Fortune Corporation Pty Ltd and Anor and Tax Practitioners' Board

[2012] AATA 11

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2012] AATA 11

ADMINISTRATIVE APPEALS TRIBUNAL      )

)    No     2011/0057;
  )              2011/0061

GENERAL ADMINISTRATIVE DIVISION		)
Re		FORTUNE CORPORATION PTY LTD

Applicant

And KEN KAI HING CHO

Applicant

And TAX PRACTITIONERS’ BOARD

Respondent

DECISION

Tribunal Mr M D Allen, Senior Member

Date12 January 2012

PlaceSydney

Decision The Tribunal affirms the decision under review.

....................[sgd].....................

Mr M D Allen
  Senior Member

CATCHWORDS

TAX AGENTS – registration terminated as a result of submitting unverified returns – Investigation and termination powers under Tax Agent Services Act 2009 apply to matters that occurred prior to commencement of that Act – test of fit and proper person – decision under review affirmed.

LEGISLATION

Tax Agents Services Act 2009 Subdivisions 20-A, 40-B, 60-E

Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009 Part 2 of Schedule 2

CASES

Abbott and Australian Prudential Regulation Authority (2008) 69 ATR 329; [2008] AATA 64

Australian Securities Commission v Kippe & Anor (1996) 67 FCR 499

Stasos v Tax Agents Board of New South Wales (1990) 21 ALD 437; [1990] FCA 379

REASONS FOR DECISION

12 January 2012 Mr M D Allen, Senior Member      

1.On 24 November 2010 the Respondent determined that the registration of Ken Kai Hing Cho as a tax agent be terminated pursuant to section 40-5(1)(b) of the Tax Agent Services Act 2009 (“TAS Act”). As a consequence of this decision the company tax registration of Fortune Corporation Pty Ltd (“the company”), of which the Applicant was the sole director, was also terminated.

2.By application made 7 January 2011 both Mr Cho and the company sought review of these determinations by the Administrative Appeals Tribunal.

3.The events that led to the Respondent making its finding that the Applicant was not a fit and proper person to be registered as a tax agent occurred in the period August 2009 to late September 2009. Counsel for the Applicant submitted that there was a lacuna in the scheme established by the current legislation, namely the TAS Act and the Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009 (“Transitional Act”), which had the result that the decision by the Respondent on 24 November 2010 (and notified to the Applicants by letter dated 10 December 2010) was void ab initio.

4.As submitted by the Applicant, the investigation of the Applicants carried out by the Respondent, and notified to the Applicants by letter dated 22 April 2010, was without power and further that the decision made by the Respondent was invalid as it was made in reliance upon conduct which occurred prior to the commencement of the relevant division of the TAS Act.

5.Subdivision 40-A of the TAS Act deals with the grounds for terminating the registration of tax agents, both individuals and companies. As correctly pointed out by Counsel for the Applicants, that part of the TAS Act commenced on 1 March 2010 and hence the impugned conduct preceded the commencement of the relative legislation.

6.To my mind however, this submission fails to read the scheme of the TAS Act as a whole.

7.Subdivision 60-E of the TAS Act deals with investigations by the Tax Practitioners’ Board. That division of the TAS Act commenced on 1 March 2010.

Section 60-95 TAS Act states:

(1)  The Board may investigate:

(a)  your application for registration; or

(b)  any conduct that may breach this Act; or

(c)  other matters prescribed by the regulations.

(2)The Board must notify you in writing if the Board decides to investigate you. The notice must be given within 2 weeks after the decision is made.

(3)  An investigation is taken to commence on the date of the notice.

(4)  The Board:

(a)  has a discretion as to its procedure; and

(b)  is not bound by the rules of evidence.

8.The notice to the Applicants as to the commencement of an investigation was dated 22 April 2010, that is after the commencement of subdivision 60-E of the TAS Act.

9.Section 60-95(1)(b) states that the Tax Practitioners’ Board may investigate “any conduct that may breach this Act”.

10.The continued registration of tax agents registered under the provisions of Part VIIA of the Income Tax Assessment Act 1936 was achieved by Part 2 of Schedule 2 of the Transitional Act.

11.Section 40-5(1)(b) TAS Act states: “If you are a registered tax agent or BAS agent and an individual, the Board may terminate your registration if: you cease to meet one of the tax practitioner registration requirements.”

12.One of the tax practitioner registration requirement as set out in section 20-5 TAS Act is that the individual is a “fit and proper person”.

13.The term “fit and proper person” is defined in section 20-15 in the following terms, namely:

In deciding whether it is satisfied that an individual is a fit and proper person, the Board must have regard to:

(a) whether the individual is of good fame, integrity and character;

…

14.I can see nothing in the scheme of legislation set out above that in any way places any temporal restriction on the matters which the Tax Practitioners’ Board may investigate.  Indeed, it would be most strange if the legislation did, as, for example, some tax schemes may not become apparent until some years after their execution.

15.As I am satisfied that the Respondent had the power to take the action it did, the actions of the Applicants must be examined to ascertain whether, as the Board had a discretion to terminate his registration or not, the decision to terminate was the best or preferable decision in all the circumstances.

16.The events which gave rise to the investigation and subsequent Board action were not contested by the Applicant.

17.In early August 2009 Mr Cho was approached by two men and according to Mr Cho’s evidence there was a conversation to the following effect:

At this first meeting I recall Mr Qamar and I had a conversation to the following effect:

Mr Qamar said:         Murad and I are business partners.  We operate a recruitment business in Parramatta.  We are also involved in organising tax agents services for the members of the Indian community.  We are looking for a tax accountant who can act on behalf of our clients, and if your work is satisfactory this could become a long-term arrangement.  Can you describe what sort of information you need to complete a personal tax return?’        

I replied:For each tax payer I would need a PAYG payment summary, a list of deductible expenses and personal information such as address and date of birth.

18.Apparently following that initial meeting in August 2009 details relevant to twelve returns were provided to Mr Cho who, without seeing the actual clients and accepting at face value what was stated or given to him by Messrs Qamar and Mohammed, prepared returns and lodged them electronically with the Australian Taxation Office (“ATO”).  He had arranged with Messrs Qamar and Mohammed to charge $80.00 per return and on this occasion he was paid $1,000 cash.

19.From this date until around October 2009, Mr Cho, through his practice Ken Nelson and Associates, continued to lodge electronic returns using data provided to him by Messrs Qamar and Mohammed.  At no time did he seek any information evidencing the identification of, or authorisation from, the alleged tax payers.

20.As a result of the returns lodged, tax refund cheques were issued.  These cheques were on forwarded by Mr Cho either by handing it to Mr Mohammed or directing it to an address provided to him by either Mr Qamar or Mr Mohammed.

21.As an explanation for his conduct, Mr Cho in his affidavit of 2 September 2011 said:

I agreed to do the work because I knew that if details such as the tax file numbers and dates of birth, provided by Mr Qamar and Mr Mohammed did not match the ATO’s records for the taxpayer then the ATO’s electronic portal would not issue verification reports.  Also, my understanding was that I was being asked to prepare returns for members of the Indian community who were clients of Mr Qamar and Mr Mohammed.  I knew from my personal experience, as a tax agent that migrants with limited English often ask fellow members of their community for help with things like Tax Returns.  I was not suspicious of these gentlemen at this time, or throughout the conduct of the lodging of the tax returns for the clients they had referred to me as the taxpayer information with which I was provided matched the ATO’s records for these taxpayers.

22.Mr Cho was cross examined regarding this evidence.  I found him to be evasive as to what he actually knew and what steps he took to ascertain if returns had been rejected.  The overall impression I gained was that Mr Cho left the implementation of the lodging of returns to a staff member and then did not supervise her activities so that he did not make himself aware of any rejected returns.

23.Another matter which I find of concern is the information provided to Mr Cho in order that he might prepare the returns.  Even a superficial examination of the returns reveals overwhelming similarity in the expenses claimed and there are discrepancies between some of the PAYG summaries.    For example, in Annexure L to Exhibit A2 the signatory to a PAYG summary allegedly issued by Emirates Airlines is Rustom Balai, who also was allegedly a signatory to a PAYG summary purportedly issued by PriceWaterhouseCoopers (written in that certificate as PRICE WATER HOUSE COOPERS).

24.The evidence is that two persons whom Mr Cho had never met before attended at his accountancy practice which is in Sydney’s Haymarket district.  They stated they operated a recruitment business in Parramatta and that they wished him to prepare tax returns for clients of theirs who were members of the Indian community.  All fees were then paid in cash.

25.Mr Cho prepared returns from documents provided to him by Mr Qamar and Mr Mohammed.  He never carried out any steps to verify the identity of the alleged taxpayers, or whether their claims could be substantiated.  At no time did he obtain any authorisation from the “taxpayers” to act on their behalf.

26.It is difficult not to conclude that in his approach to the lodging of the impugned returns Mr Cho was not affected by a degree of wilful blindness.  That is he must have had some suspicions regarding the activities of Messrs Qamar and Mohammed but preferred to place his trust in the perceived ability of the ATO to reject non-compliant returns.  He then compounded this behaviour by failing to check if returns had been rejected, instead leaving the processing of returns to his staff without adequately supervising his staff.

27.The results stemming from Mr Cho’s actions has been not only the perpetuation of a fraud on the Commonwealth amounting to thousands of dollars but also cases of genuine taxpayers having had their taxation affairs compromised and dealings with the ATO disrupted by the fraudulent capture and use of their tax file numbers.

28.It cannot be overlooked that these results came about because of the failure of Mr Cho to properly perform the duties required of him as a tax agent.

29.As stated above, section 20-5 of the TAS Act states that to be registered as a tax agent an individual must be a fit and proper person.

30.Section 20-15 of the TAS Act then defines “fit and proper person”. The only part of that definition that applies to Mr Cho is at section 20-15(a) of the TAS Act namely whether he is of good fame, integrity and character.

31.I was referred to several cases where the phrase “fit and proper” has been considered by the courts. I do not regard the phrase “fit and proper person” where it is used in section 20-5 TSA Act as being limited to the criteria set out in section 20-15. They are but factors which must be taken into account.

32.The term “fit and proper” is well known in the law (see the extensive discussion of the term by Senior Member Taylor SC in Re Abbot and Australian Prudential Regulation Authority [2008] AATA 64 commencing at [156]).

33.So far as tax agents are concerned, the matter was well summarised by Hill J in Stasos v Tax Agents Board of New South Wales (1990) 21 ALD 437:

Davies J expressed Re Su and Tax Agents' Board of South Australia (1982) 82 ATC 4284 at 4286 the content of what is required of a person fit and proper to be registered or to retain registration as a tax agent in the following words:

… a person of good reputation, has a proper knowledge of taxation laws, is able to prepare income tax returns competently and is able 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.

34.To my mind Mr Cho has completely failed that standard and given his actions and failure to act he can in no manner or form be regarded as a fit and proper person for the purposes of the TAS Act.

35.Various matters were put before me in mitigation, seeking to persuade the Tribunal that deregistration of the Applicants would have detrimental effects upon Mr Cho and his family and also speaking as to his prior good character.

36.I acknowledge that to deprive Mr Cho of the main part of his livelihood would have detrimental effects upon his family who are in no way responsible for events leading to his being deregistered.  I also note that he has not previously been brought to the notice of the Respondent or its predecessor the Tax Agents Board of NSW.  I further note he has taken steps to improve both his knowledge of tax practice and the administration of his practice.

37.As was pointed out by the Full Court of the Federal Court in Australian Securities Commission v Kippe and Anor (1996) 67 FCR 499 at 508:

The immediate and direct legal effect intended by a banning order is not to impose a penalty or punishment on the person concerned, but to be preventative in that it removes a perceive threat to the public interest and to public confidence in the securities and futures industry by removing that person from participation therein.

38.Similar considerations apply here.  The Applicants’ registration has been cancelled because the Respondent cannot have confidence in the Applicants in the sense described in Stasos supra.  In this matter I find that the public interest outweighs the harm that will necessarily accrue to Mr Cho and his family, and the decision under review is affirmed.

39.In affirming the decision under review, I am content to affirm the decision rather than substitute a decision which might have had some regard to a period of disqualification.  The Applicant is free to apply for re-registration and if the Respondent considers that he has taken steps such that it can again regard him as a fit and proper person then that is a matter for the Respondent, especially having regard to Mr Cho’s hitherto unblemished reputation and the steps he has taken to update his knowledge of tax agent practice.

I certify that the 39 preceding paragraphs are a true copy of the reasons for the decision herein of Mr M D Allen, Senior Member

Signed:         ..........[sgd].......................................
  C. Taylor, Associate

Date of Hearing        12 December 2011
Date of Decision        12 January 2012
Counsel for the Applicant               Mr J Smith
Solicitor for the Applicant                LAC Lawyers
Counsel for the Respondent          Mr J Hmelnitsky
Solicitor for the Respondent           Australian Government Solicitor