Madz and Tax Practitioners Board
[2019] AATA 4773
•15 November 2019
Madz and Tax Practitioners Board [2019] AATA 4773 (15 November 2019)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2019/3630
Re:Stephen Madz
APPLICANT
AndTax Practitioners Board
RESPONDENT
DECISION
Tribunal:The Hon. John Pascoe AC CVO, Deputy President
Date:15 November 2019
Place:Sydney
The reviewable decision of the Respondent dated 30 May 2019 is varied to reduce the period for which the Applicant is prohibited to apply for registration as a tax agent from 18 months to 12 months. The reviewable decision is otherwise unchanged.
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The Hon. John Pascoe AC CVO, Deputy President
CATCHWORDS
TAX AGENTS – termination of registration as tax agent – applicant prohibited from applying for registration for period of eighteen months – alleged breaches of Code of Professional Conduct - whether applicant has failed to comply with taxation laws in the conduct of his personal affairs – whether applicant failed to respond to direction of Board in timely manner – decision varied
LEGISLATION
Tax Agent Services Act 2009 (Cth) – ss 30-5, 30-10, 30-15, 30-20, 30-25, 30-30, 40-25
Income Tax Assessment Act 1997 (Cth) – s 991-5
CASES
Peter Toohey and Tax Agents’ Board of Victoria [2009] AATA 603
Su v Tax Agent’s Board South Australia (1982) 13 AR 192
REASONS FOR DECISION
The Hon. John Pascoe, AC CVO
15 November 2019
In this case Mr Madz (‘the Applicant’) seeks a review of a decision made by the Respondent on 30 May 2019 to terminate his registration as a tax agent pursuant to section 30–30 of the Tax Agent Services Act 2009 (‘TASA’) and to prevent the Applicant applying for registration for a period of 18 months from the date of termination pursuant to section 40–25(1) of the TASA.
The Respondent’s decision was based on its findings that the Applicant had breached subsections 30–10(2) and 30–10(14) of the Code of Professional Conduct (‘Code’) contained in the TASA, in that he had failed to comply with the taxation laws in the conduct of his personal affairs and had failed to respond to a direction from the Respondent in a timely, responsible and reasonable manner. In particular the Applicant had regularly failed to meet lodgement dates for his personal income tax returns and monthly business activity statements. The defaults had not been rectified and dated back to May 2017.
On 17 August 2019 the Tribunal granted a stay of the reviewable decision.
THE RELEVANT LAW
Section 30-5 of the TASA provides that the Code applies to all registered tax agents.
Section 30-10 of the TASA sets out the Code. The sections of the Code which are relevant to these proceedings are:
Honesty and integrity
….
2You must comply with the *taxation laws in the conduct of your personal affairs.
….
Other responsibilities
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14You must respond to requests and directions from the Board in a timely, responsible and reasonable manner.
The term ‘taxation law’ is defined in section 991-5 of the Income Tax Assessment Act 1997 and includes the TASA and any Act in which the Commissioner of Taxation has general administration. Relevantly, this includes Acts relating to the requirements for the filing of income tax returns and business activity statements.
Section 30-15 if the TASA allows the Respondent to issue sanctions on tax agents who do not comply with the Code. The Respondent is able to give a written caution, make an order under section 30-20, suspend the tax agent’s registration (section 30-25) or terminate the tax agent’s registration (section 30-30).
ISSUES BEFORE THE TRIBUNAL
The first issue before the Tribunal is whether the Applicant failed to meet the requirements of subsections 30-10(2) and 30-10(14) of the Code.
The second issue is whether the decision to terminate his registration as a tax agent was an appropriate sanction to impose.
The third issue is whether the decision to prevent him for applying for registration for a period of 18 months from the date of termination was an appropriate sanction to impose.
DISCUSSION
It was agreed by the Applicant at the hearing that he had failed to lodge his personal income tax returns for the 2017 and 2018 tax years, and that he had also failed to lodge monthly business activity statements for the months ending 30 April 2017 until the date of the hearing.
The Applicant also agreed that he had not complied with an Order from the Respondent dated 25 July 2018 requiring him to attend, complete and pass by 31 December 2018, education and or training in relation to practice management and the Code. The Applicant did not complete the training courses within the required time, and was therefore in breach of section 30-20 of the Code.
Although the Applicant’s failure to comply with the education order within the required time frame may be potentially explained by communications difficulties, it is a serious issue because the Respondent is charged with ensuring public confidence in tax agents and the taxation system more generally. The fact that it has issued an Order indicates a problem which needs to be remedied in order to ensure future compliance.
However, the critical issue is the failure of the Applicant to lodge his own income tax returns and business activity statements over a long period of time, which appears to have continued up until the date of the hearing. This constitutes a clear breach of his obligations under subsection 30-10(2) of the Code to comply with taxation laws in the conduct of his personal affairs.
Given the Applicant’s admissions that he has acted in breach of the Code, the remaining issue for determination is whether the penalties imposed by the Respondent, firstly in terminating the Applicant’s registration and secondly in determining that he may not apply for registration for a period of 18 months from the termination date, are appropriate.
The Applicant gave evidence of what might be described as a “perfect storm” of events which led to his failure to lodge his income tax returns and business activity statements. He emphasised that despite the fact that he did not adequately attend to his own affairs, he had continued to lodge documents for his clients with the ATO and had been working with the ATO on a number of requests that had been made in relation to the tax affairs of various clients.
The Applicant gave evidence that he had moved from Strathfield to Surry Hills in November 2015. He said that he had no telecommunication facilities for 57 days after the move and that he continued to suffer from extremely poor connectivity until recently, when his telecommunications capacity improved somewhat.
The Applicant also said that he had a period where he did not get mail from the ATO, as the ATO was sending letters to his previous address. He was also required to deal urgently with a range of matters on behalf of clients in order to meet the demands of the ATO.
The Applicant accepted that the Respondent had tried to contact him. On several occasions he stated that he had found it difficult to contact the responsible officials at the Respondent’s offices and that he felt that he had been denied natural justice in relation to a hearing held in May 2019 by the Respondent, following which the decision to terminate his registration was made. There was not sufficient evidence before the Tribunal to enable any finding as to whether the Applicant had in fact been denied an opportunity to be heard but the correspondence produced to the Tribunal suggests the Respondent had made appropriate efforts to inform the Applicant of the purpose of the hearing and to inform the Applicant of the date on which the hearing would be held.
The Applicant expressed contrition for his failure to lodge his tax and business activity statements as required, but stated that he had simply been overwhelmed by the range of problems sparked by his move and the demands of the ATO. He gave evidence that he had been a tax agent for some 40 years and said that he had not had problems meeting his obligations as a tax agent prior to his move to Surry Hills.
The Applicant accepted the evidence from counsel for the Respondent that he had continued to be in breach of his obligations to file income tax returns and business activity statements right up until the date of the hearing, although he said that he was having some discussions with the ATO with a view to lodging the outstanding documents. The Applicant also said that he did not want to rush his returns or not complete them properly.
He also said that his actions had not been deliberate or an attempt to defy the requirements of the Respondent.
Although he accepted the breaches, he felt that the termination of his registration as well as the 18 month suspension on applying for registration was unduly onerous for his clients and that a lesser penalty was appropriate, perhaps involving suspension until he had lodged his own returns.
The Applicant did not present any corroborating material in relation to his difficulties with telecommunications and with the ATO, other than an email dated 28 June 2019 which was of limited evidentiary value as it did not directly relate to the period at issue. Further, the Applicant agreed with counsel for the Respondent that he had taken no action in relation to getting a colleague to assist him with the lodgement of his personal returns, or hiring a tax agent himself.
I accept however that the Applicant had serious telecommunications difficulties affecting his ability to conduct his business after his move from Strathfield to Surry Hills and that he gave priority to meeting client obligations and the requirements of the ATO in relation to those clients. It cannot however excuse his failure to conduct his own affairs appropriately.
The comments of David J in Su v Tax Agent’s Board South Australia (1982) 13 AR 192 are directly relevant in this case. His Honour stated as follows at 195:
… A tax agent who allows his own tax affairs to get into a state of disorder, who has constant problems himself with the Taxation Department, may not be a proper person to handle clients’ affairs for there may come a time when dissatisfaction which officers of the Department may have with the tax agent personally may be reflected in their handling of his clients’ affairs. Clients … should not be embarrassed by the fact that the tax agent acting for them is himself continually late in complying with the time limits imposed by the Act and the regulations.
I am satisfied that the failure of the Applicant to lodge his income tax returns and business activity statements over such a long period of time justified the decision of the Respondent to terminate his tax agent registration. The Applicant was clearly well aware of the need for all taxpayers to comply with the law and in particular for those who hold a position of trust as a tax agent to conduct their affairs in a way which maintains public confidence. The non-compliance is exacerbated by the fact that the Applicant failed to comply with an Outstanding Lodgement Order issued by the Respondent pursuant to section 30-20 of the Code or to communicate appropriately with the Respondent as to his problems more generally, especially once the Respondent had written to him personally (including through follow up letters) about his outstanding obligations to file his income tax returns and business activity statements.
Further the Applicant failed to seek outside assistance to assist him in meeting his obligations; assistance which it is reasonable to assume would have been easy for him to access. Nor did he take any reasonable steps to deal with outstanding lodgements right up until the date of the hearing, despite the fact that the Applicant must have been aware of the seriousness of his failure to lodge and the importance of being able to demonstrate a reasonable effort to address the outstanding issues.
I place significant weight on the fact that the Applicant did not appear to treat his obligations under the Act with sufficient seriousness, or to demonstrate appropriate respect and willingness to co-operate with the Respondent, an organisation charged with the responsibility for upholding public confidence in the tax system. In short, as a professional registered tax agent, the Applicant has a real and continuing obligation to behave in a manner which engenders respect and confidence in the tax system. Whilst his difficulties with communications and dealing with the ATO clearly caused him significant difficulties they do not excuse him from compliance with the law. The reasonable expectation of the public is that he will, despite such difficulties, find a way – and place considerable importance on the need – to meet his personal taxation obligations. In this regard I note the following statement of DP McDonald in Peter Toohey and Tax Agents’ Board of Victoria [2009] AATA 603 at [36]:
………As a tax agent, the applicant should hold himself up to a higher standard than the general public. He has an intricate knowledge of tax laws and it is reasonable to assume that he knows the importance of lodging tax returns on time. His clients, as well as the general public, should be able to entrust their taxation affairs to him and have confidence that he is able to lead by example and file his tax returns on time as required by the law.
The next issue for consideration is whether the period of 18 months during which the Applicant is prohibited for applying for registration is reasonable. Again, in considering this issue it is necessary to take into account the Applicant’s failure to comply with the taxation laws in so far as it related to his personal affairs. As was so well enunciated by David J in Su as quoted above, it is important that the conduct of the Applicant as a professional tax agent is such as to engender confidence. It is also important that there he has a proper understanding of the need to comply with the tax laws and to give a real and proper explanation to the Respondent as to why a failure has occurred.
I consider it relevant that the Applicant has had a long period of non-compliance with the tax laws and his obligations as a tax agent. There was only limited evidence at the hearing that he was making an effort to ensure that his failures were remedied. Failure to comply with an Order from the board is also a very serious issue.
To his credit, I note that the Applicant did show some contrition at the hearing. He did not dispute that the breaches had occurred and he gave evidence, although somewhat limited and not tested, that he was in dialogue with the ATO in relation to his outstanding returns. I also take into account the Applicant’s evidence that he had been practising as a tax agent for many years without any problems until the date of his move to Surrey Hills.
I note that the Respondent could have prevented the Applicant from applying for registration for a period up to five years and in that context, a period of 18 months does not seem excessive in all of the circumstances of this case. In other words, on the basis of the evidence provided one must conclude that the Respondent has acted reasonably in all of the circumstances and having regard to the material before it.
I am however mindful of the fact that the Applicant did express some contrition at the hearing and that for a range of reasons he appeared to have been unable to cope once he had moved to Surrey Hills and that this may have been somewhat of an aberration. I also take into account that he appears to have put his clients affairs first, although that is no excuse and must be seen in the light of his obligation to conduct himself in such a manner as to engender public confidence in the system of tax agents (which the Respondent is required to uphold) as well is the confidence of his clients.
Having regard to all of these circumstances and the need for the Applicant to have time to remedy all of the outstanding issues, I consider it appropriate to reduce the period during which the Applicant is prevented from applying for registration to 12 months.
DECISION
The reviewable decision of the Respondent dated 30 May 2019 is varied to reduce the period for which the Applicant is prohibited to apply for registration as a tax agent from 18 months to 12 months. The reviewable decision is otherwise unchanged.
I certify that the preceding 36 (thirty - six) paragraphs are a true copy of the reasons for the decision herein of The Hon. John Pascoe, AC CVO
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Associate
Dated: 15 November 2019
Date of hearing: 26 September 2019 Applicant: In person Counsel for the Respondent: Mr K Josifoski
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