Gao and Tax Practitioners Board

[2019] AATA 3651

Gao and Tax Practitioners Board [2019] AATA 3651 (19 September 2019)

Division:TAXATION AND COMMERCIAL DIVISION

File Number:           2019/4788

Re:Feng Gao

APPLICANT

AndTax Practitioners Board

RESPONDENT

File Number:           2019/5173

Re:Australia Fortune Financial Group Pty Ltd

APPLICANT

AndTax Practitioners Board

RESPONDENT

DECISION

Tribunal:Member D K Grigg

Date:19 September 2019

Place:Brisbane

The Applicants’ applications for a stay pursuant to section 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth) are refused.

The interim stay orders granted on 26 August 2019 are discharged.

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

Member D K Grigg

Catchwords

TAX AGENT REGISTRATION – termination of applicants’ registrations as tax agents – application for a stay pending decision under review – prospects of success – public interest – stay applications refused.

Legislation

Administrative Appeals Tribunal Act 1975 (Cth)

Income Tax Assessment Act 1997 (Cth)

Tax Agent Services Act 2009 (Cth)

Cases

Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634

Re Su and Tax Agents’ Board of South Australia (1982) 61 FLR 1

Secondary Materials

Explanatory Paper TPB(EP) 02/0210: "Fit and proper person"

Explanatory Paper TPB(EP) 01/2010: "Code of Professional Conduct"

REASONS FOR DECISION

Member D K Grigg

19 September 2019

BACKGROUND

1. Australia Fortune Financial Group Pty Ltd (“AFFG”) and Mr Feng Gao (collectively “the Applicants”) have been operating as registered tax agents since 2013.

2. Mr Gao:[1]

   (a)was a director of AFFG between 11 May 2012 and 19 November 2016; and

   (b)sole director and controlling mind of AFFG between 1 July 2015 and 19 November 2016.

   [1]     T Documents, T5, pages 36-37, ASIC search dated 16 April 2019.

3. Mr Gao is also the sole director and controlling mind of Meihua Australia Pty Ltd (“Meihua”). Meihua is a client of AFFG and registered for good and services tax (“GST”) on 6 December 2013.

4. In 2017 Meihua was audited by the Australian Tax Office (“ATO”). On 18 December 2017 the ATO determined, as a result of its audit investigation, that Meihua had not correctly reported GST in relation to some property transactions between 1 January 2014 and

   
   

   30 June 2016. Meihua purchased two properties in January 2014 for a total of $3,795,000. When the properties were sold for nearly $6,000,000 in 2016, Meihua did not report the sale in its business activity statement. One of the properties comprised a residential house and land and, the other was a vacant block. GST was claimed by Meihua on the entirety of the purchase, as an acquisition, but no GST was remitted on the sale as a supply.

5. The ATO determined the property sale was a mixed supply and that GST was payable on the land component. As a result, the ATO determined that Meihua:[2]

   (a)owed $445,485 in GST; and

   (b)had a tax shortfall penalty of $68,180.75.

   [2]     T Documents, T5, pages 40-42, ATO Correspondence dated 18 December 2017.

6. Meihua had also claimed interest deductions on loans. The ATO found the loans were not just for Meihua’s purposes but that some of the borrowed funds had been used by related entities. Meihua had not received any income from those entities which would justify the interest claimed as a deductible expense. As a result, Meihua had over-claimed interest deductions totalling $1,133,780 resulting in a carried forward loss of $152,960.

7. The ATO also conducted an audit of AFFG. Following the audit the ATO found that:

   (a)AFFG consistently lodged its own income tax returns (“ITRs”) and business activity statements (“BAS”) late;

   (b)AFFG lodged superannuation guarantee charge statements late and paid its employees superannuation guarantee charges late;

   (c)AFFG had prepared the ITRs of 535 workers in the Meat Industry who had made large work-related expense claims (“Meat Workers”). All those Meat Workers were required to amend their ITRs. Substantial adjustments had to be made in relation to 401 ITRs resulting in a tax shortfall of $692,509.66. The ATO reduced the work related expense claims by $1,789,638, with an ultimate shortfall of $616,050.29. The ATO found there was an either an insufficient nexus between expenses claimed as work related expenses or the employees were unlikely to have spent the full amount claimed.

8. As a result of its findings and determinations, the ATO referred AFFG to the Tax Practitioners Board (“TPB”) for potential misconduct.[3]

   [3]     T Documents, T5, page 43, Correspondence from the ATO to the TPB.

9. On 2 May 2019 the TPB wrote to Mr Gao and AFFG to advise that it would be investigating their conduct regarding possible breaches of the Tax Agent Services Act 2009 (Cth) (“TASA”).[4]

   [4]     T Documents, T3, page 9, Correspondence from the TPB to AFFG.

10. Following its investigation, the TPB advised AFFG on 23 July 2019 that it had decided that AFFG had failed to comply with subsections 30.10(2) and 30.10(7) of the Code of Professional Conduct (“Code”). As a result of that decision the TPB decided to terminate AFFG’s registration as a tax agent pursuant to section 30.30 of the TASA (“AFFG Decision”).[5] The termination was to take effect from 27 August 2019. The effect of the termination is that AFFG:

    (a)must not provide any tax agent services or it may be subject to civil penalties pursuant to sections 50.5, 50.10, and 50.15 of the TASA; and

    (b)

    may not apply for registration under the TASA for a period of five years, from

    
    

    27 August 2019, pursuant to subsection 40.25(1) of the TASA.

    [5]     T Documents, T7, pages 295 – 260, Decision of the TPB; T8, page 277, Correspondence from the TPB to AFFG.

11. The TPB also advised Mr Gao that it had decided that he had also failed to comply with subsections 30.10(2) of the Code and that he no longer met the tax practitioner requirements for registration as he was not a “fit and proper person” as required by paragraph 20.5(1)(a) of the TASA. As a result of that decision the TPB decided to terminate Mr Gao’s registration as a tax agent pursuant to subsection 40.5(1)(b) of the TASA (“Gao Decision”). The termination was to take effect from 27 August 2019. The effect of the termination is that Mr Gao:

    (a)must not provide any tax agent services or he may be subject to civil penalties pursuant to sections 50.5, 50.10, and 50.15 of the TASA; and

    (b)

    may not apply for registration under the TASA for a period of five years, from

    
    

    27 August 2019, pursuant to subsection 40.25(1) of the TASA.

12. In its reasons for decision against AFFG the TPB advised that:

    (a)it was satisfied, on the balance of probabilities, that AFFG had breached subsection 30.10(2) of the Code in failing to lodge its:

    (i)ITRs for the financial years ending 30 June 2012, 30 June 2015, 30 June 2016 and 30 June 2018 as and when they fell due;

    (ii)quarterly BAS for the periods ending 30 September 2014, 31 December 2014, 30 June 2015, 30 September 2015, 30 June 2016, 31 December 2016 and 30 June 2017 as and when they fell due; and

    (iii)superannuation guarantee charge statements and pay superannuation guarantee charges as and when they fell due.

    (b)it was satisfied, on the balance of probabilities, that AFFG had breached subsection 30-10(7) of the Code in failing to ensure that tax agent services that it provided, or that were provided on its behalf, were provided competently as it:

    (i)prepared and lodged ITRs on behalf of 397 Meat Workers for the financial years ending 30 June 2016 and 30 June 2017 without taking adequate steps to make enquiries with these clients to ensure that the ITRs contained accurate information;

    (ii)gave incorrect advice to these 397 Meat Workers in relation to their eligibility to claim deductions in their ITRs and the application of substantiation rules to their circumstances; and

    (iii)

    incorrectly reporting GST and over claiming interest expenses on behalf of its client, Meihua Australia Pty Ltd, for the period 1 January 2014 to

    
    

    30 June 2016.

13. In its reasons for decision against Mr Gao the TPB advised that:

    (a)it was satisfied, on the balance of probabilities, that Mr Gao had breached subsection 30-10(2) of the Code by:

    (i)incorrectly reporting GST and over-claiming interest expenses in relation to Meihua of which he was the sole director;

    (ii)failing, in his capacity as director, to ensure that AFFG lodged its ITRs as and when they fell due;

    (iii)failing, in his capacity as director, to ensure that AFFG lodged its BAS as and when they fell due; and

    (iv)failing, in his capacity as director, to ensure that AFFG lodged its superannuation guarantee charge statements and pay superannuation guarantee charges as and when they fell due;

    (b)it was satisfied that Mr Gao ceased to be a fit and proper person under paragraph 20.5(1)(a) of the TASA given his failure:

    (i)as sole director of Meihua, to ensure that Meihua reported its GST and interest expenses correctly in its returns;

    (ii)as a director of AFFG to ensure that AFFG complied with its taxation obligations; and

    (iii)as a supervising registered tax agent of AFFG to ensure that AFFG provided competent tax agent services to its clients, including the Meat Workers and Meihua.

14. On 5 August 2019 Mr Gao applied to this Tribunal for review of the Gao Decision.

15. On 21 August 2019 AFFG applied to this Tribunal for review of the AFFG Decision.

16. The Tribunal has jurisdiction to review the AFFG Decision and Gao Decision pursuant to section 25 of the Administrative Appeals Tribunal Act 1975 (Cth) (“AAT Act”) and section 70.10(e) of the TASA.

17. On 5 August 2019 and 21 August 2019 Mr Gao and AFFG respectively filed stay applications of the TPB’s decisions pursuant to section 41(2) of the AAT Act.

18. The TPB opposes both stay applications.

19. An interim stay in relation to the AFFG and Gao Decisions has been in place since

    
    

    26 August 2019.

20. Both stay applications were heard together.

    LEGISLATIVE BACKGROUND

21. The object of the TASA, as stated in section 2.5 is "to ensure that tax agent services are provided to the public in accordance with appropriate standards of professional and ethical conduct".

22. The TASA establishes the TPB and provides for the registration and regulation of tax agents. Part 3 of the TASA sets out the Code which applies to registered tax agents. The TPB is authorised to investigate a registered tax agent’s conduct that may breach the TASA pursuant to section 60.95.

23. Paragraph 20.5(1)(a) of the TASA provides that an individual is eligible for registration as a registered tax agent, BAS agent or tax (financial) adviser if the TPB is satisfied that the individual is a fit and proper person.

24. In determining whether a person is a fit and proper person to be registered as a tax agent, the TPB must have regard to whether the individual “is of good fame, integrity and character”.

25. The TPB referred the Tribunal to its Explanatory Paper TPB(EP) 02/0210: "Fit and proper person" (“Explanatory Paper 02/2010”) which provides guidance to agents regarding the TPB’s interpretation of the fitness and proprietary requirements of the TASA.

26. The Tribunal is not bound to apply the Explanatory Paper 02/2010 but it may, and it should, apply it in exercising its discretion unless it is unlawful or “tends to produce an unjust decision”.

27. Brennan J explained the relevance of an adopted policy to decision-making in Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 640:

    Decision-making is facilitated by the guidance given by an adopted policy, and the integrity of decision-making in particular cases is the better assured if decisions can be tested against such a policy. By diminishing the importance of individual predilection, an adopted policy can diminish the inconsistencies which might otherwise appear in a series of decisions, and enhance the sense of satisfaction with the fairness and continuity of the administrative process.

28. The Tribunal is not aware of any cogent reason for not following the EP.

29. Paragraph 84 of Explanatory Paper 02/2010 explains that:

    A failure by a tax practitioner to discharge their responsibilities on behalf of clients could reflect adversely on the tax practitioner's fitness and propriety for registration where it amounts to unsatisfactory or unreasonable failure in the tax practitioner’s circumstances and all the surrounding circumstances of the case.

30. Paragraph 86 of Explanatory Paper 02/2010 sets out specific examples of a failure to properly maintain client relationships that may in the circumstances reflect adversely on fitness and propriety for registration. One of those examples is:

    ·     lacking the requisite knowledge and skills to provide services to a professional and competent standard

31. In Re Su and Tax Agents’ Board of South Australia (1982) 61 FLR 1 Davies J said, at 4-5:

    The function of a tax agent is to prepare and lodge income tax returns for other persons. A person is a fit and proper person to handle the affairs of a client if he is a person of good reputation, has a proper knowledge of taxation laws, is able to prepare income tax returns competently and is able to 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.

    (emphasis added)

32. Section 30.10 of the TASA sets out the Code that registered tax agents must comply with in order to maintain their registration. The following subsections of section 30.10 are relevant here:

    (a)section 30.10(2) provides that a registered tax agent:

    “…must comply with the taxation laws in the conduct of your personal affairs”.

    (b)section 30.10(7) provides that a registered tax agent:

    “…must ensure that a tax agent service that you provide, or that is provided on your behalf, is provided competently.”

    (c)section 30.10(9) provides that a registered tax agent:

    “…must take reasonable care in ascertaining a client's state of affairs, to the extent that ascertaining the state of those affairs is relevant to a statement you are making or a thing you are doing on behalf of the client.”

    (d)section 30.10(10) provides that a registered tax agent:

    “…must take reasonable care to ensure that taxation laws are applied correctly to the circumstances in relation to which you are providing advice to a client.”

33. The TPB also referred the Tribunal to its Explanatory Paper TPB(EP) 01/2010: "Code of Professional Conduct" (“Explanatory Paper 01/2010”) which provides guidance in relation to general principles and matters relating to the Code that may be relevant to the professional practice of registered tax agents. It provides the following in relation to what is “reasonable care” in ascertaining a client’s affairs:

    What is ‘reasonable care in ascertaining a client’s state of affairs’?

    121.It is considered that ‘more is expected of a registered tax practitioner than a taxpayer completing his or her own return’. This higher standard of care is a reflection of a registered tax practitioner's ‘knowledge, education, experience and skill’.

    122.It should be noted at the outset that this requirement under the Code does not create a requirement that a registered tax practitioner effectively ‘audits’ all of the registered tax practitioner's clients before providing tax agent services to avoid breaching the Code.

    123.Rather, this requirement is a duty of registered tax practitioner to take care beyond placing complete reliance on the accounts prepared, or work done, by a person without considering their level of knowledge and/or understanding of the taxation laws and the correctness of their work to ensure that the information upon which the provision of the tax agent services is based is accurate.

    124.In most cases, this will require that a registered tax practitioner ask the client appropriate questions, based on the registered tax practitioner’s professional knowledge and experience, to ascertain the accurate factual basis upon which the tax agent services are provided and, where appropriate, to obtain supporting documents and records evidencing these facts.

    125.The requirement to take reasonable care relates to the services that are to be provided and is therefore subject to the agreed scope of the engagement with the client. A registered tax practitioner would not be required to make further enquiries and it would be reasonable to rely on information or advice, if the scope of the tax agent services excludes the examination of information provided by the client or requires the registered tax practitioner to rely on the information or advice of another expert. These observations must also be considered in light of other paragraphs in this section and with the obligations under the TASA, which must be complied with.

    126.Taking reasonable care will in many cases require that a registered tax practitioner ask questions based on their professional knowledge and experience in seeking information. Where there are grounds to doubt the information provided by a client, the registered tax practitioner must take positive steps and make reasonable enquiries to satisfy themselves as to the completeness and/or accuracy of that information.

    127.Where a statement provided by a client seems plausible and is consistent with previously established statements and the registered tax practitioner has no basis on which to doubt the client’s reliability or the veracity of the information supplied, the registered tax practitioner may discharge their responsibility by accepting the statement provided by the client without further checking.

    128.However, if the information supplied by a client seems implausible or inconsistent with a previous pattern of claim or statement, further enquiries would be required.

    129.Again, whilst there is no requirement to audit, examine or review books and records or other source documents supplied by a client, a registered tax practitioner does not discharge their responsibility in such a case by simply accepting what they have been told.

    (emphasis added)

34. If, having conducted an investigation of a registered tax agent, the TPB is satisfied that the tax agent has failed to comply with the Code, the TPB may terminate the registered tax agent’s registration pursuant to section 30.30 of the TASA. The termination of a registered tax agent’s registration takes effect on the day specified in the notice provided by TPB of the decision to terminate the registration.

    Power and Criteria for the Grant of a Stay

35. The power of the Tribunal to grant a stay of the operation or implementation of a reviewable decision, derives from section 41(2) of the AAT Act which provides:

    The Tribunal may, on request being made by a party to a proceeding before the Tribunal (in this section referred to as the relevant proceeding), if the Tribunal is of the opinion that it is desirable to do so after taking into account the interests of any persons who may be affected by the review, make such order or orders staying or otherwise affecting the operation or implementation of the decision to which the relevant proceeding relates or a part of that decision as the Tribunal considers appropriate for the purpose of securing the effectiveness of the hearing and determination of the application for review.

    (emphasis added)

36. It is not in dispute that the factors relevant to the exercise of the discretion to grant a stay are:[6]

    (a)the prospects of success of the substantive application for review;

    (b)the consequences to the applicants if the request for a stay is refused;

    (c)the public interest;

    (d)the consequences for the TPB in carrying out its functions; and

    (e)whether the substantive application for review would be rendered nugatory if the request for a stay order were not granted.

    [6]     Re Scott and Australian Securities and Investments Commission [2009] AATA 798, per Downes J.

    ISSUE FOR THE TRIBUNAL

1. The issue for the Tribunal is whether to grant a stay of the AFFG Decision and Gao Decision pursuant to section 41(2) of the AAT Act.

   THE PROSPECTS OF SUCCESS OF THE SUBSTANTIVE APPLICATION FOR REVIEW

2. The concerns of the TPB can be grouped into the following categories:

   (a)AFFG’s conduct in relation to its own tax affairs;

   (b)AFFG’s conduct in relation to the Meat Worker claims; and

   (c)AFFG’s conduct as tax agent for Meihua.

3. Mr Gao is directly related to all of AFFG’s actions as its controlling mind, director, and supervising tax agent of AFFG’s employees.

4. The Tribunal will deal with each issue in turn.

   AFFG’s conduct in relation to its own tax affairs

5. The TPB contends that stays should not be granted on the grounds, inter alia, that:[7]

   (a)AFFG has consistently failed to comply with it taxation obligations by:

   (i)failing to lodge its ITRs by the due date for every financial year since its incorporation to the financial year ending 30 June 2018;

   (ii)failing to lodge its BAS by the due date for 7 reporting periods (of 12) between 1 July 2014 to 30 June 2017; and

   (iii)failing to lodge and pay its Superannuation Guarantee Contribution for 4 of 5 payment periods between 1 April 2015 and 30 June 2016.

   [7]     Respondent’s written submissions, dated 11 September 2019, paragraph 8.

6. It is not in dispute that AFFG has consistently, since its registration as a tax agent, lodged its ITRs, BAS statements and superannuation charge statements late.

7. Mr Gao told the Tribunal this was “a fact” and he has “no objection” to TPB’s contention in that regard. He said, by way of explanation, that he was operating a small company, AFFG, which was time consuming, and that once he was aware he rectified the situation, paid all monies owning and, in relation to the superannuation for his employees, paid it in full with interest.

8. The Tribunal is concerned by Mr Gao’s somewhat cavalier attitude to this issue. No real explanation was given for why AFFG consistently lodged its returns late. As a registered tax agent, he should know what his tax obligations are and comply with them. More is expected of tax agents. It is not satisfactory to simply say the returns have now been lodged and outstanding liabilities paid, with interest. This repeated conduct shows a complete disregard by AFFG of its taxation obligations and is particularly troubling in relation to AFFG’s obligations to its employees.

   AFFG’s conduct in relation to the Meat Worker claims

9. In the financial year ended 30 June 2016 AFFG lodged 390 individual income tax returns for Meat Workers. After auditing those ITRs, the ATO concluded that they required amendment. The ITRs were then amended to reduce their claimed deductions by $616,050.29. The ATO also directly audited seven clients which resulted in tax shortfall and penalties totaling $76,459.37.

10. A significantly large number of AFFG’s clients’ ITRs had to be amended.

11. The TPB contends that there was no substantiation by the clients of the claimed work expenses and AFFG’s conduct in not insisting on substantiating constitutes a fundamental breach of its duties as a registered tax agent.

12. Mr Gao submitted:[8]

    [8]     Applicants’ written submissions, dated 4 September 2019.

    (a)He and AFFG “take quality of work and services to our clients seriously”;

    (b)work procedures are in place to ensure team members are aware of steps to go through with clients when preparing tax returns;

    (c)staff are required to strictly follow work procedure while performing work for clients;

    (d)he cooperated with the ATO to rectify errors when instructed by ATO officers;

    (e)they agreed to rectify the errors free of charge “due to our commitment to provide best possible service to our clients”;

    (f)“even though a high number of individual tax returns were identified to be adjustable, vast majority of the cases belong to the same category”;

    (g)Clients confirmation was received about income producing nature of the work expenses claimed before they were included in their ITRs;

    (h)“Some meat industry workers claimed they lost tools while stored in company provided storage with no compensations. Therefore they had to carry tools to and from work. The same question might not have been asked to each and every client, but it is reasonable to apply the same rule if a big portion of them telling the same story, and they are from the same work location”;

    (i)there is currently no outstanding debt to ATO; and

    (j)he is “a fit and proper person in dealing with ATO for tax related issues, and the company AFFG is a trustworthy professional firm to provide services to our clients.”

13. At the hearing Mr Gao said the Meat Workers were asked by staff if they could substantiate the claimed expenses. However, very few provided any invoices or other substantiating documentation. Mr Gao says the majority of the claims were for car expenses and meal expenses and that, in his opinion, he “still believes [those clients] are able to claim these expenses”. This is despite the ATO disallowing those claims and having to amend all of the ITRs. Mr Gao says its “not his responsibility to fight for the taxpayer” and that he believes a majority of these types of workers are probably still claiming these expenses.

14. The Tribunal finds that Mr Gao’s attitude to this issue disturbing. He appears to lack an understanding of why the claims were disallowed and why, as a registered tax agent, he should have insisted on substantiation of the claims by those clients. Substantiation of the clients’ claims would have been particularly relevant given that the majority of those clients were from non-English speaking backgrounds and were unlikely to have a good understanding of their Australian legal tax obligations. The Meat Workers were entitled to rely on Mr Gao for advice and guidance.

15. The claims were not made by mistake. Mr Gao still considers that those claims are legitimate.

16. It is also of concern that Mr Gao raises the argument that “others” are making these sorts of claims, as if that excuses his own conduct in not substantiating his clients desired expense claims.

17. On the whole the taxpayers were unable to provide the ATO with any records to substantiate the deductions claimed. Mr Gao appears to have taken no “reasonable care” to establish the claims were deductible.

18. The Tribunal is concerned with the probability that Mr Gao does not understand his responsibility for the false and misleading ITRs lodged by AFFG on behalf of his clients. In addition, he shows a substantial lack of understanding of relevant tax laws. These factors point towards his competency, or lack thereof, should impact on his prospects for success in these matters on final review.

    AFFG’s conduct as tax agent for Meihua

    GST

19. Mr Gao says, as supervising tax agent in AFFG, he oversaw Meihua’s account and tax issues. His written submissions regarding the GST issue provide the following information:

    Listed below are the main points for Meihua GST issues around purchase and sale of property in Calamvale QLD:

    ·Purchase contract was signed before I was appointed as the company director. The contract indicated GST was on top of the purchase price, MA paid the GST in settlement, and claimed it back through BAS from ATO. It was believed the seller would have paid the GST to ATO as well.

    ·When sale contract was prepared, MA followed the suit, and put GST on top of the contract price, signed by both parties. It didn’t raise the alarm to any party at that stage either.

    ·By then, a number of professional legal and financial firms would have got involved in the purchase and sale of the properties, no one raised the issue about GST. This evidenced that the issue is not an obvious one to pick up even by experienced professionals in financial and legal areas.

    ·Before settlement, the purchaser raised the issue about GST. Extensive discussions occurred through solicitors. No clear conclusion could be reached in time for settlement. Therefore it was agreed GST amount to be held in solicitor’s trust account until further decision.

    ·Due to the undecided GST issue, sale amount was held in clearing account, therefore, not picked up in BAS preparation in time. It was not omitted on purpose.

    ·Later, amount held in trust account was released back to the purchaser, with a Deed of Indemnity signed by both parties. The purchaser agreed to pay GST liability if it comes up. It was done through solicitors.

    ·When ATO raised the queries about GST issue in this case, MA engaged another professional Accounting firm RSM Australia Pty Ltd to advise on this issue, and dealing with ATO on behalf of MA.

    ·After working with ATO through RSM Australia, ATO decided MA to pay half of the GST claimed on purchase back to ATO, and to pay ATO GST on half of the sale price, which MA recouped from the purchaser as a result of the Deed of Indemnity signed.

    I, Feng Gao’s, personal good faiths and professionalism were demonstrated in the whole process above:

    ·     Sale contract was prepared in the same way as the purchase contract, as the purchase contract went through, including tax dealings, with no issue originally.

    ·     It is reasonably assumed the vendor (in purchase contract signed in Nov 2013), Hemat Shir & Sayed Development Pty Ltd (HSSD), would have paid the GST portion to ATO in relevant tax period.

    ·     GST on the two properties were treated the same way due to the fact that:

    o   Both properties were transacted on the same contract

    o   Both properties were on the same DA, and transacted as a whole under the same DA, and as the site for the one development project

    o   When the signed purchase contract facilitated through solicitors was given to Angus after he was appointed as the company director, it didn’t raise the alarm of any wrong doing due to the above two reasons.

    o   Even though a house was existing on one of the two blocks, the house had always been vacant during the whole time when it was in MA’s procession. To MA the two blocks of land were just one site for future development

    ·     When purchaser (in sale contract signed in May 2016), Dartmore Properties Pty Ltd, raised the tax issue after the sale contract signed, but before settlement, I realised it is out of my knowledge base, therefore I went to seek external professional advice about tax issue. Extensive effort was put in to make sure things are done correctly, resulting in complex solution including funds held in trust account, and Deed of Indemnity signed by both parties. Everything was going through solicitors. I was trying my very best to have things done correctly.

    ·     This GST issue itself is technically difficult. High level of professional understanding and application was required.

    ·     Before Dartmore Properties Pty Ltd raised the GST issue after the contract was signed, the two blocks have always been treated as one for GST purposes right from the purchase contract signing back in November 2013. A number of professional legal and financial firms would have got involved in the purchase and sale of the properties, no one raised the issue about GST. This evidenced that the issue is not an obvious one to pick up even by experienced professionals in financial and legal areas.

    ·     No agreement could be reached before settlement about the treatment of GST, resulting in fund kept in solicitor’s trust account waiting for future GST decision. Even when the fund was released back to the purchaser a few months later, no agreement could be reached, resulting in a Deed of Indemnity signed by the purchaser, agreeing to pay future GST liability if it comes up. This again evidenced the complexity of the issue, and arguments were in place between different parties represented and supported by different financial and legal professionals.

    ·     It is not fair to judge me not being a fit and proper person because ATO’s final decision on this issue was not on our side.

    ·     After ATO reached their decision for this case, MA paid any shortfall and interest required with no delay

    ·     Shortfall and interests were the result of misapplication of tax law, not intentional tax fraud

    ·     I was very cooperative with ATO officer during the whole process, responded positively in a timely manner, trying to save time and resource for Tax office to save public resource and taxpayer money.

    After the whole audit process, and everything was settled, I received a call from an ATO representative, thanking me for working with ATO in good faith in figuring out the right GST application for the relevant transactions, and any debt to ATO raised from the process was paid on time. The phone call itself was another strong evidence to show the GST issue wasn’t an easy one, and I was trying my very best to work with ATO to get things right. Therefore, it is not fair to say I was not a fit and proper person based on the fact that the initial treatment for this issue was wrong. Consequently it is not fair to say AFFG’s involvement in this case was a failure to demonstrate our professional competency.

20. Mr Gao told the ATO that Meihua had not remitted the GST on the sale of the properties because the purchaser of the properties informed him that they had bought the property for residential purposes. He says legal advice he obtained was to the effect that there was no GST on the sale. No legal opinion has been proffered by Mr Gao because he says his barrister advised him not to disclose the opinion.

21. It is accepted by Mr Gao that GST on the sale on the vacant block of land should have been remitted and he has paid the outstanding GST. The Tribunal accepts, based on the information presently before it, that this issue is more complex and that the legal obligations were not immediately apparent to everyone involved in the transaction.

    Interest claim

22. Meihua claimed interest expenses as deductions pursuant to section 8-1 of the Income Tax Assessment Act 1997 (Cth) for the financial year ending 30 June 2016. The total amount of the interest expenses in that financial year was in the order of $2,031,000 which resulted in Meihua having a carried forward loss in that financial year in the order of $1,313,689.

23. Mr Gao told the Tribunal he was “not saying it is correct” but:

    (a)the monies were borrowed against three different properties owned by different entities;

    (b)all three entities have a similar structure and the same shareholding and are part of a “group”; and

    (c)overall, regardless of which entity claimed the interest deduction, the effect is the same.

24. This evidence demonstrates a lack of understanding:

    (a)that each company is a separate legal entity;

    (b)each company has legal obligations to report its taxable income relating to income and expenses incurred by it;

    (c)of the role of a tax agent;

    (d)of taxation legislation, and in particular which company was entitled to claimed interest expenses of which amount.

25. This raised a real and significant concern regarding whether “TPB and the Commissioner can have confidence in the practitioner’s continued ability to honestly and competently discharge the functions of the profession”.[9]

    [9]     See paragraph 95, Explanatory Paper 02/2010.

26. Mr Gao knew Meihua had claimed interest incorrectly and again demonstrated a cavalier attitude to the seriousness of the breach.

    The consequences to the applicants if the request for a stay is refused

27. Mr Gao says if the stay is not granted:

    (a)AFFG will be unable to provide services to its clients;

    (b)AFFG may have to let his three employees go as it would be unable to financially support them.

28. It is accepted by the TPB that the impacts on employees is a relevant factor to consider in considering whether to grant a stay. However, no evidence was before the Tribunal with regard to:

    (a)substantiating the number of AFFG employees that would be impacted. The TPB only has evidence, from ITR information, of AFFG having two employees, contrary to Mr Gao’s assertion that there are three employees;

    (b)establishing whether the employees are full time or part-time, temporary or permanent;

    (c)regarding the likelihood of the employees finding alternative employment in the near future;

    (d)establishing how many of AFFG’s clients would be affected; or

    (e)setting what financial loss would be incurred by AFFG or Mr Gao if the stay is refused.

29. The termination of the registration will have consequences in terms of the Applicants’ ability to maintain clients. This is a situation that would be faced by anyone in the position of losing their tax agency registration.

30. The Tribunal acknowledges there may be some inconvenience to the Applicants’ current clients having to find an alternative tax agent.

31. However, given the lack of evidence, the Tribunal is not persuaded that the consequences to the Applicants’ outweigh the limited prospects of success and the public interest to justify the grant of a stay.

    The public interest

32. Taxpayers have a right to expect that the advice they are receiving from their tax agents is competent and that they are not being led into danger of breaching their tax obligations by claiming deductions which cannot be maintained.

    Application for review would not be rendered nugatory

33. The applications for review would not be rendered nugatory if a stay is refused. If the Applicants’ are successful at final review, the termination decisions will be set aside or varied and the Applicants’ will be able to recommence the provision of tax agent services as registered tax agents.

    CONCLUSION

34. In the circumstances the Tribunal finds a stay order is not in the public interest and the public interest outweighs the detriment which the Applicants contend they will suffer if the stay is not granted.

35. Mr Gao does not appear to have shown an “awareness of the significance and consequences of the misconduct or wrongdoing, such that the TPB and the Commissioner can have confidence in the practitioner’s continued ability to honestly and competently discharge the functions of the profession”.[10]

    [10]    See paragraph 95, Explanatory Paper 02/2010.

36. The Applicants’ have not satisfied the Tribunal that the stay applications should be granted.

    DECISION

37. The stay applications are refused, and the interim stay orders of 26 August 2019 are discharged.

I certify that the preceding 73 (seventy-three) paragraphs are a true copy of the reasons for the decision herein of Member D K Grigg

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

Associate

Dated: 19 September 2019

Date of stay hearing:	13 September 2019
Applicant:	By telephone
Counsel for the Respondent:	Mr V Brennan
Solicitors for the Respondent:	Tax Practitioners Board