HILL and Tax Practitioners Board (Taxation)
[2019] AATA 756
•26 April 2019
HILL and Tax Practitioners Board (Taxation) [2019] AATA 756 (26 April 2019)
Division:Taxation and Commercial Division
File Number(s):2019/0448
Re:Richard HILL
APPLICANT
AndTax Practitioners Board
RESPONDENT
Decision
Tribunal:Mr P W Taylor SC, Senior Member
Date:26 April 2019
Place:Sydney
The Tribunal rejects Mr Hill’s application to stay the Board’s 10 January 2019 decision to terminate his registration as a tax agent. The Tribunal also rejects Mr Hill’s application to stay the Board’s determination that Mr Hill is ineligible to apply for registration as a tax agent for a period of five years.
……………………[sgd]…………………….
Mr P W Taylor SC, Senior Member
Catchwords
POLICY AND PROCEDURE – stay application – tax agent registration cancellation – whether decision to cancel tax agent registration should be stayed – whether decision to prevent reapplying for tax agent registration for five years should be stayed – conduct of personal affairs – prospects of success – public interest – futility of stay – stay rejected
Legislation
Administrative Appeals Tribunal Act 1975 (Cth) s 41
Tax Agents Services Act 2009 (Cth) ss 2-5, 90-5, 2-10, 50-5, 43605, 43605, 20-15, 20-15, 20-45, 20-25, 20-50, 43768, 30-35, 20-45, 30-15, 40-5, 70-10
Cases
Allied Asia Holdings (Aust) Pty Ltd v Australian Securities & Investments Commission [2002] FCA 566
Ampol Petroleum Pty Ltd v Findlay Fullagar J, Supreme Court of Victoria, 30 October 1986
Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185; (2009) 181 FCR 130
Brewarrana v Commissioner of Highways (1973) 4 SASR 476
Carter v Tax Practitioner’s Board [2017] AATA 528
Delis v Tax Practitioner’s Board [2015] AATA 820
Delis v Tax Practitioner’s Board [2016] FCA 570
Levi v Companies Auditors and Liquidators Disciplinary Board [2013] FCA 719
Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1986) 5 NSWLR 254
Re Jeffers and Australian Securities and Investments Commission [2015] AATA 537
Re Mclean and Australian Securities and Investments Commission [2016] AATA 22
Re Scott and Australian Securities and Investments Commission [2009] AATA 798; (2009) 51 AAR 114
Secretary Department of Social Services and McNamara [2016] AATA 189
Su v Tax Agents’ Board South Australia [1982] AATA 127; (1982) 61 FLR 1Toohey v Tax Agents Board of Victoria [2008] FCA 1796; (2008) 106 ALD 506
Secondary Materials
Explanatory Memorandum to the 2009 Tax Agent Services Bill
Explanatory Paper TPB 01/2010
Explanatory Paper TPB 02/2010
REASONS FOR DECISION
Mr P W Taylor SC, Senior Member
Mr Hill is a chartered accountant, and currently a director of about fourteen private companies (in many of which he is also a shareholder). Mr Hill is the principal of the firm DFK Richard Hill and has practised as an accountant, business consultant and tax agent since about 1980. After the commencement of the Tax Agents Services Act 2009 (Cth) (“TASA”) he became, and until the Board decision that gives rise to the present proceedings he was, a registered tax agent. In addition, two companies of which Mr Hill is a director (DFK Richard Hill Pty Ltd and Forte Financial Pty Ltd) have been registered tax agents since at least December 2015.
Following an investigation that began towards the end of September 2018, on 10 January 2019 the Tax Practitioner’s Board decided to terminate Mr Hill’s tax agent registration. (His current registration period would otherwise have expired on 1 May 2019.) The Board also determined that Mr Hill could not apply for re-registration for a five year period thereafter. The Board notified Mr Hill of its decision on 24 January 2019. The Board informed Mr Hill that the termination decision would take effect on 22 February 2019. Mr Hill promptly lodged a review application with the Tribunal, and sought a stay of the Board’s decision.[1]
[1]Mr Hill’s 25 January 2019 applications expressly referred only to the decision terminating his registration. But it was common ground that the substance of his applications related to both that decision and to the “five year” determination.
The Board’s 10 January 2019 decision was based on findings that Mr Hill had failed to comply with the TASA Code of Professional Conduct obligations (see TASA s 30-10) to act honestly and to comply with taxation laws in the conduct of his personal affairs. The specific aspects of the Board’s findings were that Mr Hill
(a)by failing to disclose various overdue tax obligations, had made false and misleading statements to the Board relating to his personal taxation affairs in
(i)his 31 March 2016 registration renewal application
(ii)his 11 May 2017 and 8 May 2018 Annual Declarations
(iii)DFK Richard Hill Pty Ltd’s 24 July 2017, and 1 August 2018, Annual Declarations
(iv)Forte Financial Pty Ltd’s 5 October 2018 Annual Declaration
(b)had been personally culpable (in his role as a director or tax agent) in the failure of various entities to comply with taxation laws in relation to timely lodgement of income tax returns and business activity statements
(c)had been personally culpable (again in his role as a director and tax agent) in the non-remission of (and non payment relating to) superannuation guarantee charge payments and liabilities by
(i)23 Martin Place Pty Ltd:- between April and September 2012 - two amounts totalling about $26,000 - resulting in an unpaid Director Penalty Notice dated 27 March 2018
(ii)RHA Associates Pty Ltd:- between January and December 2017 – four amounts totalling about $71,000 - resulting in an unpaid Director Penalty Notice dated 31 May 2018
(iii)Richard Hill & Associates Pty Ltd:- between July and December 2016, two amounts totalling about $33,500 – resulting in an unpaid Director Penalty Notice dated 18 June 2018
(d)had been personally culpable (again in his role as a director and tax agent) in the non-remission of PAYG instalments by RHA Associates Pty Ltd between March 2017 and May 2018 – involving 13 amounts totalling about $179,613 and resulting in an unpaid Director Penalty Notice dated 10 August 2018
(e)had failed to pay to the Commissioner of Taxation a 13 August 2013 default judgment debt of $319,737
(f)had outstanding income tax return and business activity statement lodgement obligations
(g)as a consequence of the previous matters, could not be regarded as a fit and proper person to remain registered as a tax agent.
The Tribunal’s stay power
The Tribunal has the power to stay the operation or implementation of a reviewable decision, to the extent that it considers appropriate, “for the purpose of securing the effectiveness of the hearing and determination of the application for review”:- Administrative Appeals Tribunal Act 1975 (Cth) (“AAT Act”) s 41(2). The power permits the Tribunal to impose conditions upon, and to determine the period of any stay:- AAT Act s 41(6). Exercise of the discretionary power is preconditioned on the Tribunal taking into account “the interests of any persons who may be affected by the review”.
The determinative criterion for the exercise of the Tribunal’s stay power - satisfaction about the desirability and appropriateness of the proposed orders “for the purpose of securing the effectiveness of the hearing and determination of the application for review” - is a permissibly general expression. In relation to the scope of the orders it may make, the Tribunal may restrict a decision maker’s ordinary practices, or compliance with other statutory obligations in relation to publication of the reviewable decision:- see Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185; (2009) 181 FCR 130 at [71] & [81]. In relation to the considerations that may inform the exercise of the stay power, previous decisions of both the Federal Court of Australia and this Tribunal (see Re Scott and Australian Securities and Investments Commission[2009] AATA 798; (2009) 51 AAR 114; Levi v Companies Auditors and Liquidators Disciplinary Board [2013] FCA 719 at [14]- [15]; Secretary Department of Social Services and McNamara [2016] AATA 189) indicate that they include:-
(a)the functions and responsibilities of the statutory decision maker, the nature and purpose of the reviewable decision (including the findings on which it is based) and the public interest in relation to it
(b)an applicant’s prospects of success, in obtaining a materially different outcome as a result of the review proceeding
(c)the reasons proffered to support, or oppose, the stay application, and the potential practical consequences of any stay
(d)the practical consequences of the decision under review (to the parties and to any interested persons), unless its operation is the subject of a relevant stay, after taking into account:
(i)conditions that might be imposed as a term of any stay;
(ii)the timing of the reviewable decision, the application, and any likely review hearing;
(iii)the ability of the applicant to pursue the review proceedings effectively; and
(iv)the likely practical utility of any favourable review outcome.
The precondition requiring the Tribunal to take into account “the interests of any persons who may be affected by the review” ordinarily requires the Tribunal to have regard to the decision maker’s position in relation to the stay application:- AAT Act s 41(4). Together with the basic criteria for the exercise of the stay power, it also requires the Tribunal to have regard to the statutory scheme relevant to the reviewable decision:- see Australian Securities and Investments Commission v Administrative Appeals Tribunal[2009] FCAFC 185; (2009) 181 FCR 130 at [51]-[54] and [56]-[57] per Downes and Jagot JJ. The statutory scheme contributes to a proper understanding of both the practical consequences of the reviewable decision, and appreciation of the relevance of the public interest to both that decision, and to the exercise of the stay discretion.
The nature of the procedures involved in the reviewable decision, the specificity of the findings the decision involves, and the interests the exercise of the statutory power are intended to serve, may provide a proper basis for refusing a stay application:- Allied Asia Holdings (Aust) Pty Ltd v Australian Securities & Investments Commission[2002] FCA 566 at [10]. They are particularly likely to do so where the available material does not conduce to an appropriate degree of satisfaction that the review process has a realistic prospect of a more favourable outcome.
Consideration of an applicant’s prospects of obtaining a more favourable outcome in the review proceedings must take into account the state and quality of the currently available information, the prospect of additional relevant material, and the potentially incomplete awareness of all material issues. Those kinds of considerations require caution in evaluating an applicant’s apparent prospects of success in the course of determining a stay application:- see Re Mclean and Australian Securities and Investments Commission[2016] AATA 22 at [8]; Re Jeffers and Australian Securities and Investments Commission[2015] AATA 537 at [38]. Nevertheless, it is appropriate to consider the extent to which the available material is apparently sufficient to permit an informed view about the likelihood of an ultimately favourable variation of the reviewable decision.
Tax agent registration and regulation– legislative provisions
The basic purpose of the TASA provisions is to ensure that tax agent services are provided “in accordance with appropriate standards of professional and ethical conduct”:- see TASA s 2-5. (The expression “tax agent services” generally includes providing advice and representation services relating to Commonwealth taxation matters: see TASA s 90-5.) The TASA registration regime is a fundamental means of effectuating that purpose. Unless they do so as a practising lawyer, a person must be registered to be able to charge for providing “tax agent services”:- see TASA ss 2-10 & 50-5.
The registration eligibility criteria for an individual tax agent include appropriate qualifications, experience and professional indemnity insurance. An individual registration applicant must also satisfy the Board that they are “fit and proper”:- see TASA s 20-5
A corporate applicant for tax agent registration must satisfy the Board about similar criteria. Each of its directors must be a “fit and proper person”. The corporation must not have incurred a conviction for fraud, dishonesty or a “serious taxation offence” within the preceding five years. It must also have both (i) sufficient registered tax agents to appropriately to provide (and supervise the provision of) competent tax agent services and, (ii) appropriate professional indemnity insurance:- TASA ss 20-5(3).
An otherwise competent individual applicant (and any director of a corporate applicant) will likely be regarded as “fit and proper” if they are of “good fame, integrity and character”:- TASA s 20-15(a). The considerations that may inform such an assessment are not prescriptively defined:- see TASA s 20-15(b); Toohey v Tax Agents Board of Victoria [2008] FCA 1796; (2008) 106 ALD 506 at [3]. They must include, but the assessment is neither limited to nor explicitly determined by, circumstances where, in the preceding five years, the person has
(a)been convicted, or otherwise sanctioned, for a “serious taxation offence” or certain other kinds of tax related misconduct:- TASA ss 20-15(b)(i) & 20-45(a)(c)&(d)
(b)been convicted of any offences involving fraud or dishonesty:- TASA ss 20-15(b)(i) & 20-45(b)
(c)served, or has been sentenced to, a term of imprisonment:- TASA ss 20-15(b)(i) & 20-45(f); 20-15(b)(iii)
(d)had the status of an undischarged bankrupt:- TASA ss 20-15(b)(ii).
An applicant who satisfies the relevant eligibility requirements, must be registered:- TASA s 20-25. The minimum registration period is three years:- TASA s 20-25(4). Registration is renewable in response to a timely (or otherwise permitted) application. Where an agent has submitted a proper renewal application, their registration is taken to continue until the application has been determined by the Board:- TASA s 20-50.
As a registered person, a tax agent is subject to various obligations. They include
(a)compliance with any registration conditions imposed by the Board
(b)compliance with the statutory Code of Professional Conduct:- TASA s 20-25(5) & 30-10. (The Code sets out basic requirements of honesty, competence, lawfulness, client best interest and professional indemnity insurance.)
(c)notifying the Board “whenever” they cease to meet any of registration requirements:- TASA s 30-35(1)(a)
(d)notifying the Board if (amongst other things) they have either been convicted of dishonesty or sentenced to imprisonment:- TASA s 30-35(1)(b) & 20-45.
The Board can terminate a tax agent’s registration in various circumstances. One circumstance is where the agent ceases to meet a registration requirement: – TASA ss 30-15, 40-5(1)(b). Other circumstances include (i) breach of a registration condition, (ii) failure to comply with the Code, (iii) conviction for a dishonesty offence or, (iv) incurring a sentence of imprisonment:- TASA ss 30-15, 40-5(1)(a) & 20-45(b),(f).
When the Board terminates a tax agent’s registration it may also preclude the person from applying for re-registration for a period of up to 5 years:- TASA ss 30-15, 40-5.
Various kinds of Board decisions are reviewable by this Tribunal. Those decisions include (i) rejection of registration applications, (ii) refusal to abridge the time for a renewal application, (iii) termination of registration and (iv) the determination of a period of registration ineligibility:- TASA s 70-10(a), (d), (e) & (h).
Further Details of the Board’s findings
The Board’s 10 January 2019 decision drew on the information contained in a 360 page submission prepared by Board staff in November 2018. The submission detailed Mr Hill’s status, including his directorships, and the apparent taxation lodgement and non-payment defaults. Material aspects of those details are set out in the Schedules to these reasons.
Schedule 1 – Outstanding lodgements - deals with the various taxation return and business activity statement lodgement delays or defaults detailed in the November 2018 Board submission. The Schedule lists the apparently relevant taxpayer entity and, in relation to the corporate entities, differentiates between those where (i) Mr Hill and / or his wife appear to have been the only directors or shareholders and, (ii) Mr Hill was both a director and appeared to have at least an indirect beneficial interest. The Schedule then indicates the number and nature of the various income tax returns (“ITR”) and business activity statements (“BAS”) that were outstanding at the dates of each of the various applications or Annual Declarations that the Board had regarded as misleading.[2] The Schedule also includes the state of affairs as at 1 April 2019, the day before the hearing of Mr Hill’s stay application.
[2]Unsurprisingly, given the scope of the information it summarised, the November 2018 submission contains both inconsistencies and anomalies in recording the dates relating to returns and statements, and their respective numbers. Where any aspect of the submission records a lodgement default, I have assumed the accuracy of that statement (irrespective of any inconsistency elsewhere in the submission). Where the submission notes (an uncontradicted) lodgement date I have assumed the accuracy of the statement, and that the lodgement occurred after the last of the related returns or statements.
The propositions that emerge from Schedule 1, when it is read in the context of the detailed information from which it has been drawn, are as follows:-
(a)No lodgement default involved Mr Hill’s individual tax return obligations.
(b)Despite his apparent personal trustee status, Mr Hill has not submitted a tax return relating to the Forte Investment Trust since at least the end of the 2011 tax year. By October 2018 six annual income tax returns had not been lodged.
(c)In relation to the four corporate entities of which Mr Hill and / or his wife are apparently the only directors and shareholders, the lodgement defaults have predominantly involved delay in the submission of business activity statements. All lodgement delays have typically been only for a few months.
(d)The lodgement defaults for three of the other corporate entities (23 Martin Place Pty Ltd, DFK-Richard Hill Pty Ltd and Eleventh Floor Pty Ltd) have again predominantly involved business activity statements and delays of a few months. The significant exceptions to this generality are (i) the 2013 to 2015 income tax returns for Eleventh Floor Pty Ltd, which were not lodged until March 2017 and (ii) the 2016 to 2018 income tax returns for 23 Martin Place Pty Ltd, which remained unlodged as at October 2018.
(e)There has been a longstanding lodgement default by Forte Private Wealth Pty Ltd, in relation to both its income tax returns and business activity statements. Some of those defaults relate to lodgements (including the 2014 and 2015 income tax returns) that were due before the company’s liquidation on 28 September 2016.
(f)There was a correspondingly longstanding default by Forte Financial Pty Ltd (a wholly owned subsidiary of Forte Private Wealth Pty Ltd) in lodgement of its 2015 and 2016 income tax returns, but they were lodged (with the 2017 income tax return) at the end of December 2017.
Schedule 2 - Unpaid taxation liabilities - dated Table – deals with the various taxation liabilities detailed in the November 2018 Board submission. The Schedule repeats the entity grouping used in Schedule 1 and then indicates each entity’s total taxation related liability at the dates used in Schedule 1 (the dates of the various registration applications or Annual Declarations that the Board regarded as misleading). Schedule 2 also includes (i) the total indebtedness of each listed taxpayer entity as at both November 2018 and 1 April 2019 and, (ii) details of the four Director Penalty Notices given to Mr Hill between March and August 2018.
The propositions that can be extracted from Schedule 2 (and the information to which it relates) are as follows:-
(a)Mr Hill had outstanding personal taxation liabilities throughout the whole period after March 2016. By November 2018 the total debt approximated $323,000. That total included the 10 August 2018 Director Penalty Notice (see paragraph 3(d) above) but (apparently) not the approximately $320,000 default judgment the ATO had obtained on 12 August 2013 (see paragraph 3(e) above).
(b)throughout the whole period after March 2016 the four corporate entities of which Mr Hill and / or his wife are apparently the only directors and shareholders had substantial taxation debts. By November 2018 those debts approximated $534,000.
(c)after March 2016 the four other corporate entities with which Mr Hill was associated had substantial taxation related debts. However, a substantial part (although less than half) of that debt related to Forte Private Wealth Pty Ltd and accrued after that entity’s liquidation in September 2016.
The preceding propositions relating to Schedules 1 and 2 provide the background information that explains the Board’s characterisation of Mr Hill’s various registration applications and Annual Declarations as misleading. It is necessary to outline the precise nature of the alleged inaccuracy in relation to each of the documents:-
(a)The 31 March 2016 renewal application:- in response to questions asking for details of any events that might adversely affect his “good fame, integrity and character” Mr Hill acknowledged his previously disclosed 2015 twelve month suspension as a company auditor. He did not disclose anything relating to the contemporaneous taxation lodgement defaults or liabilities indicated in Schedules 1 & 2.
(b)The Annual Declarations of May 2017 and 2018:- the standard form of Declaration contained a similar question to the registration renewal application about matters affecting a tax agent’s “good fame, integrity and character”. The substantive effect of Mr Hill’s response to that question in each of the 2017 and 2018 Declarations was the same as that contained in his March 2016 renewal application. An additional standard question specifically enquired whether the tax agent had any “overdue personal tax obligations” and asked for corresponding details and explanation. In both of his 2017 and 2018 responses Mr Hill stated that all returns had been lodged and that he had sought acceptance of payment plans in relation to any outstanding amounts. In his 2018 response, Mr Hill added his assertion that then outstanding amounts were “not sufficiently material to impact on eligibility”.
(c)DFK-Richard Hill Pty Ltd and Forte Financial Pty Ltd’s 2017 and 2018 Annual Declarations:- each standard form of Declaration asked the same question about the “good fame, integrity and character” of the corporate agent’s directors. Mr Hill answered that question in each of these Declarations in substantially the same way as he had answered the corresponding questions in his own personal Annual Declarations. The form of Annual Declaration for corporate tax agents however included an additional specific question as to whether either the company or any of its directors had any overdue tax obligations. Mr Hill’s answers to each of those questions were as follows:-
(i)24 July 2017:- DFK Richard Hill Pty Ltd:- “no”
(ii)1 August 2018 (DFK Richard Hill Pty Ltd) & 5 October 2018 (Forte Financial Pty Ltd):- Mr Hill had no overdue lodgements but he had an outstanding personal tax liability approximating $30,000 that was the subject of a payment arrangement request. In addition, he alluded to the then outstanding Director Penalty Notices relating to unremitted superannuation guarantee charges and PAYG payments (see paragraph 3(d) above). He opined that the amount of the debt was not sufficient to adversely affect the corporate tax agent’s registration
The details summarised in Schedule 1 dealing with “Outstanding lodgements” appear to provide ample scope for the Board to have found that Mr Hill’s repeated claims to have no outstanding lodgement obligations were inaccurate – except in relation to the lodgement of his own personal tax returns. On the date of his 2016 renewal application and each of the Annual Declarations, Mr Hill (in his capacity as trustee) and at least some of the corporate entities with which he was associated, had at least one or more outstanding income tax return and business activity statement. On all but two occasions (24 July 2017 and 5 October 2018) companies of which one or other of Mr Hill and his wife were the only shareholders and directors had outstanding income tax return and / or business activity statement lodgements.
The Schedule 2 details dealing with outstanding taxation related debts reveal a similar picture in relation to the Board’s findings about the inaccuracy of Mr Hill’s statements about outstanding taxation liability payments. Mr Hill would appear, at the time of each of his statements to the Board, to have had an outstanding personal tax debt approximating at least $50,000. And if the 2013 judgment debt should be added, his total outstanding personal taxation debt at all presently relevant times approximated at least $370,000. In addition, the taxation debts of companies of which one or other of Mr Hill and his wife were the only shareholders and directors typically exceeded $100,000 and, by November 2018 had increased to over $500,000. At all presently relevant times other companies with which Mr Hill was associated had very substantial outstanding taxation liabilities. Typically those liabilities were substantially more than $260,000.
Mr Hill’s opposition to the Board decision and determination
The Board provided Mr Hill with a copy of the November 2018 submission on 10 December 2018. His 9 January 2019 response made the points set out in the following paragraphs.
The lodgement and payment defaults identified by the Board did not relate to Mr Hill’s obligations as an individual taxpayer. As an individual, he had “never had substantial overdue tax obligations”. He had not failed to pay the 13 August 2013 judgment debt. At about that time Mr Hill had settled with the ATO in relation to a tax debt for a similar amount. He was unaware of “any judgment amount outstanding”. In so far as the lodgement defaults related to Mr Hill, in his status as the trustee of the Forte Investment Trust, the trust had never derived any income.
In so far as the various defaults related to corporate entities, two of the companies (23 Martin Place Pty Ltd and Eleventh Floor Pty Ltd) had more than one other director, and other shareholders. One company (Forte Private Wealth Pty Ltd) was in liquidation. Irrespective of the identity of the corporate directors and shareholders, none of the contentious matters involved “personal tax obligations”, and none of the responses in his March 2016 application and his personal Annual Declarations in 2017 and 2018 could be regarded as misleading. In any event, the companies with which he had been associated had not “consistently failed to meet their taxation obligations”.
The 24 July 2017 Annual Declaration Mr Hill submitted for DFK Richard Hill Pty Ltd was incorrect in asserting there were no outstanding taxation obligations. But Mr Hill had completed that Declaration relying on information provided by his then co-director (Mr Sharp, who was also a registered tax agent). Neither the 1 August 2018 Annual Declaration for that company, nor the 5 October 2018 Annual Declaration for Forte Financial Pty Ltd, was incorrect or misleading. He had completed the latter declaration “on the assumption that the disclosure of personal tax affairs was similar to that required of an individual”.
The non-remittances identified by the Board (relating to superannuation guarantee charge amounts) had been identified after an extensive review carried out by the ATO, and had only been identified at some stage during the first six months of 2018. Again, they were not “personal tax obligations” of Mr Hill.
Mr Hill’s failure to pay any of the four Director Penalty notices was not a failure to comply with “taxation laws in the conduct of your personal affairs” (for the purpose of TASA s 30-10(2)) – because he had received the notices in his status as a company director.
Mr Hill had never had any substantial outstanding tax lodgement or payment obligations and, consequently tax compliance default was not a ground on which he could properly be considered as not a “fit and proper” person for registration as a tax agent.
The “personal affairs” point
Both in his 9 January 2019 response to the Board, and in his submissions in the present proceedings, Mr Hill contended that the Code of Professional Conduct obligation to “comply with the taxation laws in the conduct of your personal affairs” does not extend to include compliance by corporate entities. His submissions pointed out that the term 'personal affairs' is not defined in the TASA provisions (including the Code). He further said that, in the absence of some relevant inclusive definition, the term “personal tax obligations” could not be regarded as merely differentiating from “client affairs” (the contention advanced by the Board in the present proceedings) and must be construed as intended to distinguish between, on the one hand, an agent’s obligations as an individual taxpayer and, on the other, taxation law obligations a person might incur as an officer of a corporate taxpayer. He said that this view is at least consistent with (i) the conventionally accepted recognition of corporate entities having a distinct legal personality from their office holders and shareholders, (ii) the Board’s own guidance (namely, the Explanatory Memorandum published by the Board – at paragraphs [33] to [38]) and, (iii) the Explanatory Memorandum to the 2009 Tax Agent Services Bill.
Resolution of the present application neither requires nor permits a considered final resolution of Mr Hill’s submission. In so far as it relies on the basic distinction between individual and corporate personality it invokes a fundamental and generally accepted proposition. To that extent, I accept that Mr Hill’s submission about the potentially limited meaning of the expression “personal affairs”, where it is used in the TASA provisions (and in the various documents he provided to the Board) is at least a reasonably arguable proposition.
In so far as Mr Hill’s submission asserts that the concept of “personal affairs” can never extend to include the affairs of a corporate entity, irrespective of the relationship between the individual and the corporation, it is likely to require some qualification. That is at least because there are instances where courts will “look behind the legal personality to the real controllers” of the corporation:- see Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1986) 5 NSWLR 254 at 264. In some instances that may result in the corporation being characterised as the agent of its controlling directors and shareholders:- Brewarrana v Commissioner of Highways (1973) 4 SASR 476, at 480. In other instances, the Courts may be prepared to recognise the practical equivalence between the corporation and its controllers:- see Ampol Petroleum Pty Ltd v Findlay Fullagar J, Supreme Court of Victoria, 30 October 1986. Furthermore, irrespective of the categorisation of affairs as “personal”, an agent’s involvement in the taxation related defaults of a corporation of which he is the controlling director (especially where the corporation is itself a registered tax agent) may properly be regarded as bearing upon his “fitness” for registration:- see Delis v Tax Practitioner’s Board [2016] FCA 570 at [41] & [42]; Delis v Tax Practitioner’s Board [2015] AATA 820 at [99]-[103]; Carter v Tax Practitioner’s Board [2017] AATA 528 at [60]. Because of that potential qualification, the ultimate determination of Mr Hill’s review application may turn on, or at least involve, a careful examination of the various corporations identified in the Board submission and decision, and the nature and extent of Mr Hill’s personal activities in relation to them. No such examination is appropriate in the resolution of the present proceedings.
Mr Hill’s individual taxation obligations
A significant part of the November 2018 Board submission sought to highlight Mr Hill’s contemporaneous awareness of his outstanding personal taxation liabilities. The submission drew attention to various demands and notices Mr Hill had received in March 2014, March 2016 and March 2017. The last of those notices included a (not easy to follow) statement of account which suggested that Mr Hill’s outstanding individual taxation debt had approximated $50,000 for the whole period from January 2014 to the end of March 2017. Further statements in June and December 2017 continued to inform him of the fact and amount of his outstanding debt.
The DFK Richard Hill Pty Ltd taxation debt
The DFK Richard Hill Pty Ltd debt indicated in Schedule 2 appears to have arisen substantially from an August 2016 audit that addressed irregularities in the company’s superannuation guarantee payments in the period from October 2012 to the end of the 2014 tax year. A 27 September 2016 statement of account issued by the ATO indicated that the debt then approximated $103,000. By the beginning of July 2017, three weeks before Mr Hill submitted the company’s Annual Declaration to the Board, the tax debt was in the vicinity of $112,000.
On 27 April 2018 Mr Hill lodged a request for an extension of time to object against the (approximately $30,000) penalty assessment of the company for the 2014 tax year. Mr Hill’s accompanying letter outlined events that had affected the conduct of his accounting practice and the company’s ability to comply with its taxation obligations. These events included the following matters.
(a)A period of financial stress from April 2012 to October 2014.
(b)The departure of one of the accounting practice partners, and director of the company, in May 2015, and a consequential period of disruption.
(c)The severe illness (and ongoing medical treatment and reduced work capacity) of the accounting practice’s office manager after late 2015.
(d)The illness of the second accounting practice partner, and the other company director in late 2016 and his subsequent departure from the practice and the company at the end of the 2017 tax year.
(e)The personal difficulties Mr Hill had encountered in transitioning the accounting practice from a three partner operation to one in which he was the sole person responsible for the practice management and administration.
Prospects of success
Mr Hill’s 9 January 2019 response to the Board was an unfortunately abbreviated, and to the objective reader, an apparently perfunctory response to the substance of the matters outlined in the Board submission. The real thrust of the November 2018 Board submission was that Mr Hill’s conduct, over a significant period of time, involved (i) related entity lodgement delays, (ii) persistent outstanding taxation related debts (relating to Mr Hill’s individual liabilities, those of corporations of which he was apparently the principal controller, and those of corporations of which he was one of a small group of directors and which were apparently closely related to his activities as a registered tax agent) and, (iii) apparently inadequate disclosures in his various statements to the Board.
A significant aspect of Mr Hill’s January 2019 response to the Board concentrated on the contention that the taxation related defaults of the various companies included in the Board submission could not be regarded as part of his personal taxation affairs. Whilst that contention involves a proposition that is arguable, the response glossed over what currently appears to be the objective facts. One of those facts was that Mr Hill did indeed have outstanding individual taxation payment obligations. Those outstanding obligations included an (approximately $50,000) amount that appears to have been outstanding since January 2014. By March 2018 his personal liability approximated $100,000 (after the first of the Director Penalty Notices had been served) and by 18 August 2018 (after the service of the Director Penalty Notice of that date) his personal liability appears to have approximated $380,000. If the Default judgment debt should be added to that total (although that proposition is by no means clear) his total debt approximated $700,000 by the latter part of 2018.
Against the apparent reality of a continuing taxation debt since 2014, Mr Hill’s response to the standard disclosure questions in the March 2016 renewal application, particularly the enquiry as to whether there were any matters, such as outstanding taxation debts, that might adversely affect assessment of his “good fame, integrity and character”, appears difficult to accept as subjectively accurate. The same is true of each of his May 2017 and May 2018 Annual Declarations. Whilst in those documents his responses did disclose the fact that he had “overdue personal tax obligations”, they did not answer the Board’s specific instruction that he “must provide us with details … including the type and amount of debt” (that was not subject to an approved ATO payment plan). When regard is had to the assertion in Mr Hill’s 8 May 2018 Annual Declaration that the then outstanding amount of his taxation debts was “not sufficiently material to impact on eligibility”, and that response is contrasted with the contemporaneous indebtedness suggested in Schedule 2 (approximately $120,000 – without including the August 2013 default judgment), the contrast points to the need for careful assessment of the subjective honesty of the response. The same need for careful assessment is pointed to by (i) the “no” answer to the “overdue tax obligations” question in the 24 July 2017 Annual Declaration and (ii) by the similar intimation of immateriality in each of the 1 August and October 2018 Annual Declarations.
It may be (and nothing I have written should be taken as indicating that I have formed a contrary view) that Mr Hill honestly believed that his statements in the renewal application and the various Annual Declarations were sufficient, and accurate to the extent of the information they did convey. If that were shown to be the case, any objectively determined inaccuracy or inadequacy in his responses would be unlikely to adversely affect an assessment of his honesty or his integrity, But a question would still remain about his underlying fitness:- see Su v Tax Agents’ Board South Australia [1982] AATA 127; (1982) 61 FLR 1 at 10. That question would remain, irrespective of any final determination of the scope of the expression “personal affairs”. It would remain because the circumstances appear to reveal that over a substantial period of time Mr Hill as an individual, and companies with which he was closely associated, have accumulated, and failed to discharge, substantial taxation debts.
In referring to the corporate tax related debts I attach no significance (for the purpose of the present stay application) to the debt of Forte Private Wealth Pty Ltd, having regard to the liquidation of that company in September 2016. I also recognise the possibility that each of the corporate debts may be properly attributable to aberrant events that, properly evaluated have no significant bearing on Mr Hill’s fitness. But the currently known circumstances provide little evidentiary basis to permit comfortable satisfaction about the appropriateness of such a conclusion. In that regard, it is impossible not to be concerned by the appearance that at least some aspects of Mr Hill’s individual taxation debt, and that of corporations he either controlled, or played an active part in their management and supervision, included remission failures in relation to superannuation guarantee payments and PAYG deductions. Failures of those kinds appear, in the absence of significant explanation, to be inconsistent with the propriety of the ongoing registration of a tax agent who was causally responsible for them. In that context I note that part of the explanation for the superannuation guarantee remission failures of DFK Richard Hill Pty Ltd may only have become known (to Mr Hill and his then co-directors) following completion of the July 2016 audit. But even if that event provided the whole explanation for that company’s default, it would not likely explain either (i) the superannuation guarantee remission failures of other entities (including Mr Hill and RHA Associates Pty Ltd – see the shaded amounts in Schedule 2) or (ii) the RHA Associates Pty Ltd PAYG remission failures between March 2017 and May 2018.
The presently limited and uncertain explanation for the various remission failures alluded to in the November 2018 Board submission tends to focus attention on Mr Hill’s 27 April 2018 letter to the ATO objecting to the penalty imposed on DFK Richard Hill Pty Ltd in connection with its superannuation guarantee charge liability. I summarised part of the contents of that letter earlier in these reasons:- see paragraph 38 above. The final part of the letter gave a number of reasons for the penalty remission request. These emphasised the “personal and business challenges” that Mr Hill and his partners / co-directors in the accountancy practice had faced over recent years. The reasons explained that Mr Hill and his partners / co-directors had borrowed to support the business, and had maintained the employment of the practice staff “rather than downsizing”. They also included the statement that “we knew as Directors we are personally liable for superannuation. At all times we have kept our employees fully informed and assured them that these amounts will be paid in full and that we had a personal obligation to them”.
I recognise that the kinds of decision implied by the latter statement (decisions involving financial exigency placing the employment of loyal and competent staff members at risk) would likely be matters of exquisite difficulty. Nevertheless, they are sometimes decisions that must be made, and not ones that can be deferred by resort to the expediency of failing to discharge taxation liabilities. Whilst this is not the place to express any concluded view, the explanation offered in the last part of Mr Hill’s 27 April 2018 does point to the need to enquire, and to be satisfied about, the operative reasons for the various remission failures identified in the November 2018 Board submission.
A question of contemporary fitness
It will be apparent from what I have written that I regard the material in the November 2018 Board submission as raising a serious question about Mr Hill’s contemporary fitness for ongoing registration. It is not a question that he has adequately addressed in either his January 2019 response to the Board or in his evidence and submissions in the present proceedings. That is not to say that his asserted registration fitness is not apparently arguable. Nor is it to say that proper resolution of the current stay application requires me to reach a positive conclusion about his contemporary fitness. Rather the position I take is that, in the current state of the evidence I am unable to be satisfied that Mr Hill’s registration fitness is more than potentially arguable, and that limited view affects the weight I accord to the other factors relevant to the exercise of the stay discretion.
Public interest
The TASA provisions I summarised earlier in these reasons (starting at paragraph 9) require the conclusion that the registration regime is not just about ensuring the technical competence of tax agents, and their appropriate service of individual client needs. So much may be regarded as implicit in the composite registration eligibility requirements, which emphasise both (i) the “fitness” of the individual – including their financial status, and any honesty related convictions and, (ii) their competence, experience and insurability. It follows that the registration regime is also concerned with the ensuring the “professional and ethical conduct” of tax agents. As the Board’s Explanatory Paper TPB 01/2010 explains (in paragraph 9) “it is expected that registered tax practitioners will display an appropriate, professional standard of behaviour beyond that which is expected of someone who is not acting in a professional capacity”. The Board’s Explanatory Paper TPB 02/2010 (at [59]) emphasises that the principal purpose underlying TASA’s registration provisions is “to protect the public and maintain public confidence in the tax agent … professions”. Later the Explanatory Paper declares that TASA’s protective purpose is achieved by “ensuring that only those individuals that possess the requisite knowledge, ability, good fame, integrity and character are registered as tax agent practitioners” (at [60]). In order to be satisfied of a person’s contemporary fitness, the Board would typically require to be satisfied that instances of an agent’s past shortcomings were “merely temporary or isolated and … unlikely to recur”:- see Explanatory Paper TPB 02/2010 at [62]. Those passages are not independently authoritative but, in highlighting the fundamental importance of good character, are consistent with the underlying legislative provisions.
Mr Hill’s submissions at least imply that any past shortcoming identified by the Board is primarily a result of inadvertence (including misunderstanding) or exigency. His complementary position is that none of the matters identified by the Board indicates a shortcoming in his dealings with clients. Nevertheless, recognising the potential interests of his firm’s clients, in the course of the present hearing Mr Hill indicated a willingness to condition any stay order on a regime that would require him to notify all his clients of the Board decision, and provide an appropriate explanatory response to any enquiry the notification might provoke.
It will be apparent from what I have said earlier in these reasons that I entertain real doubt as to whether the shortcomings identified by the Board can be accurately characterised as matters of inadvertence or misunderstanding. As I have indicated, the apparent longstanding overdue taxation payments (primarily of Mr Hill, as an individual, and of corporate entities which it seems likely he controlled, either alone or with his wife) and the apparent nature of some components of those debts, raise a real question of Mr Hill’s underlying fitness for continuing registration. It will also be apparent from what I have written, and the detailed information summarised in the Schedules to these reasons, that it is a difficult task to understand and evaluate the apparent diversity and complexity of the various taxation related defaults indicated in the November 2018 Board submission and the Board’s January 2019 decision. That complexity and difficulty inclines me to the view that it would not be appropriate to regard the stay order conditions (which Mr Hill has indicated he would accept) as considerations significantly favouring the making of a stay order.
Futility of a stay
Mr Hill’s current registration would expire on 1 May 2019, even if the Board’s termination decision were stayed. If the Board’s “five year” registration application ineligibility determination were also stayed Mr Hill would still be out of time to lodge a registration renewal application. This is because such an application must ordinarily be lodged “at least 30 days before” the expiry of a current registration:- see TASA 20-50. Even though there is a statutory discretion to abridge the time for a renewal application, the Board suggests that (at least on the presently known information) it would be unlikely to accede to such an application. A consequence of the Board adopting such a position is that Mr Hill’s stay application, even if extended to include the “five year” determination would be futile in securing the ongoing re-instatement of his registration – at least after its expiry on 1 May 2019.
Mr Hill resisted the Board’s futility submission by pointing out that, if the “five year” determination were to be stayed, any future decision by the Board refusing to abridge the time for his renewal application would itself be reviewable by this Tribunal:- see TASA s 70-10(d). He also contended that any refusal of his renewal application by the Board would also be reviewable and that, pending any review decision, his renewal application would be regarded as undetermined, and his registration would consequently be taken to have continued:- see TASA ss 20-50(2) & 70-10(a).
Both the Board and Mr Hill’s submissions about the proper construction and practical effect of TASA s 20-50(2) raise difficult questions in the construction of the Act. It is neither necessary nor desirable to answer them. Before addressing the question whether a stay decision would be an exercise in futility, it is first necessary to reach a stage of satisfaction that a stay order would otherwise be appropriate. Depending on their nature, the grounds for reaching such a stage of satisfaction might also inform the views one might entertain about the appropriateness of the Board either abridging the time for, and deferring further consideration of, any subsequent renewal application. But, for the reasons I have indicated, although subject to consideration of the potential impact of the Board’s decision, I have not arrived at a stage where I consider a stay of either of the Board’s January 2019 decisions is appropriate.
Mr Hill’s personal circumstances
Mr Hill has been a registered tax agent for more than 30 years. He says that he has never been the subject of any client complaint about loss attributable to the quality of his advice and services. He says (and nothing in the November 2018 Board submissions contradicts) that there has been no client complaint to the Board about the quality of his services as a registered tax agent.
Mr Hill’s firm provides accountancy, business consulting and tax agent, services. Mr Hill estimates that accounting and tax agent services (two aspects of the firm’s business that may be difficult to differentiate) provide about 50% of the firm’s income. The firm has 12 full time employees, including seven practising accountants. In relation to tax agent services, Mr Hill is the only registered tax agent currently operating as part of the practice. He estimates that his personal work generates about 40% of the practice revenue. In the light of the total number of fee generating practising accountants employed by the firm, that estimate may be optimistic, but I accept that he is nevertheless responsible directly or indirectly, for a substantial part of the practice revenue.
Mr Hill contemplates that unless the Board’s termination decision is stayed, he would have to engage another employee who was a registered tax agent. He recognises that the engagement of such an agent will increase the practice costs. He also apprehends that the firm revenue may decline, depending upon the ability and efficiency of the new tax manager. A further decline in revenue may result from client’s reactions to the disclosure he would make to them about the Board’s decision, at least if it were not to be stayed. Any decline in the practice revenue will put at risk the retention of at least some of the firm’s employees.
In further support of his stay application Mr Hill emphasised both (i) his challenge to the total taxation debt in the Board’s November 2018 submission and, (ii) the fact that, at the present time, his personal taxation debt has been almost entirely discharged:- see Schedule 2.
I recognise the fact of the commercial risk that the Board’s decision presents to Mr Hill’s personal financial position. I also recognise that there is some risk of adverse client reaction to disclosure of the Board’s decision. But on one view, that disclosure would be required, irrespective of any stay decision. Furthermore, it was (and is) my view that an appropriate disclosure requirement would be imposed as a condition of any stay decision, and, in the course of the present proceedings, Mr Hill indicated his acceptance of that proposition.
The risk of client departure from the practice is difficult to evaluate. The extent of the risk may be regarded as lessened by (i) Mr Hill’s long period of practice, (ii) his claim that he has built up a strong relationship with many of his clients, (iii) his assertion that the firm as a whole has a good reputation for the competence, honesty and integrity of its practitioners and, (iv) the potential ability to reduce the impact of the registration termination decision by engaging an appropriately qualified tax manager. No doubt another factor to be taken into account is Mr Hill’s ability to fully apprise clients of the circumstances that have contributed to the apparent defaults that have prompted the Board’s decision.
Conclusion
There is, in my view, a real question to be determined about Mr Hill’s ongoing fitness for registration as a tax agent. Regard to the public interest intended to be served by the TASA registration regime, notwithstanding the absence of any client complaint, inclines me to the view that, on the currently available information, it is not appropriate to stay the Board’s January 2019 decision pending the resolution of Mr Hill’s review application. Mr Hill’s apprehensions about the potential impact on him and his practice, if the decision continues to operate are not sufficiently substantiated to lead me to satisfaction that it is appropriate to stay either of the Board’s decisions.
The Board’s five year determination decision raises a slightly different point in assessing the appropriateness of a stay. The submission made on Mr Hill’s behalf was that the five year ineligibility determination, being at the maximum permitted by the TASA provisions, was unduly harsh, and unlikely to be sustained. It is not appropriate to enter into an evaluation of that submission at this stage of the review proceedings. Whilst, as I consider, a real question arises for determination in relation to Mr Hill’s contemporary fitness it is not appropriate to stay the five year determination decision. If Mr Hill succeeds in his challenge to the termination decision, the “five year” determination will inevitably fall by the wayside. If Mr Hill does not succeed in his challenge, the “five year” determination will nevertheless be capable of review in the light of the information revealed and evaluated in the substantive review proceedings.
I certify that the preceding 60 (sixty) paragraphs are a true copy of the reasons for the decision herein of Mr P W Taylor SC, Senior Member
......................................[sgd]..................................
Associate
Dated: 26 April 2019
Date(s) of hearing: 2 April 2019 Applicant: In person Counsel for the Applicant: R White SC Counsel for the Respondent: L Livingston Advocate for the Respondent: L Paolucci
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