The consequences for Mr Li and others of refusal of the stay
It is submitted for Mr Li that if the application for a stay is refused he would lose his livelihood and be unable to support his family. In his application for a stay he wrote that he would be unable to support his “non-working wife and his young dependent children” if the stay were not granted. In the stay application hearing he stated that his wife performed book-keeping duties for his firm. He claimed that if he were unable to provide tax agents services, those clients for whom his business also provided book-keeping services, would probably take their business elsewhere.
Little material has been provided in support of the claim that refusal to grant a stay would have a “devastating financial effect” on Mr Li and his family. No evidence was adduced about Mr Li’s assets and liabilities (if any) or those of other family members. Nonetheless I accept that if the stay were not granted in the period pending the hearing of the substantive application, Mr Li would probably be without the income generated by his tax agent business and, as a consequence, he and his family would be adversely affected.
The public interest
The Board accepts that a stay of a decision to terminate a tax agent’s registration would ordinarily be granted unless the public interest requires otherwise (Re Dekanic and Tax Agent’s Board of New South Wales (1982) 6 ALD 2). The Board argues this is a case where the public interest demands that the stay not be granted. Among other things the Board contends that it is of concern that Mr Li agreed to prepare a large number of tax returns based on information provided by third party agents, in circumstances where he had taken no steps to verify the accuracy of that information. Further the Board argues that the submissions made by Mr Li together with the answers he gave to investigators, suggests a lack of understanding of basic aspects of the Australian tax system, citing for example Mr Li’s apparent belief that a taxpayer has an automatic entitlement to claim up to $300 pa for work-related expenses and his lack of knowledge about basic matters relevant to the preparation of tax returns, such as marginal tax rates and the Higher Education Contribution Scheme (HECS) repayment threshold.
Mr Li contends that it is simply implausible that he would again fall victim to an elaborate scheme designed to defraud the Commonwealth. He asserts that he has learnt his lesson and there is no risk that he would participate in such a scheme in the future. He says that he has expressed remorse for his actions and is prepared to submit to any training or supervision requirements imposed by the Tribunal. Further he rejects the argument made by the Board that his conduct reveals that he was ignorant of relevant taxation laws and basic aspects of tax system. He contends that his conduct was exemplary as evidenced by his numerous attempts to alert the ATO to his concerns about the scheme.
Application for review rendered nugatory
The granting of the stay acts to secure “the effectiveness of the hearing and determination of the application for review” (s 41(2) of the AAT Act). It guards against situations where the Tribunal sets aside the decision under review, only to find that while waiting for the decision the applicant has, because of the effect of the original decision, ceased trading or is unable to restart operations.
While little material before me I accept there is a risk that if the stay is refused Mr Li may lose his existing clients and be forced to stop trading. If that were to occur the Tribunal’s decision on review would, in the terms of s 41(2) of the AAT Act, not be an effective one.
SHOULD THE STAY BE GRANTED?
Section 41(2) of the AAT Act requires the Tribunal to form an opinion about the desirability of making an order to stay the decision under review. This requires the Tribunal to resolve potentially competing interests (Australian Securities and Investments Commission v Administrative Appeals Tribunal and Another (2009) 181 FCR 130 at [52]).
A number of factors favour the granting of a stay. These include the interests of Mr Li and his family and, the risk that if his substantive application is ultimately successful, in part or whole, it may be rendered pointless because of the damage to his business.
Against these powerful considerations is the risk that the type of conduct identified by the Board might be repeated in the period pending the determination of the application for review. It goes without saying that it would not be in the public interest for this to occur. As acknowledged by Mr Li his conduct has had serious ramifications not only for the integrity of the Australian tax system but also the individuals named in the subject returns. He contends however that he has learnt his lesson and that it is implausible that the circumstances leading to his involvement in the scheme will be repeated.
Mr Li might be right. In the future he might take adequate steps to verify information provided by clients or agents of clients, which on its face appears far-fetched. He may take greater care in the preparation of tax returns and be better placed to identify information that would ordinarily raise the concern of a prudent and competent tax agent.
However on the material before me I could not be satisfied that in the period before the substantive application is determined, there is no material risk similar conduct will be repeated. While Mr Li has stated he is prepared to undertake further training and submit to any conditions imposed by the Tribunal, he has not proposed any conditions or training options which might reduce the risk of him engaging in similar conduct, at least in the period until the substantive application is determined.
The risk is not confined, as I understand Mr Li to suggest, that he might once again be approached by unscrupulous strangers and asked to lodge multiple tax returns on behalf of fictitious persons or persons who had authorised him to prepare returns on their behalf. His conduct also indicates that there is a risk he might fail to subject information provided to him by clients to proper scrutiny and analysis.
In my opinion it would not be in the public interest to allow Mr Li to continue to practice as a tax agent in the period pending the determination of the application for review.
While there are powerful factors that favour the granting of the stay, including the interests of Mr Li and his family, I have decided that they are outweighed by, among other things, the public interest. I am of the opinion that it would not be desirable to make an order under s 41(2) of the AAT Act and therefore have decided to refuse the application for a stay of the decision under review.
I certify that the preceding 32 (thirty-two) paragraphs are a true copy of the reasons for the decision herein of Senior Member A K Britton .....................[SGD]...................................................
Associate
Dated 20 September 2013
Date(s) of hearing 6 September 2013 Counsel for the Applicant Michael Bennett Solicitors for the Applicant Australian Government Solicitor Solicitors for the Respondent Willworks
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