Dou and Tax Practitioners Board

[2024] AATA 2580

Dou and Tax Practitioners Board [2024] AATA 2580 (19 July 2024)

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2023/7860

Re:Quansheng Dou

APPLICANT

AndTax Practitioners Board

RESPONDENT

DECISION

Tribunal:Senior Member Benk

Date:19 July 2024

Place:Sydney

The decision under review is affirmed.  This means the application is unsuccessful.

...........[SGD].........................................................

Senior Member Benk

Catchwords

APPLICATION FOR REGISTRATION AS A TAX AGENT – whether the applicant has the required relevant experience to be registered – whether the applicant has worked under the supervision and control of a registered tax agent for the required period – paucity of evidence to demonstrate ‘supervision and control’ – decision under review

affirmed.

Legislation

Tax Agents Services Act 2009 (Cth) ss 20.5, 90-5

Tax Agent Services Regulations 2022 (Cth) Schedule 2, items 201, 212

REASONS FOR DECISION

Senior Member Benk

19 July 2024

1. On 30 May 2023, Mr Dou (the applicant) lodged an application for registration as a tax agent with the Tax Practitioners Board (the respondent). On 27 September 2023, the respondent refused the application concluding he had not met the work experience requirement as he had not undertaken work with the ‘supervision and control’ necessary by his employer Malcolm Howarth, whose tax agent registration had been terminated by the board on 1 June 2023. 

2. The applicant now seeks independent review of that decision.

   THE REGULATORY REQUIREMENT

3. The law relevant to this application is found in the Tax Agent Services Act 2009 (Cth) (the Act). Section 20.5 (1) of the Act provides for registration as a taxation agent if an applicant has met all the requirements prescribed by the Tax Agent Services Regulations 2022 (Cth) (the Regulations) and is a fit and proper person (amongst other matters).

4. Relevantly, as the applicant’s tertiary qualifications are acknowledged, item 201(d) of the Regulations requires him to show he had undertaken at least 1 year of full-time relevant experience (or part-time equivalent) in the last 5 years (my emphasis).

5. The definition of ‘relevant experience' is found in Item 212 of Schedule 2 of the Regulations and requires the applicant to have undertaken work under the supervision and control of a tax agent registered under the Act which includes substantial involvement in the provision of one or more of the types of tax services described in section 90-5 of the Act.[1] (my emphasis).

   [1] Which include but are not limited to ascertaining liabilities, obligations or entitlements of an entity that arise or could arise under taxation law; advising an entity about liabilities, obligations or entitlements that could arise under taxation law and to claim entitlements that arise, or could arise, under a taxation law (amongst other things).

   THE ISSUE

6. The issue here is whether the applicant has undertaken at least 1 year of full-time relevant experience (or part time equivalent) in the last 5 years under the supervision and control of a tax agent registered under the Act and whether he can demonstrate substantial involvement in one or more of the types of taxation services described in section 90-5 of the Act.

   APPLICANT’S CONTENTIONS

7. The applicant submits:

   (i)He has more than 5 years relevant experience under the supervision of registered tax agent, Mr Howarth at the time of his application. 

   (ii)Mr Howarth adopted measures in his day-to-day supervision of him including:

   (a)inspecting and advising and directing him how to undertake his tasks;

   (b)provided a substantial degree of oversight on a daily basis;

   (c)provided ongoing training;

   (d)had quality assurance and control mechanisms in place to conduct audits of the work undertaken by him; and

   (e)strictly adopted the measures recommended by the respondent to    ensure that there was adequate supervision and control. [2]As to the level of supervision and control, the applicant submitted in his application for registration (unedited):

   Malcolm is always beside me in the office. Every day he mentors and trains me on how to do my work as an accountant and consultant in Twin Cities Tax & Accounting. I also get trained via reading & searching documents from NTAA, MYOB, IPA Subscriptions, CPA Australia Subscriptions, Accountant Daily et al. I have a simplified diary record of my formal training with NTAA, MYOB below. However, the training and education I got is far more than that below…

   Every day, Malcolm allocates certain work to me. I complete a draft of the work and then submit it to Malcolm for review. During the process to do my work, I always got supervised and mentored with Malcolm always staying beside me. He went to my office almost every one hour to check the process of my work and have a talk with me about the work. He gave me instructions, answered all my questions, gave me feedback, reviewed the work done et al. Malcolm invoiced clients for tax agent services.

   (iii)He commenced employment with Mr Howarth in 2017 with a view to obtaining the relevant experience so that he could ultimately be registered as a tax agent.  He had more than five years of work experience at the time he applied. He testified that even though he could have applied for registration sooner, time got away from him as he was preoccupied with the demands of full-time employment and parenting. 

   (iv)His colleague (Ms Jaro) also ‘supervised’ by Mr Howarth was successful in her registration just months earlier. He asks if Mr Howarth’s supervision was adequate for Ms Jaro’s application, why not for him?  He submits had he applied earlier, say at the same time as Ms Jaro, he would have been registered and so avoided this ordeal submitting the respondent lacks consistency in decision making.

   (v)He has learned 46 of the taxation returns completed by Mr Howarth during the Pandemic and specifically the 2020/2021 financial year had errors, but this does not automatically mean the balance of the supervision in other financial years should be disregarded for the purposes of relevant work experience. The applicant provided a flow chart which showed that between May 2018 to June 2021 (prior to the alleged errors identified) he was the ‘subject of full-time relevant work experience under the supervision and control of a qualified tax agent without any misconduct’.[3] The applicant submits that outside of the 2020/2021 financial year, the Board had no cause to suspect that Mr Howarth was not competent to provide taxation services and supervision to him.

   (vi)There are no factual or legal grounds for the respondent to conclude Mr Howarth could not have provided adequate supervision for all periods sufficient to enable him to obtain the necessary work experience.

   (vii)He relies on the evidence of Malcolm Howarth which is consistent with his own with regards to the chronology of events, the level of supervision provided and the registration of Ms Jaro.

   [2] Applicant’s Statement of Issues, Facts and Contentions – Folio 1740-1751 of the hearing book

RESPONDENT’S CONTENTIONS

The respondent submits:

(i)The objects of the Act are to support public trust and confidence in the integrity of the tax profession and tax system by ensuring tax agent services are provided in accordance with appropriate standards of professional and ethical conduct.  The respondent oversees registration and regulation of individuals providing tax agent services along with a Code of Conduct;

(ii)The relevant work experience requirement ensures the public is not exposed to tax agents who lack the requisite degree of competence and ethical standards which can only be assured with satisfaction when an applicant has obtained the requisite ‘supervision and control’ of a ‘registered tax agent’;

(iii)The applicant is misled in his belief that Mr Howarth only had errors in the 2020/2021 lodgements as the uncontested evidence demonstrates:

a.In 2016 an ATO audit of ten income taxation returns lodged by Mr Howarth for the 2015 financial year resulted in adjustments to 9 of the returns with a tax shortfall resulting from the audits of approximately $63,276 and total penalties of $13,757 imposed on those clients;

b.In 2018, the ATO wrote to Mr Howarth expressing concerns about income tax returns that he had lodged and notified him that it would be monitoring his lodgements and forecasted that if problematic lodgements continued he would be placed on the ‘higher risk agent’ program;

c.In 2019, Mr Howarth was formally placed on the “higher risk agent” program;

d.In 2021/2022 the ATO audited 54 income taxation returns for the 2020/2021 financial year lodged by Mr Howarth and identified a tax shortfall of $259,935 with penalties imposed of $15,402 on those clients; and

e.On 5 September 2022, the respondent received a referral from the ATO concerning the conduct of Mr Howarth which resulted in an investigation and ultimate termination of his taxation registration after he had been found to have systemically claimed deductions for clients which had no nexus to income; claimed deductions for clients which could not or were not substantiated; had not taken reasonable care to ascertain the state of affairs of his clients and finally had contravened or disregarded tax laws when preparing income tax returns on behalf of clients.

(iv)It can be inferred given his own shortcomings in the management of his taxation practice that Mr Howarth could not have realistically provided the applicant with the adequate/accurate ‘supervision and control’ necessary to meet the work experience requirement as required by the Act.   Further, the applicant’s recount of supervision lacks detail.

EVIDENCE OF MALCOLM HOWARTH

The mainstay of Mr Howarth’s oral testimony was:

(a)The applicant is very experienced, and he is more than satisfied that he would be an exemplary taxation agent;

(b)There were no ‘formal’ protocols for training, no training manuals or policies or procedures or control mechanisms in place.  It was a small office with no more than 2-3 employees present at any time and if there were any issues flagged by the applicant, he would check them on the spot and provide guidance when required.  The supervision was daily, there were no formal peer to peer reviews but rather informal coaching on a daily basis or when the need arose;

(c)He also checked returns before submitting them to ensure adequate primary supporting documentation had been considered for all claims made. When questioned how he would do this or why he would do this given that his own conduct revealed that he had shortcomings in this area, he testified that each taxation return is different and the ATO does not appreciate what he or his clients do on a day-to-day basis. His role was to ensure the best return for his clients and the ATO would have ‘no idea’ what was appropriate given each client’s unique circumstances;

(d)He was always available to provide advice to the applicant, who realistically needed “very little” given his level of qualifications and “all the letters after his name”;

(e)The decision of the ATO and respondent to terminate his registration was nothing short of a witch hunt that destroyed his career crippling him financially and emotionally. He admits he did not appeal the decision to terminate his registration as he did not have the funds to do so, and the matter has ‘broken him’;

(f)To the extent that it overlapped his written statement of support for registration of the applicant to the respondent was consistent with oral testimony relevantly (unedited):

I mentored him to do tax agent service work, and checked and reviewed all his work done for our clients. I gave him feedback frequently. Regarding 2020/2021 financial year tax returns of the 46 individual clients audited by the ATO, Mr. Dou did not prepare any tax return for them. I attached one Statutory Declaration for this.

As I commented in the Statement of Relevant Experience, Mr. Dou is employed as the senior accountant. He is a CPA, MBA, MPAcc accountant. I would rate his tax experience and competency among the highest level in this field. He is very passionate about tax services and has amassed many hours of investigation into the tax issues of today….

…Mr. Dou has not lodged any tax returns. He prepared tax returns and submitted them to me for check and review. I checked all his work and did all the lodgement work. There is no official employment contract, as we are a small business. We had no resources to do this formally. We always had oral agreement in place for Mr Dou’s employment. This has lasted for almost 6 years.

CONSIDERATION

The term 'supervision and control' is not defined by either the Act or the Regulations. The Macquarie Dictionary defines supervise as ‘to oversee (a process, work, workers, etc) during execution or performance; superintend; have the oversight and direction of’. Control is defined as ‘to exercise restraint or direction over; dominate; command, to hold in check; to act or power of controlling; regulation; domination or command.’

The definition of supervision and control must be read and aligned with the object of the Act and the Regulations which mandates tax agent services be provided professionally and ethically. I consider that this can only be achieved if the supervision and control is legally and factually accurate, genuine, enforced with checks and balances and easily demonstrable/verifiable so that those who seek registration develop the requisite skills and ability by a professional skilled in the area. 

I have had regard to the submissions.  I found the evidence with regards to supervision and control to be unpersuasive, primarily because on key issues the testimony of the applicant and Mr Howarth was somewhat inconsistent. In oral evidence, the applicant referred to the pattern of supervision and control (summarised in paragraphs 7 (ii) of these reasons).  However, on cross examination, Mr Howarth suggested very little supervision was required as the applicant was “highly educated and experienced” and would know when to “flag matters” that needed a “second opinion”.  He continued by testifying that regardless, he diligently checked “each” return and the primary documents before lodging the return.  In response to specific and extensive questions by counsel for the respondent, Mr Howarth testified that he could not identify specific matters that were flagged by the applicant, or the advice given as each case varies. Counsel for the respondent spent much time cross examining him about the decisions made about primary documents relating to taxation claims. Mr Howarth testified there were some cases when primary documents were not required or others where he concluded a taxpayer’s declaration that documents existed was sufficient (this part of the evidence was concerning as I had understood that the applicant was the primary liaison point with the taxpayer and was responsible for preparing the return).  It beggars belief that Mr Howarth during the course of supervision and control would deem a taxpayer’s declaration about documentation appropriate in the absence of any direct communication with the taxpayer or evidence of that communication with the applicant. Contrary to the applicant’s evidence, Mr Howarth indicated there were no hard and fast training procedures, protocols, control mechanisms and no documentary record kept relating to feedback, peer reviews or advice that he had given but feedback was given by email at times. Each case was assessed in isolation and ‘I was just in the office next door… I was always present’. 

Overall, I find there is a paucity of evidence verifying the level of ‘supervision and control’ of the applicant. I appreciate he was employed in a small practice where it may not be practical to have written protocols or systems in place to validate supervision and control.  The requirement of supervision and control is not contingent on the size of the practice, but a mandatory requirement for all individuals seeking registration. The evidence was that feedback was given in the form of email, but no such dossier was provided.  As indicated above, the oral evidence of the applicant and Mr Howarth did not persuade me of adequate supervision and control, primarily because it was inconsistent on key points; the applicant maintaining that there were systems in place regarding supervision and control, but Mr Howarth suggesting that the applicant was so well educated he required little supervision and control, such being instigated only when an issue was ‘flagged’ by the applicant.  This falls short of the ‘supervision and control; when aligned to the objectives of the Act and Regulations. For example, if a matter was not flagged and so not scrutinised by Mr Howarth, how would the applicant be reassured that his work met the relevant standards or was accurate?  Whilst there was evidence as to the number of returns processed or worked on by the applicant, it is not clear whether this represented all of the matters that he came in contact with. Mr Howarth suggested that he checked “each and every return” and the primary documents. Given Mr Howarth had his registration terminated because of shortcomings and inaccuracies in these areas, I have reservations about the evidence and find that I cannot place significant weight on it.

It is insufficient for an applicant to assert that by ‘doing time’ or attending work regularly in the presence of a registered agent in a tax practice that the work experience requirement is met.  Presence and supervision are two distinct terms.  More is required and unfortunately there is a dearth of evidence in this aspect.  True, the applicant’s documents nominate the number of taxation returns he had prepared and the character and type, including individual returns, partnership returns, trust returns etc. However, no evidence has been provided as to the actual client engagement that is (face to face, telephone or email), time spent, issues dealt with, the knowledge gained/applied, key areas for improvement, feedback and importantly, the actual oversight or input provided by Mr Howarth, such evidence being necessary to establish ‘supervision and control’. Mr Howarth’s evidence suggested that this level of documentation was unnecessary and impractical given the size of his practice. Evidence of supervision is mandatory and not an onerous task requiring nothing more than the documentation of achievements, learnings, feedback on a case-by-case basis coupled with periodic review, whether formal or informal, which would establish evidence of the level of control, direction, and oversight. Each workplace is different and I accept that the substance, form and manner of such information collection would vary depending on the size of the practice and the working arrangements and that ‘one size does not fit all’ but consider such information must be documented contemporaneously and be in a form that is accessible at call to allow for a proper assessment of the extent of supervision and control that an individual has been subject to at any given point in time. 

The evidence revealed that the vast majority of supervision arose when the applicant ‘flagged’ an issue, suggesting that any supervision or direction was at the instigation of the applicant and not the other way around, which does not meet the definition of supervision, specifically ‘oversight and superintendence’ and control that is ‘direction, regulation or command’ of the supervisor.  At hearing, I asked the applicant why he did not provide feedback documents or evidence of any supervision given? He responded by saying that he understood that he provided all that was necessary. 

1. The action of registering an individual as a tax agent is significant. In an increasingly complex and regulated landscape, the ‘supervision and control’ which forms the cornerstone of registration must be demonstrated and established to an actual and persuasive level of satisfaction.  This is because end users and the public in general should be able to trust that an individual registered by the Board has the degree of experience and the core competencies required to meet the complexities of our taxation system and further derive comfort that they have complied with all obligations under the Act when retaining the services of a paid tax agent.  Registration also ensures the profession and public collectively have a reliable means of identifying practitioners with expertise in the field. It also promotes collective confidence in taxation agents as a profession. It is a trite statement that registration cannot be entertained lightly. 

2. I acknowledge the applicant maintains the decision is unjust as Ms Jaro has been registered under the same circumstances. That application and ultimate registration does not assist me with forming an opinion about the relevant work experience, supervision and control that was exercised over him.  Whilst I acknowledge the applicant’s sense of injustice, unfairness, and inequitable treatment, my assessment is confined to his circumstances.

3. The respondent’s argument is that Mr Howarth was not competent to provide supervision and control such being evidenced by his unchallenged cancellation of registration and the inaccuracies and errors evidenced in his own work.  This is a valid observation, but analysis of that contention is largely redundant given my findings about the lack of evidence about supervision and control in the circumstances of this case.

   CONCLUSION

4. For the reasons above, I find the applicant was not subject to the ‘supervision and control’ required by the Act and Regulations and so has not met the work experience requirement.

   DECISION

5. For these reasons, I affirm the decision of the respondent.

I certify that the preceding 20 (twenty) paragraphs are a true copy of the reasons for the decision herein of Senior Member Benk

...................[SGD].....................................................

Associate

Dated:  19 July 2024

Date(s) of hearing:	27 June 2024
Applicant:	In person (Microsoft Teams)
Counsel for the Respondent:	B McGlade
Solicitors for the Respondent:	S Burchill & J Mills, Tax Practitioners Board