HFFV and Tax Practitioners Board (Taxation)
[2020] AATA 1712
•7 May 2020
HFFV and Tax Practitioners Board (Taxation) [2020] AATA 1712 (7 May 2020)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2019/5244
Re:HFFV
APPLICANT
AndTax Practitioners Board
RESPONDENT
DECISION
Tribunal:F D O'Loughlin QC, Deputy President
Professor A O'Connell, Senior MemberDate:7 May 2020
Date of written reasons: 11 June 2020
Place:Melbourne
1.The Tribunal sets aside the decision under review and in lieu thereof:
(a)pursuant to s 30-15 of the Tax Agent Services Act 2009 (Cth) (TAS Act) directs that the Applicant be given a written caution;
(b)pursuant to s 30-20 of the TAS Act orders as follows:
(i)on or before 31 May 2020, or such later date as, in its discretion, may be agreed by the Respondent, the Applicant must provide to the Respondent and to the Commissioner of Taxation a report in relation to its primary Superannuation Guarantee and tax obligations, with supporting documentation that shows the information included in the report is correct, that sets out:
(1)in relation to the Superannuation Guarantee obligations for each quarter for the period from 1 October 2014 to date:
(A)the total amount of the Applicant’s salary and wages and other remuneration paid that was subject to Superannuation Guarantee obligations;
(B)the superannuation contribution obligations arising in respect of the salary or wages paid in (A) above (not including interest or administration fee charges);
(C)the payments made to either superannuation funds or the Commissioner of Taxation in respect of Superannuation Guarantee obligations in (B) above and the dates thereof; and
(D)the amount, if any, by which the sum of the payments in (C) falls short of the sum of the amounts in (B);
(2)in relation to the Applicant’s Integrated Client Account balance of $174,587.91 as at 1 April 2020, the likely composition of the outstanding balance, after reducing it by the duplicated entries total of $46,510, that represents PAYG and GST obligations posted to the account, other primary tax liabilities (if any) posted to the account, penalties posted to the account and interest charges posted to the account, by undertaking a process of beginning at 1 April 2020 and working backwards until the total of the amounts in (A) to (E) below reaches the amount of $128,077.91, identifying:
(A)the most recent debits to the account that represent PAYG withholding obligations;
(B)the most recent debits to the account that represent GST obligations;
(C)the most recent debits to the account that represent other primary tax obligations (if any);
(D)the most recent debits to the account that represent penalties;
(E)the most recent debits to the account that represent interest charges; and
(F)the total of (A) to (C) above; and
(ii)on or before 30 June 2020 or such later date as, in its discretion, may be agreed by the Respondent, the Applicant is to pay to the Commissioner the amounts in (1)(D) and (2)(F) above; and
(iii)the Applicant procure that its director undertakes, and satisfactorily completes, remedial education in one of the following courses, and to provide details of satisfactory completion to the Respondent by 31 December 2021:
(1)the subject named ACC3 TAX[1] offered by La Trobe University;
[1] subject named Australia Taxation[2] offered as part of the CPA Program; or
[2] subject named CTA2A Advanced[3] offered by the Tax Institute.
[3] calculations required pursuant to paragraph 1(b)(i) are strictly for the purposes of calculating an amount to be paid pursuant to paragraph 1(b)(ii) hereof, and no other purpose.
3.Nothing in the forgoing Orders shall purport to, or operate to, or purport to operate to:
(a)alter:
(i)the existence or nature of any obligation, including obligations to pay interest, administration charges or penalties, of the Applicant to the Commissioner; or
(ii)the date by which any such obligation is or was required to be performed;
(b)bind the Commissioner in any way in his administration of any legislation;
(c)appropriate any payment made by the Applicant to any liability of the Applicant to the Commissioner;
(d)require the Commissioner to appropriate the payment to be made pursuant to paragraph 1(b)(ii) hereof to any particular liability of the Applicant, or
(e)bind the Respondent to grant an extension of time to the Applicant to comply with the foregoing directions.
...............[sgd].........................................................
F D O'Loughlin QC, Deputy President and Professor A O’Connell, Senior Member
Catchwords
TAX AGENTS – Termination of registration as tax agent – breach of Code of Professional Conduct – applicant failed to comply with taxation laws in the conduct of its personal affairs – appropriate response
Legislation
Tax Agent Services Act 2009
Acts Interpretation Act 1901
Income Tax Assessment Act 1936
Taxation Administration Act 1953
Superannuation Guarantee (Administration) Act 1992Cases
Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336. Delis and Tax Practitioners Board [2015] AATA 820 Green v Commissioner of State Revenue (Review and Regulation) [2018] VCAT 640 Hill and Tax Practitioners Board [2020] AATA 678 Kellett and Tax Agents’ Board of Victoria [2009] AATA 948 Kishore and Tax Practitioners Board [2017] AATA 271 Madz and Tax Practitioners Board [2019] AATA 4773 Phillip Same Accountants Pty Ltd and Tax Practitioners Board [2010] AATA 439 Shmuel and Tax Practitioners Board [2019] AATA 2168 SHTX and Tax Practitioners Board [2016] AATA 261 SRBP v Tax Practitioners Board [2016] AATA 456 Su v Tax Agents’ Board of South Australia [1982] AATA 127 Toohey and Tax Agents’ Board [2008] AATA 262 Secondary Materials
Hansard, House of Representatives, Tax Agent Services Bill 2008 Second Reading
Speech, the Hon C Bowen, Assistant Treasurer, Thursday, 13 November 2008
Explanatory Memorandum to the Tax Agents Services Bill 2008
REASONS FOR DECISION
F D O'Loughlin QC, Deputy President
Professor A O'Connell, Senior Member11 June 2020
Shortly after the conclusion of the hearing in this matter, on 7 May 2020, the Tribunal made its decision to set aside the Respondent Board’s decision to cancel the Applicant’s registration as a tax agent and to substitute for that decision a decision on the terms set out above. It did so for reasons outlined in summary form only at the time to set in course a timetable for the Applicant to attend to the requirements included in the decision, with the Tribunal’s reasons to be provided in writing in due course.
The question for the Tribunal is whether the Applicant, a Registered Tax Agent, that has failed to perform its personal tax and SG[4] obligations over a number of years ought have its registration, which was due to expire on 30 June 2020, cancelled (which the Respondent has done), or ought have an alternative regulatory response facilitated by the regime introduced by the TAS Act,[5] as contended for by the Applicant, in circumstances where:
(a)there has not been any:
(i)complaint about its services to or on behalf of clients; or
(ii)independent evidence of dishonesty or lack of integrity;
(b)the Applicant’s current predicament is most likely the compounded effect of at least four non-routine and unfortunate events and an inability to retrieve the situation fully, and
(c)the Applicant has made attempts to deal with its predicament.
[4]Superannuation Guarantee.
[5]Tax Agents Services Act 2009 (Cth).
The relevant statutory regime, its rationale and objectives and some parallels to it are as set out in SRBP[6] at paragraphs [27] to [36]. To those paragraphs can be added the sentiments in the Second Reading Speech of the Assistant Treasurer, the Honourable Chris Bowen:
… Australia’s tax environment has changed significantly since 1943. For example, the self-assessment tax system was introduced during the 1980s. In addition, the tax base has expanded significantly over the past 20 years or so, with an associated increase in the volume of the tax laws and the number of interactions within them.
These changes in the tax environment correspond with significant growth in the number of taxpayers seeking professional assistance from tax agents to prepare and lodge their tax returns. In 1980, for example, only around 20 per cent of individuals used tax agents to lodge their tax returns. This figure has now grown to 74 per cent.
Given the number of taxpayers who use agents to comply with their tax obligations, it is important that such agents are appropriately and adequately regulated, that there are mechanisms in place to ensure they are adequately supported, and that there are incentives for new agents to enter the market.
The Tax Agent Services Bill aims to deliver this balance through a number of key elements that I would like to outline.
…
Thirdly, the bill will introduce a legislated code of professional conduct which will govern the provision of tax agent services by tax agents and BAS agents. The code will define the professional and ethical standards required of agents, and their roles and responsibilities. It will therefore provide clarity and certainty around the standards expected of agents. It will also provide a benchmark against which the board and taxpayers can evaluate the tax agent services being provided.
The fourth key element is the establishment of a wider and more flexible range of administrative sanctions than those existing under the present arrangement. In cases of noncompliance with the code, the board will be able to impose a sanction that is commensurate with the severity of the misconduct, ranging from a written caution or an order to undergo training or work under supervision, through to termination of registration. The introduction of a range of constructive and educative sanctions for noncompliance will improve the standard of services provided to the public.
[6]SRBP v Tax Practitioners Board [2016] AATA 456.
As noted in SRBP:
(a)at [27], the object of the TAS Act is set out in s 2-5 in the following terms:
The object of this Act is to ensure that tax agent services are provided to the public in accordance with appropriate standards of professional and ethical conduct. This is to be achieved by (among other things):
(a) establishing a national Board to register tax agents and BAS agents; and
(b)introducing a Code of Professional Conduct for registered tax agents and BAS agents; and
(c) providing for sanctions to discipline registered tax agents and BAS agents.
(b)at [28], following an investigation which concludes in adverse findings, the Board[7] can do one or more of the things listed in s 60-125 of the TAS Act, including imposing a sanction under Subdivision 30-B and terminating an entity's registration under Subdivision 40-A. For a breach of the Code,[8] the Board may do one or more of the following:
[7]The Tax Practitioners Board established by s 60-5 of the TAS Act.
[8]Code of Professional Conduct as outlined at s 30-10 of the TAS Act.
(i)give a written caution;
(ii)give an order under section 30‑20;
(iii)suspend registration under section 30‑25; and/or
(iv)terminate registration under section 30‑30;
(c)at [28], s 30-1 of the TAS Act is in the following terms:
The Code of Professional Conduct regulates your personal and professional conduct as a registered tax agent, BAS agent or tax (financial) adviser.
If the Board investigates you and finds that you have failed to comply with the Code, the Board may give you a written caution, order you to take specified actions, or suspend or terminate your registration.
You must also notify the Board if certain circumstances change, including if you cease to meet the requirements for registration.
and
(d)at [28], the Code is set out in s 30-10 of the TAS Act, relevantly, in the following terms:
The Code of Professional Conduct
Honesty and integrity
(1) You must act honestly and with integrity.
(2) You must comply with the taxation laws in the conduct of your personal affairs.
…..
A critical feature of the Code in the present context is that personal compliance with taxation laws by a registered tax agent is a requirement under the heading Honesty and integrity. Headings are part of the TAS Act[9] and inform construction of what falls under them. Here, the breaches of the Code, which are not disputed, call for a response in the setting of their role in an assessment of honesty and integrity and the appropriate response to shortcomings thereto.
[9]TAS Act, s 80-1; Acts Interpretation Acts 1901 (Cth), s 13(2)(d).
Facts
The Applicant, a company, operates an accountancy business and provides tax agent services to approximately 800-850 clients in regional Australia. The company employs six people in addition to its director.
The Applicant was formed in 2007 and its shares were acquired by the current (sole) director and a related party in 2009. The Applicant has been registered as a tax agent since 2009. The majority of its clients operate in the small to medium business market: approximately 50 per cent operate agricultural businesses; approximately 40 per cent operate non‑agricultural businesses, and approximately 10 per cent are non-business taxpayers. All clients are clients who require tax agent services, and some require broader accounting services and all clients would not be clients but for the tax agent services provided.
The Applicant’s director has a history of community service to the rural sector, specifically to the dairy industry during long periods of turbulence caused by volatility of the milk price and periodical drought. He is also active in community sporting organisations and was involved in providing assistance to those affected by the recent bush fires.
In August 2018, the Board considered whether to renew the Applicant’s registration, for the period commencing 1 July 2017, in light of outstanding tax lodgements and unpaid tax debts. The Board noted that the Applicant had previously been issued a written caution and had previously lodged its Annual Declaration stating that it had no overdue tax obligations. At the time, the Board decided to renew the Applicant’s registration from 1 July 2017 to 30 June 2020 after the Applicant’s director advised the Board that:
(a)most of the BAS compliance items have been completed and will be finalised today (25 July 2018);
(b)he had reengaged with the ATO[10] in disputing the SGC[11] debt and enclosed a copy of the fax dated 16 June 2017 addressed to the ATO Review and Dispute resolution in this regard; and
(c)personal circumstances including physical health issues he had experienced and the psychological impact from his involvement with clients who suffered significant financial hardship through the milk price crisis had had an impact on his ability to deal with the Applicant’s compliance issues.
[10]Australian Taxation Office.
[11]Superannuation Guarantee Charge.
The Applicant did attempt to address outstanding issues and complied with an ATO direction following an employer obligation audit in July 2018 to lodge outstanding activity statements. The Applicant submitted that this caused its PAYG-W[12] liabilities for a number of months to be double-counted. The Applicant does not dispute that some amounts are still owing to the ATO but takes issue with the quantum that is owed.
[12]Pay as you go withholding.
On 1 April 2019, the Board commenced a new investigation under s 60-125 of TAS Act and concluded that the Applicant had breached s 30-10(2) and s 30-10(13) of the Code.
On 11 July 2019, the Board decided to terminate the Applicant's registration as a tax agent under section 30-30 of the TAS Act, (without setting any period during which the Applicant could not apply for registration as a tax agent in the future) based on its conclusion that the Applicant had breached s 30-10(2) of the Code in that it failed to comply with taxation laws in the conduct of personal affairs by failing to:
(a)lodge activity statements for 9 months between 30 November 2016 and 31 October 2017 by their respective due dates; and
(b)pay its ICA[13] debt by the due date;
(c)pay its SGC debt and associated penalties by the due date; and
(d)lodge its income tax returns for the 30 June 2017 and 30 June 2018 income years by their respective due dates.
[13]Integrated Client Account.
There was, but no longer is, a professional indemnity insurance issue under s 30-10(13) of the TAS Act.
The Respondent’s contentions
The Respondent submitted that the Applicant had failed to comply with the taxation laws with respect to its own affairs, namely by:
(a)failing to lodge activity statements for nine monthly periods between November 2016 and October 2017. The failure to lodge nine BAS[14] resulted in the late or non-payment of GST[15] amounts and PAYG-W amounts on behalf of employees. The Respondent argued that although the Applicant had now lodged the activity statements, the initial failure to lodge was a serious matter, noting that failure to lodge can result in criminal penalties under the Administration Act;[16]
(b)non-payment of amounts owing on its ICA totalling $174,587.91;
(c)non-payment of its SGC debt totalling $351,077.19;
(d)failure to observe several payment arrangements with the ATO; and
(e)late lodgement of its Income Tax Returns for the financial years ending 30 June 2017 and 30 June 2018.
[14]Business Activity Statements.
[15]Goods and Services Tax.
[16]Taxation Administration Act 1953 (Cth).
The Respondent also raised issues of the Applicant’s interaction with the ATO as evidence that the Applicant had not taken sufficient steps to regularise its tax affairs and disputed assertions about reduced cash flow and profitability.
Integrated Client Account
The Applicant was subject to an employer obligations audit by the ATO for the period 1 July 2016 to 31 December 2017 (18 months). As a result of the audit, the ATO issued assessments in May 2018 for PAYG-W liabilities of $71,479 and penalties of $48,351 (a total of $119,830). As at 1 April 2020, the total amount owing in relation to the ICA was said to be $174,587.91. The Respondent noted that the Applicant had not lodged objections against the assessments that gave rise to the ICA debt, and had failed to do so notwithstanding advice from the ATO.
SG liabilities
The Applicant was subject to three audits in relation to its SG contribution compliance: for the periods July 2014 to September 2016; July 2016 to December 2017 (as part of the employer obligations audit) and January 2018 to December 2018. At the time of the Board’s investigation in 2018 it was estimated that the Applicant had an accumulated SGC debt of $35,571 (which presumably relates to the amount of unpaid superannuation contributions on behalf of employees – the SG shortfall), plus administration fees and interest and penalties of $19,564, a total of $55,135. As at 1 April 2020, the total amount owing, including interest and penalties, was said to be $351,077.19. The Respondent accepted that the Applicant had made payments, including payments in 2019 directly to the employees’ superannuation funds, but argued that the payments were late, in some cases up to two years late, and that there were still outstanding SG entitlements for some employees. The Respondent also noted that payments were made directly to superannuation funds after the Applicant had been advised to pay the relevant amounts to the ATO.
Failure to comply with payment arrangements
The Respondent noted that the Applicant had received three statutory demands from the ATO for the ICA and SGC debts (in May 2017, September 2018 and July 2019) and had not taken steps to enter into a payment arrangement. The Applicant had also defaulted on nine previous payment arrangements dating back to 2010.
Income Tax Returns
The Respondent noted that the Applicant’s income tax return for the year ended 30 June 2017 was due on 15 May 2018 and lodged on 8 March 2019 (297 days late). The Applicant’s income tax return for the year ended 30 June 2018 was due on 31 October 2018 and lodged on 20 June 2019 (232 days late).
Cash flow and profitability
The Respondent disputed the Applicant’s assertion that the Applicant was in financial difficulties and had cash flow problems in 2015-2016. The Respondent relied on financial statements, tax returns and BAS to show that income and profit improved slightly from 2015 to 2016 and that although some months in that period showed a temporary cash flow problem, overall the Applicant generated a profit and had the capacity to pay a dividend each year. The Applicant’s payroll records also showed that although the director’s salary for 2016 was lower than for 2015, it increased in 2017 and the director also received a director’s fee in that year of $50,000.
Health issues
The Respondent also questioned the evidence of the director in relation to an eye injury that was said by the Applicant to have caused problems for the business in 2015-2016, noting that there was no supporting medical evidence. The Respondent also noted that the incident in late 2016 that was alleged to have had an impact on the director’s mental health was neither diagnosed nor treated.
Interactions with the ATO
The Respondent submitted that the Applicant had not taken sufficient steps to regularise its tax affairs and raised issues of the Applicant’s interaction with the ATO to support this. In particular, it was noted that the Applicant:
(a)had not lodged objections to the assessments despite being advised by the ATO more than once that it should;
(b)did not contact the ATO between February and August 2019 and only re-engaged when the Applicant’s registration was cancelled; and
(c)had been advised to lodge Late Payment Offset forms but had not done so.
The Applicant’s contentions
The Applicant conceded that it had breached the Code with respect to late lodgements and non-payment of tax and SG obligations. The extent of the non-payment is in issue.
The Applicant contends that it is necessary, however, to address the context in which the relevant events occurred, and the explanations given for them.
The Applicant identifies, and the Respondent does not wholly contest, duplicated debits to its ICA and that superannuation payments have been made to employee’s superannuation funds rather than to the Commissioner of Taxation and that the balance truly not paid to superannuation funds is vastly less than what is asserted in ATO records.
In relation to the late BAS lodgement, the Applicant accepts that it had lodged nine statements late and lodged them following the employer obligation audit in May 2018. The Applicant also noted that since February 2018, it had a good BAS lodgement history.
In relation to ICA debt, the Applicant submitted that the debt was overstated. The Applicant submitted that as a result of the lodgement of the BAS and liabilities arising from the audit for the same periods, there has been a double counting of liabilities in the ICA account. The exact amount of the duplication had not been identified. The Applicant claimed it was unwilling to enter into a payment arrangement for the wrong amount lest this was seen as an admission of the debt amount in circumstances where statutory demands had been issued in respect of what was thought to be an amount in excess of the properly calculated liability. The Applicant submitted that approximately $72,000 was double counted but in cross-examination accepted that some amounts were penalties and that the figure might be closer to $46,000. The Applicant noted that although it did not have a formal payment plan with the ATO, in the period October 2016 to March 2020, it had voluntarily paid approximately $475,000 towards the outstanding balance on the ICA account.
In relation to the late lodgement of income tax returns, the Applicant referred to workplace issues in 2018 but acknowledged that the income tax returns for 2017 and 2018 were submitted late. In relation to the 2018 return, the Applicant noted that if it had been eligible for an extended deadline, this return would have only been 36 days late.
In relation to the SGC debt, the Applicant explained that its compliance had been affected by the personal and business matters and problems with the SBSCH.[17] The Applicant also submitted that save for a few outstanding payments, the vast majority of SG contributions had been paid to employees. The Applicant also noted that without penalties and interest, the actual amount owing in respect of SGC liabilities was significantly lower.
[17]Small Business Superannuation Clearing House.
The Applicant referred to various personal and business matters to explain the non-lodgement and non-payment of amounts to the ATO. This included:
(a)an eye injury suffered by the director in 2015,
(b)an event which arose out of the milk price crash in 2016;
(c)issues arising from the acquisition of a business and the termination of employment of an employee in 2018; and
(d)problems with the SBSCH and with submitting payments to the ATO.
The eye injury
The Applicant’s director gave evidence that in June 2015 he suffered an injury to his eye as a result of tearing the eye surface removing his contact lenses while away from home. The director gave evidence that he attended a local hospital and saw a specialist there and was told he would need to wait for the surface layers to grow back. He gave evidence that he had significant pain for a week, significant difficulties in concentrating and focussing on his work as well as difficulties with his vision for four to six months during which he worked less and required greater assistance from others. The director gave evidence that this caused some cash flow problems in the second half of 2015 although this was disputed by the Respondent based on profitability shown in financial records (although the Respondent accepted that there may have been temporary cash flow problems from time to time).
The milk price crash incident
The Applicant’s director gave evidence that in 2016 he was invited to be on a consulting group to assist dairy farmers who had been impacted by the milk price crash, who might be eligible for the federal government’s funding package. While working with one family, the director helped them reach an agreement as to succession planning. One member of the family was not happy with the outcome. In December 2016, shortly after the agreements were signed, there was a tragic incident in which the disaffected family member and another family member lost their lives. Although the deaths were treated as accidental, the director thought otherwise and felt significant responsibility for that outcome. The director claimed that this impacted his work following the crash.
The Respondent noted that the director did not produce evidence to support either the eye injury or the psychological impact of the incident in late 2016. The director gave evidence that he did not seek assistance with his health issues because he was concerned that it might impact his insurance and because he believed it would be seen as a sign of weakness but acknowledged that his spouse had suggested it was needed.
The workplace issues
The Applicant acquired an accounting practice in 2018 under an arrangement that included acquisition of a client base and the employment of the former owner and two staff. Later in 2018, the employment of the former owner was terminated for disputed performance reasons. The subsequent unfair dismissal claim was unsuccessful for the claimant and there were disputes over ongoing matters for former clients. The director did not claim that these issues had any specific impact on the Applicant’s compliance activity, but he noted that this dispute was a distraction in 2018. The two staff remain in the employ of the Applicant.
Small Business Superannuation Clearing House
In addition to the personal problems described above, the Applicant had problems with making SG contributions through the SBSCH. The SBSCH is a (free) service, initially administered by the Department of Human Services and since February 2018 by the ATO, that eligible businesses can use to make SG contributions. Eligible businesses are those with 19 or fewer employees or an annual aggregated turnover of less than $10 million. The Applicant registered to use the SBSCH in 2016. The Applicant’s director gave evidence that he used the SBSCH in September 2016 but that he was not able to access the website in the December 2016, March 2017 and June 2017 quarters. He was able to make payments using the SBSCH in September 2017 but unable to make payments in December 2017. In 2018 and 2019 payments were accepted by the SBSCH but later refunded to the Applicant’s bank account. The Applicant gave evidence that this occurred in March 2018, April 2018 and April 2019. The Applicant produced evidence of the payments and refunds on two of these occasions (relating to the April 2018 and April 2019 payments). The refunds were not accompanied by any explanation from the SBSCH or the ATO. The Tribunal notes that it is somewhat remarkable that, at a time when the Applicant was said to owe hundreds of thousands of dollars to the ATO, an agency administered by the ATO was refunding payments directed to this very liability to the Applicant.
In June 2019, the Applicant decided to make payments directly to employees’ superannuation funds, including amounts owing from 2017 and 2018. The Applicant admitted that there were still some outstanding SG amounts totalling approximately $7,000. The Applicant did not offer an explanation about these amounts. The director of the Applicant noted that he decided to make payments directly to employees’ superannuation accounts, so that the monies would get to the employees and would not be applied by the ATO to other liabilities of the Applicant.
The Applicant gave evidence however that the vast majority of superannuation contributions owing to employees had been paid, including $71,005 paid to the ATO between September 2014 and May 2016, and $64,069 paid directly to the employees superannuation funds in 2019, and that the balance owing on account of superannuation contributions, not including interest and penalties, was either approximately $7,000 (based on the Applicant’s calculations) or $19,000 (based on the Respondents calculation on figures as at 31 December 2018). The Applicant noted that this was significantly less than the amount said to be owing to the ATO of $351,077.19. The Applicant also believed that it could use the amnesty for remedying unmet SG obligations[18] that had been announced although the amnesty is not available for historical non-compliance where the ATO has already undertaken an examination.[19]
[18]Superannuation Guarantee (Administration) Act 1992 (Cth), s 74.
[19]Ibid, s 74(1)(c).
In relation to dealings with the ATO, the director claimed that he had contacted the ATO regularly to seek assistance in resolving the double-counting issues and SBSCH issues and that the ATO had often (but not always) failed to provide meaningful assistance to resolve those matters. In relation to not lodging objections or the Late Payment Offsets forms, the director noted that he was not experienced in the Objection process and was hoping to get an ATO case manager to try to sort out the amounts of the ICA and SG debts. He noted that the Applicant continued to make regular payments in addition to its current obligations in an endeavour to reduce the ICA balance owing. The director accepted that he did have a period of not contacting the ATO but was attempting to run the business and matters compounded and got out of hand. He had also not asked staff to assist because he was embarrassed and believed he could sort it out. He is now getting assistance with his professional affairs.
The Applicant explained that it had taken steps to address its outstanding tax obligations. This includes the following matters that were supported by the evidence:
(a)lodgement of outstanding BAS for the 2016 and 2017 calendar years on 24 July 2018;
(b)making of regular lump sum payments towards the ICA balance since October 2016;
(c)payment of SG contribution amounts directly to employees’ superannuation funds: in June 2019, the Applicant made SG contributions on behalf of its existing and former employees dating back to March 2017. As noted above, based on the Applicant’s statement, there are still 5 payments that appear to be outstanding; and
(d)maintaining on time lodgement of the Applicant’s activity statements since February 2018.
The Applicant explained that cash flow difficulties had been a factor in producing historical states of affairs that had fed into the current predicament. These contentions conflict with the Respondent’s assertions that here was adequate cash flow to meet all relevant obligations.
The Applicant’s director acknowledged that the Applicant had made mistakes and he took responsibility for not being able to retrieve the Applicant’s predicament. The director also demonstrated contrition in the hearing. The Respondent accepted that the director had shown some contrition but submitted that that did not necessarily mean that outstanding matters would be rectified or that various failures would not be repeated.
The authorities
The parties referred the Tribunal to a number of authorities dealing with decisions relating to registration of tax agents. A number of those decisions related to the pre-2009 registration regime where the only sanction available to the registration authority was termination. Many of the cases are under the old regime, and some of the cases under the new regime were concerned with whether the person was a fit and proper person. That is not the issue in this case and so the authorities must be treated with caution. Three specific issues were raised by the cases: whether a claim of ill-health could be relied on in the absence of supporting evidence; whether the absence of harm to clients was relevant and the level of seriousness of the Applicant’s contraventions.
Ill-health claims
The Applicant raised the issue of the eye injury to its director in 2015 and referred to the milk price crash incident as having had a psychological impact. The Respondent relied on cases that suggested that in the absence of corroborating evidence this could not be relied on. In Toohey,[20] a fit and proper person case, there was some medical evidence concerning the applicant’s health issues, but the Tribunal took the view that the applicant’s health concerns were not special circumstances that would excuse the relevant failures.[21] In Kellett,[22] another fit and proper person case, the Tribunal had the benefit of some medical evidence concerning the applicant. Although the Tribunal accepted that the applicant in that case suffered a serious physical illness, had unexplained pain after surgery and was being treated for a depressive illness, these matters did not constitute special circumstances to cause the Tribunal to disregard the acts or omissions. In Delis,[23] also a fit and proper person case, the Tribunal rejected the evidence of the applicant as to his health issues, in part because there was no objective evidence produced. On appeal, the Federal Court of Australia held that the Tribunal was not bound to accept as a fact an assertion of ill-health as the explanation for non-compliance without supporting evidence. In Shmuel,[24] also a fit and proper person case, the Tribunal noted[25] that it:
would be an inappropriate use of its discretion to disregard the nature and extent of the applicant’s conduct in failing to meet his legal and regulatory obligations and the risk that repeated conduct of that kind may have for existing and future clients of the applicant, as well as the public at large, on the basis of uncorroborated health issues which by the applicant’s own evidence remain ongoing. This is particularly so where, as in this case, the applicant has not demonstrated any reasonable level of acknowledgment, contrition or remorse for his conduct. (emphasis added)
[20]Toohey and Tax Agents’ Board [2008] AATA 262.
[21]Ibid at [155].
[22]Kellett and Tax Agents’ Board of Victoria [2009] AATA 948.
[23]Delis and Tax Practitioners Board [2015] AATA 820.
[24]Shmuel and Tax Practitioners Board [2019] AATA 2168.
[25]Ibid at [59].
These cases do not compel rejection of evidence of ill-health where there is not specialist medical evidence in support. The question remains open for the Tribunal to have regard to the evidence led from the witness and form a view as to whether it ought be accepted.
The Applicant did refer to various external issues, including its director’s health issues, although not as having any great significance on their own. Rather these matters were part of a series of unrelated events, including difficulties in identifying how much was owing, that appear to have overwhelmed the director. The Tribunal also notes that it is not uncommon, especially in the case of men, not to seek assistance for mental health issues. In these circumstances the Tribunal is not concerned by the lack of corroborating medical evidence.
Absence of client complaints
The Applicant submitted that its defaults have not affected any of its clients. The Respondent referred to cases where failure to comply with personal tax obligations was not mitigated by an absence of client complaints or by not having caused direct harm to clients. In Su,[26] a fit and proper person case, Davies J noted that:
It is not necessarily the case that a practitioner who does not look after his personal affairs does not properly attend to the affairs of his clients. But incompetence in relation to one's own affairs more often than not has an effect sooner or later in relation to the affairs of a client.
[26]Su v Tax Agents’ Board of South Australia [1982] AATA 127.
However, in that case the applicant had six convictions relating to his personal tax affairs and there were a range of other matters that reflected on his competence and truthfulness, that the Court concluded raised serious doubts as to [the applicants] capacity to handle other people's affairs. More recently, in Madz,[27] a decision concerned with breach of the same section of the Code, the applicant claimed to have lodged documents on time for clients and at times to have given priority to client matters rather than attend to his personal tax affairs. The applicant had not lodged his personal income tax returns for 2017 and 2018 and had not lodged BAS since May 2017 – matters that were still outstanding at the date of the hearing. Moreover, the applicant had failed to comply with an earlier order by the Board[28] to undertake an educational course. In those circumstances, the Tribunal affirmed the decision to terminate registration. Hill,[29] was a fit and proper person case, involving significant failures in relation to the tax affairs of a number of entities related to the applicant over a considerable period, and matters related to dishonesty concerning statements made to the Board. The Tribunal noted that no evidence had been put to warrant any adverse finding about the applicant’s technical competence, or to indicate shortcomings in his dealings with clients. However, given the extent of the failures, and the dishonesty, affirmed the decision of the Board. The Tribunal did substitute a two-year period during which the applicant could not re-apply in place of the five-year period imposed by the Board. None of these cases establish that client matters are irrelevant. Rather they suggest that in some cases, where the failures in relation to personal tax affairs are egregious or where there are other factors, termination of registration may be appropriate even though there is no suggestion of client mismanagement.
Level of seriousness
[27]Madz and Tax Practitioners Board [2019] AATA 4773.
[28]Made under TAS Act s 30-10(14).
[29]Hill and Tax Practitioners Board [2020] AATA 678.
The Respondent urged the Tribunal to take account of what it asserted were comparable cases which, it argued, showed that termination was the appropriate response based on the level of seriousness of the contraventions. Phillip Same,[30] was a fit and proper person case under the Income Tax Assessment Act 1936, thus the only sanction available was termination. The personal tax failures relating to lodgement and payment for various entities extended back 10 years and there were no special circumstances to mitigate the failures. The applicant had regularised its tax affairs, but only just before the hearing. The decision to terminate registration was affirmed. In Delis,[31] the Tribunal affirmed the termination decision, having found a consistent failure to comply with personal tax obligations for 14 years. The Tribunal also noted that the family trust included a number of liabilities for luxury vehicles on hire purchase and four beneficiary loans. The Tribunal stated[32] that plainly, Mr Delis has preferred to use the significant net profits before tax [in the relevant years] to his own and his company’s advantage. SHTX[33] was a fit and proper person case. Significantly, the breaches of the Code related to client matters. There the Tribunal took into account health and personal issues of the applicant and set aside the decision to terminate. Instead the Tribunal ordered that the applicant be given a written caution, required the applicant to undertake an educational course and imposed restrictions on the practice until such course was satisfactorily completed. The Respondent sought to distinguish SHTX in a number of ways, including that the applicant in that case had recovered and that the transgressions concerned a miniscule aspect of the practice.
[30]Phillip Same Accountants Pty Ltd and Tax Practitioners Board [2010] AATA 439.
[31]Delis and Tax Practitioners Board [2015] AATA 820.
[32]Ibid at [101].
[33]SHTX and Tax Practitioners Board [2016] AATA 261.
The Applicant submitted that many of the decided cases were concerned with the fit and proper person test, but also referred to Kishore,[34] as supporting the notion that termination should be reserved for the most serious cases of wrongdoing.[35] The Tribunal does not believe that the decided cases determine that termination is necessarily the most appropriate response to breaches of the Code.
[34]Kishore and Tax Practitioners Board [2017] AATA 271.
[35]Ibid, DP Frost at [20].
Conclusions
Some observations need to be made of the evidence and of the Applicant’s director.
(a)The Tribunal was influenced by what it regards as a searching but thoroughly appropriate cross-examination of the Applicant’s sole director. The evidence of the director and the cross-examination allowed the Tribunal to gain some insights, possibly that the Respondent did not have, into the most likely reason for the development of the current state of affairs, namely an absence of dishonesty, an absence of lack of integrity, and a compounding of unfortunate events and an inability at the time for the Applicant’s sole director, who the Tribunal accepts gave an honest and unreserved account of what he could remember of the events leading to the present predicament, to retrieve the situation. The Applicant’s director’s evidence has been accepted by the Tribunal.
(b)It should also be noted that many of the complaints made of the Applicant were complaints made in the lead up to renewal of its current registration and in respect of which the Board thought fit to respond to in ways other than denial of registration. The later shortcomings can be seen as the follow-on product of a situation that the Applicant’s director has not been able to retrieve to date as noted below.
(c)The Respondent’s challenges to the Applicant’s cash flow difficulty assertions relied on apparent profitability and apparent positive cash flow disclosed by BAS. These challenges need to be approached and received with care, particularly in a setting where statutory burden of proof advantages for respondents[36] do not apply. Appearances from above or at the surface, of profit and loss statements and the limited information disclosed in BAS, might not always reflect what lies beneath. While they might legitimately be advanced in support of a theory as to ability to meet obligations, neither profitability nor amounts revealed by BAS are necessarily a reflection of cash flow or available cash in every case. In the present case, the Applicant’s profitability was quite a modest proportion of gross fees: for example, in 2018 profit before income tax was 9.8% of reported sales revenue with very modest obvious non-cash outgoing expenses (depreciation and the like). And the monthly BAS is not necessarily a good guide to cash flow either. Again using 2018 as an example, monthly BAS filings, with the limited information they have, suggest a positive cash flow of $184,916 but it is apparent that these filings do not include all expenses. The profit and loss statement for that year reveals interest charges, rent, finance charges and bank charges totalling $191,019 which do not appear to be disclosed in BAS. Combining these indicators, a negative cash flow for the year consistent with the Applicant’s asserted cash flow difficulties emerges. Similar caution is needed concerning dividends and directors fees. While quite modest amounts have been declared and apparently paid or credited as dividends, and in one year a $50,000 director’s fee paid, it is not clear whether payments have been made as there have been fluctuating director’s loans so it is possible that dividends payable were off-set against loans. It is not apparent that funds have been taken from the Applicant’s reserves and used privately rather than in meeting tax obligations. The evidence disclosed very modest bank balances and trade and other payables (which included tax) that exceeded trade and other receivables over the 2014 to 2018 period. The Tribunal is left with the impression that the Applicant’s business was somewhat hand to mouth operating on thin profitability margins, financed by very substantial amounts of retained earnings consistent with the Applicant’s director’s evidence that it had cash flow problems. What is quite clear to the Tribunal is that it is difficult to come to a conclusion that the Applicant’s director was not telling the truth when he spoke of cash flow difficulties, and other difficulties, and that it would be inappropriate to do so given the Tribunal’s view that he was a witness who told the truth. Without going so far as to suggest a Briginshaw[37] standard might be applicable in these matters,[38] where there is conflicting analysis concerning cash flow difficulties, a conclusion that the Applicant did not have these difficulties ought not be made without a targeted and directed cash flow analysis prepared by a person with some forensic accounting or other appropriate expertise.
(d)The ICA and SGC balances said to be owed to the ATO are well beyond the amount the Applicant believes he owes and crying out for attention of both the Applicant and the ATO to identify accurately the outstanding primary obligations and the consequent outstanding penalty and interest obligations. The chain of events that has led to the balances recorded as owing by ATO systems, and the seeming inability of the ATO and the Applicant between them to sort them out to arrive at what is likely to be a more accurate reflection of the amount of the Applicant’s primary obligations that are due and payable can justifiably be described as shambolic.
[36]E.g. s 14ZZK of the Taxation Administration Act 1953 (Cth).
[37]Briginshaw v Briginshaw[1938] HCA 34; (1938) 60 CLR 336.
[38]In a state revenue context, the principle has been applied in questions associated with conclusions of dishonesty: see R M Tang in Green v Commissioner of State Revenue (Review and Regulation) [2018] VCAT 640 at [18] and [71]
The Tribunal notes that the current system of registration of tax agents has a twofold public interest function. This was expressed by Senior Member Taylor in Hill[39] as follows:
One aspect is that of establishing a supervised regime for ensuring compliance with appropriate standards. The other aspect is that of facilitating the general availability of the services of persons who satisfy the TASA registration and conduct requirements.
[39]Hill and Tax Practitioners Board [2020] AATA 678 at [16].
The cases referred to clearly show that the appropriate response in dealing with breaches of the Code depends on the nature and extent of the failures. It is also relevant that many of the cases where termination was thought to be appropriate, involved some sort of dishonesty. The Tribunal accepts that the Applicant’s shortcomings, unexplained and outside the particular context in which these events occurred, are serious. It is necessary, however, to address the context and explanations given.
The Tribunal also notes that the TAS Act introduced a regime that provides for a range of sanctions. The Explanatory Memorandum to the Tax Agents Services Bill 2008 noted that the legislation:
provides the Board access to a graduated range of administrative sanctions for breaches of the Code, so that the Board is able to respond to breaches appropriately.[40]
[40]Ibid at [110].
In those circumstances, although the matter was finely balanced, the Tribunal has reached its decision not to affirm the decision under review and to make alternative orders, taking into account the following matters:
(a)The first concerns the honesty and integrity of the Applicant and its director. The Code requires compliance with the taxation laws in the conduct of an agents’ personal affairs in relation to honesty and integrity. Many of the cases dealing with non-compliance with tax obligations have involved some other element e.g. dishonest dealing. The Tribunal’s view is that not every case of failure to comply with personal tax obligations should result in termination, rather the nature and extent of non-compliance will be important. The Tribunal’s conclusion is that there is no lack of honesty and integrity on the part of the Applicant or its director, that he gave an honest account of factors that had led to the current situation, that his evidence is to be believed, and that the most likely explanation for the current state of affairs is that, with the material contribution of a sequence of unfortunate events for the director, a situation has developed out of which the director has, to date, been unable to retrieve the Applicant’s affairs. It is also apparent that the director is now getting professional assistance in relation to the Applicant’s affairs.
(b)The second concerns absence of any complaint concerning client services from either the Board, the ATO or clients. The present matter arises solely on account of the Applicant’s personal tax and SG obligations. The Tribunal accepts that in some cases the nature and extent of non-compliance with personal tax obligations may warrant termination even though clients have not suffered loss, but this is not such a case.
(c)The third concerns the balances said to be owing according to ATO records. There are significant amounts said to be owed by the Applicant on account of SG charges and associated penalties and interest, and on account of PAYG[41] and GST liabilities and associated penalties and interest. However, those balances recorded as owing are not a true reflection of the Applicant’s compliance with its obligations in those two settings. If the balances recorded as owing were a true reflection of the Applicant’s compliance, there would be a very different assessment of the disposition of the present application. Particularly notable is the stated balance of SG obligations outstanding. On one view, the Applicant’s account balance owing reflects an amount possibly in the order of twenty times the outstanding primary obligation to make payments to superannuation funds on behalf of employees. On another estimate it reflects an amount possibly in the order of 50 times the truly outstanding obligation to make payments to superannuation funds. That account balance in particular is the product of a sequence of events that includes payment to the wrong places, following advices that payments were to be made to the ATO, without any credit given for those payments, and ATO-managed systems refunding significant amounts of money in the tens of thousands of dollars while there were recorded outstanding obligations in the hundreds of thousands of dollars. Further, the Tribunal has a very real concern that the SGC debt balance of $351,077.19 cannot be a true reflection of amounts that have not been paid to superannuation funds for the benefit of employees for another reason. The growth in that balance, namely $295,942 over a period of 21 months, is out of step with a wages expense, as revealed in BAS for the period July 2018 to June 2019, of $426,593 and SG obligations of 9.5% of the wages paid, which would imply an obligation of approximately $70,921 for superannuation contributions over the 21 month period assuming that wages expenses remained constant. Growth in the balance owing of 417% over a 21 month period in these circumstances calls for enquiry and scrutiny. Also notable is the stated ICA balance owing that shows debits for the assessments made by the ATO and debits for the BAS lodged by the Applicant (following a request that they be lodged) for the same periods, and the seeming inability between the Applicant and the ATO to sort out the multiple debit entries posted in respect of the same primary obligations.
[41]Pay as you go.
(d)The fourth concerns the relevant authorities. The Tribunal is of the view that the authorities concerning cancellation of tax agent registrations are clear that not every case involving a departure from personal taxation obligations on the part of a tax agent requires cancellation of the tax agent’s registration, and this is so even in the case of dishonest conduct. The Tribunal notes that a significant majority of the authorities concerning cancellation of tax agent registration have either or both of the following features. First, the cancellations occurred in a regime where there was a single test, namely the fit and proper person test, with the single response to failure to meet that test being cancellation of registration. Second, a substantial majority of the authorities involving cancellation involved dishonest conduct. As such their application to the present context needs to be treated with some care.
(e)The fifth concerns whether the Applicant’s behaviour is excusable. The Tribunal’s decision should not be taken to be a reflection of a view that the Applicant’s behaviour is excusable. Plainly it is not. And plainly that behaviour needs to be rectified. In reaching this conclusion, the Tribunal took into account submissions made on behalf of the Respondent concerning what on the surface appears to be adequate cash flow of the business and what appears to be payment of (modest) salary, directors’ fees and dividends by the Applicant while there were outstanding tax and SG obligations. In this regard, the Tribunal was influenced by the cross‑examination of the Applicant’s sole director as noted above.
(f)The sixth concerns the impact of a cancellation of the Applicant’s registration on others. Although clearly not determinative, an immediate termination of the Applicant’s registration would have consequences for the employment of six people and potentially to the Applicant’s clientele who are mostly small businesses in regional Australia who might be expected to be in need of tax agent services at present.
(g)The seventh concerns the fact that the Applicant’s current registration expires on 30 June 2020. The decision in this matter and the requirements imposed by it, if observed, will allow the Applicant to present itself to the Board as at 1 July 2020 at least having quantified its primary obligations and having paid them, leaving discussions to be had with the ATO concerning the quantum and time for payment of interest and penalties.
I certify that the preceding fifty-four (54) paragraphs are a true copy of the written reasons for decision herein of F D O'Loughlin QC, Deputy President and Professor A O'Connell, Senior Member
.............[sgd]...........................................................
Associate
Dated: 11 June 2020
Counsel for the Applicant: Mr Harlis Kirimof Counsel for the Respondent: Ms Mia Clarebrough
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