D'couto and Tax Practitioners Board
[2023] AATA 3485
•26 October 2023
D'couto and Tax Practitioners Board [2023] AATA 3485 (26 October 2023)
Division: TAXATION AND COMMERCIAL DIVISION
File Number: 2022/9330
Re:Joylene D'couto
APPLICANT
AndTax Practitioners Board
RESPONDENT
DECISION
Tribunal:Mrs J C Kelly, Senior Member
Date:26 October 2023
Place:Sydney
The reviewable decision is affirmed.
.................................[sgd].......................................
Mrs J C Kelly, Senior Member
CATCHWORDS
TAX AGENTS – breach of TASA Code of Professional conduct – tax agent registration termination – decision to prevent reapplying for tax agent registration for three years – whether the applicant acted honestly and with integrity – whether the applicant complied with taxation laws – whether the applicant provided tax agent services competently – whether the applicant is a fit and proper person – reviewable decision affirmed
LEGISLATION
Taxation Administration Act 1953 (Cth)
Tax Agent Services Act 2009 (Cth)
Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009 (Cth)
CASES
Beckett and Tax Practitioners Board [2021] AATA 1234
Carbery and Associates Pty Ltd v Tax Agents’ Board (Qld) (2001) 46 ATR 1106
Hill and Tax Practitioners Board [2020] AATA 678
Kishore and Tax Practitioners Board [2017] AATA 271
Shmuel and Tax Practitioners Board [2019] AATA 2168
Stasos v Tax Agents Board (1990) 21 ATR 974
Su v Tax Agents’ Board South Australia (1982) 61 FLR 1
Toohey and Tax Agents’ Board of Victoria [2009] AATA 603
SECONDARY MATERIALS
Explanatory Memorandum, Tax Agent Services Bill 2009 (Cth)
Explanatory Paper TPB(EP) 01/2010 Code of Professional Conduct
Explanatory Paper TPB(EP) 02/2010 Fit and proper person
REASONS FOR DECISION
Mrs J C Kelly, Senior Member
26 October 2023
Introduction
The Applicant, Ms D’Couto, has applied to the Tribunal to set aside the decision made by the Tax Practitioners Board (the Board) (the Respondent) on 13 October 2022:
(a)to terminate her tax agent registration pursuant to subsection 40-5(1)(b) of the Tax Agent Services Act 2009 (Cth) (the TASA) [1]; and
(b)to prohibit her from re-applying for registration for a period of three years from the date termination of her registration takes effect pursuant to subsection 40-25(1) of the TASA.
[1] The TASA replaced Part VIIA of the Income Tax Assessment Act 1936 (Cth).
I have decided to affirm the Board’s decision for the following reasons.
Background
The reviewable decision was made following an investigation conducted pursuant to subdivision 60-E of the TASA. On 29 January 2021, the Respondent received a referral from the Australian Taxation Office (ATO) concerning the Applicant’s personal tax affairs. On 9 February 2021, the Respondent received a further referral from the ATO concerning the Applicant and audits carried out on 19 of her clients, of work-related expenses (WRE). The Board issued a letter to the Applicant on 3 May 2022 advising that it had commenced an investigation. On 23 September 2022, the Board sent a letter to the Applicant and attached a submission from the Board’s Conduct Committee setting out alleged breaches of the Code of Professional Conduct (the Code). The Applicant responded on 12 October 2022. The decision under review was made on 13 October 2022.
Part 2 of the TASA deals with registration of tax agents and BAS (Business Activity Statement) agents. The Code, which applies to all registered tax agents and BAS agents, is set out in section 30-10 in Part 3 of the TASA.
The Board was satisfied that the Applicant had breached subsections 30-10(1), 30-10(2) and 30-10(7) of the Code and determined that the Applicant had ceased to meet the tax practitioner registration requirement under paragraph 20-5(1)(a) of the TASA, that she is a fit and proper person.
The Board notified the Applicant of the reviewable decision by letter dated 9 November 2022.
The issues
The issues to be determined are:
(1)Whether the Applicant has breached the following requirements of the Code:
a.Subsection 30-10(1), to act honestly and with integrity;
b.Subsection 30-10(2), to comply with taxation laws[2] in the conduct of [her] personal affairs;
c.Subsection 30-10(7), to ensure that a tax agent service that [she] provide/s, or that is provided on [her] behalf, is provided competently.
(2)Whether the Applicant has ceased to meet the tax practitioner registration requirement in subsection 20-5(1)(a) of the TASA that she is a fit and proper person.
(3)Whether the Applicant’s tax agent registration should be terminated pursuant to paragraph 40-5(1)(b) of the TASA, and
(4)If so, whether it should be determined that she may not apply for registration for a period of three years pursuant to subsection 40-25(1) of the TASA.
[2] The term ‘taxation law’ is defined in section 995-1 of the Income Tax Assessment Act 1997 (Cth) and relevantly includes ‘an Act of which the Commissioner has general administration’, which includes the Income Tax Assessment Act 1936 (Cth), the A New Tax System (Goods and Services Tax Act 1999 (Cth) and the Tax Administration Act 1953 (Cth).
The object of the Act
The object of the TASA:
is to ensure that tax agent services are provided to the public in accordance with appropriate standards of professional and ethical conduct.[3]
[3] Tax Agent Services Act 2009 (Cth) s 2-5.
Relevantly, that object is to be achieved by:
(a)Establishing the Board; and
(b)Introducing a Code of Professional Conduct for registered tax agents; and
(c)Providing sanctions to discipline registered tax agents.
Tax agent services is any service:
a)that relates to:
i.ascertaining liabilities, obligations or entitlements of an entity that arise, or could arise, under a taxation law; or
ii.advising an entity about liabilities, obligations or entitlements of the entity or another entity that arise, or could arise, under a taxation law; or
iii.representing an entity in their dealings with the Commissioner; and
b)that is provided in circumstances where the entity can reasonably be expected to rely on the service for either or both of the following purposes:
i.to satisfy liabilities or obligations that arise, or could arise, under a taxation law;
ii.to claim entitlements that arise, or could arise, under a taxation law.[4]
[4] Tax Agent Services Act 2009 (Cth) s 90-5(1).
Available sanctions and termination of registration
Section 30-15 in Subdivision 30-B of the TASA sets out sanctions for failure to comply with the Code:
(1)This Subdivision applies if the Board is satisfied, after conducting an investigation under Subdivision 60-E, that you have failed to comply with the (Code).
(2)The Board may do one or more of the following:
a.give you a written caution;
b.give you an order under section 30-20;
c.suspend your registration under section 30-25;
d.terminate your registration under section 30-30.
The orders the Board may make under section 30-20 of the TASA are: to complete a specified course of education or training, provide tax services only under supervision of a specified registered tax agent, or provide only specified tax services. In respect of each order, the Board may specify a relevant period of time.
In the case of suspension under section 30-25 of the TASA, the Board may, by notice in writing, suspend registration for a period it determines. A person must not provide tax agent services during that period. During a period of suspension, the person is taken not to be a registered tax agent except for specified purposes.
In addition to termination under section 30-30 of the TASA, subsection 40-5 sets out various circumstances in which the Board may/must terminate registration, including subsection 40-5(1)(b) which provides that the Board may do so if:
·you cease to meet one of the tax practitioner registration requirements.
As set out above, the relevant registration requirement in this case that the Board found the Applicant ceased to meet is being a fit and proper person (subsection 20-5(1)(a) of the TASA). Subsection 20-15(a) of the TASA states that in deciding whether it is satisfied that an individual is a fit and proper person, the Board must have regard to whether the individual is of good fame, integrity and character.
Subsection 40-25(1) of the TASA provides that if the Board terminates an agent’s registration, it may impose a period of not more than five years during which an agent may not apply for registration.
The Applicant’s background
The Applicant:
·has been a registered tax agent since 1 September 2004. When the TASA commenced on 1 March 2010 she was automatically registered as an individual tax agent;[5]
·is a sole trader and has traded under the name ‘Tax Angels’ since 7 January 2008;
·has been the sole trustee of The Trustee for Elsie Maude McKenzie Estate (the Estate) since 3 July 2006;
·has been the sole director of Beyond the Abyss Pty Ltd (the Company) since its incorporation on 16 September 2008.
[5] Pursuant to the Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009 (Cth).
2014 investigation by the Board and subsequent Tribunal decision
The Board previously investigated the Applicant’s conduct under Subdivision 60-E of the TASA in 2014 which resulted in the decision made on 7 October 2014 to terminate the Applicant’s tax agent registration for breaches of the Code pursuant to sections 60-125(2) and 30-30 of the TASA, and to impose a two year period in which she would not be eligible to apply for registration pursuant to section 40-25 of the TASA. The Applicant sought review of that decision in the Tribunal.
The Tribunal found that some of the Board’s findings were not supported by reliable evidence but found that the following findings were well-founded and were not disputed.
(a)Subsection 30-10(1) – the Applicant had not acted honestly and with integrity towards a client by withholding information that tax refunds for 2009 and 2010, amounting to $6,210.65 had been received from the ATO throughout the period May 2013 until November 2013.
(b)Subsection 30-10(3) – the Applicant had failed to account to five clients for money received on their behalf and held in trust for periods ranging from one to ten months and with respect to a further 73 clients for a period in excess of 14 days after receipt from the ATO, that being the period allowed for forwarding refunds under the Board’s policy.
(c)Subsection 30-10(7) – the Applicant had failed to ensure that tax agent services that she provided, or that were provided on her behalf, were provided competently by reason of:
(i)failing to exercise meaningful supervision over the quality and timeliness of her employees’ work;
(ii)leaving employees to ‘self-manage’ both individual work tasks and the general operation of the practice; and
(iii)being absent from the practice for prolonged periods.
The Tribunal decided to set aside the Board’s decision and direct that pursuant to:
(a)section 30-15 of the TASA, the Applicant be given a written caution;
(b)subsection 30-20(1) of the TASA, the Applicant’s registration be restricted such that for three years she is not to offer any form of fee from refund service to her clients and is not to be involved in any activity as part of her tax agent practice that includes the receipt of money belonging to her clients;
(c)paragraph 30-20(1)(a) of the TASA, before 30 June 2017 the Applicant is to undertake and satisfactorily complete remedial education in a course approved by the Respondent concerning trust accounting that includes the nature and content of trustees duties and obligations concerning trust moneys and the course Ethics, Tax Agent Services Act (TASA) 2009 and the Code of Professional Conduct offered by The Tax Institute or equivalent course approved by the Respondent; and
(d)subsection 30-20(1) of the TASA, for the next three years, the Applicant is to provide to the Respondent details of any and all bank accounts she operates and access to her tax agents portal so as to allow the Respondent to be able to monitor the Applicant’s compliance with (b) above.
The Tribunal stated that the Applicant had come to the Respondent’s attention in 2010 for delayed refunds to clients, was subject of a formal caution in 2012, and was required to complete a trust accounting course which she did in 2013. It took into account her personal circumstances which included a depression styled mental illness from which she was not fully recovered.
Consideration
I will consider each of the alleged breaches in turn. Before doing so, I note that Notices of Amended Assessments (NOAAs) are conclusive evidence of the amount of the Applicant’s tax liability and the particulars thereof in each income year: section 350-10 of Schedule 1 to the Taxation Administration Act 1953 (Cth (TAA).
When the Applicant lodged her application for review, she had applications on foot seeking review of the ATO’s objection decision dated 15 June 2022 in relation to the 2017 and 2018 income years and the quarterly BAS periods 30 September 2016 to 30 June 2018. By the time this matter was heard, she had withdrawn the applications, she said because of her health. Therefore, there can be no dispute about the correctness of the Applicant’s tax liabilities and the particulars thereof set out in NOAAs.
Issue 1(a) Subsection 30-10(1) of the Code
The Respondent contended that the Applicant breached subsection 30-10(1) of the Code in the TASA by failing to act honestly and with integrity by:
(a)declaring taxable income of $5,282, when the actual reportable taxable income was assessed by the ATO on objection as $205,250 for the financial year ending 2017, thereby understating her income by $199,968;
(b)declaring taxable income of $2,540, when the actual reportable taxable income was assessed by the ATO on objection as $161,737 for the financial year ending 2018, thereby understating her income by $159,197; and
(c)failing to correctly declare GST supplies in her quarterly BAS lodged with the Commissioner of Taxation (the Commissioner) for the quarterly periods from 1 July 2016 to 30 June 2018 by:
(i)reporting at label 1A $19,371 in total GST for the 2017 income tax year, when the ATO assessed the correct figure at this label as $26,127; and
(ii)reporting at label 1A $20,293 in total GST for the 2018 income tax year, when the ATO assessed the correct figure at this label as $26,866.
(d)failing to correctly declare Input Tax Credits (ITC) in her quarterly BAS lodged with the Commissioner for the quarterly periods from 1 July 2016 to 30 June 2018, by:
(i)declaring ITC of $7,880 in BAS lodged during the 2017 income tax year when the actual figure of ITC was assessed by the ATO as $5,054; and
(ii)declaring ITC of $8,353 in BAS lodged during the 2018 income tax year when the actual figure of ITC was assessed by the ATO as $5,049.
The Applicant denied having breached section 30-10(1) and claimed that she had always acted honestly and with integrity.
The Respondent put the following contentions.
The Applicant’s underreported business income and overclaimed deductions in her 2017 and 2018 income tax returns, coupled with her incorrect reporting of GST supplies and ITCs over the same period, illustrate dishonesty on the Applicant’s part and/or a want of integrity. The Tribunal should infer that the Applicant deliberately understated her income (GST sales) and overstated her deductions (and input tax credits) or, at a minimum:
(a)made false representations in her tax returns and BAS;
(b)acted with such carelessness as to demonstrate that no genuine attempt had been made to carry out the duties and obligations imposed by law; and/or
(c)displayed an inadequate sense of her obligations as a registered tax practitioner and/or an evident reluctance to ascertain and comply with those obligations.
It is implausible that the Applicant, who has been a tax agent since 2004, reasonably believed that her 2017 and 2018 returns were true and correct in all material particulars taking into account the following.
Her reported income ($163,100 and $184,111 respectively) was plainly understated compared with her BAS reported total sales for the same years of $213,585 and $223,237, her general ledgers, which reported total income of $261,984 in 2017 and $270,724 in 2018, and deposits recorded in her bank statement which totalled $261,294 in 2017 and $268,679 in 2018 (excluding amounts on account of GST).
Her reported income was clearly inadequate to service her claimed business expenses, let alone her personal living expenses.[6]
[6] T4, 506-507.
She claimed deductions for expenses which she must have known were not deductible, for example $2,354.55 for the costs of a labradoodle which she claimed was a security dog, and travel expenses for individuals who were not identified as employees.[7]
[7] T4, 589.
She claimed expenses that she must have known could not be substantiated and therefore should not have been claimed. For example, she did not retain a log book, as required, to claim motor vehicle expenses.[8]
[8] ATO Position Paper, T4, 586 (paragraph 69).
She said that she was unable to substantiate claimed expenses such as electricity because the bookkeeper no longer worked for her and she did not know how the figures were divided up.[9] The Applicant was required to personally sign her tax returns and thereby attest to the returns being true and correct. She must have known that it was her responsibility to retain supporting records, which is what she said about her client’s WRE.
[9] T4, 488
The Applicant’s claimed deductions for carry forward losses, exceeding half a million dollars in 2017-2018 are unsupportable and defy logic for the following reasons:
(a)It is implausible that the Applicant’s business sustained losses (in some years, substantial amounts) for seven of the last eleven years and with modest profits for the remaining four years and continued to operate. The Applicant’s explanation was that the business losses were funded by government payments such as Family Tax Benefits and a partner’s wages. The quantum of the losses together with living expenses make it inherently improbable.
(b)The Applicant has provided inconsistent explanations for the claimed losses, including clients’ bad debts, and has provided no evidence to support any of the explanations.
(c)She has made inconsistent claims about the availability of evidence to substantiate the claimed losses and has not provided any evidence. She told the ATO in October 2019 that supporting documentation no longer existed.[10] In October 2021 she claimed that she had just had the documents shredded[11] and in October 2022 she claimed that she still had all the records and bank statements for the businesses which generated the losses.[12] She has not produced the documents. As noted in paragraph 120 of the ATO’s Position Paper[13], a taxpayer who has incurred a tax loss should retain records relevant to that loss until at least the end of the statutory period of review for an assessment in the year when the tax loss is fully deducted.[14]
[10] T4, 501 (paragraph 129).
[11] T4, 592.
[12] ST8, 2327-2328.
[13] T4,593.
[14] See Taxation Determination TD 2007/2.
Although the Applicant is personally responsible for her own tax returns, she has blamed others for the provision of incorrect information. She claimed that her bookkeeper who began working for her in 2014 had no idea how to manage Balance Sheet items and therefore from that time the balance sheet items may not have been correctly updated and kept.[15] This explanation is inherently unlikely but if true would reflect a gross dereliction of her responsibility over several years to pick up sizeable discrepancies.
[15] T4, 592.
Following is a summary of the relevant evidence of the Applicant and her former employee, Ms Elaine de Schwartz.
She claimed that at the previous Tribunal hearing, the Respondent and a psychiatrist she had seen at the Respondent’s request, wanted her to go on antidepressants which she refused to do because she had a family history of adverse reaction to antidepressants. Sometime later when she saw her General Practitioner (GP) she decided to ‘give them ago’. After being on them for several years and only recently coming off them in October 2022, she has realised that they had had a severe effect on her life, severely affecting her sleep and her ability to function in her own business and do things in a timely manner. They had severely affected her judgement and memory and did not allow her to think clearly. She believes that is why she did not realise what had been happening with her client.But it was too late. It was already after everything had already snowballed and fallen into such disarray.
When shown a letter from the Respondent dated 1 February 2022 inviting her to provide evidence about her health, the Applicant said that she had never seen the letter and explained that all correspondence with the ATO and the Respondent was by email and she had a problem with her inbox which was overloaded. She stopped receiving emails and lost emails. She agreed that her inbox problem was a problem for her looking after her clients. If she had received the letter, she would have gone to her psychologist whom she had been seeing for years. On another occasion during her evidence, she claimed that she had provided information from her psychologist.
Ms de Schwartz provided a written statement dated 21 March 2023. She began to work for the Applicant in June 2019 in an administrative support role, including organising the Applicant’s diary. She learned that the Applicant suffered from sleep apnoea and was always foggy headed, which she later learned was due to the many medications that she was taking for her many different ailments. The Applicant was seeing many different medical practitioners. Within six months of beginning work, two key workers left. They were helping with 20 ATO audits, including the Applicant’s, leaving only Ms de Schwartz. In mid-September 2020, Ms de Schwartz called the ATO for help and was referred to the DHS. She was very concerned about the Applicant’s mental health and told the Applicant’s oldest son to keep an eye on her because Ms de Schwarz was concerned the Applicant ‘might try to end it all’.
In mid-2022, the Applicant was told to cease all her medications because she was due to have an operation. According to Ms de Schwartz, the Applicant was calm before but vague. Since coming off the medications, she is more alert but not as tolerant.
The Applicant used to put everyone else first and worked ‘above and beyond’ helping her clients through COVID-19 so they could survive and not get fined, to the detriment of her own business. Some were abusive, demanding, and harassing. The ATO officers demanded to speak with the Applicant while she was helping clients. The Applicant was attacked for not meeting timelines, including by the ATO, and in relation to her own bills, due to clients not paying.
When asked about her BAS showing income well over $200,000 for each of the 2017 and 2018 income years, the Applicant said that she did not understand why the figures for the BAS and tax returns were so different. She had no time to sort out what the cause was, she could not get into the program. The BASs had been paid to the ATO which led her to believe the error was in their system. She agreed that as a tax agent it was her responsibility to get matters right, as long as she has the time. She believed that the income reported in the 2017 and 2018 tax returns was true and correct when lodged.
When counsel for the Respondent said to the Applicant that the Respondent was trying to understand whether she was honest, reckless or lacking integrity, the Applicant responded that if she was dishonest she would have amended the BAS to reflect the income in the tax returns. She just lodged what came from her report. She had to get her returns in by a certain date.
She claimed that she believed that the deductions in the tax returns were true and correct when lodged. Her staff may not have done some correctly. They ‘looked plausible’. They were substantiated. She had receipts that were provided to the bookkeepers. She relied on their ability and expertise.
The Applicant claimed to be aware of the ATO’s requirements for the log book method for recording car expenses. She said that the format does not matter. It just has to have the necessary information.
The Applicant told the Tribunal that she was unaware of Taxation Determination TD 2007/2 which deals with the retention of records, until an officer from the ATO visited her in 2020. She had never come across it in the ATO updates. That she did not know, was the ATO’s fault in part. She had records in another state but she did not have the capacity to find the documents to produce them to the ATO. She was struggling.
The Applicant told the Tribunal that she had not checked the balance sheets. She did look at motor vehicles and equipment but did not know anything about the loans.
I accept that the particulars of the Applicant’s conduct as a tax agent as formulated by the Respondent are well founded. However, I have not concluded that the Applicant has breached subsection 30-10(1) of the Code in the TASA by failing to act honestly and with integrity.
The TASA does not define ‘honestly and with integrity’. The Applicant referred to the Explanatory Paper TPB(EP) 01/2010 Code of Professional Conduct.[16] It sets out the Macquarie Dictionary definition of ‘honesty’ and ‘integrity’ and then the following principles: straightforwardness, fair dealing, a commitment not to mislead or deceive and truthfulness. It then sets out considerations that have been distilled from decisions of courts and tribunals in determining when a person is acting with honesty and integrity. I have considered the cases referred to but the facts of this case are not analogous to the facts in the cited cases.
[16] T10, 2173.
I am not satisfied that the Applicant had a commitment to mislead or deceive or to be untruthful. During the hearing she continued to give inconsistent evidence as she had to the ATO and the Board. She does not seem to have the capacity to maintain a consistent version of events or opinions. For example, she provided excuses for various aspects of her conduct but when challenged, accepted responsibility but later returned to excusing or minimising her failures.
I have concluded that the Applicant’s impugned conduct was the consequence of a lack of competence, having more work than she was capable of doing for various reasons including lack of support staff and ill-health, and consequently being overwhelmed and unable to cope. She lacks insight into her shortcomings This conclusion is reinforced by the other matters addressed in relation to each of the other alleged breaches.
Issue 1(b) Subsection 30-10(2) of the Code
The Respondent contended that the Applicant breached subsection 30-10(2) of the Code in the TASA by failing to comply with the taxation laws in the conduct of her personal affairs by:
(a)failing to declare all taxable income as required in her personal Income Tax Return (ITR) lodged with the ATO for the income years ending 2017 and 2018 resulting in tax shortfalls of $90,824.95 and $63,489.70 respectively;
(b)failing to correctly declare GST supplies in her quarterly BAS lodged with the ATO for the quarterly periods from 1 July 2016 to 30 June 2018 as set out above;
(c)failing to correctly declare ITC in her quarterly BAS lodged with the Commissioner for the quarterly periods from 1 July 2016 to 30 June 2018 as set out above;
(d)in her capacity as sole director of the Company, failing to lodge its ITRs for the 2020 and 2021 income years by their respective due dates being 17 May 2021 and 1 November 2021;
(e)in her capacity as Trustee for the Estate, failing to lodge its ITRs for 2020 and 2021 income years by their respective due dates being 17 May 2021 and 1 November 2021;
(f)in her personal capacity, failing to lodge five quarterly BAS for the periods ending 30 June 2021, 30 September 2021, 31 December 2021, 31 March 2022 and 30 June 2022 by their respective due dates;
(g)in her personal capacity, failing to pay taxation debts as and when they fell due, including:
(i)Income Tax Account (ITA) debts amounting to $264,606.91 as at 31 March 2023; and
(ii)Integrated Client Account (ICA) debts amounting to $130,503.41 as at 31 March 2023.
I am satisfied that the Applicant’s ‘personal affairs’ include as a sole trader in the business Tax Angels, as sole trustee for the Estate and the affairs of the Company of which she has been director, secretary and shareholder since 2008.[17]
[17] T4, 134-135, 137 and 620.
The facts of (a), (b) and (c) are not in dispute. Those matters have been dealt with in detail in the previous section.
The following three tables set out the relevant details in respect of the Company, the Estate and the Applicant’s five quarterly BAS[18].
[18] Respondent’s Statement of Facts, Issues and Contentions dated 31 March 2023, 8-9; T4, 599-600, 622 and ST6, 2321-2326.
33. The Applicant has caused the Company to fail to lodge the following ITRs by their respective due dates:
Period ended Lodgement due date Lodgement date Day/s outstanding 30 June 2020 17 May 2021 3 May 2022 352 30 June 2021 1 November 2021 3 May 2022 184 30 June 2022 31 October 2022 Not received Not received
32. In her capacity as trustee for the Trustee for the Elsie Maude McKenzie Estate, the Applicant failed to cause the Trust to lodge the following ITRs by their respective due dates:
Period ended Lodgement due date Lodgement date Days outstanding 30 June 2020 17 May 2021 22 November 2021 190 30 June 2021 1 November 2021 3 May 2022 184 30 June 2022 31 October 2022 Not received Not received 25. The Applicant failed to lodge the following BAS for Tax Angels, by their respective due dates:
Period ended Lodgement due date Lodgement date Days outstanding 30 June 2021 25 August 2021 7 September 2022 379 30 September 2021 25 November 2021 7 September 2022 287 31 December 2021 28 February 2022 7 September 2022 192 31 March 2022 26 May 2022 7 September 2022 105 30 June 2022 25 August 2022 7 September 2022 14
Payment was made in relation to the Estate and the Company after the ATO had sent a reminder.[19]
[19] T4, 601 (the Company); T4, 609 and 611 (the Estate).
The Applicant’s explanations for delays include that she was dealing with ATO audits and working on client returns to keep them up to date, she was short staffed, her lodgement licence had expired and no-one at the ATO could get it going again, and that she was learning how to use a new program and wanted to make sure there were no issues and that the data was correct before lodging anything. Her client’s tax returns were on another system.
The difficulty in the Applicant’s case is the number of and length of delay in lodgements.
Since 16 December 2020, the Applicant has been continuously indebted to the Commissioner in respect of outstanding ICA liabilities and associated general interest charge (GIC) that had grown to $130,503.41 as at 31 March 2023.[20] Since 10 February 2021, she has been continuously indebted to the Commissioner in respect of outstanding ITA liabilities and associated GIC that had grown to $264,606.91 as at 31 March 2023. As at 19 July 2023 her total ICA and ITA debt was $410,513.55.[21]
[20] ST3, 2308.
[21] ST37, page 2453 and ST38, page 2493 ($274,172.80 and $136,340.75 respectively).
The Applicant has made no repayments and has no repayment program in place for either debt. Her excuse to the Respondent that she would not pay until after the Tribunal gave its decision in her Part IVC challenge fell away in April when she withdrew the proceedings.
She said the following. She had not contravened section 30-10(2) except for a few late lodgements. It depends on the interpretation of the law. She did not accept that she owed all the debt, claiming that she had contributed money. She did not accept that she had no proper basis for the income she stated for 2017 and 2018. She said that she had her profit and losses.
She said that she cannot get anyone to sort out her debt with the ATO. She has attempted to pay it multiple times since December 2022 but has not been able to find the right person. She will keep trying to find the person who can help her find a way of clearing the debt. She has not written to the ATO. She thought the ATO had put the debt on hold.
In all the circumstances, the Applicant’s explanations are unsatisfactory. The Applicant has breached subsection 30-10(2) of the Code by failing to comply with the taxation laws in the conduct of her personal affairs in each case as set out above.
Issue 1(c) Subsection 30-10(7) of the Code
The Respondent contended that the Applicant breached subsection 30-10(7) of the Code in the TASA by failing to ensure that a tax agent service that she provided, or that was provided on her behalf, was provided competently by:
(a)failing to take reasonable care in the preparation and lodgement of ITRs for 22 clients which were subject to ATO compliance activities, and were found to have included overclaimed, or incorrect deduction claims that:
(i)did not have sufficient nexus to assessable income; and/or
(ii)could not be adequately substantiated; and
(iii)in almost all cases resulted in substantial tax shortfalls payable by the clients.
The basis for the above contentions were ATO audits of the ITRs of 19 of the Applicant’s clients from January 2020 until July 2020 for the 2019 income year. Consequently, NOAAs and some penalty assessments were issued. Only three clients objected. Two objections were allowed in part and the other was disallowed. Total tax shortfalls of $144,592.65 and total penalties of $40,380.65 (after objection) were imposed.[22] The tax shortfalls ranged from $925.39 to $20,681.72. Penalties were imposed in nine cases. They ranged from $1,448.35 to $10,340.85.
[22] T4, 721.
The Respondent summarised the comments it had received from six of the Applicant’s clients who had been audited and who it had contacted by telephone between late 2021 and early 2022:
(a)when they met with the Applicant (or one of her staff) to complete their 2019 tax return, they took receipts with them (three clients);
(b)the Applicant did not look at any of their receipts or paperwork (two of the above clients and another two clients);
(c)he was not advised that he needed to record certain information in a logbook in order to support car-related expense claims (one client);
(d)they did not maintain a logbook recording car usage, were not told about the requirement to maintain a logbook and/or were unsure how their car-related expense claims had been calculated (three clients);
(e)for the purposes of deducting expenses on work-related clothing, they were not asked whether their clothing had a logo on it (two clients);
(f)they were told that they could claim things that they were not entitled to claim, such as expenditure on meals (three clients);
(g)they were not told about substantiation requirements for claiming deductions like mobile phone usage (one client) and certain depreciable work-related tools (one client);
(h)their returns included deductions for items for which they did not have receipts (they “might have been estimated… probably just a ballpark amount”) (one client);
(i)their returns included deductions of which they were unaware or did not understand (one client); and
(j)during the ATO’s audit, they supplied the Company with information/documents that had been requested, but were subsequently notified by the ATO that the information/ documents had not been supplied (three clients).
On 15 June 2022, the ATO wrote to the Applicant expressing concern about the ITRs she was lodging on behalf of individual taxpayers and stating that her individual client’s ITRs would be reviewed in Tax Time 2022. Appendix A to that letter indicates that her clients’ claimed average work-related expense deductions were almost double the amount reported by clients of other tax agents.[23]
[23] T4, 719.
As a registered tax agent, the Applicant is responsible for overseeing the work performed by her employees. She cannot blame her employees for not doing the job properly. Her claims to the effect that she and her staff look at receipts and sight diaries, logbooks and any other evidence that supports claiming expenses, are contradicted by the consequences of the ATO’s audits and the comments of some of the audited clients.
She herself failed to maintain proper records to substantiate work-related expense claims as discussed earlier in this decision. She admitted that she was unaware of Taxation Determination TD 2007/2 which deals with the retention of records. She failed personally to comply with the log book method for recording car expenses, although she believed that she had complied.
The Applicant’s knowledge of the relevant substantiation requirements is inadequate. She was unable to oversee her employees appropriately. Consequently, she and her employees failed to properly advise clients in relation to the substantiation requirements.
In addition, I have formed the view that the Applicant was careless in the sense that she was overwhelmed, trying to meet deadlines, and not paying appropriate attention to the substantiation requirements.
The Applicant’s lack of knowledge and carelessness is particularly concerning because she was put on notice of deficiencies in her practices relating to clients’ work-related expense claims in February 2013.
On 28 February 2013, the ATO wrote to the Applicant (under her former name) summarising the discussion during a compliance visit on 26 February 2013[24]:
Our discussion focussed on the trend of work related expense deductions for income tax returns prepared and lodged by your practice in comparison to similar tax agents. We presented data to you that indicated on average, work related expense deductions claimed on tax returns lodged by your practice were greater than 97.90% of tax agents with similar numbers of clients and complexity in their tax affairs.
[24] T4, 704.
A comprehensive 11 page report was enclosed which set out findings, outcomes and recommendations.[25] Having reviewed the process her practice used during return preparation to ensure that clients were able to substantiate work related expenses claims and establish a link to earning assessable income and substantiate gifts or donations and entitlements to tax offsets, the ATO found that none of the nine clients’ returns reviewed were reasonably substantiated and compliance issues were identified in relation to all work related expenses, gifts or donations expenses and tax offset claims reviewed.
[25] T4, 706-716.
The Applicant appears not to have learned from the 2013 compliance visit and perhaps not from the matters the subject of this application, given that in June 2022 the ATO again advised the Applicant of its ‘concern’ about her clients’ tax returns in relation to the quantum of work related expenses compared to those of the clients of other tax agents in June 2022.
In any event, based on the ATO’s audits of 22 clients for the income years 2019 and 2021, and taking into account the conduct of her own tax matters discussed in relation to issue 1(a), I am satisfied that the Applicant has failed to ensure that tax agent services that she provided and that have been provided on her behalf, have been provided competently.
Issue 2 Subsection 20-5(1)(a) of the TASA – a fit and proper person
The Respondent contends that the Applicant has ceased to meet the ‘tax practitioner registration requirement’ in paragraph 20-5(1)(a) of the TASA, being the requirement that she is a ‘fit and proper person’ by reason of:
(a)the Applicant’s multiple breaches of the Code as detailed above;
(b)the Applicant’s substantial tax debts, that remain outstanding, with no payment arrangements in place or payments being made to address them, demonstrating a lack of regard for her professional obligations as a registered tax practitioner and the ATO;
(c)the lodging of clients’ ITRs which the ATO consistently found to include excessive or incorrect deductions with no substantiation or with no nexus with income producing activities, demonstrating a lack of requisite knowledge expected of a reasonable and competent tax agent, and which exposed her clients to actual detriment, in the form of penalties for recklessness;
(d)the Applicant’s failure to demonstrate a reasonable level of insight or reflection as to the seriousness of her conduct, particularly with respect to the lodgement of ITRs including substantial deductions in circumstances where she has been on notice of ATO concerns, and the subject of previous regulatory action by the Respondent for similar conduct; and
(e)the Applicant engaging in conduct that jeopardises the effective working relationship that must exist between a tax agent and the ATO, undermining the system of self-assessment which depends upon the expectation that individual taxpayers, led and exampled by their tax agents, will comply with their basic taxation obligations.
To decide whether the Applicant is a fit and proper person, I must have regard to whether the Applicant is of good fame, integrity and character.[26]
[26] Tax Agent Services Act 2009 (Cth) ss 20-15(a).
Consideration should begin with the context in which the decision is being made.
The Board has published Explanatory Paper TPB(EP) 02/2010 Fit and proper person which provides a detailed explanation of the (Board’s) interpretation of the fitness and propriety requirements’ in the TASA.
Following is a summary of relevant principles distilled from court and Tribunal cases.
In Su v Tax Agents’ Board South Australia (1982) 61 FLR 1 (Su), Davies J succinctly explained the concept of “fit and proper” at 4-5:
… 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.
A tax agent should hold himself to a higher standard than the general public and should lead by example and file his tax returns on time as required by the law.[27]
[27] DP McDonald in Toohey and Tax Agents’ Board of Victoria [2009] AATA 603 at [36].
The tax agent’s history of non-compliance with taxation obligations is relevant to whether the person is a fit and proper person.[28]
[28] Hill J in Delis v Tax Practitioner’s Board [2016] FCA 570 at [41]. See also Shmuel and Tax Practitioners Board [2019] AATA 2168 at [24], Carbery and Associates Pty Ltd v Tax Agents’ Board (Qld) (2001) 46 ATR 1106, and Su at 5.
Acknowledgement and/or contrition for wrongdoing may be relevant to a tax agent’s fitness and propriety. In Stasos v Tax Agents Board (1990) 21 ATR 974 Hill J stated[29]:
...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.
[29] At [57].
In Hill and Tax Practitioners Board [2020] AATA 678 (Hill), Senior Member Taylor SC referred to the above passage and observed at [110] and [117] that:
(a)regret about the consequences of discovered and sanctioned past misconduct is one thing, insightful determination and capacity to avoid future misconduct is another; and
(b)the question whether, and in what circumstances, lapse of time, asserted contrition and the apparently exceptional nature of past misconduct suffice to permit satisfaction of a person’s contemporary fitness and propriety, permits a wide scope for judgment.
First, I will address in turn each of the elements Davies J set out in Su.
The findings made in respect of each of issues 1(a), 1(b) and 1(c) lead to the conclusion that the Applicant is not a person of good repute with the ATO or her clients who were subjected to audit and consequently issued with NOAAs and penalties.
Those findings also lead to the conclusion that the Applicant does not have a proper knowledge of taxation laws and is not able to prepare income tax returns and BASs competently, particularly her own.
The Applicant is not a person of such competence that others may entrust their taxation affairs to her care.
She is not 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 her competently. In 2013 ITRs she or her staff lodged on behalf of clients included incorrect and/or unsupported work related expenses and other claims. She was provided with a comprehensive report that provided recommendations. The audits in respect of the 2019 and 2021 income years revealed the same inadequacy. As observed above, the Applicant appears not to have learned from her mistakes.
Her lack of knowledge means that she is not able to deal competently with any queries which may be raised by officers of the Taxation Department.
Secondly, the Applicant has not demonstrated a genuine understanding of her shortcomings and therefore has not demonstrated that she is able to address them so that I can be satisfied that she is now a fit and proper person to be eligible for registration as a tax agent.
I have taken into account the evidence of the Applicant and Ms de Schwartz about the impact of the Applicant’s health and personal circumstances upon her. I have not identified any medical evidence in the material before me. Her inconsistent and contradictory evidence before the Tribunal does not support a finding that taking antidepressants caused her difficulties and now after ceasing that treatment, she is thinking clearly and is able to fulfil the role as a tax agent competently.
The Applicant does not meet the ‘tax practitioner registration requirement’ in paragraph 20-5(1)(a) of the TASA, that she is a ‘fit and proper person’.
Issue 3 Whether the Applicant’s tax agent registration should be terminated under paragraph 40-5(1)(b) of the TASA
Issue 4 If so, whether it should be determined that she may not apply for registration for a period of three years pursuant to subsection 40-25(1) of the TASA.
It is convenient to deal with Issues 3 and 4 together.
The following principles are derived from Beckett and Tax Practitioners Board [2021] AATA 1234 at [62]-[63]. The exercise of the discretion to terminate a tax agent’s registration is not to be used to punish the person, but to protect the public, which is closely linked to ensuring public confidence in the system. The public is entitled to know and expect that people who occupy the position of a tax agent are of high integrity.
A primary purpose of a sanction is to improve the performance of agents and maintain public confidence in agents’ adherence to certain standards’.[30]
[30] Explanatory Memorandum, Tax Agent Services Bill 2009 (Cth) at [3.71].
I have taken into account and address the principles for deciding the appropriate sanction, set out by DP Frost in Kishore and Tax Practitioners Board [2017] AATA 271 that are relevant to the circumstances of this case.
The Applicant’s conduct is serious and likely to be repeated, taking into account her history from 2013, particularly her failure to comply with/understand taxation laws in the conduct of her personal affairs and her lack of insight into her shortcomings.
The potential harm to the public is three-fold. Her failure to comply with/understand taxation laws may adversely affect her clients directly, adversely impact the revenue, and does not uphold the standard of professional conduct the public expects of tax agents.
Five years is the maximum period the Board can determine during which a person may not apply for registration. The Applicant’s conduct requires a significant sanction. A year has elapsed since her registration was terminated. Taking into account her lack of understanding of her shortcomings demonstrated during the hearing, despite claiming to have overcome her major health impediment, it is appropriate that a further two years elapse before she is entitled to reapply for registration. That will give the Applicant time to reflect upon the findings in this decision and take steps to address the shortcomings that have been identified, should she wish, without the pressure of running her business, which she acknowledged added to her depression. The three year period also demonstrates to the public and tax agents generally the importance of adhering to appropriate standards of professional conduct.[31]
[31] Hill at [161].
I have taken into account the Applicant’s evidence about her straightened financial circumstances, that she will have to undertake further studies to be eligible for registration and cannot afford to do so, and that she will be of retiring age by the time she has finished.
However, the overriding consideration is protecting the public.
The appropriate sanction is that the Applicant’s registration be terminated and the determination made that she may not apply for reregistration during a period of three years.
DECISION
The reviewable decision is affirmed.
I certify that the preceding 106 (one hundred and six) paragraphs are a true copy of the reasons for the decision herein of Mrs J C Kelly, Senior Member
.................................[sgd].......................................
Associate
Dated: 26 October 2023
Date of hearing:
27 July 2023
Applicant:
In person
Counsel for the Respondent:
Ms C Horan
Solicitors for the Respondent:
Mr S Burchill and Ms J Mills, Tax Practitioners Board
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