Leahy and Tax Practitioners Board (Taxation)
[2020] AATA 2164
•9 July 2020
Leahy and Tax Practitioners Board (Taxation) [2020] AATA 2164 (9 July 2020)
Division:Taxation and Commercial Division
File Number: 2020/0236
Re:Jeffery Leahy
APPLICANT
Tax Practitioners Board And
RESPONDENT
Decision
Tribunal:Senior Member Keith James
Date:9 July 2020
Place:Melbourne
Pursuant to section 41(2) of the Administrative Appeals Tribunal Act 1975, the decision of the Respondent of 19 December 2019 to terminate the Applicant’s registration as a tax agent is stayed until further order of the Tribunal.
......................[sgd].............................................
Senior Member Keith James
Catchwords
PRACTICE AND PROCEDURE – stay application – termination of registration as a tax agent - consideration of principles in Scott – whether it is in the public interest for stay to be granted – consideration of purpose of legislative scheme – stay granted
Legislation
A New Tax System (Goods and Services Tax) Act 1999
Administrative Appeals Tribunal Act 1975
Tax Agent Services Act 2009Taxation Administration Act 1953
Cases
Evans and Tax Practitioners Board [2019] AATA 1408
Gould and Tax Practitioners Board [2019] AATA 1056
Scott and Australian Securities and Investments Commission, Re (2009) 51 AAR 114
Very Important Business Pty Ltd and Commissioner of Taxation [2019] AATA 1120
XTWK and Australian Securities and Investments Commission, Re (2007) 98 ALD 131Secondary Materials
Australian Taxation Office, Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard, MT 2008/1, 12 November 2008
G T Pagone, Tax Avoidance in Australia (The Federation Press, 2010)
Tax Practitioners Board, Code of Professional Conduct – Explanatory Paper, TPB 01/2010, 16 December 2010REASONS FOR DECISION
Senior Member Keith James
9 July 2020
On 19 of December 2019, the Respondent terminated the Applicant’s registration as a tax agent pursuant to paragraph 40-5(1)(b) of the Tax Agent Services Act 2009 (the TASA) with effect from 23 January 2020. The Respondent further held that he should be prohibited from applying for registration under the TASA for a period of five years from the date on which the termination of his registration takes effect.
The Applicant was notified of the decision in a letter dated 6 January 2020.
On 14 January 2020, the Applicant applied to the Tribunal for a review of that decision. On the same day, the Applicant also applied, pursuant to section 41(2) of the Administrative Appeals Tribunal Act 1975 (the AAT Act), for a stay of the decision.
It is this request for a stay that is the subject of this decision.
I have concluded that the stay should be granted for the reasons which follow.
The Tribunal’s Stay Power
Section 41(2) of the AAT Act provides:
The Tribunal may, on request being made by a party to a proceeding before the Tribunal (in this section referred to as the relevant proceeding), if the Tribunal is of the opinion that it is desirable to do so after taking into account the interests of any persons who may be affected by the review, make such order or orders staying or otherwise affecting the operation or implementation of the decision to which the relevant proceeding relates or a part of that decision as the Tribunal considers appropriate for the purpose of securing the effectiveness of the hearing and determination of the application for review.
In this case, the Tribunal has the power to grant a stay order if it:
·is of the opinion that it is desirable to do so after taking into account the interests of any persons who may be affected by the Tribunal’s review of the Board’s decision; and
·considers that the stay order is appropriate for the purpose of securing the effectiveness of the hearing and determination of the application for the review.
Added to these two statutory tests is considerable precedent that the following considerations should be examined in determining whether a stay application should be granted:
·whether a stay is in the public interest;
·whether the substantive application for review would be rendered nugatory if the request for the stay order is not granted;
·any consequences for the Applicant should the request be refused;
·the prospects of success of the substantive application for review;
·any consequences for the Respondent in carrying out its functions should the request for the stay order be granted (or refused); and
·any other relevant matters.[1]
[1] Scott and Australian Securities and Investments Commission, Re (2009) 51 AAR 114 at [4]; Gould and Tax Practitioners Board [2019] AATA 1056 at [7].
In respect of the above, it is clear that the Applicant has a ‘practical onus’ of establishing on the evidence that the above considerations point to the grant of a stay.[2]
[2] XTWK and Australian Securities and Investments Commission, Re (2007) 98 ALD 131, 132 at [15]; Evans and Tax Practitioners Board [2019] AATA 1408 at [13].
The Tribunal notes that the Applicant is self-represented. It also accepts that his formal submissions complain of his treatment by both the Australian Taxation Office and the Respondent Board. Much of the discussion below is not based on either his written or verbal submissions, it is solely on an examination of the material contained in the Board’s section 37 filings (referred to as ‘T-Documents’) and filing records of the Tribunal. This goes to the question of whether the Applicant was afforded the appropriate level of procedural fairness in the Board’s deliberations and/or in the reporting and communication of its decision.
Board Conduct Committee Decision
On 19 December 2019, the Board Conduct Committee of the Respondent met and considered what administrative action, if any, to take against the Applicant, following an investigation into his conduct as a tax agent.
For reasons that will become clear, the minutes of that meeting are centrally important to the Tribunal’s task in determining whether to grant a stay. As such, they have been annexed to these reasons as ‘Annexure 1 – Extract of Board Conduct Committee meeting minutes’.
As is mentioned above, on 6 January 2020 the Secretary and CEO of the Respondent wrote to the Applicant, advising him of the Respondent’s decision. The terms of that letter are also of critical importance to the Tribunal’s reasoning. As such, it has been annexed to these reasons as ‘Annexure 2 – Letter to Applicant from Respondent advising of decision and reasons’.
As can be seen, the section of the letter under the heading ‘Reasons for Decisions’ repeats that part of the above minute with the heading ‘Findings’.
The part of the letter under the heading ‘subsection 20-5(1)(a) – Individual does not meet registration requirement – fit and proper’ includes additional matters not recorded in the minute under the heading Decision.
That part of the minute under the heading ‘Decision’ includes matters minuted as part of the Decision that are omitted from the letter.
These differences are further discussed later in these reasons.
acts scheme and registration and regulating power
Section 2-5 of the TASA provides that the object of the TASA ‘is to ensure that tax agent services are provided to the public in accordance with appropriate standards of professional and ethical conduct.’
In his second reading speech, the then Minister advised that the bill ’will replace the existing law regulating tax agents in part VIIA of the Income Tax Assessment Act 1936. This part was introduced in 1943 and is now out of date and out of step with current tax and commercial environment.’[3]
[3] Commonwealth, Parliamentary Debates, House of Representatives, 13 November 2008, 10844 (Chris Bowen, Minister for Competition policy and Consumer Affairs, and Assistant Treasurer).
The TASA scheme involves the establishment of the Board, endowing the Board with registration, conduct investigation and discipline functions, and the enactment of a mandatory Code of Professional Conduct (the Code).
When the TASA was enacted in 2009 the introduction of the Code was seen as a ‘key’ element of the reforms. In the second reading speech the then Minister when introducing the Bill stated:
The code will define the professional and ethical standards required of agents, and their roles and responsibilities. It will therefore provide clarity and certainty around the standards required and expected of agents. It will also provide a benchmark against which the board and taxpayers can evaluate the tax agent services being provided.[4]
Another ‘key’ reform was the establishment of:
a wider and more flexible range of administrative sanctions than those existing under the present arrangement. In cases of noncompliance with the code, the board will be able to impose a sanction that is commensurate with the severity of the misconduct, ranging from a written caution or an order to undergo training or work under supervision, through to termination of registration. The introduction of a range of constructive and educative sanctions for noncompliance will improve the standard of services provided to the public.[5]
[4] Ibid at 10845.
[5] Ibid.
This theme is continued in the Explanatory memorandum to the Bill that became the TASA legislation under the heading ‘Key elements of the new legislative Scheme’:
The introduction of a Code of Professional Conduct
1.19 A Code of Professional Conduct (Code) governs the ethical and professional standards of tax agents and BAS agents. The Code is set out as a statement of principles and the Board may issue binding written guidelines for the interpretation and application of the Code.
1.20 A formal legislative code has been a key aspect of the new legislative regime since it was first recommended in 1994 by the Report of the National Review of Standards for the Tax Profession, Tax Services for the Public. This report recommended that any such code should be made binding through legislation to enable the Board to impose sanctions for breaches and thereby to enforce compliance with the code.
A Range of sanctions for breaches of the Code of Professional Conduct
1.21 Under the new arrangements, if a tax agent or BAS agent has breached the Code, the Board has a range of options. The Board may caution the agent, require the agent to complete a course of training, subject the agent to practising restrictions, require the agent to practice under supervision, or suspend or terminate the agent’s registration. (Currently, the state Boards are only able to suspend or terminate registration.)[6]
[6] Explanatory Memorandum, Tax Agent Services Bill 2008, 10.
This later paragraph is an explanation of section 30-15 of the TASA which provides where the Board has found that there has been a failure to comply with the Code, the Board may do one or more of the following:
(a)give [the tax agent] a written caution;
(b)give [the tax agent] an order under section 30-20;
(c)suspend [the tax agent’s] registration under section 30-25;
(d)Terminate [the tax agent’s] registration under section 30-30.
Section 30-20(1) provides:
(1)The Board may make an order that requires you take one or more actions including, but not limited to, the following:
(a)completing a course of education or training specified in the order;
(b)providing tax agent services for which you are registered only under the supervision of a registered tax agent, BAS agent or tax (financial) adviser specified in the order;
(c)providing only those tax agent services that are specified in the order.
Section 30-25 provides that the Board may, by notice in writing, suspend the tax agent’s registration for a period determined by the Board.
Section 30-30 provides that the Board may terminate a tax agent’s registration.
Another important provision is section 50-20 of the TASA which provides:
You contravene this section if:
(a)you are a registered tax agent or BAS agent; and
(b)you:
(i)make a statement to the Commissioner; or
(ii)prepare a statement that you know, or ought reasonably to know, is likely to be made to the Commissioner by an entity; or
(iii)permit or direct an entity to do a thing mentioned in subparagraph (i) or (ii); and
(c)you know, or are reckless as to whether, the statement:
(i)is false, incorrect or misleading in a material particular; or
(ii)omits any matter or thing without which the statement is misleading in a material respect.
In his second reading speech, the then Minister stated:
The…final element is the introduction of a specific civil penalties regime for certain specified misconduct by registered agents…which will replace the criminal penalties in the current law. For Example, civil penalties will apply where…an agent knowingly or recklessly makes false or misleading statements.[7]
[7] Commonwealth, Parliamentary Debates, House of Representatives, 13 November 2008, 10845 (Chris Bowen, Minister for Competition policy and Consumer Affairs, and Assistant Treasurer).
The Explanatory Memorandum also highlights that the Code outlines ‘duties that agents owe to their clients, the Board and other agents.’[8]
[8] Explanatory Memorandum, Tax Agent Services Bill 2008 (Cth) 51, [3.19].
In summary, the scheme of the TASA is that the desired outcome of determinations of breaches of the Code is that they will provide ‘clarity and certainty around standards required and expected of agents…and provide a benchmark against which the board and taxpayers can evaluate the tax agent services provided.’
For this to happen the clear expectation was that breaches of the Code would appropriately be considered within the framework of Division 3 of the Act and all 14 of the provisions of the Code.
The TASA differed from the previous regulative regime in that in addition to the registration requirement that registered agents had to meet a fit and proper person test, a Code of Conduct was introduced to ‘provide clarity and certainty around the standards required and expected of agents’ and to provide a benchmark against which the Board and taxpayers can evaluate the services being provided’.
Disciplinary decisions of the Board in addition to dealing with the agent concerned, also assist other practitioners by providing ‘clarity and certainty around standards required and expected of agents.’
Breaches of the Code of Professional Conduct
The Code is found in section 30-10 of the TASA and consists of a list of 14 core principles which are grouped into five categories:
·Honesty and integrity;
·Independence;
·Confidentiality;
·Competence; and
·Other responsibilities.
Relevantly to the current proceedings, the Code provides that an agent:
(1) …must act honestly and with integrity.
…
(2) …must comply with the taxation laws in the conduct of your personal affairs.
As outlined above, the Board found the Applicant to be in breach of two principles:
(1)You must act honestly and with integrity; and
(2)You must comply with the taxation laws in the conduct of your personal affairs.
There were no findings of any breach of the twelve other provisions of the Code.
In respect of the breaches of Subsection 30-10(1) there are six findings.
Four of these are for overclaiming GST input tax credits (ITC’s) over different periods in two entities. The remaining two findings relate to facilitation of a scheme contrary to the general anti-avoidance rule.
The first two breaches are in respect of a company, 888 Refining Australasia Pty Ltd (888), in which the Applicant was a director, and since 7 February 2014 the sole director. For at least some of the relevant period, the Australian Taxation Office (‘ATO’) had accepted 888 was a refiner of precious metals.
In the first breach related to the period 1 January 2013 to 20 September 2015 the ATO issued amended assessments reversing overclaimed income tax credits of $15,812,867.
In their Reasons for Decision in regard to the ITC’s the ATO auditor explains the basis of the amendment on the following terms:
38. In April 2014 you supplied GST detailed reports for the tax period from 1 February 2014 to 28 February 2014. On 21 February 2016 and 8 March 2016 you supplied GST detailed reports for the tax periods from 1 July 2012 to 31 December 2012.
39. However, as at the date of this letter, you have not supplied any of the documentation requested for the tax periods from 1 January 2013 to 31 January 2014 and 1 March 2014 to 30 September 2015.
40. As you have failed to provide evidence to substantiate the acquisitions that relate to the GST credits claimed for the tax periods ended 1 January 2013 to 31 January 2014 and 1 March 2014 to 30 September 2015 your GST credits claimed in these periods will be revised to nil.[9]
[9] T4, 83.
In the Reasons for Decision, in respect of an administrative penalty, the ATO auditors go on to state ‘this is because you should have reasonably foreseen that your actions may have led to the relevant statements being false and misleading.’[10]
[10] Ibid, 85
The ATO decided that an administrative penalty should be imposed on the basis of recklessness. The reasons for this included that:
In this case Mr Leahy lodged your activity statements for the tax periods 1 January 2013 to 30 September 2015. As an experienced businessman, accountant and tax agent, Mr Leahy failed to meet the standard of care required of an individual commensurate with his level of experience and skill.[11]
[11] Ibid, 87.
Significantly, the reasons further conclude that ‘Remission of the uplift portion of the penalty is warranted because you did not intentionally disregard the law.’[12]
[12] Ibid, 88.
The audit also excluded two periods (the last half of 2012 and January and February 2014) which, whilst part of the audit period, had previously been audited and accepted by the ATO. The exclusion of this later period is not acknowledged in the Board’s findings.
For the second breach period (888’s October and November 2015 BAS amendment) the ATO in their ‘Legal Reasoning Document – Case management’ when dealing with 888’s Notice of Objection, conclude that ‘The arrangement involved a sham. We do not accept that 888 in fact acquired scrap gold from AGD in the amount or manner asserted.’[13] This position was repeated in the ATO’s answer to a number of issues raised in the objection.
[13] Ibid, 44.
The ATO also raised five alternative positions relying on sections of the GST Act that they believed justified disallowance of the credit.
The issue of ‘Sham’ was not discussed in the ‘Legal Reasoning Documents’ discussion of the ATO’s decision on the appropriate penalty. Rather, they conclude that a recklessness penalty is appropriate, relying on the assessment made in the first breach discussed above. The Tribunal notes that there was no discussion around the fact that the reasons for disallowing the claim for ITC’s had shifted from a failure to produce accounting records to an issue around misapplication of the law. The penalty reasoning again, relied heavily on the size of the adjustment.
Nor, was there any discussion of the distinction that the October activity statement was lodged before the audit was notified, while the November statement was lodged after the company and the Applicant’s agent had been informed of the extensive audit activities of the ATO in respect of 888 and the gold industry generally. This latter issue was influential in the Tribunal’s discussion of the third matter to now be discussed below.
The third and fourth breaches were in respect of the BAS returns for Very Important Business Pty Ltd (‘VIB’), a client of the Applicant’s registered tax agent practice.
The third breach related to BAS returns for the period 1 October 2015 to 31 December 2015. VIB was incorporated in 2010 and was owned by a Mr Spiteri, a director since its incorporation and a sole director since 2012.
These returns are the subject of the decision of the Tribunal reported as Very Important Business Pty Ltd and Commissioner of Taxation [2019] AATA 1120. In its decision, handed down on 4 June 2019, the Tribunal held that ‘the objection decision in relation to the assessment of the net amount is affirmed. The objection decision in relation to penalties is also affirmed.’[14]
[14] at [5].
On the primary issue of the assessment, the Tribunal decided ‘…we conclude the evidence does not persuade us that the transition contemplated in the licence agreement was completed before the end of December 2015 and that it did not provide consideration and hold valid tax invoices, to support its entitlements to claim input tax credits in the Quarterly Tax Period…’.[15] That period being the last quarter of 2015.
[15] Ibid at [109]
During the proceedings the Commissioner urged the Tribunal: ‘if appropriate, to increase the GST and administrative penalty assessments issued to VIB.’[16]
[16] Ibid at [9].
On the question of penalty, the Tribunal held:
112. Both VIB and its tax agent were keenly aware of the Commissioner’s interest in the refinery’s operations by virtue of the fact the GST refund to 888 Refining for prior tax periods was under scrutiny. They were also aware that the Commissioner was concerned about the workings of the gold industry more generally, including alleged artificial arrangements exploiting the GST rules regarding precious metal, such that any reasonable person would have taken appropriate steps to ensure their records were complete and accurate. In those circumstances, a reasonable taxpayer would have obtained independent advice from somebody other than Mr Leahy and his firm. VIB’s tax agent was, after all, playing an integral role in VIB’s affairs, as well as those of 888 Refining in relation to the refining operations said to be taking place at the same address under the same refinery manager. It was not an arms’ length relationship. In all the circumstances, it was more than gross carelessness for VIB and its tax agent to proceed on the basis that VIB had commenced operations as a refiner of precious metal during the Quarterly Tax Period and entitled to claim input tax credits in circumstances where it had not provided consideration for all acquisitions and did not hold valid tax invoices. Accordingly, we do not accept VIB was excused from its liability at the rate of 50% penalty imposed on the basis of recklessness: see BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCA 164; (2001) 46 ATR 347 per Cooper J at 364. VIB should have known there were problems with relying on Mr Leahy and his firm in those circumstances.113. VIB has not provided us with any arguments or evidence suggesting it would be appropriate to remit any part of the penalty under s 298-20 of Schedule 1 to the TAA. In those circumstances and, in particular, having regard to the fact that we had some reservations as to whether all the transactions took place as asserted, the penalty decision should be affirmed.
The Tribunal notes that the Tribunal’s decision in VIB uses the phrase ‘more than gross carelessness.’ Also noted is the earlier statement that ‘the Commissioner urged [the Tribunal] if appropriate, to increase the GST and administrative penalty assessments issued to VIB.’
In submissions at the stay hearing, the Respondent put that an earlier paragraph of the Tribunal’s decision supported the Board’s determination of dishonesty. That paragraph has been extracted in its entirety:
We are reinforced in our view based on the fact that VIB’s bank statements confirm VIB only paid for a few of these purchases: see the column headed ‘Debit to bank account’ in the table at [95] above. We note Mr Leahy earlier told the Commissioner that VIB did not pay 888 Refining because it did not have a bank account, but this was plainly incorrect. We were also told the transactions were recorded in so-called “cash sheets” prepared by VIB; whatever else they might be, they are not independently verifiable records of consideration having been paid or a record of a liability to pay consideration, particularly as they do not appear to be contemporaneous documents. Nor were the “cash sheets” provided to the Commissioner prior to these proceedings. VIB, as noted above, had limited financial means to make the kinds of acquisitions associated with a refinery operation and it was unable to prove it had any loans (see [83] – [85] above).
(citations omitted).
Whilst this paragraph is open to a critical interpretation of the Applicant’s evidence and his presentation of his client’s case, it is a massive step to conclude it is a finding of dishonesty
The fourth and final finding of a breach of 30-10(1) relates to the overclaiming ITCs totalling $447,097 in VIB’s BAS for the period 1 February 2017 to 30 April 2017. This period is over twelve months after the periods relevant to the previous VIB matter and the business of refining gold had apparently commenced.
The documents on the Tribunal file do not indicate what activities VIB conducted in the 2016 calendar year, tax or otherwise, other than a comment in the audit ‘Reasons for Decision’:
In your 2016 Company tax return, business activity is reported using the Australian and New Zealand Standard Industrial Classification (ANZSIC) code for ‘Advertising Precious Metals Refining’. Your tax agent describes the business as acquiring and refining scrap gold and other metal in order to produce ‘precious metal.’ You treat these sales as GST-free supplies under section 38-385 of the GST Act.[17]
[17] T4, 124.
The Tribunal notes that this comment is silent as to how input tax credits on acquisition were treated in this period.
The documents filed with the Tribunal in respect of the disallowance of the claims for input tax credits in the relevant period are much more expansive than those that relate to the previous audit conclusions. Suffice it to say that the base of the ATO’s concerns was a finding the bullion refined by the taxpayer found its way back again as scrap to the taxpayer and refined again. In the reasons for penalty decision the ATO decided that the tax agent safe harbour provision did not apply ‘because your tax agent’s behaviour constituted recklessness’[18].
[18] Ibid, 269.
Annexed to this decision as ‘Annexure 3 – Reasons for VIB Penalty Decision’ are the paragraphs of the ATO’s decision that relate to the actions of, and conclusions about, the Applicant’s behaviour.
Those reasons speak for themselves. There was not a finding that the Applicant, in the relevant language of the GST penalty provisions, intentionally disregarded the law.
Is there a distinction between Recklessness and Dishonesty and a lack of Integrity?
‘Reckless’ is defined in the Macquarie Dictionary as:
1 Utterly careless of the consequences of action: without caution.
2 characterised by or proceeding from such carelessness.
In the T-documents and in their Miscellaneous Taxation ruling MT 2008/1, the ATO describes recklessness as gross negligence.
There is a distinction between recklessness and other conduct described as, for example, ‘knowingly false’ and ‘intentionally disregarding the law’.
For example, section 50-20(c) of the TASA states there is an offence if ‘you know, or are reckless as to whether, the statement; is false, incorrect or misleading in a material particular’.
Schedule 1 to the Taxation Administration Act 1953 at section 284-90, when dealing with base penalty amounts, draws a distinction between a statement that resulted from the intentional disregard of a taxation law (284-90 item (1)), a statement made from ‘recklessness’ as to the operation of a taxation law (284-90 item (2)), and the failure to take reasonable care (284-90 item (3)).
In Miscellaneous Taxation Ruling MT 2008/1, it is noted that:
Like the test for determining whether reasonable care has been shown, a finding of recklessness depends on the application of an essentially objective test. There must be the presence of conduct that falls short of the standard of a reasonable person in the position of the entity. Similar to the position with the failure to take reasonable care, dishonesty is not an element of establishing recklessness. The actual intention of the entity is of no relevance.[19]
[19] Australian Taxation Office, Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard, MT 2008/1, 12 November 2008 at [100].
In the discussion on ‘intentional disregard’ the Ruling goes on to state;
110. The adjective “intentional” means that something more than reckless disregard of or indifference to a taxation law is required.
111. Unlike the objective test which applies to determine whether there has been a want of reasonable care or recklessness, the test for intentional disregard is purely subjective in nature. The actual intention of the entity is a critical element.
112. Intentional disregard means that there must be actual knowledge that the statement made is false. To establish intentional disregard, the entity must understand the effect of the relevant legislation and how it operates in respect of the entity’s affairs and make a deliberate choice to ignore the law.
113. Dishonesty is a requisite feature of behaviour that shows an intentional disregard for the operation of the law. This is another significant difference between this type of behaviour and behaviour that shows a want of reasonable care or recklessness where dishonesty is not an element.
In the period related to the first breach of the Code, the ATO’s finding related to the Applicant’s inability to produce accounting records for reasons associated with the insolvency of the company. For the periods audited when records were available the returns were accepted. The auditors acknowledged the Applicant had not intentionally put himself in that situation and there had not been an intentional disregard the tax law.
In the ATO ‘Legal Reasoning Document’ dealing with the second breach as discussed above, the discussion on penalty adopted the reasoning adopted for the penalty in the first period, notwithstanding the basis of disallowance was on significantly different grounds. See paragraphs 48 and 49 above.
In this second breach period, the Tribunal also notes that the second month’s BAS was lodged after a series of audit activities of the ATO and there is a presumption that the Applicant knew he was in a serious disagreement with the ATO and the company would only obtain the credits after convincing the ATO of its entitlements. Deciding to lodge a return and dispute the matter with the ATO falls short of any suggestion there was an intention to mislead the ATO.
The third period dealing with a breach of the Code in respect to VIB was for the period dealt with by the Tribunal as discussed above. Whilst there was a finding of ‘more than reckless’ conduct, the Tribunal did not accede to the Commissioner’s ‘urging’ to increase the penalty to the higher ‘intentional disregard’ level.
The fourth period dealing with a breach of the Code was twelve months later. Again, the ATO has assessed the Applicant’s conduct as reckless on the basis the Applicant was by now aware of the ATO audit activity. On an issue of honesty, that knowledge goes both ways. The Applicant should be presumed to know that the credits will again be disallowed, and objections and appeals will be required.
Given the findings of the Tribunal and the ATO in their respective consideration as to penalties, it is not clear whether the Board took a different view of the facts or found that recklessness could, on certain known but unspecified facts, amount to a subjective determination of dishonesty and an objective assessment of a lack of integrity. On the wording of both versions of the Board’s finding/decision there was a finding both of dishonesty and a lack of integrity.
If further facts were considered, there is no evidence before the Tribunal that the Applicant was advised of, or put on notice of, those facts. The Tribunal notes that the Applicant requested a meeting with the Board or its executives/investigators. There is no record of that occurring.
In both versions of the Board’s decision, the subjective dishonest behaviour of the Applicant is not particularised. On the various reasoning of the ATO in their audit decisions there are grounds for the Applicant to question the Board’s findings. In the alternative that the Board accepted further evidence beyond the original audit decisions, any reliance on that evidence raises issues of procedural fairness
Similar issues arise in relation to a finding of a lack of integrity. A threshold issue is whether this breach should be determined on a subjective or objective assessment of the evidence.
Included in the T-documents is the Board’s Explanatory Paper TPB 01/2010 Code of Professional Conduct, first issued on 16 December 2010 and last modified on 13 July 2017.
The part of the explanatory paper dealing with section 30-10(1) titled ‘what is ‘acting honestly and with integrity?’ acknowledges that:
the terms ‘honesty’ and ‘integrity’ are not defined in the TASA. Guidance can therefore be obtained from decisions of the courts. The following considerations have been used by the courts in determining when a person is acting with honesty and integrity’.[20]
Eleven cases are cited. Three are concerned with other legislation not concerned with tax. Six deal with the question of a ‘fit and proper person’ in the dealing with agent’s tax legislation that preceded the TASA. In the two that were dealt with under the TASA the decisions did not consider whether there had been a breach of the Code of Professional Conduct, let alone section 30-10(1).
[20] Tax Practitioners Board, Code of Professional Conduct – Explanatory Paper, TPB 01/2010, 16 December 2010 at [30].
Given the objective of the Code ‘to improve the clarity and certainty around the standard required and expected of agents’, further open and fresh consideration of these finding is in the Tribunal’s opinion in the best the interests of practitioners and the public more generally.
GAAR
As mentioned previously, two of the six findings of a breach of Code subsection 30-10(1) relate to the Applicant facilitating both 888 and VIB in a scheme pursuant to section 165-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). As the ATO penalty discussion on section 165-40 notes ‘given the similarity between the language of Division 165 of the GST Act and Part IVA of the Income Tax Assessment Act 1936, Part IVA cases inform the construction of Division 165’.[21] Both provisions are generally referred to as general anti avoidance rule (GAAR).
[21] T4, 226 [402].
In both Acts they:
presuppose that a tax benefit has lawfully been obtained; that is, that on a proper construction and application of the taxing provision a taxpayer obtains a tax benefit. The fiscal impost through Part IVA assumes that the benefit was obtained in consequence of something done to obtain the benefit … The same is true of GST benefits under Div 165 of the GST Act. The anti-avoidance provisions only apply when the primary taxing provisions have applied in the taxpayer’s favour.[22]
The provisions are applied on an objective assessment of the taxpayer’s actions.
[22] G T Pagone, Tax Avoidance in Australia (The Federation Press, 2010) 19.
The penalty provisions contained in the Taxation Administration Act 1953 have a base rate of 50% reduced to 25% ‘if it is reasonably arguable that the adjustment provision does not apply.’[23]
[23] Taxation Administration Act 1953 (Cth) sch 1, s 284-160(1)(b).
The base penalty is a consequence of the taxpayer’s objective actions. The eligibility for a reduction is based on an objective assessment of what a reasonably arguable position at law is. As discussed above, the penalty determinations other than findings of ‘intentional disregard’ are based on objective criteria and not evidence of a finding of the subjective behaviour of the Applicant.
The GAAR provisions can only apply ‘when the primary provisions have applied in the taxpayer’s favour’.
In this case, on both occasions where the alternative section 165 determinations were raised, the primary assessments applied. By definition, the section 165 determinations and assessments therefor had no force. The Applicant did not facilitate a section 165 scheme because the ‘primary provisions’ applied and there was therefore no scheme to which section 165 could apply.
Whilst it is ultimately a matter for the substantive hearing, the Tribunal expresses concern as to how the Board could make two findings in relation to the same return.
It is clearly in the interest of taxpayers and tax agents that there is clarity and certainty of the consequences for practitioners where the Commissioner raises a GAAR assessment. That is particularly the case when that assessment is as here, an alternative assessment which never came into force. Again, it is the Tribunal's opinion that further open and fresh consideration of this issue is in the best interest of practitioners and the public more generally.
Application of other provisions of the Code.
As mentioned above, the code of professional conduct contains 14 principles under five core principles. The fifth core principle has the heading ‘Competence’, and relevantly provides that:
(7) You must ensure that a tax agent service that you provide, or that is provided on your behalf, is provided competently.
(8) You must maintain knowledge and skills relevant to the tax agent services that you provide.
(9) You must take reasonable care in ascertaining a client’s state of affairs, to the extent that ascertaining the state of those affairs is relevant to a statement that you are making or a thing you are doing on behalf of the client.
(10) You must take reasonable care to ensure that taxation laws are applied correctly to the circumstances in relation to which you are providing advice to a client.
The finding of the Tribunal relating to VIB, discussed above, calls into question whether the Applicant has a case to answer in respect of his ‘competence’, as found by the Tribunal.
‘More than gross negligence’ is still negligence. On its face, not only is it evidence of a breach, the breach should be regarded as serious. The ATO Ruling discussed above also makes that point.
The respective findings of the ATO that the Applicant was reckless give grounds for the Board to inquire and independently determine the nature of the Applicant’s conduct.
On the documents before the Tribunal there is grounds for the Tribunal to consider on hearing the evidence whether the Applicant was in breach of any or all of the above provisions of the Code under the core principle of Competence.
Such an enquiry of the Applicants competence is the objective of the TASA. In the same way that the Commissioner has the ability to raise alternative assessments, the Board is entitled to question the Applicant’s performance on alternative grounds. This is especially the case if the standard of subsection 30-10(1) is to be measured on a subjective test and the provisions of 30-10(7) to (10) are to be determined on an objective basis.
Appeals/Other references to the AAT
As referred to above, the minute of the Board’s decision makes reference that the Board in making its findings ‘took into account that one of the AAT appeals was still ongoing, but determined that given the gravity of the overall misconduct based on the evidence before it, the priority was to ensure to the public protection and integrity of the tax system.’
Leaving to one side the question of whether there was one or three ‘appeals’, the Board’s disciplinary decision is open to an interpretation that the Board had information in addition to that put before the Tribunal at those applications. If they were relying on the ATO’s assessment of recklessness or the section 165 determinations, those findings were (or more correctly understood by the Board) under challenge before the Tribunal.
This again raises the issue of procedural fairness as to what information the Board was relying on and not put to or disclosed to the Applicant.
Breaches of Subsection 30-10(2)
Both versions of the Board’s decision deal firstly with various returns of entities in which the Applicant was a sole director which had not lodged returns by the due date.
In submissions and correspondence, the Applicant can be taken to not dispute these facts.
The Applicant’s explanation is that these returns are nil returns, and in any event, due to the ATO’s actions he did not in all cases have access to the information to complete those returns. The ATO audit position papers comment that 888 ceased business after the input tax credits were withheld. Ordinarily that explanation would go to a consideration of appropriate sanction consistent with the objective of the TASA reforms discussed above.
The final finding relates to the ‘outstanding tax liabilities of entities for which he is the sole director and controlling mind’. The by far largest item is the disallowance of the input tax credits and consequential penalties payable by 888 as discussed above. The Tribunal notes that in the minute of the Board decision there is an acknowledgement that the Board understood at the time it made its decision these penalties were the subject of a referral to the Tribunal, and there had been a hearing of five days duration. Reaching such a finding when the Board believed there was a pending decision of the Tribunal challenging those assessments is, on the surface, troubling.
The Tribunal also notes that in the letter of the Secretary of 6 January 2020 states that ‘The committee determined that it was satisfied that Mr Leahy had ceased to meet the tax practitioner registration requirement under section20-5(1)(a) of the TASA as a result of the conduct described in the submission including that he has:
…
(c) Failed to comply with taxation laws in his personal capacity, wilfully failing to disclose all of his assessable income;
As mentioned above this is one of the additions that is contained in the letter and not in the minute of the decision.
This finding goes to a matter of income tax not GST. Apart from the finding above that there were some unlodged income tax returns, there is no other income tax issue put to the Applicant by the Board, or included in the T-documents.
It is a long bow in the circumstances to jump from the non-lodgement of returns in the circumstances of these entities, to a finding of ‘wilful’ non-disclosure of income.
Conclusions
This matter raises issues that go to the heart of the reforms to the regulation of tax agents contained in the enactment of the Tax Agent Services Act 2009.
As mentioned in paragraphs 7 to 10 the tribunal has power to grant a stay after taking into account the interests of any persons who may be affected by the Tribunal’s review and consideration of securing the effectiveness of a hearing.
The differences in the minute of the decision and the reasons provided to the Applicant are of themselves enough find that the weighing of the six factors mentioned in paragraph 8 should be made in the Applicant’s favour.
Notwithstanding those discrepancies, the issues raised in this reference go to the core of the objectives of the reforms the TASA. Strengthening the Code of Professional Conduct so it delivers on providing ‘clarity and certainty around the standards required and expected of agent’ is a compelling matter in the public interest.
DECISION
The Applicant’s request for a stay of the Board’s decision is accordingly granted.
The Tribunal is of the view that, given the significant issues that remain to be resolved in this application, the matter should be brought to hearing expeditiously. As such, the Tribunal will list the matter for a case management directions hearing as soon as practicable.
I certify that the preceding one-hundred-and thirteen (113) paragraphs are a true copy of the reasons for the interlocutory decision herein of Senior Member Keith James.
.....................[sgd].....................................
Dated: 9 July 2020
Date of hearing: 13 March 2020 Applicant: In person
Solicitors for the Respondent:
Counsel for the Respondent:
In-house
Ms A Lee
Annexure 1 - Extract of Board Conduct Committee meeting minutes
Annexure 2 - Letter to Applicant from Respondent advising of decision and reasons
Annexure 3 - Reasons for VIB Penalty Decision
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