Mavrokokki and Tax Practitioners Board (Taxation)

[2020] AATA 1517

Mavrokokki and Tax Practitioners Board (Taxation) [2020] AATA 1517 (29 May 2020)

Division:TAXATION AND COMMERCIAL DIVISION

File Number:2020/1316          

Re:James Mavrokokki  

APPLICANT

Tax Practitioners BoardAnd  

RESPONDENT

DECISION

Tribunal:Mr A Maryniak QC, Member

Date:29 May 2020

Place:Melbourne

The Tribunal ORDERS that:

1.The interim stay order dated 23 March 2020 is discharged.

2.Pursuant to s41(2) of the Administrative Appeals Tribunal Act 1975 (Cth) the Tribunal orders that subject to the following conditions, the Decision Under Review be stayed until the decision of the Tribunal on the application for review comes into operation or until further order of the Tribunal:

(a)  the applicant shall not engage or take on any new clients;

(b)  the applicant shall notify all of his existing clients and employees within ten days of the date of this Order by letter or email that “the Tax Practitioners Board has made a decision terminating James Mavrokokki’s registration as a tax agent and that decision has been stayed by the Administrative Appeals Tribunal pending final determination by the Tribunal” in a form to be agreed by the Respondent;

(c)   the applicant shall within 14 days of the date of this Order provide to the respondent evidence of each and every notification sent pursuant to subparagraph (b) by either providing copies of all such notifications or by providing a statutory declaration accompanied by a schedule with the name of each person or entity, the date they were notified and the method of notification.

3.If the applicant fails to comply with any of the conditions in paragraph 2 the respondent may make an application to have this stay dissolved forthwith.

4.Liberty to apply upon 48 hours written notice.

.......................[sgd]................................................

Mr A Maryniak QC, Member

Catchwords

PRACTICE AND PROCEDURE – application for stay of decision – decision to terminate tax agent registration – competence of tax agent – prospects of success – consequences for parties – public interest – whether application would be rendered nugatory if stay not granted – conditional stay granted

Legislation

Administrative Appeals Tribunal Act 1975 (Cth)

Tax Agent Services Act 2009 (Cth)

Cases

Evans and Tax Practitioners Board [2019] AATA 1408
GJ Brown & Co Pty Ltd and Tax Practitioners Board [2016] AATA 740
Scott and Australian Securities and Investment Commission [2009] AATA 798

Su and Tax Agents Board South Australia (1982) 61 FLR 1

REASONS FOR DECISION

Mr A Maryniak QC, Member

29 May 2020

1. On 30 January 2020, the respondent decided to terminate the applicant’s tax agent registration pursuant to s40-5(1)(c) of the Tax Agent Services Act 2009 (Cth) (TASA) upon determining that the applicant had failed to comply with s30-10(7) of the Code of Professional Conduct (the Code) in the TASA which relates to competency issues (Decision Under Review). The decision also prevents the applicant from applying for registration under the TASA for a period of 12 months from the date the termination takes effect.

2. On 10 March 2020, the applicant applied for a stay of the Decision Under Review pursuant to s41(2) of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act). On 23 March 2020 an interim stay was put in place, by consent, pending this Decision.

3. Section 41(2) of the AAT Act states:

   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

   SUBMISSIONS

4. The parties agree that the Tribunal is to be guided by the considerations set out in Scott and Australian Securities and Investment Commission [2009] AATA 798 at [4] being:

   (a)the prospects of success;

   (b)the consequence for the applicant if a stay is refused;

   (c)the public interest;

   (d)the consequences for the respondent in carrying out its functions depending upon whether a stay is granted or not;

   (e)whether the application for review would be rendered nugatory if a stay were not granted; and

   (f)any other relevant matters.

5. In summary, the applicant submits that unless a stay is granted:

   (a)his tax accounting business will be unable to continue and will not survive;

   (b)his client base of over 2000 clients will likely be lost;

   (c)he will be forced to terminate all staff, including foreign nationals who will not be entitled to Commonwealth benefits;

   (d)he will be unable to meet his monthly lease obligations; and

   (e)he will have insufficient funds to pay lawyers to represent him further in this matter.

6. The applicant highlights an important aspect of s41(2) namely “… to secure the effectiveness of the… determination of the application for review” and states that without a stay the substantive application for review will be rendered nugatory, as the value of his “registration as a tax agent, if eventually reinstated, would be destroyed by the time of determination of the proceeding, because of the loss of his business” and it is likely he will not be legally represented the substantive hearing.

7. The applicant relies upon his three affidavits (the most recent two, are to be sworn subsequently).  The applicant submits that he has “real and substantial” prospects of success.

8. Further, he submits that the public interest lies in not giving priority or deference to the Decision Under Review in circumstances where to do so, would render nugatory the applicant’s right of review to this Tribunal.

9. The applicant submits that there are no material consequences for the respondent should a stay be granted.

10. The respondent states that the Tribunal’s stay power can only be exercised for the purpose of securing the effectiveness of a hearing and determination of an application for review and that simple hardship, without more, is insufficient.

11. The respondent submits that the applicant’s prospects of success are limited because:

    (a)since at least 2015 numerous and repeated deficiencies in income tax returns prepared by the applicant and his staff have been identified;

    (b)the applicant’s clients have been consequently audited and adjustments and penalties have followed; and

    (c)despite the applicant being alerted to such deficiencies they have continued in subsequent years and, to date, the applicant has failed to improve his tax return preparation practices.

12. The respondent maintains that in light of the alleged factual matrix,  a summary of which was provided to the Tribunal (and is attached as Appendix A) and that such facts are supported in large part by documentary evidence, the respondent’s prospects of success are high.

13. The respondent also submits that the applicant’s “contravention of s 30-10(7) of the Code supports the termination of his registration, together with a non-registration period of at least 12 months.”

14. The respondent quite properly states that the applicant’s evidence, despite the three affidavits, is left wanting in relation to the extent of the asserted hardship because the applicant has elected not to put evidence before the Tribunal as to his overall financial position, in particular with respect to any assets.

15. The respondent submits that the public interest sits strongly against a stay because:

    (a)it is important to “ensure that tax agent services are provided to the public in accordance with appropriate standards of professional and ethical conduct” - s2-5 TASA;

    (b)preservation of the general community’s confidence in tax agents is of “fundamental concern” - GJ Brown & Co Pty Ltd and Tax Practitioners Board [2016] AATA 740 at [82]; Evans and Tax Practitioners Board [2019] AATA 1408 (Evans) at [131];  Those who hold a position of trust as a tax agent should conduct their affairs in a way which maintains public confidence;

    (c)The standard of the profession in the eyes of the public is a public interest risk to be considered – Evans at [131]; and

    (d)a tax agent should be of such reputation and ability that officers of the Australian Tax Office (ATO) may proceed upon the footing that the tax return is lodged by the agent had been prepared honestly and competently - Su and Tax Agents Board South Australia (1982) 61 FLR 1 at 5 per Davies J.

16. The respondent underscores an asserted consistency in failing to provide tax agent services competently and suggests that the audit results may just be scratching at the surface. The respondent submits that the Tribunal can have no confidence that the applicant will improve his work methods.

17. In light of the above the respondent submits that it is difficult to see:

    (a)why the Tribunal should be convinced that there is a minimal risk of the past repeating itself; and

    (b)how officers of the ATO could proceed upon the footing that the taxation returns lodged by [the applicant] have been prepared by him honestly and competently; - Evans at [143].

18. The respondent submits that it is responsible for ensuring that the public is protected and in so doing, an atmosphere of mutual trust must be maintained between it and tax practitioners. Any stay may erode community confidence in tax agents.

19. The respondent also submits that there is insufficient evidence for the Tribunal to be satisfied that the application would be rendered nugatory if a stay is refused. It states that if the applicant is successful, his registration as a tax agent would be restored and he would be able to recommence the provision of tax agent services.

    CONSIDERATION

20. The Tribunal, on balance, finds that if a stay is not granted there is significant risk that substantial harm will occur to the applicant’s business and his employee’s livelihoods. The applicant has not put sufficient evidence before the Tribunal to establish that his business will be “destroyed” should a stay not be granted. However, despite the incomplete evidence before the Tribunal, it is clear that significant disruption will occur to the applicant’s business without a stay being granted.

21. The parties agree that a mini trial should not to be undertaken in determining prospects of success. On the evidence before it, the Tribunal is of the opinion that the respondent has significant prospects of success and that the applicant has some prospects of success. Upon the facts as set out in appendix A, if established, the public interest weighs against the granting of a stay, particularly without strict conditions.

22. The Tribunal is mindful that the Australian tax system is founded upon the principle of self-assessment and the objectives of the relevant regulatory regime are found within the TASA. One objective is to maintain and promote confidence within the Australian public in tax agents and to exclude those who are incompetent.  Tax laws can be daunting, and the Australian public and business community need to rely upon the assistance of diligent and competent tax agents.

23. The fundamental difficulty with not granting a stay is that it is unlikely that the substantive review application will occur within the next 12 months, being the period of the sanction imposed upon the applicant. If the applicant is ultimately successful this will result in the sanction being imposed in any event, thus undermining the effectiveness of the review process.

24. In the circumstances and upon the evidence before it, the Tribunal is satisfied that a conditional stay is necessary to secure the effectiveness of the review process.

25. Prior to commencement of this hearing the Tribunal requested the parties to provide conditions which may be acceptable to each respectively depending upon the outcome.

26. The applicant’s proposed conditions were that:

    1.        The applicant is not to engage any new clients.

    2.        The applicant provide to the respondent, at an email address to be nominated by the respondent, a weekly report of lodgments he makes.

    3.        The applicant adopt an income tax return checklist for each income tax return lodged (in the form attached, being a form for individuals, companies or trusts as applicable).  The mechanism for completion of the checklist is to be:

    a.        The checklist is prepared in draft by the staff accountant in the applicant’s office who prepares the income tax return.

    b.        The staff accountant highlights each item in the checklist which is applicable to the client, and writes notes referring to any work papers or other information relating to any item on the checklist.

    c.        Work related expenses and vechicle expenses are to be highlighted on every checklist.

    d.        The checklist shall be printed with the client’s papers or saved in an electronic location associated with the client’s records for the relevant lodgment;

    e.        The applicant shall personally review each checklist and initial any highlighted items;

    f.         The applicant shall return to the staff accountant the checklist with notes on work items requiring checking / adjustment;

    g.        At the foot of the checklist the applicant will add an acknowledgment for him to complete personally as follows:

    Reviewed___[date]______ James Mavrokokki _____[sign]_____________

    h.        The applicant will sign or date the form prior to lodgment of the relevant income tax return.

    4.        The applicant will make the completed forms available for inspection by the respondent upon reasonable notice.

27. The respondent’s proposed conditions were:

    1.  That no new clients be engaged during the operation of the stay;

    2.  That the Applicant will notify all of his clients and employees via letter or email by 20 May 2020 that the Tax Practitioners Board (the TPB) has made a decision terminating the applicant’s registration as a tax agent and that decision has been stayed pending final determination by the Administrative Appeals Tribunal;

    3. With respect to condition 2, the contents of that letter are to be approved by the Respondent; and

    4. That on or before 27 May 2020, the Applicant is to provide to the TPB evidence of his notification to the practice clients and employees to the TPB - either by providing copies of the emails or letters or by providing a statutory declaration accompanied by a schedule with the name of each person or entity, the date they were notified and the manner in which they were notified.

28. The Respondent also sought a self-executing order that the stay would be revoked if the applicant breaches one of the above conditions.

29. The Tribunal is of the opinion that in this matter it is appropriate to grant a stay upon strict conditions consistent with those proposed by the respondent. While the Tribunal accepts that notifying his clients in this manner may adversely impact the applicant’s business, ultimately these strict conditions are warranted to protect the real public interest generally and the interests of persons who might be affected by the review decision, namely the applicant’s existing clients.   

I certify that the following 29 (twenty-nine) paragraphs are a true copy of the reasons for the decision of Mr A. Maryniak QC, Member.

...................[sgd]............................

Associate

Dated: 29 May 2020

Date of hearing:	11 May 2020
Counsel for the Applicant:	Sam Ure
Counsel for the Respondent:	Claire Horan

Appendix A

This Appendix contains a brief summary of facts which, in the Respondent’s submission, are relevant to the application of s 30-10(7) of the Code. It has been prepared as an aide for the Tribunal for the purposes of the Stay Application. It is not intended to be exhaustive.

1. In the 2014 income year, WRE claims in tax returns lodged by the Applicant’s practice were identified by the ATO as being greater than 98% of tax agents with similar numbers of clients and complexity in their tax affairs.[41]

   [41] T4, page 46. 

2. On 3 June 2015, representatives from the ATO visited the Applicant’s premises to review working papers for WRE claims by eight of the Applicant’s clients. Six of the files reviewed were found to have errors and/or were not properly substantiated, and “compliance issues were identified in relation to al [sic] work related expenses reviewed”.[42] The ATO provided recommendations to the Applicant by letter dated 4 June 2015, noting that there were “a number of issues which you need to address which will improve the standard of returns lodged by your practice and the compliance of your clients as a whole”.[43]

   [42] T4, page 47.

   [43] Ibid.

3. For the period 1 July 2015 to 30 June 2018:

   a.Nine client tax returns lodged by the Applicant were “stopped” by the ATO, and the ATO “reduced the clients’ claim of work related expenses due to the lack of nexus or substantiation between the expense and the clients’ occupations”.[44]

   [44] T4, page 38.

   b.Between November 2017 and November 2018, at least five of the Applicant’s clients were audited and subject to adjustments (and in some cases, penalties) in connection with their 2017 and 2018 income tax returns.[45] At the end of each audit, the Applicant “was educated on the correct application of tax law to work related expenses by [the ATO’s] review finalisation letter”.[46]

   [45] T4, pages 51-61.  

   [46] T4, page 38.

   c.Specifically in the year ended 30 June 2018, 19 tax returns lodged by the Applicant were amended by the ATO because they contained incorrect declarations of residency status (which, in turn, affected the amount of tax payable) or incorrect reporting from holiday workers.[47]

   [47] T4, page 38.

   d.Issues identified by the ATO in connection with the returns referred to above included a failure by the Applicant to explain record keep requirements, a failure to correctly claim (and ensure substantiation of) deductions and inconsistencies with receipts and logbooks.[48]

   [48] T4, page 36.

4. On 15 August 2018, the ATO wrote to the Applicant and advised that it had commenced a review into his tax practice for the 2015 to 2018 income tax years. In this letter, the ATO requested that the Applicant provide WRE schedules for 100 income tax returns that he had prepared on behalf of 90 of his clients for specified income tax years.[49]

   [49] T4, pages 199-202.  

5. In November 2018, the ATO commenced audits in respect of 20 of the Applicant’s individual clients (31 returns). By May 2019, nine of those audits (15 returns) had been completed. The ATO concluded that all 15 returns contained “multiple mistakes, ranging from 3 to 10 labels that require audit adjustments”, and that “this indicated the lack of competency” of the Applicant and his contractors as “the number of incorrect deduction labels were more than those that were correct”.[50] The errors identified were the same or similar errors to those identified by the ATO in prior audits, including invalid car logbooks, a lack of nexus between clients’ occupations and WRE claims, a lack of substantiation for WRE claims and invalid claims made in respect of private expenditure.[51] Penalties were applied to a number of the Applicant’s clients.[52] In some cases the Applicant made voluntary disclosures in connection with the clients’ returns,[53] but the documentation provided by the Applicant was found by the ATO to be insufficient to substantiate the amounts claimed in those disclosures.[54] A summary of the audit adjustments and penalties applied in respect of six of the Applicants’ clients as a result of these audits is contained in Appendix B.

   [50] T4, page 39.

   [51] T4, page 43 (ATO referral to the Respondent dated 24 May 2019)

   [52] For example, T4 pages 250, 269, 299 and 313.

   [53] T4, pages 213-218 and 256-261.

   [54] T4, page 40.

1. On 24 June 2019, the ATO wrote to the Applicant advising that “we have been working with you since 13 September 2018 and, based on the work-related expense claims of your clients, we continue to have concerns about your return preparation practices”.[55]

   [55] T4, page 203.

   a.set out a number of issues identified by the ATO, including “insufficient nexus for work-related car expenses”, “not apportioning expenses where there was a private component” and “lack of substantiation to support claims”;[56]

   [56] T4, page 203.

   b.stated that in (thus far) completing 12 of the 20 audits commenced in November 2018, 100% of all returns selected for post issue audits had been subject to adjustment, 98 labels were adjusted, the total tax shortfall was over $147,588.90 and $71,784.20 in penalties was applied to the Applicant’s clients;[57]

   [57] T4, page 204.  

   c.noted that the ATO had “carried out audit programs on [the Applicant’s] clients in 2015 with similar findings”;[58]  and

   [58]  Ibid.

   d.invited the Applicant to re-examine his return preparation practices to improve the accuracy of his client lodgements going forward.[59]

   [59]  Ibid.  

2. In October and November 2019, representatives from the Respondent interviewed several of the Applicant’s clients.[60] Those clients indicated (broadly, and inter alia) that they had been wrongly advised and/or misinformed by the Applicant’s practice (including about substantiation requirements for their WRE claims) and/or that the Applicant (or his staff) had not followed their instructions, resulting in WRE claims that were inaccurate and/or could not be substantiated.

   [60] Nardine Hanna (T4, page 232), Georgina Way (T4, page 270), Ryan Steenson (T4, page 292), Robert Windle (T4, page 300) and Andrew Baines (T4, page 327).