KELLETT Applicant And TAX AGENTS' BOARD OF VICTORIA

[2009] AATA 948

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 948

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2008/3546

GENERAL ADMINISTRATIVE DIVISION		)
Re		JOSEPH ARTHUR KELLETT

Applicant

And TAX AGENTS' BOARD OF VICTORIA

Respondent

DECISION

Tribunal G.D. Friedman, Senior Member

Date10 December 2009

PlaceMelbourne

Decision The Tribunal affirms the decision under review.

.................[signed]...................

Senior Member  

TAX AGENT – refusal of re-registration – failure to lodge returns – failure to respond to requests from Tax Agents’ Board – whether special circumstances exist to disregard any action or omission – whether a fit and proper person to practise as tax agent

Income Tax Assessment Act 1936 ss 251BC(1), 251BC(3), 251JC(1), 251JC(2)

Groth v Secretary, Department of Social Security [1995] FCA 1708

Re Beadle and Director General of Social Security [1984] AATA 176

Re Carbery & Associates and Tax Agents’ Board of Queensland [2001] AATA 107

Re Cowlishawand Tax Agents’ Board of Queensland [1999] AATA 412

Re Marzol and Tax Agents’ Board of Queensland [2007] AATA 1087

Re Pappalardo and Tax Agents' Board of Victoria [2003] AATA 990

Re Reichert andTax Agents’ Board of New South Wales [2005] AATA 188

Re Toohey andTax Agents’ Board of Victoria [2008] AATA 262

Re Tosio and Tax Agents’ Board of New South Wales [2005] AATA 1015

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

Toohey v Tax Agents’ Board of Victoria (No. 2) [2008] FCA 1796

REASONS FOR DECISION

10 December 2009   G.D. Friedman, Senior Member

1.      Joseph Kellett is an accountant who has been a registered tax agent since 1974.  On 3 July 2008 the respondent refused his application for re-registration on the grounds that he was not a fit and proper person to look after the taxation affairs of taxpayers because he had failed to lodge taxation and other returns, and had failed to respond to communications from the respondent.

2.      On 1 August 2008 Mr Kellett sought review by the Tribunal, which granted a stay of the decision and Mr Kellett has continued to practise as a tax agent during the Tribunal’s proceedings.

LEGISLATIVE FRAMEWORK

3. Section 251JC(1)(a)(i) of the Income Tax Assessment Act 1936 (the Act) provides that the respondent shall re-register an applicant if the applicant satisfies the respondent that the applicant is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters. Section 251JC(2) of the Act provides that the respondent shall refuse to re-register the applicant in any other case.

4. Section 251BC(1) of the Act provides for circumstances in which a person is not a fit and proper person. These include s 251BC(1)(d) where, at a particular time, the person is not of good fame, integrity and character. Section 251BC(3) of the Act provides that, because of special circumstances, an action or omission may be disregarded:

(3)       Where:

(a)       a Board is required, in considering an application for:

(i)        re‑registration as a tax agent;

…

to decide whether the Board is satisfied that a particular person is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters;

(b)the person is not under sentence of imprisonment for a serious taxation offence; and

(c)       the Board is satisfied that, because of special circumstances:

…

(ii)       the doing of an act or thing by the person; or

(iii)      an omission of the person;

should be disregarded;

the Board may, in making the decision referred to in paragraph (a), disregard the conviction, the doing of the act or thing or the omission, as the case requires.

ISSUES

5.      The issue before the Tribunal is whether Mr Kellett is a fit and proper person to practise as a tax agent.  This requires consideration of:

·     whether he is of good fame, integrity and character; and

·     whether any act or omission by him should be disregarded because of special circumstances.

IS MR KELLETT OF GOOD FAME, INTEGRITY AND CHARACTER?

6.      Mr Kellett told the Tribunal that he is of good fame, integrity and character.  He stated that he qualified as an accountant in 1969 and has practised since then in a number of locations in Victoria as an employee accountant and in his own business.  He currently employs three full-time and one part-time staff, and his 300 clients are mainly individuals and small business owners.  He explained that his practice was registered as JA Kellett & Associates Pty Ltd (the company) in 1988.  The company was the trustee for the JA Kellett Accountancy Trust (the Accountancy Trust) and for the JA and AH Kellett Family Trust (the Family Trust).  Mr Kellet was one of two directors (the other being his wife) of the company.  He was also the secretary, the registered nominee and the majority shareholder of the company.  On 20 November 2008 a winding up order was made in relation to the company because of tax-related debts, and a liquidator was appointed.

7.      Mr Kellett said that the problems associated with his business affairs, in particular his failure to lodge tax returns relating to the company and his personal tax returns, resulted from health issues occurring from 2000 to 2008.  He explained that from 2000 to 2002 he was constantly fatigued, and had difficulty in concentrating on his work.  He said that initially he attributed this situation to the stress of moving his practice to a new location, and an increased workload due to the introduction of the Goods and Services Tax (GST) and the Pay As You Go system (PAYG).  He also had difficulty recruiting and retaining qualified staff, and his mother had serious health issues, which added to his stress.

8.      Mr Kellett said that in 2003 he was diagnosed with prostate cancer and in November 2004 he underwent radical treatment which was successful, but from 2005 to 2008 the procedure led to side effects including lower back and pelvic pain, which caused fatigue and difficulty in sleeping.  He stated that in the second half of 2008 the side effects diminished in severity and his ability to work increased gradually.  Mr Kellett stated that, despite his best efforts, his situation deteriorated and he has been diagnosed with depression and is taking prescribed medication.

9.      In relation to his obligation to clients, Mr Kellett stated that from 2000 he fell behind in his work schedule as a consequence of greater demands by clients and Government agencies such as Centrelink.  He said that this caused him to neglect his own business affairs.  Mr Kellett told the Tribunal that the Australian Taxation Office (the ATO) was aware of his situation and had assisted him by remitting penalties which his clients incurred for late lodgement of returns wherever possible.  He emphasised that, other than late returns, he has always attempted to complete client work to a high standard, and there have been no complaints about the quality of his work.

10.     Mr Kellett agreed that in his application for re-registration as a tax agent he answered No to the question whether he had any outstanding tax obligations (either in relation to a debt to the ATO or to lodgement of documents or returns), when in fact he had outstanding lodgement obligations.  He also conceded that he had declared that his answers were true and correct, but that his replies were incorrect.  Mr Kellett explained that he could not recall completing the document, but that at the time it was …just another form, and that probably he was focusing on the debt aspect rather than the lodgement aspect.  He said that he provided the information to the best of his ability, and did not intend to mislead the respondent.

11.     Mr Kellett agreed that his personal tax returns for 2004, 2005, 2006, 2007 and 2008 were lodged late, and that he had given undertakings to the respondent that he had not met.  He said that he found particular difficulty in meeting his personal obligations, and his psychiatrist had told him that there may be a medical explanation for this.  He also agreed that he has not lodged his personal tax return for 2009, but disagreed that he is late, as he believed that the lodgement date is 31 December 2009, although he was not sure and had not contacted the ATO to confirm his belief.  He said that he had considered engaging another tax agent to complete his personal tax returns, but felt that the time involved in gathering all the information did not justify that course of action.

12.     In relation to the trusts, Mr Kellett conceded that the company as trustee for the Accountancy Trust and the Family Trust had not lodged annual returns since 1999, and that business activity statements for a number of quarters had not been lodged, resulting in a cash flow advantage because an amount of tax deducted from employees had not been remitted to the ATO.  In relation to the company, Mr Kellett acknowledged that its business affairs have been removed from his control and placed in the hands of a liquidator.  There is an outstanding debt to the ATO, although he said that proceedings against him in the Magistrates’ Court of Victoria had been adjourned indefinitely.  Under cross-examination he conceded that the proceedings have been adjourned but are continuing.

13.     In respect of Mr Kellett’s failure to respond to communications from the respondent, he agreed that he did not reply to a Notice to show cause and did not dispute that the respondent had tried unsuccessfully to contact him by telephone, although he expressed surprise because he said that during normal business hours there was always someone at his office to answer telephone calls.  He also agreed that the respondent had communicated with him on 14 occasions, and that his only response was a letter dated 26 June 2008.  He said that on that day he sent the respondent a medical certificate which stated that he was in poor health following cancer treatment and that he needed more time to address the issues.  In his letter he also referred to pressure from the ATO and from clients.  He said that he believed that when he had lodged the requested documents with the ATO there was no need to reply to correspondence from the respondent.  He said that he had been under pressure at the time, and his actions were not meant to be disrespectful to the respondent.  He had presumed that the respondent would have access to the required information held by the ATO.

14.     Mr Kellett emphasised that in the last four to six weeks he has felt a lot better, and his depression is being managed (he said it had disappeared) with the assistance of prescribed medication and consultations with his psychiatrist.  He is no longer fatigued.  Mr Kellett expressed confidence that if his re-registration is granted the problems would not be repeated.  He described the steps he has taken, including seeking to reduce the number of clients (particularly those requiring excessive time); utilising the services of contractors and part-time employees; and devoting more time to his practice without the need for excessive medical appointments and treatment.  He said that if his re-registration is refused he would be unable to practise as a tax agent; the value of his business would be diminished; and at his age he would find difficulty in obtaining employment as an accountant.  

15.     In Su v Tax Agents’ Board of South Australia (1982) 61 FLR 1 Davies J stated at 7:

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.

16.     In Re Carbery & Associates and Tax Agents’ Board of Queensland [2001] AATA 107 the Tribunal stated at [21]:

In the opinion of the Tribunal, this failure on the part of Mr Carbery to comply with basic requirements of the Australian Taxation Office in regard to its conditions for lodgement of the personal income tax returns of tax agents, is tantamount to a gross dereliction of a fundamental duty. This failure is exacerbated, in the opinion of the Tribunal, because it is a failure to comply by a person who, himself, is responsible for the management of his clients' income tax compliance requirements.

17.     In Re Pappalardo and Tax Agents’ Board of Victoria [2003] AATA 990 the Tribunal held at [19]:

I find that he has failed to recognise, as pointed out by the Tribunal in Case U122 and in Re Carberry that a tax agent who is competent and desires to comply with the law should lodge his tax return within the time allowed. A failure to do so, not only once but five times in succession, is a gross dereliction of a fundamental duty. A failure which lasts beyond the period allowed in a final notice served on the tax agent is an indication that the person is not a "fit and proper person" to perform the functions of a tax agent.

18.     In Re Toohey andTax Agents’ Board of Victoria [2008] AATA 262 the Tribunal held at [157]:

I also accept that MrToohey has always tried to put his clients’ interests above his own. That is so even when his health prevented him from devoting a great deal of attention to his practice. From one point of view, this is a very noble and proper thing to do. The difficulty that I have with his having done so is that he has done so at the expense of his duty to comply with his obligations to file returns for which he was personally responsible… Mr Toohey’s reasons showed a lack of understanding of the reason for lodgement. It also showed that he was not prepared to honour the relationship of trust that must necessarily exist between a tax agent and the Commissioner. Members of the public are entitled to expect that a tax agent will comply with his or her obligations in relation to his or her personal affairs. That is an important indication of whether they can have confidence that the person to whom they entrust their affairs will be careful to ensure that they meet their obligations.

19.     Mr Kellett has neglected his obligations in respect of the company, which for a number of consecutive years failed to lodge a tax return.  For 13 consecutive quarters no BAS statement was lodged; the company had outstanding annual GST returns and the accrual of tax-related liabilities which led to the insolvency of the company.  In the Tribunal’s view Mr Kellett displayed a gross dereliction of his obligations as a tax agent.  There is no satisfactory explanation.  Mr Kellett conducted his practice as a tax agent through the company, and his inadequate management of the company’s tax affairs demonstrates a failure to prepare income tax returns and carry out business on behalf of taxpayers.  Similarly his inability to manage satisfactorily the affairs of the Family Trust reflects poorly on him.  He has failed to lodge his own tax returns on time.

20.     Although Mr Kellett maintains that he has responded well to anti-depressant medication and two consultations with his psychiatrist, and has given an assurance that he is in a position to overcome the difficulties of the past, the Tribunal has little confidence that this is the case, as his 2009 personal tax return has not been lodged, despite Mr Kellett being aware for some time of the date of the hearing of the application for review.  Although there is some confusion whether the due date for lodgement is 31 October 2009 or 31 December 2009, a tax agent with Mr Kellett’s experience ought to know the correct date or should have clarified this with the ATO, and even if the latter is the correct date the Tribunal would have expected a prompt lodgement as a demonstration of good faith at the least.

21.     In respect of the provision of incorrect information in Mr Kellett’s application for re-registration and a false declaration that the information was true and correct, the Tribunal does not find plausible his response that he does not recall the reason, when the information was obviously incorrect or misleading.  His explanation that this was …just another form demonstrates a disregard for the importance of mutual trust with the respondent in the re-registration process and a casual and careless attitude to his obligations that reflects adversely on his fitness to practise as a tax agent.

22.     In Re Cowlishawand Tax Agents’ Board of Queensland [1999] AATA 412 the Tribunal stated at [9]:

The material placed before the Tribunal also shows that the applicants failed to adequately respond to correspondence from the Tax Agents' Board. The Tribunal regards the failure to treat the Tax Agents' Board with proper respect, as a serious neglect of the business of a tax agent.

In Re Pappalardo the Tribunal noted at [32]:

It shows a lack of proper respect for the Board…that Mr Pappalardo did not respond to those letters within the time specified, or at all. Further, the failure to respond shows gross incompetence. A person who is competent, and fit and proper to be a tax agent would clearly appreciate the importance of responding fully and promptly to correspondence from a regulatory authority.

23.     There were numerous occasions when Mr Kellett did not respond to requests from the respondent in relation to his personal tax affairs or the company’s affairs.  He failed to comply with undertakings to finalise outstanding matters and notify the respondent when this had been carried out, and he failed to inform the respondent.  His only response on 26 June 2008 was totally inadequate, and did not address the issues raised by the respondent, including the company’s failure to comply with its obligations over eight years.

24.     Mr Kellett did not dispute that the respondent was unable to contact him by telephone at his office or by mobile telephone on a number of occasions, and despite his claim that he had made arrangements for staff to answer all calls to the office, the Tribunal draws the inference that these arrangements were unsatisfactory and that he did not make himself available to respond adequately to the respondent’s inquiries.

25.     The Tribunal takes into account that Mr Kellett found difficulty in fulfilling his obligations to lodge his personal tax returns on time.  However he had ample opportunity to overcome this issue simply by engaging another accountant to prepare the returns, and his explanation that it would take time to do so is an unsatisfactory excuse.  There is no evidence before the Tribunal to support his assertion that the failure to lodge returns on time has any medical basis.

26.     Mr Kellett has outstanding debts to the ATO and a longstanding pattern of outstanding returns.  He conceded that tax has been withheld from employees and not remitted to the ATO.  His incorrect assertion that the Magistrates’ Court proceedings against him have been adjourned indefinitely shows carelessness or a disregard for the importance of meeting his obligations.  He did not explain adequately his failure to respond to queries from the respondent, or indicate how he intends to overcome the previous difficulties in communications.

27.     The Tribunal accepts that Mr Kellett has outlined proposed steps to improve his compliance with his obligations, including taking prescribed medication, reducing his client base and retaining competent staff.  However he has not demonstrated that he has made changes that would satisfy the Tribunal that his level of compliance will improve.  In all the circumstances the Tribunal finds that he is not a person of good fame, integrity and character.

SHOULD ANY ACT OR OMISSION BY MR KELLETT BE DISREGARDED BECAUSE OF SPECIAL CIRCUMSTANCES?

28.     Mr Kellett stated that any omissions by him in relation to his obligations as a tax agent should be disregarded because of special circumstances.  Specifically he referred to factors such as his mother’s health issues, staff shortages, obligations arising from the introduction of the GST and PAYG, and demanding clients, which have had a cumulative effect on his depression and his ability to meet his responsibilities as a tax agent.  He also identified his health problems that commenced in 2000 and continued after his treatment for cancer, which caused problems such as fatigue.  He said that his problems have been exacerbated by a diagnosis of depression in 2009, which may have been present for up to 10 years.

29.     In a brief letter dated 27 May 2009 Dr I. Blair-Holt, general practitioner, confirmed that Mr Kellett is under treatment for depression that is affecting the speed with which he is able to complete his professional work.  In a further letter dated 2 December 2009 Dr Blair-Holt stated that Mr Kellett’s depression has been present for many years, but in particular since the diagnosis of prostate cancer, although Mr Kellett had not sought treatment until 2009.  The symptoms include …a loss of interest in both work and social life and a lack of volition to complete tasks, and problems submitting his personal tax returns and clients’ returns on time.  Dr Blair-Holt noted that Mr Kellett had experienced several episodes of depression that had resolved spontaneously in the 1980s, and that he has responded well to medication and treatment by a psychiatrist.  Dr Blair-Holt concluded that Mr Kellett’s psychological health has improved significantly.

30.     The term special circumstances is not defined in the Act.  In Groth v Secretary, Department of Social Security [1995] FCA 1708 Kiefel J stated at [12]:

The phrase "special circumstances", it has been said, although imprecise is sufficiently understood not to require judicial gloss…and for present purposes it is sufficient to observe that it would require something to distinguish MrGroth's case from others, to take it out of the usual or ordinary case…It would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary.

31.     In Re Beadle and Director General of Social Security [1984] AATA 176 the Tribunal stated at [12]:

An expression such as ‘special circumstances’ is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend upon the context in which they occur. For it is the context which allows one to say that the circumstances in one case are markedly different from the usual run of cases. This is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as special.

32.     In Re Reichert and Tax Agents’ Board of New South Wales [2005] AATA 188 the Tribunal stated at [21]:

In my opinion Mr Reichert was well aware of the fact that he had not prepared and lodged his own taxation returns over the relevant 15 years. He prevaricated. He deferred their preparation. Other factors entered his life, which he looked upon as more pressing, more urgent. No one of the events relied upon by him as explaining the delay was itself exceptional, unusual or uncommon. They were each such as many people experience. Considered together they take the matter no further. The failure to prepare and lodge the returns, an obligation resting upon all taxpayers, was not a technical default. It was a breach knowingly and methodically maintained for a number of years. It had the effect of achieving what the Act sought to prevent. A tax agent who is competent and who is to obey the law should be able to lodge his own tax return within the time allowed.

33.     In Re Marzol and Tax Agents’ Board of Queensland [2007] AATA 1087 the Tribunal considered comprehensive medical evidence and found that the applicant’s psychiatric disorder (anxiety and depression) constituted special circumstances when combined with or aggravated by employee issues and medical issues involving himself and other family members, as the facts had a particular quality of unusualness.

34.     In Re Tosio and Tax Agents’ Board of New South Wales [2005] AATA 1015 the Tribunal found that the applicant’s depressive disorder, and its effect on his ability to manage his taxation obligations, constituted special circumstances to disregard convictions and omissions.

35.     For the period 2000 to 2002 Mr Kellett referred to the pressures arising from moving his office, the introduction of the GST and PAYG, together with a lack of qualified staff.  Although these issues may have caused a temporary increase in his workload, the Tribunal does not consider that these amount to circumstances that are out of the ordinary or unusual that would have prevented Mr Kellett from carrying out his obligations, as other tax agents would have found themselves in a similar situation.  For the period 2003 to 2008 Mr Kellett described symptoms of a serious illness that led to symptoms such as fatigue and back pain, but he failed to explain satisfactorily that these prevented him from lodging tax returns on time, or from responding to communications from the respondent.

36.     In Re Marzol the Tribunal had the benefit of written reports and oral evidence from medical practitioners with qualifications in psychiatry or psychology.  The applicant in that case also experienced a multitude of personal and family issues, together with threats from a former employee and a lengthy period of debilitation following glandular fever.  In Re Tosio the Tribunal was impressed with the quality of the medical evidence and found that the applicant was turning his affairs around successfully.  By contrast the written material regarding Mr Kellett’s depression by Dr Blair-Holt, a general practitioner without apparent formal qualifications in psychiatry, was extremely brief and general in nature about the symptoms of losing interest in work and social life, and a lack of volition to complete tasks.  The material failed to explain adequately the relationship between these symptoms and a failure to arrange for the timely lodgement of returns, or the failure to answer communications from the respondent.  There is no written report from Mr Kellett’s psychiatrist, and neither he nor Dr Blair-Holt was called as a witness.

37.     The Tribunal does not doubt that Mr Kellett suffered a serous physical illness and experienced some unexplained pain following the surgery.  He is receiving treatment for a depressive illness that was diagnosed in 2009, and in the context of the overall situation the Tribunal takes into account that he appears to have made good progress in the four to six weeks before the hearing (Toohey v Tax Agents’ Board of Victoria (No. 2) [2008] FCA 1796). However, on the available material, the Tribunal is not satisfied that the circumstances described by Mr Kellett are sufficiently unusual or out of the ordinary to constitute special circumstances, so his actions or omissions should not be disregarded under s 251BC(3) of the Act.

IS MR KELLETT A FIT AND PROPER PERSON TO PRACTISE AS A TAX AGENT?

38.     In view of its findings that Mr Kellett is a not a person of good fame, integrity and character, and that special circumstances do not exist to disregard any act or omission, the Tribunal concludes that Mr Kellett is not a fit and proper person to be re-registered as a tax agent.

DECISION

39.     The Tribunal affirms the decision under review.

I certify that the thirty-nine [39] preceding paragraphs are a true copy of the reasons for the decision of:

G.D. Friedman, Senior Member

(sgd) Grace Horzitski

Associate

Date of hearing:  3 December 2009
Date of decision:  10 December 2009

Solicitor for the applicant:            Mr A. Williamson, Coulter Roache Lawyers

Counsel for the respondent:         Mr P. Gray
Solicitor for the respondent:         Ms S. Thompson, Australian Government Solicitor