McCarthy and Tax Practitioners Board (Taxation) - [2021] AATA 641

McCarthy and Tax Practitioners Board (Taxation) [2021] AATA 641 (25 March 2021)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2020/1429
Re:GRANT MCCARTHY
APPLICANT

AndTax Practitioners Board
RESPONDENT

DECISION
Tribunal:Member D K Grigg
Date:25 MARCH 2021
Place:Brisbane

The Tribunal varies the decision under review and replaces it with a decision that Mr McCarthy’s registration as a tax agent is terminated pursuant to section 40-5(1)(b) of the Tax Agent Services Act 2009 (Cth) (“TASA”) and that he may not apply for registration under the TASA for a period of two (2) years pursuant to subsection 40-25(1) of the TASA.
..........................................................
Member D K Grigg
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 varied
LEGISLATION
Tax Agent Services Act 2009 (Cth)
CASES
Cleary v Tax Practitioners Board [2014] AATA 260
Delis v Tax Practitioners’ Board [2015] FCA AATA 820
G J Brown & Co Ltd v Tax Practitioners Board [2016] AATA 740
Hill v Tax Practitioners Board [2020] AATA 678
Kishore and Tax Practitioners Board [2017] AATA 271
Middlebrook v Tax Practitioners Board [2020] AATA 3698
Phillip Same Accountants Proprietary Limited v Tax Practitioner’s Board [2010] AATA 439
Proh v Tax Agents’ Board of Victoria (2010) 78 ATR 663
Re Charles Stuckey (District Court of Queensland, 20 July 1959)
Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634
Re Su and Tax Agents’ Board of South Australia (1982) 61 FLR 1
Ridden v Tax Practitioners Board [2020] AATA 422
Shmuel and Tax Practitioners Board [2019] AATA 2168
Stasos v Tax Agents Board of NSW (1990) 21 ATR 974
Toohey and Tax Agents Board of Victoria [2009] AATA 603
Yvonne Anderson and Associates Pty Ltd and Tax Practitioners Board (Taxation) [2020] AATA 1881
SECONDARY MATERIALS
Explanatory Paper TPB(EP) 01/2010: “Code of Professional Conduct”
Explanatory Paper TPB(EP) 02/2010: “Fit and Proper Person”
REASONS FOR DECISION
Member D K Grigg
## March 2021
Contents
Decision
Catchwords
Legislation
Cases
Secondary Materials
REASONS FOR DECISION
Introduction
BACKGROUND
TPB Investigation
legislative background
Management of personal income tax obligations

issue for the tribunal
CONSIDERATION
Conduct in relation to Mr McCarthy’s tax affairs (section 30 – 10(2), Code)
Failure to Comply with Tax Obligations

Conclusion
Conduct in relation to Mr McCarthy’s failure to respond in a timely way to the TPB (section 30 – 10(14), Code)
Findings re Code Breaches
Is Mr McCarthy a “fit and proper person” (section 20-5(1)(a), TASA)
TPB’s Contentions
Mr McCarthy’s contentions
CONCLUSION
Failure to Pay Debts

Is the sanction imposed appropriate in the circumstances?
Conclusion
decision
INTRODUCTION

This matter concerns a decision made by the Tax Practitioners Board (“TPB”) to cancel the Applicant’s tax agent registration on the grounds that he breached various provisions of the Code of Professional Conduct

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2021] AATA 641
Decision Date: 25 March 2021

CaseChat Overview and Summary

This matter concerned an application by Mr Grant McCarthy for review of a decision by the Tax Practitioners Board (TPB) to terminate his registration as a tax agent. The TPB had found that Mr McCarthy was not a "fit and proper person" as required by section 20-5 of the Tax Agents Services Act 2009 (TASA), and consequently, his registration was terminated, with a prohibition on re-applying for registration for four years.

The legal issues before the Tribunal were whether Mr McCarthy had breached sections 30-10(2) and 30-10(14) of the Code of Professional Conduct, and consequently, whether he was a fit and proper person to be registered as a tax agent. The Tribunal was also required to determine if the four-year prohibition on re-application for registration was an appropriate sanction.

The Tribunal found that Mr McCarthy had breached section 30-10(2) of the Code by failing to lodge his Business Activity Statements (BAS) by their due dates and by failing to pay his outstanding tax debts, including significant amounts for company tax, superannuation guarantee charge, and a general business charge. It was also found that he breached section 30-10(14) of the Code by failing to respond to the TPB's requests and directions in a timely manner, specifically by not complying with a TPB Order to lodge outstanding returns and pay tax liabilities. Despite acknowledging Mr McCarthy's personal circumstances, including health issues of his children and his own mental and physical health, the Tribunal concluded that these did not excuse his failure to comply with his tax obligations or the TPB's directions.

The Tribunal determined that Mr McCarthy was not a fit and proper person to be registered as a tax agent due to these breaches. However, it varied the TPB's decision regarding the length of the prohibition on re-application for registration, reducing it from four years to two years.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

As a result of the alleged Code breaches, TPB contends that Mr McCarthy is not a “fit and proper person” as required by section 20-5 of the TASA, and therefore, is not eligible to be registered as a tax agent.BACKGROUND The Applicant, Mr Grant McCarthy, has been a registered tax agent since 27 June 1997.[1] [1] Exhibit 9, T documents, T4, page 16, Submission to Board Conduct Committee.TPB Investigation On 13 November 2018 the TPB ordered Mr McCarthy pursuant to section 30-20 of the TASA, to (“TPB Order”):[2](a)lodge all outstanding tax lodgements by 31 December 2018;(b)ensure all future personal tax obligations are complied with; and(c)pay his outstanding tax liabilities by 31 March 2019 or enter into, and comply with, a payment arrangement with the ATO.[2] Exhibit 9, T Documents, T4, page 22, Submission to Board Conduct Committee. As at the date of the TPB Order, Mr McCarthy had outstanding tax liabilities which arose in 2016 and 2017 totalling approximately $569,740.08.[3][3] Exhibit 9, T Documents,T3, page 11, Notice of Decision to investigate; T4 page 16,20 By 31 December 2018 Mr McCarthy complied with part of the TPB Order by lodging his outstanding lodgements (except for one BAS).[4] However, as at 21 October 2019, Mr McCarthy had still not complied with the TPB Order to pay all of his outstanding tax liabilities.[5] As a result of Mr McCarthy’s non-compliance, the TPB wrote to Mr McCarthy and advised it had commenced an investigation under Subdivision 60-E of the TASA regarding whether his conduct was be in breach of sections 30-10(2) and 30-10(14) of the Code.[6][4] Exhibit 5, page 94, paragraph 13, Statement of Applicant dated 12 March 2021.[5] Exhibit 9, T Documents, T3, pages 9-12, Letter from TPB to Mr McCarthy dated 21 October 2019.[6] Exhibit 9, T Documents, T3, pages 9-12, Letter from TPB to Mr McCarthy dated 21 October 2019. The conduct concerning section 30-10(2) of the Code related to Mr McCarthy failing to:(a)lodge his ITR for the 2017 financial year by the due date; and (b)lodge seven BAS for the period 31 December 2016 to 30 June 2018.[7][7] Exhibit 9, T Documents,T4, page 26-27, Submission to Board Conduct Committee. The conduct concerning section 30-10(14) of the Code related to Mr McCarthy failing to respond to requests and directions from the TPB in a timely way.[8][8] Exhibit 9, T Documents, T5, pages 435-439, Extract of minutes of Board Conduct Committee 30 January 2020. On 11 November 2019 Mr McCarthy submitted to the TPB that:[9](a)he was “close to getting all outstanding BAS forms lodged”;(b)he was “close to completing [his] 2018/19 income tax returns”;(c)there was a delay in lodgement due to an unplanned resignation of a professional staff member, illness of a key administrative staff member and his being “under extreme pressure to cover client requests and client deadlines”;(d)in relation to his outstanding tax debts, his “family has the wealth/assets to meet commitments”;(e)he has been unable to confidently enter into a payment plan;(f)he does not have the support of his wife to use family assets as security for the repayment of any liability;(g)his focus in the past 18 months had been to pursuing alternative source of finance to pay out his tax liabilities;(h)despite the late lodgement’s and unpaid tax debts, he is a fit and proper person to remain as a registered tax agent.[9] Exhibit 9, T Documents, T4, page 68, Submission to Board Conduct Committee.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

The TPB considered the matter and found that (“TPB Decision”):[11](a)Mr McCarthy failed to comply with section 30-10(2) of the Code by:(i)failing to pay a tax debts by their due dates. As at 30 January 2020 Mr McCarthy had a tax debt of $290,298.28 which was not under a payment arrangement;(ii)failing to pay a CAC debt of at least $220,299.09 (which had accrued since 29 August 2016) and which was not under a payment arrangement;(iii)incurring a superannuation guarantee debt of at least $70,128.41 which had accrued since 1 July 2019 and which was not under a payment arrangement;(iv)failing to lodge his BAS for the periods between 30 September 2018 and 30 September 2019 by their due dates; and(b)Mr McCarthy failed to comply with section 30-10(14) of the Code by failing to respond to request and directions from the TPB in a timely, responsible and reasonable manner by failing to comply with the TPB Order.[11] Exhibit 9, T Documents, T5, 80 – 82, Extract of minutes of Board Conduct Committee 30 January 2020. As a result of its findings, the TPB advised Mr McCarthy that it had decided to terminate his registration as a tax agent pursuant to section 40-5(1)(b) of the TASA on the grounds that he no longer met the tax practitioner requirements for registration as he was not a “fit and proper person” as required by section 20-5(1)(a) of the TASA.[12] The termination was to take effect from 24 March 2020. The effect of the termination is that Mr McCarthy:(a)must not provide any tax agent services or he may be subject to civil penalties pursuant to sections 50-5, 50-10, and 50-15 of the TASA; and(b)may not apply for registration under the TASA for a period of 4 years pursuant to subsection 40-25(1) of the TASA.[12] Exhibit 9, T Documents, T6, pages 83 – 86, Outcome of Investigation, Letter to Applicant By 10 March 2020 Mr McCarthy had no outstanding BAS.[13][13] Exhibit 5, Affidavit of Mr McCarthy, para 46. On 12 March 2020 Mr McCarthy applied to this Tribunal for a review of the Decision.[14] Prior to the final hearing Mr McCarthy applied for a stay of the TPB’s decisions pending the Tribunal’s final determination. On 23 March 2020, the Tribunal ordered a stay of the TPB Decision.[14] Exhibit 9, T Documents, T1, pages 1-7, Application for Review dated 12 March 2020. On 2 April 2020 Mr McCarthy made a proposal to the ATO for a conditional payment arrangement.[15] [15] Exhibit 5, page 11, paragraph 58, Affidavit of Mr McCarthy. The Tribunal has jurisdiction to review the TPB Decision pursuant to section 25 of the Administrative Appeals Tribunal Act 1975 (Cth) (“AAT Act”) and section 70-10(e) of the TASA.LEGISLATIVE BACKGROUND The object of the TASA, as stated in section 2-5 is "to ensure that tax agent services are provided to the public in accordance with appropriate standards of professional and ethical conduct". The TASA establishes the TPB and provides for the registration and regulation of tax agents. Part 3 of the TASA sets out the Code which applies to registered tax agents. Pursuant to section 60-95, the TPB is authorised to investigate a registered tax agent’s conduct that may breach the TASA.

Ratio Decidendi

Legal Principle Established

This will involve a consideration of whether Mr McCarthy:(a)breached section 30–10(2) of the Code in failing to comply with his own taxation obligations;(b)failed to respond to request and directions from the TPB in a timely, responsible and reasonable manner by failing to comply with the TPB Order in breach of section 30-10(14) of the Code; and(c)is a “fit and proper person” as required by section 20-5(1)(a) of the TASA.CONSIDERATIONConduct in relation to Mr McCarthy’s tax affairs (section 30–10(2), Code)Failure to Comply with Tax Obligations The section 30-10(2) breaches regarding Mr McCarthy’s tax affairs comprise:(a)his failure to lodge BAS statements by their due dates; and(b)his failing to pay his tax debts. Mr McCarthy does not dispute that he failed to comply with his tax obligations. Mr McCarthy’s says that the following factors contributed to his failure to comply with his own tax affairs (“Personal Circumstances”):·his children’s health – all three children have Attention Deficient Hyperactivity Disorder of varying levels of severity.[17]·his own mental health (depression) and physical health.·financial circumstances[17] Exhibit 8, paragraph 11, 14, Statement of Toni McCarthy dated 26 January 2021. At the hearing Mr McKechnie, Counsel for the Respondent, confirmed that the TPB did not dispute that his personal circumstances are what rendered him to be in a difficult position regarding how the debts arose debts.[18]MR McKECHNIE: Yes. Certainly the circumstances such as the health issues with his children and all of those matters, that's not opposed[18] Transcript, page 101. Apart from Mr McCarthy’s Personal Circumstances, there was no evidence that he was unable to prepare and lodge his clients’ ITRs and BAS on time. In fact, Mr McCarthy says that his focus was his clients’ tax obligations.[19][19] Exhibit 9, T Documents, T4, page 69, Submission to the Board Conduct Committee. Conclusion Based on the above conduct, the Tribunal finds that Mr McCarthy was in breach of section 30-10(2) of the Code. Conduct in relation to Mr McCarthy’s failure to respond in a timely way to the TPB (section 30 – 10(14), Code) It is not in dispute that Mr McCarthy failed to obey the TPB order and that this conduct is in breach of section 30-10(14) of the code.[20][20] Transcript page40FINDINGS RE CODE BREACHES Given the above, the Tribunal finds that Mr McCarthy breached sections 30-10(2) and 30-10(14) of the code. This is not disputed.[21][21] Transcript page 36 Given these findings the question is whether Mr McCarthy is a fit and proper person and therefore eligible for registration. The issue of whether the four year prohibition on registration imposed on Mr McCarthy by the TPB is an appropriate sanction in the circumstances has also to be decided.IS MR MCCARTHY A “FIT AND PROPER PERSON” (SECTION 20-5(1)(A), TASA) Davies J in Re Su and Tax Agents’ Board of South Australia (1982) 61 FLR 1 (“Su”) set out what is required for a person to be considered fit and proper to handle the income tax return affairs of a client at [95]:The function of a tax agent is to prepare and lodge income tax returns for other persons. A person is a fit and proper person to handle the affairs of a client if he is a person of good reputation, has a proper knowledge of taxation laws, is able to prepare income tax returns competently and is able to deal competently with any queries which may be raised by officers of the Taxation Department. He should be a person of such competence and integrity that others may entrust their taxation affairs to his care. He should be a person of such reputation and ability that officers of the Taxation Department may proceed upon the footing that the taxation returns lodged by the agent have been prepared by him honestly and competently.