Dreves and Tax Agents' Board of Queensland

[2000] AATA 239

DECISION AND REASONS FOR DECISION [2000] AATA 239

ADMINISTRATIVE APPEALS TRIBUNAL      )

)     No Q1999/760

GENERAL ADMINISTRATIVE DIVISION          )          

Re      GLEN ALLAN DREVES   

Applicant

And    TAX AGENTS' BOARD OF QUEENSLAND    

Respondent

DECISION

Tribunal       Mr K L Beddoe (Senior Member) 

Date28 March 2000

PlaceBrisbane

Decision      The decision under review is affirmed.   

Decision No 239/2000                  (Sgd)  K L Beddoe
  Senior Member
CATCHWORDS
TAX AGENTS : Registered tax agent – What is a partnership – Fit and proper person – Relevant employment

Income Tax Assessment Act 1936 – s6(1), s251A, s251BC, s251JA, s251KB, s251N
Income Tax Assessment Regulations 1936 – s156

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

REASONS FOR DECISION

Mr K L Beddoe (Senior Member) 

1. The applicant seeks review of a decision made by the Tax Agents' Board of Queensland on 25 May 1999 rejecting an application made by the applicant for registration as a tax agent in Queensland (T2).  The applicant contests the decision stating that all requirements to be registered as a tax agent were satisfied.

2. Section 6(1) of the Income Tax Assessment Act 1936 ("the Act") defines "registered tax agent" as having the meaning given by section 251A of the Act. Section 6(1) of the Act defines "partnership" to mean an association of persons carrying on business as partners or in receipt of income jointly, but does not include a company.

3. Section 251A of the Act provides that a registered tax agent means a person or partnership who or which is registered as a tax agent.

4. In regard to the original registration of tax agents section 251JA(1) of the Act provides that the Board shall register the applicant as a tax agent if the applicant satisfies the Board that:

   (a)       if the applicant is a natural person:

   (i)the applicant is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters; and

   (ii)the applicant is not an undischarged bankrupt;

   (b)       if the applicant is a partnership:

   (i)a partner specified in the application as the original nominee of the partnership is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters;

   (ii)       in the case of each partner who is a natural person – the partner:

   (A)has attained the age of 18 years at the date on which the application is made; and

   (B)is of good fame, integrity and character;

   (iii)in the case of each partner that is a company – each executive officer of the company:

   (A)has attained the age of 18 years at the date on which the application is made; and

   (B)is of good fame, integrity and character; and

   (iv)there is no partner who is an undischarged bankrupt…

1. Subsections (2) and (3) of section 251JA of the Act provide for refusal of registration by the Board.

2. In so far as is relevant section 251BC(1) of the Act provides that a person is not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters if:

   (a)       the person is not a natural person;
   (b)       both of the following conditions are satisfied:

   (i)        the person was not registered as a tax agent, or as a nominee;

   (ii)the person does not hold such qualifications (whether academic, by way of experience or otherwise) as are prescribed.

1. Section 251KB of the Act provides that a person or partnership may, in an application made for the purpose, request a Board to register as a nominee of the person or partnership:

   (a)       in the case of a partnership – a partner or an employee of the partnership; or

   (b)in the case of a natural person or company – an employee of the person or company.

1. In regard to the preparation of returns section 251N provides that a registered tax agent shall not allow any person, not being his employee, a registered tax agent or in the case of a partnership which is registered as a tax agent, a member of that partnership to:

   (a)prepare on his behalf, either directly or indirectly, his own or any other income tax return or objection; or

   (b)conduct on his behalf, either directly or indirectly, any business of himself or any other person relating to any income tax return or income tax matter.

1. The relevant regulation in this instance, namely Regulation 156 of the Income Tax Regulations 1936 ("the Regulations") sets out in detail the prescribed qualifications that are needed to be met for the purposes of section 251BC(1)(b)(ii) of the Act. These qualifications in Regulation 156(1)(a) prescribe that the person:

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

   (ii)       shall have:

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

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

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

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

1. "Relevant employment" is defined in Regulation 156(2) to mean employment by a person or a partnership or as a member of a partnership in the course of which there has been substantial involvement in income tax matters including:

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

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

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

1. At the hearing Mr Hackett appeared for the applicant and Mr McLeod appeared for the respondent. The documents lodged in the Tribunal pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 were before the Tribunal as the T documents and further documents were tendered and marked as exhibits. Oral evidence was given by the applicant.

2. The applicant holds a Bachelor of Commerce degree from the University of Queensland, graduating in 1978 and was registered as a tax agent in the early 1980s becoming an associate member of the Australian Society of Accountants at approximately the same time.  Following on from this the applicant sat and passed the society's exams which enabled him to practice as a Public Accountant and subsequently become a Certified Practicing Accountant ("CPA").

3. The applicant was employed in January 1977 as an internal accountant by John Hall Pty Ltd, firstly on a part-time basis and subsequently on a full-time basis until September 1986.  The applicant also worked on a part-time basis with his father who was an accountant and registered tax agent during this period (Exhibit G).

4. From October 1986 until October 1996 the applicant was the Managing Director and ¼ shareholder of QCC (Qld) Pty Ltd.  In this capacity the applicant did all the internal accounting work and was responsible for preparing and lodging the company tax returns.  The applicant said in his evidence that it was during this period that his Tax Agent's licence and CPA registration lapsed due to work commitments.

5. In July 1997 the applicant purchased an existing public accounting practice located at 449 Beaudesert Road, Moorooka, Queensland.  In his evidence the applicant said it was his intention, and this was accepted, that the applicant intended to work with his father to gain the necessary 12 months relevant employment that was required to become a registered tax agent.  However before this period could be completed the applicant's father died in October 1997.  It was submitted to the respondent that the applicant had begun the relevant employment on 1 July 1994 (T3).  After hearing evidence from the applicant, I think it is more likely that this period started on 1 July 1997.

6. In order to meet the requirements of Regulation 156 the applicant sought a meeting with Mr David Thomson, with a view to forming a partnership.  Mr Thompson was a registered tax agent who, according to the applicant, wished to develop his own business but lacked the necessary capital and client base to do so.

7. Exhibits A and B are notes apparently prepared by Thomson of what was discussed at this meeting.  The applicant gave evidence that Thomson was to receive $40,000 per year paid as a salary on a weekly basis.  Exhibit A makes reference to the word "partnership" throughout implying that this was the context in which discussion took place.  No formal partnership agreement was ever drawn up even though this was mentioned in the notes (Exhibit B).

8. The applicant stated in his evidence that a formal partnership agreement was not executed because both parties believed a formal partnership could not be formed for ethical reasons.  Their belief came from the CPA rules which prevent a practising member, in this case, Thompson, being in a partnership with a non-member, namely the applicant.

9. The business started on 1 January 1998 with the letterhead carrying the name "Dreves Thomson Accountants" (Exhibit D).  Business cards were printed with the applicant identified as a partner (Exhibit D).  Registration of the business occurred on 5 January 1998 (Exhibit C).  The business closed in June 1999 (Exhibit G).  It was not asserted before the Tribunal that the business was registered as a tax agent nor that Thomson was a registered nominee of that business.

10. The applicant's evidence is that he did some of the tax accounting work and preparation of tax returns, keying in the information.  He did not, however, do the final stage of lodgment of income tax returns.  This was done by Thomson who checked the work and lodged the returns using his tax agent's number (Exhibit J).  Further evidence given by the applicant was that Thomson handled any tax objections and the applicant would only give advice if Thomson was present or if information had been checked previously.  Written advice was never given.

11. It became apparent during the hearing that the applicant lacked the understanding as to the exact nature of his business relationship with Thomson.  Records from the Australian Tax Office (T4) did not accord with the information provided by the applicant.  An income tax return lodged by the applicant for the income period 1 July 1997 to 30 June 1998 shows that:

    (i)        the tax return was lodged by an individual;

    (ii)the address of the main business is the same as the applicant's address;

    (iii)the place of business was the applicant's home address; and

    (iv)an amount of $18,942 was listed as an expense for consultants fees which was explained by the applicant in his evidence to be the wages paid to Thomson.

12. In his evidence the applicant could not explain to my satisfaction, why the fees paid to Thomson were there and why they were described as "Consultants fees".

13. Further the applicant indicated that he in fact was employed by Thomson in his application to the Tax Agents' Board (T3).  Document T4/22 further shows the applicant's confusion as to his business relationship with Thomson.  It states:

    "During the year ended 31 December 1998, David Thomson and I carried on a joint venture (not a partnership) whereby I prepared the income tax returns for him under his supervision.  I also carried on a concurrent business of management accounting.  Fees received from David Thomson are disclosed in my income tax return as sales."

1. I am satisfied that the applicant's oral evidence is contradictory to what was said within his initial application to the Tax Agents' Board (T3) and also with what was said in his Tax Return (Exhibit H).  On one hand he says he was employed by Thomson (T3) and on the other he says he was employing Thomson (Exhibit H) leaving the Tribunal to conclude the applicant is unsure of the exact nature of the relationship between himself and Thomson.
   The Contentions

2. The applicant contends that he has the relevant employment as prescribed by Regulation 156(1)(a)(ii) either as a supervised employee of Thomson or in the nature of or equivalent to a partnership conducted with Thomson.  The applicant further submits that his experience/employment/supervision constitutes relevant employment under Regulation 156(1)(a)(ii)(A) or its its "equivalent" under subparagraph C as defined by Pincus J in Tax Agents' Board of Queensland v Seymour (1990) 21 FCR 357.

3. The respondent contends that the applicant was not an employee or partner of Thomson but instead an independent contractor and as such failed to satisfy the requirements in subparagraphs A & B of Regulation 156(1)(a)(ii).  It was further submitted to the Tribunal that subparagraph C of this regulation does not adopt the definition of "relevant employment".
   Consideration

4. The primary question of fact which requires determination is whether the applicant was in partnership with Thomson for the period of 1 January 1998 to 31 December 1998.  This is to be determined by examining the exact nature of the relationship between the applicant and Thomson.

5. Whether a partnership exists is a question of fact with the onus upon the person alleging a partnership to prove.  Factors likely to be relevant are:

   (a)the mutual assent and intention of the parties;

   (b)joint ownership of business assets;

   (c)registration of business name;

   (d)joint business account and the power to operate it;

   (e)extent to which parties are involved in the conduct of the business;

   (f)extent of capital contributions;

   (g)entitlements to a share of net profits; and

   (h)business records.

6. Section 251N of the Act contemplates supervision and control. For applicants to be engaged in "relevant employment" they must be under the type of supervision and control as contemplated by section 251N (c/f Seymour).

7. On the evidence before the Tribunal there is no objective material to show a partnership.  All indications point to the applicant being in a position of an independent contractor or sole trader who employed Thomson.  This in turn indicates it is the applicant who has control.  Factors which lead to this conclusion on the material before me are that the applicant only lodged an individual tax return during the relevant period, he paid an amount to Thomson as consultant fees (which in itself creates its own problems), the bank account was in his name only and the applicant was the only signatory to this account.

8. There is no documentary evidence that explains the nature of the relationship leading me to conclude that the applicant was neither an employee of or in partnership with Thomson.

9. Before the Tribunal it was clear the applicant was defining partnership according to partnership law. The definition of "partnership" contained in section 6(1) is wider than this. The phrase "persons in receipt of income jointly" in the definition includes persons who receive business income jointly although they are not in partnership according to partnership law.

10. Whether a partnership would have been effective although it was contrary to CPA rules is not a question I have to decide.

11. In any event, the scheme of the Act is that a partnership may be registered as a tax agent even if not all of its members would be entitled to be so registered (section 251A). Within this registered tax agent partnership, there must be a registered nominee (section 251KB) who supervises and controls the employees or unregistered partners. I am satisfied the applicant did not enter into such a partnership.

12. The applicant's relationship to Thomson was one of employer. He paid Thomson a salary on a weekly basis. He did not understand that they were not in partnership. Therefore the applicant falls outside the relevant employment qualifications of section 251BC(1)(b)(ii) of the Act as prescribed in Regulation 156(1)(a) as self-employment does not constitute relevant employment or employment equivalent to relevant employment as required by Regulation 156(2).

13. Pincus J clearly excludes the self-employed from the definition of relevant employment as required under the regulations in Tax Agent's Board (Qld) v Seymour (1990) 21 FCR 357. His Honour at 361 states:

    "a "self-employed" person…not being himself a registered tax agent is simply not dealt with by the provisions of the Act dealing with registration of tax agents…"

14. The secondary issue that remains to be answered is whether the applicant is otherwise a "fit and proper person" to hold registration as a tax agent.  However, because I am satisfied that the applicant does not satisfy the relevant employment test it is not necessary to deal with this issue.

15. The Tribunal finds that the applicant does not possess the relevant experience as prescribed by Regulation 156(1)(a)(ii) and is therefore not a fit and proper person to be a tax agent as defined by section 251BC of the Act for the purposes of section 251JA of the Act.

16. For these reasons the decision under review will be affirmed.

    I certify that the 39 preceding paragraphs are a true copy of the reasons for the decision herein of Mr K L Beddoe (Senior Member)

    Signed:         
      T G Lowther
       Associate

    Date/s of Hearing  23 February 2000
    Date of Decision  28 March 2000
    Counsel for the Applicant        Mr Hackett
    Solicitor for the Applicant         Crouch & Lyndon
    Counsel for the Respondent    Mr McLeod
    Solicitor for the Respondent    Australian Government Solicitor