G J Brown & Co Pty Ltd and Tax Practitioners Board
[2016] AATA 740
•23 September 2016
G J Brown & Co Pty Ltd and Tax Practitioners Board [2016] AATA 740 (23 September 2016)
Division
GENERAL DIVISION
File Numbers
2015/6228
2016/2116
Re
GJ Brown and Co Pty Ltd and
Gregory Brown
APPLICANTS
And
Tax Practitioners Board
RESPONDENT
DECISION
Tribunal Senior Member A C Cotter
Date 23 September 2016 Place Brisbane The Tribunal affirms the decisions under review.
.............................[Sgd]...........................................
Senior Member A C Cotter
Catchwords
TAX AGENTS – renewal of registration – termination of registration – eligibility for registration -- whether individual applicant is a fit and proper person – good fame, integrity and character – where individual applicant is sole director of corporate applicant – compliance with taxation laws – where individual applicant lodged own income tax returns late – where individual applicant guilty of offences against taxation laws – where corporate applicant has either lodged late or not lodged income tax returns, FBT returns and BAS – where entities controlled by the individual applicant also lodged returns late or not at all – decisions under review affirmed
Legislation
Tax Agent Services Act 2009 (Cth), ss 2-5, 20-5, 20-15, 20-25, 30-10, 40-5, Part 3
Taxation Administration Act 1953 (Cth), s 8CCases
Delis & Anor and Tax Practitioners Board [2015] ATC 10-408
Delis v Tax Practitioners’ Board [2016] FCA 570
Hughes and Vale Proprietary Limited v New South Wales (1955) 93 CLR 127
Stasos v Tax Agent’s Board (1990) 21 ALD 437
Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321
Carbery and Associates Pty Ltd and Tax Agent’s Board of Queensland [2001] AATA 107
Re Proh and Tax Agents’ Board of Victoria (2010) 78 ATR 663
Re Phillip Same Accountants Pty Ltd and Tax Practitioners Board (2010) 79 ATR 292
Phillip Same Accountants Pty Ltd v Tax Practitioners Board [2011] FCA 36
Toohey and Tax Agents’ Board of Victoria [2009] AATA 603
Re Adamec and Tax Agents’ Board of Victoria (2005) 60 ATR 1243Secondary Materials
Explanatory Paper TPB (EP) 01/2010: Code of Professional Conduct
Explanatory Paper TPB (EP) 02/2010: Fit and Proper PersonREASONS FOR DECISION
Senior Member A C Cotter
23 September 2016
INTRODUCTION
In October 2015, the Tax Practitioners Board (“Board”) rejected the application of GJ Brown & Co Pty Ltd (“Company”) for renewal of its registration as a tax agent under the Tax Agent Services Act 2009 (Cth) (“Act”).[1] That was on the basis that the Board was not satisfied that Mr Gregory Brown, the Company’s sole director and himself a registered tax agent, was a fit and proper person.[2] As such, the Company did not meet the eligibility requirements for renewal of registration under the Act.
[1] Exhibit 1, T Documents, T 1, pages 9-13, letter from Board to Mr Brown dated 3 November 2015.
[2] Ibid, page 9, [4].
The following February, the Board decided to terminate Mr Brown’s own registration as a tax agent because he had ceased to meet the tax practitioner registration requirement that he be a fit and proper person.[3]
[3] Exhibit 1, T Documents, T 7, pages 77-80, letter from Board to Mr Brown dated 2 March 2016.
Both the Company and Mr Brown seek reviews of the Board’s respective decisions. The applications were heard together. I deal with both of them in these reasons. Where the Company and Mr Brown are referred to collectively, they are described as the “Applicants”.
ISSUES FOR THE TRIBUNAL
The issues in the two applications naturally overlap. I summarise them below:
a)whether Mr Brown is a “fit and proper person” within the meaning of the Act;
b)whether the Company is eligible for registration as a tax agent pursuant to s 20-5(3) of the Act; and
c)whether Mr Brown’s registration as a tax agent should be terminated, pursuant to s 40-5(1)(b) of the Act.
Before I deal with those issues, it is opportune to mention the key legislative provisions.
THE LEGISLATIVE FRAMEWORK
The Act’s object is to ”ensure that tax agent services are provided to the public in accordance with appropriate standards of professional and ethical conduct”.[4]
[4] See Tax Agent Services Act 2009 (Cth), s 2-5.
Section 20-5 of the Act sets out the eligibility requirements for registration as a registered tax agent. For an individual, it relevantly states that the Board is to be satisfied that they are a “fit and proper person”.[5] In the case of a company, the Board is to be satisfied, among other things, that “each director of the company is a fit and proper person”.[6]
[5] Ibid, s 20-5(1)(a).
[6] Ibid, s 20-5(3)(a).
If it is satisfied that an applicant meets the relevant eligibility requirements in s 20-5, the Board must grant the application for registration. Otherwise, it must reject the application.[7]
[7] Ibid, s 20-25(1).
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”.[8]
[8] Ibid, s 20-15.
Under s 40-5(1)(b) of the Act, if an individual is a registered tax agent and ceases to meet one of the tax practitioner requirements, the Board may terminate that registration.
Part 3 of the Act contains the Code of Professional Conduct (“Code”).[9] The Board has developed explanatory papers on topics such as the Code,[10] and Fit and Proper Person considerations,[11] although they do not have the force of law and are intended to provide general guidance only.
[9] See particularly s 30.10.
[10] Exhibit 1, T Documents, ST 24, pages 270-333: Explanatory Paper TPB (EP) 01/2010: Code of Professional Conduct.
[11] Exhibit 1, T Documents, T 6, pages 41-70: Explanatory Paper TPB (EP) 02/2010: Fit and Proper Person.
BACKGROUND
The factual background to the Board’s decisions concerning the Company and Mr Brown is largely uncontentious, although Mr Brown took issue with some points and sought to explain others, or put them in context. Also, by the time of the hearing before me, Mr Brown had taken steps to address, or attempt to address, a number of issues that had been of concern to the Board in reaching its decisions.
That background to the Board’s decisions is set out in some detail in its Statement of Issues, Facts and Contentions,[12] which I summarise briefly below, by reference to both the Company and Mr Brown. Later, I outline Mr Brown’s evidence and contentions, noting in particular where he disagrees or where he places a different emphasis or complexion on particular matters, and where he has taken steps to address the Board’s concerns.
[12] Exhibit 2, Board’s Statement of Issues, Facts and Contentions dated 10 June 2016.
The Company
Between July 2011 and October 2015, the Deputy Commissioner of Taxation issued three separate statutory demands to the Company for substantial sums in respect of outstanding tax liabilities owed by it. Two of those demands resulted in the Deputy Commissioner commencing winding up proceedings, which ultimately did not proceed. The third statutory demand was allowed by the Deputy Commissioner to expire due to settlement negotiations.[13]
[13] Ibid, [9]-[16].
In April 2014, the Board found that the Company had breached s 30-10(2) of the Code, in that it had failed, as trustee of the GJ Brown Practice Trust (“Practice Trust”) through which the Company operated, to ensure that the Practice Trust lodged: its income tax returns for the 2003 to 2012 financial years by their respective due dates; and its Business Activity Statements (“BAS”) for the months ended May 2012 to August 2013, by their respective due dates. The Board gave the Company a written caution, advising that should it apply for renewal of registration as a tax agent, its compliance with its own tax obligations would be reviewed by the Board.[14]
[14] Ibid, [17]-[19].
When the Company applied for renewal of registration in July 2015, the question was asked whether there were matters that may affect its eligibility for registration, to which Mr Brown answered “yes”. Asked for details and an explanation as to why it should not be taken to adversely affect the Company’s eligibility for registration, Mr Brown responded: “Outstanding lodgements and pending conviction”.[15]
[15] Ibid, [20]-[21]; Exhibit 1, T Documents, T 3, page 19, Tax Agent Renewal dated 28 July 2015.
Inquiries made by the Board revealed that as trustee of the Practice Trust, the Company had either failed to lodge (on seven occasions), or lodged late (on six occasions, all of them well over a year overdue), income tax returns for the preceding 13 years (from 2003 to 2015).[16] Fringe Benefits Tax (“FBT”) returns were also lodged late (on four occasions, all several years overdue) or not at all (10 times) during the period from June 2003 to May 2016.[17] There were 11 cited instances of failure to lodge BAS during 2015 and 2016.[18]
[16] Exhibit 2, Board’s Statement of Issues, Facts and Contentions dated 10 June 2016, [22].
[17] Ibid, [23].
[18] Ibid, [24].
The Company’s outstanding tax liabilities increased significantly over the last five years. To illustrate, the debt that was the subject of the first statutory demand (in 2011) was $101,842.06. At the time of the Board’s written caution in April 2014, the outstanding tax liabilities had increased to $409,408.78. A little over a year later, at the time of the renewal application, that amount had increased to $445,064.34. By June of this year, the liability stood at $515,708.50. Despite those increasing outstanding liabilities, the Company made only one payment, of $20,000.00, in the period 2012 to 2016 to reduce those liabilities. By the time of the hearing, the Board’s understanding was that a settlement had been reached between the Company and the Deputy Commissioner in respect of the former’s outstanding tax liabilities. It was believed that settlement might significantly reduce the Company’s outstanding liabilities (although the Board was unaware of the quantum of any such reduction).[19]
[19] Ibid, [25]-[27].
The Board also said that the Company had not notified it of its current professional indemnity insurance, or indeed, of any such cover that it might have had since January 2012.[20]
[20] Ibid, [28]-[29].
Mr Brown
The Board’s records revealed that Mr Brown failed to lodge his income tax returns by their respective due dates for all but one of the years from June 2003 to June 2015; in at least seven instances, the returns were lodged more than a year late.[21] Inquiries by the Board also showed that the entities of which he was the sole director, Acheeva Business Solutions Pty Ltd (“Acheeva”) and Land-wise Pty Ltd (“Land-wise”), had failed to lodge their returns and BAS by the due dates: in Acheeva’s case, returns for the 2002 to the 2015 years inclusive and 10 BAS in the period June 2006 to June 2015; and in the case of Land-wise as trustee of the G J Brown Family Trust, returns for the 2002 to 2015 years, and some 47 BAS during the period June 2004 to March 2016.[22]
[21] Ibid, [30]; contra Exhibit 1, T Documents, ST 19, pages 238-239, Expected/Received lodgements for the selected client, dated 9 June 2016, entry for FYE 30/06/2009.
[22] Ibid, [38]-[41].
In April 2005, Mr Brown was found guilty in the Brisbane Magistrates Court of failing to comply with a notice to furnish a return for the year ended 30 June 2002, in breach of s 8C(1)(a) of the Taxation Administration Act 1953 (Cth) (“TA Act”). No conviction was recorded.[23]
[23] Ibid, [31].
On 3 March 2015, he was convicted in the Southport Magistrates Court of three offences for failing to comply with a notice requiring the lodgement of his personal returns for the 2011 to 2013 years, contrary to s 8C(1)(a) of the TA Act.[24]
[24] Ibid, [32].
In August of the same year, in the Southport Magistrates Court, Mr Brown was convicted of three further offences pursuant to the TA Act, for failing to comply with written notices requiring lodgement of the Practice Trust’s returns for the 2012 to 2014 years inclusive. On that occasion, the court also ordered that he furnish those outstanding returns to the Commissioner of Taxation by 9 October 2015.[25] He failed to comply with that order, in that he did not lodge those returns until April the following year.[26]
[25] Exhibit 1, T Documents, T 9, pages 103-104, Notice of Court Orders.
[26] Exhibit 2, Board’s Statement of Issues, Facts and Contentions dated 10 June 2016, [33]-[34].
As at 9 June 2016, Mr Brown, as sole director of the Company, had outstanding director penalty liabilities totalling $32,401.13.[27] His total outstanding personal tax liabilities were $44,059.79 (up from $39,440.53 in October 2015), comprising $10,160.20 in Running Balance Account deficit debt and $33,899.59 in income tax liabilities.[28]
[27] Ibid, [35].
[28] Ibid, [36]-[37].
MR BROWN’S EVIDENCE
Mr Brown gave evidence at the hearing. He outlined in detail the history of the matter, admitting that it was not something of which he was proud.
He said his problems dated back to 2002, and that he has been “struggling since then to dig (himself) out of the issues”.
Mr Brown was first registered as a tax agent in November 1979.[29] Early in his career, he had practised with others through jointly owned companies. He recognised that he had poor human resources practices and that he could not manage a large practice. Therefore, he decided to practise as a sole practitioner.
[29] Exhibit 3, Applicants’ Statement of Facts, Issues and Contentions dated 11 July 2016, page 1.
From 2001 to 2005, he operated his practice as an accountant and tax agent through the Company (which was registered as a tax agent in July 2000). The breakdown of the joint operations and his commencement as a sole practitioner placed significant strains on him and his family. That culminated in his marriage breaking down. He commenced a sustained period of counselling with a psychologist.[30]
[30] Ibid.
In April 2005, he appeared in the Brisbane Magistrates Court and was found guilty of an offence of failing to comply with a notice to furnish a return for the 2002 financial year. He said that the Magistrate was fully aware that he was a tax agent, and did not record a conviction. He was placed on a bond with a surety for six months. Mr Brown believes that the light penalty was given in recognition of the other issues affecting him at the time. Nevertheless, he said that court appearance was a “wake up call” and served to pull him out of the depression from which he was then suffering.
During the 2006 financial year, Mr Brown took steps to reduce the size of his practice. He effectively gave away over half of his practice to a colleague in Tasmania (from where he originally came) and, by agreement, ceased to act for many other clients.[31]
[31] Ibid.
Notwithstanding that decision, he had substantial overheads disproportionate to the reduced size of his practice. He changed the emphasis of his practice to consulting, still primarily reliant on his skills as an accountant and tax agent but less reliant on compliance as the core function.[32]
[32] Ibid.
From about 2004, Mr Brown had maintained his accounting records using the QuickBooks range of accounting software. At the end of the 2006 financial year, he dismissed his office bookkeeper who had been engaged to maintain ledger records for himself, the Company, the Practice Trust, and other entities. He took the step to dismiss her because the work had not been completed within the expected timeframe and because of the large number of errors in the data that had been processed. At some stage prior to her dismissal, the bookkeeper had password locked the files. She refused to divulge the passwords following her dismissal. Another employee thought that they could access the files, but was unable to do so, despite persistent attempts. After consultation with the QuickBooks help desk, it was arranged to copy the files and send them to QuickBooks, as CD copies, for the purpose of unlocking the files and resetting the passwords. QuickBooks charged $100.00 per file for that exercise, which was expected to be a routine process. However, the files were found to be corrupted when QuickBooks unlocked them. A second copy sent some months later was also found to be corrupted; it appears that the constant attempts to copy the files or unlock them had inadvertently corrupted them. After about eight months of attempts, QuickBooks finally advised that Mr Brown would have to start new files and re-enter the data. However, due to the lapse in time, all backup copies of files had been over-written and were no longer recoverable.[33] Some seven years of records were affected.
[33] Ibid, page 2.
More than a year after his “wake up call”, Mr Brown realised he had gone backwards. He was in a “very bad way”; “hysterical”. He did not know where to go.
His remaining client base was in Queensland. He essentially acted in a Chief Financial Officer/financial controller/accountant/ tax agent role for several clients, rather than acting as a general tax practitioner. He made the decision to supplement his income by promoting business advisory services to start-up enterprises and entrepreneurs. During this period, Mr Brown entered into several joint ventures with other business consultants and entrepreneurs. That gave him access to a pool of resources, while allowing him to concentrate on making a reasonable income for his family. In hindsight, he described that decision as the worst of his business career.
Mr Brown told me that he was involved in too many businesses and had too many commitments. Over time, a five person team gradually diminished to the point where he was left with the responsibility for all the projects without any assistance. One business was in serious risk of liquidation and posed a significant risk of loss for one of his major clients. He tried to rescue the company, and contributed his own finances to assist. He was unsuccessful. The company went into liquidation in January 2010.
Meanwhile, the past bookkeeping problems remained, with the re-writing of some records still a work in progress, even today.[34] Mr Brown was in financial straits, having lost much of his accumulated wealth and being exposed to serious debt. Every day, he said, was a personal struggle to avoid bankruptcy. The daily management of, and record keeping for, him and his associated entities fell behind dramatically. He was unable to fund the cost of the skilled staff required to assist in those functions.[35]
[34] Ibid.
[35] Ibid.
As a result of the delay in the lodgement of BAS for the period 1 July 2007 to 31 March 2011, the Australian Taxation Office (“ATO”) undertook an audit of the records of the Practice Trust in April 2012.[36] That resulted in his incurring a tax liability of about $500,000.00, including tax on income which he asserted had not been derived, and substantial penalties. Mr Brown disputed the ATO’s assessments, particularly concerning the tax treatment of the rental of his practice’s office premises. He described that as a “highly technical dispute”. At that time, he had, at best, a sustenance income. He had no expectation of being able to pay his debts.
[36] Ibid.
His dispute with the ATO found its way to this Tribunal in other proceedings. Notwithstanding his views on the merits or otherwise of the ATO’s arguments, he conceded certain liabilities in the interests of resolving the matter. He said that the deed of settlement was finalised on 15 March 2016.[37] However, he did not produce that document at the hearing.
[37] Ibid, page 3.
Mr Brown said that during his dispute with the ATO, he developed a rapport with the ATO legal officer who had carriage of his matter. He said the ATO officer had given him undertakings that no steps to recover the debt would be taken while negotiations were ongoing. It appears that the statutory demands mentioned earlier and the subsequent winding up actions were brought without reference to that officer. Mr Brown claims that once the officer became aware of those actions, he stopped them. However, Mr Brown still incurred legal expenses protecting his and his entities’ position.
Although the deed of settlement with the ATO was finalised earlier this year, Mr Brown said that adjustments still needed to be made to the ATO Running Balance Account before the final amount of the outstanding debt could be determined. He acknowledged, however, that there would be a liability to the ATO.[38] He does not believe that he would presently be able to finance the payment, saying that his ability to raise money is nil. In 2013, he decided to sell his family home. To his now detriment, he was able to negotiate with a developer for the sale of his property and those of eight of his neighbours as a parcel. The contracts were all for extended periods and were conditional on each other, making it difficult for him to withdraw early and sell his home separately; the sale of the properties as a parcel effectively put the matter beyond his control. The sale was due to be completed 18 months ago, but it did not proceed then. It is now due to settle on 30 September this year. Mr Brown is hopeful of finalising the quantum of his ATO debt before then.
[38] Ibid.
As to his personal liability to the ATO, Mr Brown accepted it would be about $44,000.00, adding that it could be higher (he said that he had a figure of $50,000.00 in his head).
Mr Brown said that the outstanding BAS for the Practice Trust had been lodged with the ATO, as had the FBT returns for the Practice Trust. As to the latter, he said that the ATO has a procedure whereby it does not require lodgement of those returns when it has received advice that all benefits are recouped from the recipient employees. He has provided that advice in the last return lodged.[39] The reconstruction of clients’ historical records, following from the corruption of the Company’s files, is ongoing. Mr Brown said that the lodgements in respect of Acheeva and Land-wise would be effected as part of the settlement with the ATO.[40]
[39] Ibid, pages 3-4.
[40] Ibid, page 2.
Mr Brown also testified that he has experienced difficulties with mail deliveries sent to his street address as opposed to his post office box. In particular, he said that he did not receive the Board’s letter of caution to the Company in April 2014.[41] Nor did he receive notice of at least one of the prosecutions against him, only learning of the proceedings when he was summonsed for failure to comply with the order.
[41] Exhibit 4, Applicants’ Additional Statement of Facts, Issues and Contentions dated 18 July 2016.
Mr Brown was adamant that he had maintained his professional indemnity insurance at all times up until January 2016 when his insurers refused to insure him because of these proceedings. He said that if he were successful in the present application, he was confident that he would be able to renew his cover.
During cross-examination, Mr Brown agreed that in November 2014, he paid an amount of $20,000.00 to the ATO in respect of his outstanding liability. Asked why he had not paid more on that or on other occasions, he said that he had been in dispute with the ATO and had paid what he calculated to be the amount not in dispute. That was not discussed with the ATO at the time, although the issue was the subject of an objection lodged by him.
Mr Brown was also asked about his mental health. He said that following the failure of his second marriage in 2002, he went into a “spiral of depression”. He was drinking heavily and “fell into a heap”. He commenced regular sessions, first weekly, and later monthly, with a psychologist. The following year, the psychologist produced a lengthy report which concluded that he would require psychological support for the rest of his life. He took objection to that. After being psychologically debilitated from 2002 to 2006-2007, he decided that he needed to make a conscious decision to “stop the rot”. He denied that his psychological problems affected his ability to look after tax affairs.
THE PARTIES’ CONTENTIONS
The Board’s contentions
The Board contended that, apart from the dispute with the former bookkeeper (which occurred a decade ago and after failures in the management of Mr Brown’s affairs were already occurring), none of the matters to which Mr Brown referred were described with sufficient specificity, particularly as to when they occurred, what they involved, or why they affected his ability to comply with his obligations. In the absence of corroborating evidence, the Board submitted that those circumstances did not excuse Mr Brown’s failures. [42]
[42] Exhibit 5, Board’s Outline of Submissions dated 5 August 2016, [32] and [33].
The fact that Mr Brown had recently brought some of his tax affairs into order was discounted on the basis that those steps were taken recently, and seemingly, as a result of pressure from the authorities. Those remedial actions, it was said, do not absolve him from his failures to take the appropriate action when the obligations arose.[43]
[43] Ibid, [34].
Finally, the Board submitted that any sanctions less than non-registration could not give the community confidence that Mr Brown could not, and would not, engage in similar conduct and failures in the future. Lesser sanctions would be neither appropriate nor effective.[44]
[44] Ibid, [37] and [41].
The Applicants’ contentions
Mr Brown contended that the fit and proper person test assumes that the person has made a conscious decision to relevantly do, or not do, something, and makes no effort to solve the relevant issues. He said that throughout the relevant period, he had made an effort to address the issues confronting him and did not ignore his obligations.
He said that the authorities on which the Board relies with respect to the “fit and proper person” test all have an element of dishonesty about them, which is absent in his case. Nor had the current issues arisen as a result of complaints by clients.
In response to the Board’s submission as to lack of corroboration of aspects of his evidence, Mr Brown said that it would be difficult for him, at this stage, to go back and recover supporting information and material.
CONSIDERATION
Is Mr Brown a “fit and proper person” within the meaning of the Act?
What does the expression “fit and proper person” mean?
Although s 20-15 of the Act sets out matters that the Board is to have regard to when deciding whether it is satisfied that an individual is “fit and proper”, that expression is not otherwise defined in the Act. It has, however, been the subject of much consideration by both this Tribunal and the courts in this and not dissimilar contexts.
Indeed, the meaning of the expression in the context of the Act was recently the subject of detailed consideration by this Tribunal in Delis & Anor. v Tax Practitioners Board (“Delis”),[45] and then on appeal from that decision in the Federal Court.[46] In light of that recent and comprehensive consideration of the authorities by both the Tribunal and the Court, I do not propose embarking on a fresh exposition of the earlier case law. Rather, I propose to highlight a number of points from Tribunal’s and Court’s decisions which have particular relevance here.
[45] [2015] ATC 10-408.
[46] Delis v Tax Practitioners Board [2016] FCA 570.
In considering the meaning of the expression in Delis, Senior Member Fice had reference to the decision of the High Court in Australia in Hughes and Vale Proprietary Limited v New South Wales,[47] in which it was said that the expression‘s purpose “is to give the widest scope for judgement and indeed for rejection”.[48]
[47] (1955) 93 CLR 127. (See also Delis [2015] ATC 10-408, [86]).
[48] Ibid, 156 (Dixon CJ, McTiernan and Webb JJ).
Reliance was also placed on the observations of Toohey and Gaudron JJ in Australian Broadcasting Tribunal v Bond :
The expression “fit and proper person”, standing alone, carries no precise meaning. It takes its meaning from its context, from the activities in which the person is or will be engaged and the ends to be served by those activities. The concept of “fit and proper” cannot be entirely divorced from the conduct of a person who is or will be engaging in those activities. However, depending on the nature of the activities, the question may be whether improper conduct has occurred, whether it is likely to occur, whether it can be assumed that it will not occur, or whether the general community will have confidence that it will not occur.[49]
[49] (1990) 170 CLR 321,380. (See also Delis [2015] ATC 10-408, [85]).
Senior Member Fice also referred to the obiter remarks of Hill J in Stasos v Tax Agents’ Board (“Stasos”),[50] to the effect that the legislature had conferred on registered tax agents a virtual monopoly in the preparation for reward of income tax returns and objections and in relation to the transactions of any business on behalf of a taxpayer in income tax matters for reward. The conferral of that “privilege”, as Hill J described it, “carries with it a consequent set of obligations and responsibilities”:
A person is required, before being registered as a tax agent to demonstrate that he is a fit and proper person to prepare income tax returns and transact business on behalf of clients in tax matters and, inter alia, that as at the date of application he is of good fame, integrity and character…
In addition to the tax agent dealing with his client, he will, almost invariably have dealings with officers of the Australian Taxation Office and perhaps the boards or tribunals to which I have already referred. Those dealings must be able to be carried on in an atmosphere of mutual trust…
The commissioner and his officers must be able, also, to accept the word of a tax agent when acting for a taxpayer in negotiations, and a fortiori in matters proceeding in a Board, the Administrative Appeals Tribunal or indeed a court it is imperative that the honesty and integrity of the tax agent not be called into doubt. So it is that it is a requirement, not only of initial registration, but of remaining on the register that a tax agent be a fit and proper person to perform the duties of a tax agent and bear the responsibilities that come with those duties.[51]
[50] (1990) 21 ALD 437. (See also Delis [2015] ATC 10-408, [87]).
[51] Ibid, 443-444 (Hill J).
Reference was also made by Senior Member Fice of an earlier decision of the Tribunal in Carbery & Associates Pty Ltd and Tax Agent’s Board of Queensland,[52] which concerned the refusal to renew the registration of an agent because of his failure to file his personal income tax returns as and when due. There the Tribunal stated:
In the opinion of the Tribunal, this failure on the part of Mr Carbery to comply with basic requirements of the Australian Taxation Office in regard to its conditions for lodgement of the personal income tax returns of tax agents, is tantamount to a gross dereliction of a fundamental duty. This failure is exacerbated, in the opinion of the Tribunal, because it is a failure to comply by a person who, himself, is responsible for the management of his clients’ income tax compliance requirements.[53]
[52] [2001] AATA 107. (See also Delis [2015] ATC 10-408, [88]).
[53] Ibid, [21] (R D Fayle, Senior Member).
The failure of a tax agent to comply with the taxation laws in relation to their own affairs has been held by the Tribunal to be a significant factor in determining whether the agent is a fit and proper person. In Re Proh and Tax Agents’ Board of Victoria, Deputy President McDonald stated:
It is generally accepted, and the tribunal accepts, that a failure of an agent to attend to his/her own taxation affairs demonstrates a lack of suitability, rendering the agent unfit to handle the affairs of those who may seek to utilise his/her services.[54]
[54] (2010) 78 ATR 663, [15].
Similarly, in Re Phillip Same Accountants Pty Ltd and Tax Practitioners Board (“Phillip Same”),[55] Deputy President McDonald said:
A duty rests on all citizens, who have an obligation to do so, to file BAS and income tax returns. Failure to do so is a breach of the law and renders the person liable to a penalty. A failure by a tax agent to meet the requirement that he/she files his/her own returns in a timely manner is not only a breach of the law, but it also constitutes a failure to uphold the confidence and trust attaching to the status of the agent.[56]
[55] (2010) 79 ATR 292, affirmed in Phillip Same Accountants Pty Ltd v Tax Practitioners Board (2011) 79 ATR 306.
[56] Ibid, [19].
Indeed, as Deputy President McDonald commented in another matter, registered tax agents should be held to a higher standard than the general public in terms of complying with their tax obligations:
As a tax agent, the applicant should hold himself up to a higher standard than the general public. He has an intricate knowledge of tax laws and it is reasonable to assume that he knows the importance of lodging tax returns on time. His clients, as well as the general public, should be able to entrust their taxation affairs to him and have confidence that he is able to lead by example and file his tax returns on time as required by the law.[57]
[57] Toohey and Tax Agents Board of Victoria [2009] AATA 603, [36] (DP McDonald).
Quite apart from those decisions, the Code expressly requires that a tax agent “must comply with the taxation laws in the conduct of (their) personal affairs”.[58] The term “personal affairs” in that section has been held to include where the person is acting as a director of a company that is itself a registered tax agent.[59]
[58] Tax Agent Services Act 2009 (Cth), s 30-10(2).
[59] See Delis [2015] ATC 10-408, [90].
Having considered those authorities, the question which arises is whether Mr Brown is a fit and proper person to be registered as a tax agent.
How does this apply to Mr Brown?
It is difficult not to be sympathetic to Mr Brown’s plight, particularly since it extends over such a lengthy period. As he told me, he has been struggling since 2002 to “dig (himself) out” of the various issues that have confronted him. While he has taken steps to address some of those issues, others still remain unresolved.
Mr Brown contended that the “fit and proper” test assumes that the person has made a conscious decision to relevantly do, or not do, something, and has made no effort to resolve the situation. He emphasised that none of the matters raised against him arose out of a client complaint, nor did they involve any dishonesty.
Although I understand and appreciate those arguments, I nonetheless think that places too narrow a construct on the expression. Rather, the expression’s purpose is, in the words of the High Court, to give “the widest scope for judgement and indeed for rejection”.
The High Court has also made it clear that the expression derives its meaning from its context, from the activities in which the person is or will be engaged, and the ends served by those activities. Tax agents have, as Hill J observed in Stasos, been afforded a virtual monopoly to prepare returns and transact business on behalf of their clients in tax matters, including dealing and negotiating with the Commissioner and his officers in an atmosphere of mutual trust.[60] Clients and the general public should be able to confidently entrust their taxation affairs to an agent.
[60] Stasos (1990) 21 ALD 437, 443-444 (Hill J).
The question that falls for me is whether I am satisfied that Mr Brown is a fit and proper person. That involves considerations, not only of Mr Brown’s past and present conduct, but also whether any improper conduct by him is likely to occur in the future, or can be assumed will not occur, and whether the general community will have confidence that improper conduct will not occur.[61]
[61] See Phillip Same Accountants Pty Ltd v Tax Practitioners Board [2011] FCA 36, [35]-[39] (Middleton J), following Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321,380.
Having regard to: Mr Brown’s multiple acts of non-compliance with, and breaches of, the taxation laws in both his personal and director’s capacities; the lengthy period over which those acts occurred; the delay in addressing many issues and the fact that, even now, some issues still remain unresolved; and the absence, not only of a satisfactory explanation, but also of substantiation or corroboration of some of the claimed causative or contributing factors, I am not satisfied that Mr Brown is a fit and proper person for the purposes of the Act. I discuss these matters in greater detail below.
Non-compliance with tax obligations
It is not disputed that Mr Brown, both in his personal capacity and as a director of his various entities, failed to comply with his tax obligations on numerous occasions. I have summarised earlier the long lists of income tax returns, FBT returns, and BAS for him personally and his entities which were either lodged late (in many instances, very late) or not at all. A finding of guilt was made against him in April 2005 for failing to comply with the TA Act. Despite that finding being what he described as a “wake up call”, his non-compliance continued, largely unabated. He was convicted of another three offences against the TA Act in March 2015 and of a further three offences in August that same year. He incurred director penalty liabilities and both he and the Company accrued significant tax liabilities which continued to grow.
There can be no doubt that non-compliance of that magnitude, both personally and across his various entities, and spread over a decade or more, amounted not just to a breach of the taxation law, but also to improper conduct on Mr Brown’s part.[62] Such conduct demonstrated “a lack of suitability, rendering the agent unfit to handle the affairs of those who may seek to utilise his… services”.[63] It also undermined any confidence which clients or the general public might have in him. As Deputy President McDonald observed in Phillip Same:
The tribunal accepts that, in the 2006-2009 period, the failure of Mr Same to submit BAS returns along with a failure to submit his personal tax returns on time is indicative of him having a disregard of his obligations. The failure to file BAS has permitted him the use of moneys, which ought to have remitted to the ATO. This further demonstrates his lack of good faith, integrity and character in the context of his obligations, not only as a citizen but as a citizen with particular responsibilities, in his capacity as the nominee of the applicant tax agent.[64]
[62] See, for example, Phillip Same (2010) 79 ATR 292; Re Proh and Tax Agents’ Board of Victoria (2010) 78 ATR 663; and Carbery & Associates Pty Ltd and Tax Agent’s Board of Queensland [2001] AATA 107.
[63] Re Proh and Tax Agents’ Board of Victoria, op. cit., [15].
[64] (2010) 79 ATR 292, [22].
Moreover, Mr Brown’s personal failure to comply with the taxation laws also amounted to a breach of s 30-10 (2) of the Code.
The period of non-compliance
Also telling is the fact that the non-compliances occurred over a considerable period of time - over a decade - with little, or no attempt made to redress the situation, unless Mr Brown was otherwise prompted or forced to do so.
This is not a matter where there were isolated or discrete periods of non-compliance that perhaps could be explained as aberrations. Rather, the prolonged period of continued non-compliance is indicative of a disregard for the law that Mr Brown, as a registered tax agent, had a duty to comply with.
The redressing of issues
Mr Brown advised that a deed of settlement had been concluded with the ATO earlier this year, although settlement would not be effected until the end of September. He expects that his outstanding debts to the ATO will be discharged once the sales of his and his neighbours’ parcels of land are effected.
As mentioned already, Mr Brown has also redressed a number of the outstanding matters that were identified in the Board’s Statement of Issues, Facts and Contentions, and which are summarised in the Background section above. In particular, Mr Brown said that the outstanding BAS for the Practice Trust had been lodged, as had the Practice Trust’s FBT returns. The lodgements in respect of Acheeva and Land-wise are to be effected as part of the settlement with the ATO.
While the settlement with the ATO is welcome, as are the redressing of a number of long outstanding matters, it appears that those steps were only taken in response to threatened action by the ATO and more recently, following action taken by the Board. That hardly instils confidence that there will be no repeat of non-compliance in the future. As Senior Member Fice commented in Delis:
When under significant pressure from the ATO and, subsequently, the TPB, at the risk of having legal proceedings brought for the recovery of debts owed to the ATO or the risk of losing his registration as a tax agent, Mr Delis is dragged reluctantly to the compliance table. Absent such threats, there was no evidence that Mr Delis would have complied with his tax or superannuation guarantee obligations. In fact more significantly, it also strongly suggests that without serious threats being made against his ability to earn an income as he has done in the past, he is unlikely to comply with taxation laws in the future.[65]
[65] Delis [2015] ATC 10-408, [98].
Absence of satisfactory explanation and of substantiation/corroboration
As I indicated earlier, Mr Brown outlined at some length the circumstances which led to the Board taking the action which it did. However, very little evidence was produced by way of substantiation or corroboration of those matters. To some degree, that is understandable, given the lengthy period in question. However, it does not explain why more recent documents, such as the settlement agreement with the ATO and the Company’s professional indemnity insurance and communications with its insurers, were not produced.
Without substantiating and corroborating evidence, it is extremely difficult to precisely pinpoint when events happened, where they stood in time relative to other events and the phase of Mr Brown’s practice, and why they prevented him from taking appropriate action at that particular time.
As a consequence, very little is known of what appear to be some of the key turning points for Mr Brown. There remain many unanswered questions, examples of which, by no means exhaustive, follow. What was the catalyst that led Mr Brown to go into sole practice in about 2000-2001? Precisely when did he enter into the joint ventures that he described as the “worst decision” of his business career? What led them to fail and when? Why did his psychologist conclude that he would require psychological support for the rest of his life? Why did he have a substantial debt to the ATO in 2011, even before it initiated its audit in April 2012? After taking the decision to sell his home to help clear his debt, why did he enter into a more involved, and necessarily protracted, sale in conjunction with his neighbours? What discussions, if any, did he have with his creditors, including the ATO, about that course?
That is not to say, however, that a series of matters have not, over the years, seemingly conspired against Mr Brown. Over the 10 to 15 years preceding the hearing, he has encountered several misfortunes, as well as experienced his own personal stresses and strains.
The question is whether I should effectively overlook those matters and wipe the slate clean. I cannot. In assessing Mr Brown’s fitness and propriety, I have to take into account his past actions. While the matters I have just alluded to might serve to partly explain his past conduct, I do not think they adequately address the more fundamental concern which I have, which is directed towards the preservation of the general community’s confidence in tax agents and the protection of the public. As the Tribunal observed in Re Adamec and Tax Agents’ Board of Victoria:
No-one would deny that the applicant has experienced a difficult and distressing period of his life over the last 10 years or so…. Family sickness, bereavement, domestic responsibilities, personality clashes in the workplace, fluctuating workloads and failed business ventures are not uncommon. Unquestionably the applicant’s misfortune was accentuated by the fact that all of the challenging personal events confronted him within a relatively short period of time; but this does not alter the fact that such events are prone to occur to anyone. No doubt, some people are better equipped, psychologically, than others to cope with these vicissitudes, but this cannot alter the characterisation of the events themselves…. The existence of professional standards would become impossibly compromised if they were to be subject, as a matter of course, to the prevailing domestic harmony, physical wellbeing and general equanimity of the individual professional.
…the tribunal is mindful that the (Income Tax Assessment Act 1936) is designed to protect the public. “… this is not a situation where personal hardship [to the applicant] can be allowed to prevail over community interest”. [66]
[66] (2005) 60 ATR 1243, [70] and [72] (Dr G Hughes, Member), quoting ReSu and the Tax Agents’ Board of South Australia (1982) 61 FLR 1, 11 (Davies J). Citations have been removed.
In the absence of a comprehensive narrative, explaining how the events in question particularly impacted on Mr Brown’s ability to meet his obligations as a tax agent, I am not convinced that such failings would not occur again. Nor do I think the general community would be confident.
Other matters
The Board also contended that the Company had failed to maintain professional indemnity insurance as required by the Code.[67] Mr Brown denied that, saying that the Company held insurance up until January 2016, when the insurers declined to extend further cover because of these proceedings. No documentation was produced to corroborate that assertion. However, the insurers’ position seems curious to me, considering that no third party claims have, as I understand it, been brought or agitated against the Company. Nevertheless, I am prepared to proceed on the basis that Mr Brown is given the benefit of the doubt on that issue. My consideration therefore concerns the remaining issues identified by the Board.
[67] Exhibit 2, Board’s Statement of Issues, Facts and Contentions dated 10 June 2016, [28]-[29].
Summary – is Mr Brown a “fit and proper person”?
There can be no doubt that Mr Brown’s conduct, involving a multitude of acts of non-compliance with the taxation laws over more than a decade, was improper. While, by the time of the hearing, he had redressed many outstanding matters, those steps were taken belatedly and in the shadow of action being brought against him by the ATO and the Board. There remain many unanswered questions as to how Mr Brown found himself in such a predicament. While bad luck undoubtedly played some part, poor judgement, or lack of judgement, was also clearly a significant contributing factor. In those circumstances, I cannot be satisfied that the improper conduct in which he engaged previously would not occur again. Nor do I think that the general community, including other tax agents and taxpayers, could, or would, be confident that such conduct would not happen again. For those reasons, I find that Mr Brown is not a fit and proper person for the purposes of the Act.
Is the Company eligible for registration as a tax agent?
Having concluded that Mr Brown is not a fit and proper person, it follows that the Company, of which he is the sole director, is ineligible for registration as a tax agent, by reason of s 20-5(3)(a) of the Act.
Should Mr Brown’s registration be terminated?
Section 40-5 of the Act provides that the Board may terminate the registration of an individual who is a tax agent if, amongst other things, the agent ceases to meet one of the tax practitioner registration requirements.[68] As the provision is not mandatory, the question arises as to whether, in appropriate situations, the Board may choose to impose a lesser sanction.
[68] Tax Agent Services Act 2009 (Cth), s 40-5(1)(b).
The Board submitted that any sanctions less than non-registration could not give to the community confidence that Mr Brown could not, and would not, engage in similar conduct and failures again.[69] I agree.
[69] Exhibit 5, Board’s Outline of Submissions dated 5 August 2016, [41].
Having regard to the magnitude of the non-compliance over an extended period, I do not consider that a written caution to Mr Brown would be appropriate. He was given a written caution in April 2014 that the Board would review the Company’s compliance with its tax obligations when considering its application for renewal of registration in August 2014. Despite that caution, the application for renewal registration was lodged without the Company having brought its affairs into order. Mr Brown denies having received the written caution due to postal problems he was experiencing. Even if that were the case, I do not think that a caution would be adequate in the circumstances, having regard to my conclusion that the general community could not be confident that improper conduct would not recur.
There is no suggestion that Mr Brown had a gap in his knowledge or understanding which could be addressed through further education or training. Mr Brown was well aware of the significance of his non-compliance, describing the first finding of guilt against him in 2005 as a “wake up call”.
Nor do I think that special supervision or the placing of limitations or conditions on his practice would be effective, considering Mr Brown’s expressed aversion to larger practices, which led him, first into sole practice and then later, into joint ventures. It is also significant that when orders were made by the Southport Magistrates Court in August 2015 that he furnish his outstanding returns by a prescribed date, he failed to do so. However, I note that Mr Brown denies having received that order, again due to the difficulties he experienced with the postal services.[70] Be that as it may, I maintain doubts as to the efficacy of any supervisory order having regard to Mr Brown’s preferred form of practice and apparent desire for autonomy.
[70] Exhibit 4, Applicants’ Additional Statement of Facts, Issues and Contentions dated 18 July 2016.
The purpose of suspension and termination is not to punish the person concerned, but rather to protect the public:
The purpose of cancellation or suspension of a tax agent’s registration is not to punish the person concerned, although it may have that effect but to protect taxpayers from agents who are not conforming to the legislative requirements attaching to their registration as agents. It is generally accepted, and the tribunal accepts, that a failure of an agent to attend to his/her own taxation affairs demonstrates a lack of suitability, rendering the agent unfit to handle the affairs of those who may seek to utilise his/her services.[71]
[71] Re Proh and Tax Agents’ Board of Victoria (2010) 78 ATR 663, [15] (McDonald DP).
I have already expressed my lack of confidence in Mr Brown not re-offending. The magnitude of the non-compliance over an extended period with the absence of a detailed narrative explaining the circumstances, cause me concern that the conduct in question could recur. Considering the extended period of non-compliance in question, I consider that termination, rather than suspension, is the appropriate sanction.
It follows from what I have said that I consider that Mr Brown’s registration should be terminated, pursuant to s 40-5(1)(b) of the Act.
CONCLUSION
For the reasons outlined above, I consider that Mr Brown is not a fit and proper person to be registered as a tax agent under the Act. As a consequence, the Company is not eligible for registration, by reason of s 20-5(3)(a) of the Act. In view of my findings that Mr Brown’s non-compliance had been extensive and over an extended period of time, I consider that his registration as a tax agent should be terminated under s 40-5(1)(b) of the Act.
Accordingly, the decisions under review are affirmed.
I certify that the preceding 96 (ninety -six) paragraphs are a true copy of the reasons for the decision herein of Senior Member A C Cotter ............................[Sgd]............................................
Associate
Dated 23 September 2016
Date of hearing 8 August 2016 Applicants Mr Gregory Brown (in person) Counsel for the Respondent Mr David Sutherland Solicitor for the Respondent Ms Julie Mills
14
7
2