Ferdinand Lengyel and Tax Practitioners Board
[2012] AATA 134
•2 March 2012
[2012] AATA 134
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2011/4154
Re
Ferdinand Lengyel
APPLICANT
And
Tax Practitioners Board
RESPONDENT
DECISION
Tribunal M D Allen, Senior Member
Date 2 March 2012 Place Sydney The decision under review is affirmed.
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M D Allen, Senior Member
CATCHWORDS
Professional Services: Tax Agent. Application for exemption from requirement to take out Professional Indemnity Insurance as a condition of his registration as a tax agent. Application of policy. Decision under review affirmed.
LEGISLATION
Tax Agent Services Act 2009, Sections 20-30, 70-10
CASES
Cameron and Tax Agents’ Board (WA) (2009) 114 ALD 164
Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577
Drake and Minister for Immigration and Ethnic Affairs (No.2) (1979) 2 ALD 634
Groth v Secretary, Department of Social Security (1996) 40 ALD 541
Skoljarev v Australian Fisheries Management Authority (1996) 39 ALD 517
Secondary Materials
REASONS FOR DECISION
M D Allen, Senior Member
2 March 2012
By application made 27 September 2011, the Applicant sought review of a decision by the Respondent made 14 July 2011 (and communicated to him by letter dated 31 August 2011) to reject his request for exemption from the requirement that he maintain Personal Indemnity Insurance (PII) as a condition of his registration as a Tax Agent.
Subsection 20-30(3) of the Tax Agent Services Act 2009 (TAS Act) states:
“If the Board grants your application, the Board may, by written notice, require you to maintain professional indemnity insurance as specified in the notice. The notice may be given to you at the same time as the notice referred to in subsection (1), or subsequently.”
Section 70-10 TAS Act states that an application may be made to the Administrative Appeals Tribunal (AAT) to review a decision under subsection 20-30(3) to require PII.
Although technically the decision of the Respondent was to deny the Applicant’s request for exemption from the requirement to maintain PII, this is a matter of semantics and the decision of the Respondent is clearly one that requires the Applicant to hold PII.
The Applicant’s case was set out in a letter dated 20 May 2011 by him to the Respondent. In that letter he makes the following submissions, namely:
(a)He is a sole practitioner with an annual turnover of about $10,000.00 in taxation and commercial work;
(b)He is highly qualified with added training and experience where any degree of risk relating to his tax agents work is nil;
(c)Considering the nature, scale and complexity of his work he has adequate financial resources to compensate any client who might suffer loss due to his negligence. He has a limited amount of taxation work and the clients have relatively small amounts of money involved.
In further submissions, (Exhibit A1), the Applicant set out his earnings for the Tax Years 2009, 2010 and 2011. Over those three years the maximum amount he earned from taxation work was $10,942.00.
The Respondent has adopted a policy that all registered tax agents should have PII. That tax agents should have PII is envisaged by Ss30-10(13) of the TAS Act. After stating at S30-5 that the Code of Professional Conduct applies to tax agents, Ss30-10(13) TAS Act states as part of that code:
“You must maintain the professional indemnity insurance that the Board requires you to maintain.”
The Respondent Board has adopted as a policy that as from 1 July 2011 all registered tax agents will be required to have PII, unless exempted.
A further requirement adopted by the Board as policy is that each agent is to have “adequate” cover. “Adequate cover” is stated by the Board to be:
“Adequate cover is cover that will adequately indemnify an agent against any civil liability that may arise in the agent’s provision of tax agent or BAS services; and which meets the Policy Objective of reducing the risk that client losses are not compensated by the agent due to the agent having inadequate financial resources or for any other reason”.
At page 15 of its Explanatory Paper regarding PII the Board stated inter alia that minimum amount of PII cover that an agent was required to maintain was based on turnover. A turnover from the provision of tax agent or BAS services of up to $75,000.00 (exclusive of GST) required a PII cover of $250,000.00.
Provision has been made by the Respondent for applications for exemption from the PII requirements. At pages 18 and 19 of its Explanatory paper the Board states:
“The Board will assess each application on its merits. It may do this through a Committee of the Board. The Board may, if appropriate, give priority to group applications (e.g. for an industry sector or sub-sector).
The Board will only approve an application for exemption from the PII requirement where it can be demonstrated that there are satisfactory arrangements for compensation of clients of agents, having regard to the Policy Objective and the requirements set out in this document. The Board recognises that some alternative arrangements may in fact provide a higher level of cover.
In considering applications for exemption, the Board will take into account the factors used to assess adequacy of PII insurance in accordance with the PII requirement. This means that any alternative arrangements must also be adequate having regard to:
1) the volume of business in terms of turnover;
2) the number and kind of clients;
3) the kind or kinds of business;
4) the number of employees and representatives; and
5) the degree of risk.”
The Respondent assessed the Applicant’s exemption application and rejected it citing its policy that except in certain specific circumstances, where a tax agent is providing services for reward PII must be held.
The application of policy by this Tribunal has been discussed in several cases. The leading case is the decision of Brennan J (as he then was) sitting as President of this Tribunal in Re Drake v Minister for Immigration and Ethnic Affairs (No.2) (1979) 2 ALD 634 at 645, namely:
“When the Tribunal is reviewing the exercise of a discretionary power reposed in a minister, and the minister has adopted a general policy to guide him in the exercise of the power, the Tribunal will ordinarily apply that policy in reviewing the decision, unless the policy is unlawful or unless its application tends to produce an unjust decision in the circumstances of the particular case. Where the policy would ordinarily be applied, an argument against the policy itself or against its application in the particular case will be considered, but cogent reasons will have to be shown against its application, especially if the policy is shown to have been exposed to Parliamentary scrutiny.”
But as His Honour pointed out further at page 646:
“To apply the policy does not determine the decision…”
In Re Drake (No.2) supra at 639 Brennan J stated regarding the application of policy:
“Inconsistency is not merely inelegant: it brings the process of deciding into disrepute, suggesting an arbitrariness which is incompatible with commonly accepted notions of justice”.
A succinct statement of the part policy plays in deliberations of the AAT was given by Senior Member Sweiden in Re Cameron and Tax Agents’ Board (WA) (2009) 114 ALD 164 at 166 para 11, namely:
“The guidelines are policy guidelines which have been developed and endorsed by all of the State tax agents’ boards and as such are not binding on the Tribunal. However, the Tribunal will usually apply policy guidelines unless there are cogent reasons in a particular case not to do so: Re Dainty and Minister for Immigration and Ethnic Affairs (1987) 12 ALD 416; 6 AAR 259 per Davies J at 267.”
Davies J in Skoljarev v Australian Fisheries Management Authority (1996) 39 ALD 517 commencing at p522 said:
“In Re Drake (No.2) Brennan J said at 645 that, because of the part which policies play in fair administrative decision-making, the AAT should apply a lawful policy ‘unless there are cogent reasons to the contrary’ such as ‘injustice in a particular case’.
…The decision must be made having regard to the decision and its context, the nature and ramifications of the policy, and the nature and consequences of the individual circumstances which are relied upon.”
At p523, his Honour said:
“When, in Drake (No.2) Brennan J spoke of ‘injustice in a particular case’ his Honour did not have it in mind that the matter should be governed entirely by the hardship to the individual.”
The Applicant conceded that the application of the policy in his case would not cause him any hardship but maintained that it would act to his disadvantage. I am unsure in what way the Applicant is disadvantaged, except of course that he will have to purchase PII which, as I understand his evidence, can be obtained for sums ranging from $387.74 to $855.25 per annum. (See Exhibit A2). Such sums are of course deductible outgoings in any income tax return filed by the Applicant.
Further, I do not regard the Applicant to be at a “disadvantage” in having to obtain PII. In Groth v Secretary, Department of Social Security (1996) 40 ALD 541 at 545, Keifel J said:
“The Tribunal held that Mr Groth’s circumstances ‘are not out of the ordinary when regard is had to those subject to the provisions of Pt 3.14’ which, as I have said, mean simply that the section can be seen to have the same effect on him as it does to other persons qualified to receive such a pension. It went on to find that his circumstances and those of his family, although difficult, did not constitute hardship and they could not be said to be different from other pension recipients. There is, I consider, no error disclosed in the reasoning to this conclusion.”
I consider that there is an analogy in this matter to Groth’s case in that the Applicant is in exactly the same situation as any other person applying for registration as a tax agent.
Although the Respondent in its reasons for decision seems to have proceeded on the basis of an application of policy without detailed consideration of the Applicant’s circumstances, I am not called upon to review the Boards reasoning, but to make the correct or preferable decision on the material before me. (See Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577 at 589.)
The starting point for consideration must be that the Applicant does perform the work of a tax agent for reward. Although his turnover is low, turnover per se is no indication of the complexity of the returns involved. In evidence the Applicant stated that he did do some company returns which I assume are more complex than common or more routine PAYE returns.
The Applicant complains that he is an experienced tax agent and has had no previous claims against him for negligence in the preparation of returns. This much can be accepted but the purpose of insurance is to guard against unforseen contingencies.
That the Applicant could meet any claims from his own resources is in my view irrelevant. If the Applicant has PII any claims will be the responsibility of the Insurer and will no doubt be resolved far more expeditiously than a disgruntled client having to take action against the Applicant personally.
Even though the Applicant may presently be able to meet any claim from his own resources, that situation may change.
I agree with the Applicant that he is probably at low risk from incurring a claim for professional negligence in the conduct of his practice as a tax agent. On the other hand, the payment of any premium will not occasion him any hardship, as conceded by him, and I note that cover is attainable for a very low amount and is a deductable outlay.
On balance I find that the policy of the Respondent should be applied in the Applicant’s case and therefore the decision under review is affirmed.
I certify that the preceding 25 (twenty five) paragraphs are a true copy of the reasons for the decision herein of M D Allen, Senior Member.
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Associate
Dated 2 March 2012
Date(s) of hearing 15 February 2012 Applicant In person Counsel for the Respondent Mr C Lenehan Solicitors for the Respondent Mr N Gouliaditis,
Australian Government Solicitor
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