Kennedy and Tax Practitioners Board (Taxation)

[2022] AATA 2316

Kennedy and Tax Practitioners Board (Taxation) [2022] AATA 2316 (20 July 2022)

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2021/2153

Re:Gregory James Kennedy

APPLICANT

AndTax Practitioners Board

RESPONDENT

DECISION

Tribunal:Deputy President Bernard J McCabe

Date:20 July 2022

Place:Melbourne

1.The Tribunal affirms the decision under review.

2.The stay on the reviewable decision that was ordered pursuant to s 41(2) of the Administrative Appeals Act 1975 shall cease 14 days from the date of these reasons.

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

Deputy President Bernard J McCabe

Catchwords:  TAX AGENT REGISTRATION – termination of applicant’s registration as tax agents – whether applicants breached Code of Professional Conduct – whether applicant “fit and “proper” as required by the Tax Agents Services Act 2009 – appropriate length of prohibition to reapply for registration - decision under review affirmed

Legislation

Administrative Appeals Tribunal Act 1975 (Cth)

Tax Agents Services Act 2009 (Cth)

Cases

Kishore and Tax Practitioners Board [2017] AATA 271

REASONS FOR DECISION

20 July 2022

Deputy President Bernard J McCabe

1. Gregory Kennedy aspired to “establish the best and the biggest accounting firm in suburban Melbourne”, but he has experienced constant difficulty in managing his own taxation affairs. He compounded that shortcoming by failing to be open with the Tax Practitioners Board about the state of his tax affairs when seeking re-registration. Worse still, it has come to light that Mr Kennedy facilitated tax evasion by clients with whom he had a business relationship. He also gave misleading answers about aspects of the arrangements to investigators from the Australian Taxation Office (ATO).

2. The Board considered all this evidence when it decided to cancel Mr Kennedy’s registration as a tax practitioner on 18 February 2021. The cancellation decision was made on the basis Mr Kennedy did not meet the registration requirement in s 20-5(1)(a) of the Tax Agents Services Act 2009 (‘TAS Act’) that he be a ‘fit and proper person’. The Board also points to contraventions of the tax agents’ code of conduct in s 30-10 of the TAS Act, including Mr Kennedy’s:

   ·failure ‘to act honestly and with integrity’ in contravention of s 30-10(1) when he made knowingly false declarations to the Board about his tax affairs and failed to be honest with the ATO investigators;

   ·failure to comply with taxation laws in the conduct of his own affairs in contravention of s 30-10(2) when he repeatedly failed to lodge returns on his own behalf and on behalf of companies he controlled.

3. The Board also decided on the same day that Mr Kennedy should be prevented from applying for re-registration for three years from the date the termination took effect. In these reasons, I will refer to the period of non-registration as the ‘preclusion period’. The decision to impose the preclusion period was made pursuant to s 40-25(1) of the TAS Act.

4. Mr Kennedy has asked the Tribunal to review the Board’s decision to terminate and impose a preclusion period. I am satisfied the reviewable decision to terminate and impose a preclusion period should be affirmed. I explain my reasons below.

5. I note Mr Kennedy was permitted to remain in practice after the reviewable decision to terminate his registration was stayed pursuant to s 41(2) of the Administrative Appeals Tribunal Act 1975. The stay was ordered subject to conditions. The stay order shall remain in place for 14 days from the date of these reasons, after which the decision under review shall be implemented in the absence of further order from the Tribunal or the Federal Court.

   The applicant’s evidence

6. Mr Kennedy was represented at the hearing, but he was self-represented at the outset of the proceedings. He provided a statement of facts, issues and contentions that he drafted himself. That statement reads like a witness statement in many respects. The summary which follows is principally based on material contained in the statement he provided, although he also gave some oral evidence. The statement and his evidence-in-chief focused on the pressures he experienced in conducting his practice without dwelling on the shortcomings in the management of his own affairs. I will deal with those shortcomings after recording the thrust of his statement and evidence-in-chief.

7. The applicant commenced his professional career in 1971. He was initially employed by a major accounting firm. In 1981, he decided to set up his own firm. The firm grew quickly. Mr Kennedy said he soon engaged several professional and support staff to deal with around 250 clients. In his statement, he explained his firm was attractive to business clients because he gave excellent personal service. But he also said he had difficulty balancing the needs of his clients with other priorities in his life, such as his family.  I was told the clients all wanted to deal with him directly. While he worked very hard, he said he was not making enough money. In 1987, he said he ‘sold’ the bulk of his smaller clients to other accounting firms. He decided to concentrate on his larger, more profitable clients. As I understand the evidence, the applicant became a true sole practitioner at that point. He had a secretary but no professional support staff. He said the new arrangement was more manageable, at least at first.

8. Mr Kennedy said he forged close, long-term relationships with his clients. They were like family, he explained, and he had close links with staff in the clients’ businesses. He said his clients were located around the country and he travelled extensively to provide excellent personal service on the ground. He recalled he might spend 1-2 weeks each month travelling interstate.

9. The workload gradually built up until Mr Kennedy said it was difficult to satisfy his clients’ needs. He said one of his larger clients left in 2011, which provided temporary relief. But he said the needs of other large clients in the period 2015-2017 meant the workload was becoming more onerous

10. In his statement, Mr Kennedy referred to other factors which impacted on his work and on his ability to cope with the pressures on his time. He detailed a series of health issues which I need not record in detail here. He also referred to his record of extensive community engagement. He was an officeholder in the North Old Boys Amateur Football Club. He said he was also actively involved in the North Melbourne Football Club. He was a member of the board of that club in 2005-2007.

11. Mr Kennedy was also an active participant in the Warrandyte community where he lived. In 2012, he partnered with some of his clients to buy an ailing hotel business in the town that was threatened with closure. He said that would have been a serious blow to the community. He says he and his associates have kept the hotel trading - but it took a lot of effort on his part. In his statement, he observed:

    “The hotel is a commercial venture and must be profitable. We the owners, derive great satisfaction from knowing we are providing our community with a much loved facility.”[1]

    [1] Exhibit 1, Applicant’s Statement of Facts, Issues and Contentions, 11.

12. This self-serving observation is odd on its face. While the applicant apparently made the statement and provided the information about the hotel to demonstrate his selfless commitment to the local community, the fact the hotel was generating a profit points to other motivations.

13. Mr Kennedy was also a volunteer fire fighter between 1982 and 2018. He says he was heavily involved in training, amongst other activities. He was the captain of the local brigade in the wake of the ‘Black Saturday’ fires in 2009. He continued to play a key role in the brigade until May 2016 although he said he was involved with the ‘Be ready Warrandyte’ awareness campaign until 2018. He said the role required an enormous amount of work. He noted in his statement that he was honoured with life memberships of his local brigade and the Country Fire Authority, and he pointed to the award of the Australian Fire Service Medal in 2016. This period coincided with difficulties he experienced in managing his personal tax affairs. In his statement, he sought to justify those difficulties as follows:

    “…this time frame occurred at the same time as I was very busy with my professional work and very involved in the BE READY WARRANDYTE project. I could not complete everything that was on my plate. Something had to miss out. It was my lodgement of personal tax returns. Again, I put my community and in particular my brigade ahead of my own personal responsibilities.”[2]

    [2] Ibid 8.

14. I will have more to say below about Mr Kennedy’s claims that he made a deliberate decision to attend to the needs of his community before dealing with his personal affairs.

15. Mr Kennedy said his clients required intensive service although he says many of them are now elderly and their business activities have diminished. They are now mostly passive investors with less demanding needs. He says he no longer provides services to large trading entities like he did in the past. He referred to the pressures generated by Covid but those difficulties presumably arose in 2020 and 2021. Putting the Covid-related complications aside, he argues the evolution and gradual decline in his practice means his demonstrated inability to focus on his own affairs will become less of an issue.

    Shortcomings in the applicant’s management of his personal affairs

16. Mr Kennedy has a long history of failing to comply with tax obligations. The Board pointed out it issued a formal caution to Mr Kennedy on 20 March 2013 in respect of the failure of GK Kennedy Pty Ltd to file business activity statements (BAS, in the singular, or BASs in the plural). The applicant controlled the company, and he was responsible for ensuring it complied with its obligations. The caution referred to a contravention of s 30-10(2) of the TAS Act. The Board pointed out in its statement of facts, issues and contentions in these proceedings that the company had also been prosecuted for the failure to file the BAS that prompted the caution.

17. The Board also pointed out the company repeatedly failed to comply with its obligation to file its BAS on time in the years that followed the issue of the caution. When the company sought re-registration as a tax agent in 2016, Mr Kennedy formally declared on its behalf that the company had no outstanding tax obligations: Tribunal Document 5, Attachment 20. That statement was untrue. It turns out the company had eight BASs outstanding at the time, and two outstanding income tax returns.

18. Mr Kennedy was also in default with respect to his personal taxation obligations over several years – and he made false declarations in 2016, 2017, 2018 that all was in order when he sought re-registration as a tax agent.

19. The Board annexed a table to its statement of facts, issues and contentions recording the history of Mr Kennedy’s poor compliance history. He has a lengthy record of failing to file income tax returns and BASs on his own behalf and on behalf of companies he controlled. The Board drew my attention to the history of one of those companies. I was told the applicant was the sole director of Grovetern-Timberlast Pty Ltd. On 17 November 2016, the company was convicted on a charge arising out of the failure to lodge 12 quarterly BASs. Under cross-examination in these proceedings, Mr Kennedy said he had only agreed to be appointed a director of the company to assist a friend who was an undischarged bankrupt who was ineligible to serve as a director. Mr Kennedy said he thought the friend was taking care of the tax affairs. As explanations go, it is not especially comforting for present purposes: on his own account, he was facilitating an undischarged bankrupt to be a shadow director. In any event, the magistrate imposed a requirement that the company file the outstanding BASs within 28 days. The company failed to comply with the order. Mr Kennedy was subsequently prosecuted in respect of that non-compliance, and he pleaded guilty to the charge on 21 December 2017. The Board issued another written caution in the wake of that conduct.

20. The Board pointed out in submissions that Mr Kennedy had promised the court during the sentencing process that he would thereafter ensure the company complied with all its obligations. Yet the company continued to fail to meet those obligations.

21. While Mr Kennedy’s track record as a corporate officer has been shown to be wanting over a long period, he has also demonstrated a persistent failure to comply with his personal obligations. A second appendix to the Board’s statement of facts, issues and contentions demonstrates the applicant has continued to be tardy in filing income tax returns and BASs, and that he only brought his affairs up to date in advance of the hearing.

22. The Board points out Mr Kennedy’s excuse for tardiness is invariably the same. He says he is too busy. He routinely promises to do better when he gets into trouble, but his compliance does not thereafter consistently improve.

23. I have not reproduced all the details of Mr Kennedy’s default because there is no real dispute over these facts. He has a long record of failing to comply with taxations laws that impose obligations on him as an individual taxpayer and as a corporate officer. It is a matter of real concern that the applicant’s behaviour has not improved after his non-compliance resulted in criminal convictions and formal cautions from the Board. There can be no doubt the applicant has failed to comply with s 30-10(2) of the TAS Act which refers to the obligation in the Code of Conduct to comply with the taxation laws.

    Concerns about the applicant’s honesty and integrity

24. It is worrying that the applicant made false declarations about his compliance with tax obligations on several occasions. There is no doubt the declarations were false when they were made. Those false declarations on their own point to a failure “to act honestly and with integrity” in contravention of the Code of Conduct in s 30-10(1) of the TAS Act. But that is not the only evidence of concern.

25. The applicant was also involved in a client’s tax evasion schemes related to the SJ Graham Investment Trust. The trust was established in 1987. Mr Kennedy was the settlor of the trust and one of the directors of the corporate trustee. The other directors were involved in a group of companies known as the RPQ group. Mr Kennedy, through GJ Kennedy Pty Ltd, was the accountant for the RPQ group companies.

26. The details of the schemes were set out in a position paper that was included in Exhibit 12 The first of the schemes involved what the Commissioner found was a sham in which group companies claimed deductions in respect of consultancy fees purportedly charged by another company in the 2006-2010 income years. It became apparent that Mr Kennedy facilitated the sham which involved the issue of false invoices that had the net effect of allowing the RPQ group companies to evade tax. When the Commissioner became aware of discrepancies and commenced an investigation in 2017, Mr Kennedy was asked to explain what occurred with the transactions in question. The answers he provided were, at a minimum, obfuscations. Importantly, in his statement, Mr Kennedy recalled feeling sick on the day he learned of the investigation. He said he had that reaction because he knew what he had done was wrong – which underlines the unsatisfactory nature of his responses to the investigators.

27. The second scheme involved the same individual from the RPQ group. It related to the accounting treatment of payments made in connection with the purchase of a quarry. Mr Kennedy had an interest in the venture and provided accounting services to the companies involved. The Commissioner’s position paper records the conclusion that Mr Kennedy knowingly mischaracterised the payments to achieve a tax benefit.

28. I have no reason to doubt the Commissioner’s account of the scheme and Mr Kennedy’s involvement. Mr Kennedy does not dispute those accounts. In his oral evidence and in cross-examination, he explained he genuinely regretted his involvement in tax evasion. He said it was out of character. He said the conduct occurred a long time ago – in the 2006-2010 years of income – and that he had insisted the companies stop engaging in those activities in 2010 because he was so uncomfortable with what was going on.

29. I am satisfied Mr Kennedy’s false declarations to the Board at the time of his re-registration applications and his less-than-candid responses to questions asked by the Commissioner’s investigators in 2017 justify a finding that Mr Kennedy contravened the Code of Professional Conduct requirement in s 30-10(1) of the TAS Act that he act honestly and with integrity. His involvement in the tax evasion schemes amply justify the same adverse finding on their own.

    A fit and proper person?

30. While I am satisfied the applicant has contravened the provisions of the Code of Professional Conduct, that is not the basis on which the Board terminated the applicant’s registration. Its termination decision was made under s 40-5(1)(b) of the TAS Act on the basis that the applicant’s conduct was such that he no longer met the registration requirements – specifically, that he no longer met the requirement in s 20-5(1)(a) that he be a fit and proper person.

31. The expression ‘fit and proper person’ is well known at general law, but s 20-15 of the TASA Act sets out criteria which must be considered. Of these criteria, only s 20-15(a) is relevant to this case, which requires consideration of “whether the individual is of good fame, integrity and character”. Mr Kennedy’s good fame, integrity and character is particularly important in a system where tax practitioners are the connection between individual taxpayers and the Commissioner in our self-assessment system. That system can only work if tax practitioners are trustworthy.

32. Mr Kennedy provided many references from community members and from clients attesting to his good fame and character. They were overwhelmingly positive. Those references suggest the public regard for him is undiminished by his criminal record and his involvement in tax evasion. Nonetheless, those matters are on the public record and they must impact on his fame. They certainly reflect badly on his integrity and character. The findings I have made about Mr Kennedy’s failure to comply with his own taxation obligations also reflect badly on his character, and the record of misleading or dishonest behaviour in dealings with the Commissioner and the Board reflect very badly on his character and integrity.

33. Mr Kennedy’s conduct in these proceedings before he obtained legal representation also reflects badly on his integrity and character. In his statement, he offered a bold defence of his failure to comply with taxation laws. In short, he said he was too busy doing more important things. He explained:

    “My decision to support my community rather that [sic] attend to my personal tax lodgement obligations was a deliberate one, as far as I am concerned the correct decision and given the same circumstances one that I would make today.

    If I am to lose my registration as a tax agent because I committed to help my community then so be it.

    … In summary, I made time choices in my life that meant commitment to my community took precedence over personal matters. I make no apology for that decision and I would do the same again. After all, the community in which you live and reside is paramount.”[3]

    [3] Ibid 11.

34. Mr Kennedy’s disregard for his obligations is breathtaking. His self-important defence of bad behaviour reflects a startling lack of insight into the egregious nature of his conduct. At the hearing, his counsel suggested Mr Kennedy would not have made the statements with the benefit of proper advice, and I acknowledge he expressed contrition for his involvement in the tax evasion in particular once he had the benefit of that advice. But it is difficult to ignore the brazenness of Mr Kennedy’s defence of his own conduct when his views were presented without the moderating influence of legal advice.

1. I am satisfied Mr Kennedy is not and was not a fit and proper person. It follows he does not and did not satisfy the registration requirements. I also have no doubt that, given the gravity of the findings I have made, the Board was right to terminate his registration pursuant to s 40-5. I would add that the applicant’s contraventions of the Code of Professional Conduct are also so egregious that Mr Kennedy’s registration merits termination (as opposed to suspension or other orders) under s 30-30 of the TAS Act.

   The preclusion period

2. The Board is entitled to impose a preclusion period of up to five years: s 40-25. The preclusion period is not intended as a form of punishment, although depriving an individual of his or her livelihood for that period might incidentally have that effect. The imposition of a preclusion period is intended to prevent practitioners that have been terminated from immediately seeking re-registration in circumstances where it would be a waste of the Board’s time and resources to assess an obviously premature application.

3. The Tribunal’s decision in Kishore and Tax Practitioners Board [2017] AATA 271 helpfully identified questions that might usefully be considered when deciding about preclusion periods. In that case, DP Frost referred to (at [19]):

   ·the seriousness of the conduct warranting the sanction;

   ·the likelihood that the conduct will be repeated and the potential harm to the public if it is;

   ·the impact of a particular sanction on the individual (and especially where the sanction may inhibit or prevent the individual’s capacity to earn a living);

   ·the interest of the public in seeing appropriate sanctions applied;

   ·the extent to which the individual has acknowledged the breaches and the seriousness of them; and

   ·the extent to which the individual has demonstrated genuine contrition or remorse.

4. In this case, Mr Kennedy’s conduct was serious and multi-faceted, and it extended over a long period of time. While I do not expect he would repeat his involvement in tax evasion, his repeated failures to comply with his taxation obligations in the face of formal cautions and criminal proceedings leaves me with little confidence that he will comply with his various obligations in the future. I acknowledge a lengthy preclusion period will have a serious impact on Mr Kennedy’s financial future given his age and circumstances. I also note Mr Kennedy has now acknowledged the seriousness of the tax evasion findings, and that he has belatedly acknowledged he needed to do better with respect to compliance. I am nonetheless concerned Mr Kennedy’s expressions of remorse at the hearing were informed by a desire to avoid more serious consequences. His repeated claims in his statement that he made a deliberate choice to disregard his taxation obligations might more accurately reflect his genuine beliefs.

5. All these matters point firmly towards a lengthy preclusion period. The decisive factor is ultimately the public interest in sending a message about the applicant’s conduct being unacceptable. That message needs to be heard by the applicant, but it must also be heard by other practitioners.

6. In all the circumstances, I am satisfied it is appropriate to apply a preclusion period of three years. I would have imposed a longer period but for the mitigating factors, including Mr Kennedy’s health and the likelihood he will retire from practice in any event.

   Conclusion

7. The applicant did not seriously dispute the Board’s findings of fact. That is just as well, as I am satisfied they were justified. The thrust of his case at the hearing was directed towards achieving less stringent regulatory action. His counsel argued in submissions about a period of suspension and perhaps retraining, or a short preclusion period if the applicant’s registration was to be terminated. I do not accept anything less than termination of registration and a three-year preclusion period would be an adequate response to the applicant’s conduct. The decisions under review must therefore be affirmed.

I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe

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

Associate

Dated: 20 July 2022

Date/s of hearing:	6 and 7 December 2021
Counsel for the Applicant:	Ms R Sion
Counsel for the Respondent:	Mr K Loxley
Solicitor for the Respondent	Mr S Burchill

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