McCarthy and Tax Practitioners Board (Taxation)
[2021] AATA 641
•25 March 2021
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.
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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 603Yvonne 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 (“Code”) contained within the Tax Agents Services Act 2009 (Cth) (“TASA”).
The breaches concern Mr McCarthy’s failure to comply with the TPB’s order to get his personal tax obligations under control, his failure to comply with a payment plan, and to renegotiate an appropriate payment plan with the ATO.
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.
On 7 January 2020 Mr McCarthy again wrote to the TPB and advised that:[10]
(a)in relation to his outstanding BAS lodgements, he is seeking to make an agreeable schedule for preparation and lodgement with the ATO;
(b)he is up-to-date with his personal income tax lodgements;
(c)in relation to outstanding monies for staff superannuation he was liaising with the ATO to prepare and lodge the relevant forms by 13 January 2020 and expected to pay outstanding employee superannuation in full;
(d)in relation to outstanding monies on the income tax and integrated client accounts he is seeking to enter into a payment arrangement with a significant lump sum payment plan; and
(e)he had challenges at home with his wife, and with his three children suffering from mental illness.
[10] Exhibit 9, T Documents, T4, pages77 – 79, Submission to Board Conduct Committee.
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.
Section 20-5(1)(a) of the TASA provides that an individual is eligible for registration as a registered tax agent, BAS agent or tax (financial) adviser if the TPB is satisfied that the individual is a “fit and proper person”. Being a “fit and proper person” is a requirement of registration and is what is referred to in the legislation as a “tax practitioner registration requirement”. The term “tax practitioner registration requirements” is defined in the dictionary in s 90-1 of the TASA and means “the matters about which the Board must, under Subdivision 20-A, be satisfied before the Board is obliged to grant an application for registration under this Act”. One of the matters that the TPB must be satisfied about is of the fit and proper person requirement in section 20-5 of the TASA.
In determining whether a person is a fit and proper person to be registered as a tax agent, the TPB must, pursuant to section 20-15(a) of the TASA, have regard to whether the individual “is of good fame, integrity and character”.
Pursuant to section 40-5 of the TASA a practitioner may have their registration terminated if they fail to meet a tax practitioner requirement.
Explanatory Paper TPB(EP) 02/2010: "Fit and proper person" (“Explanatory Paper 02/2010”) provides guidance to agents regarding the TPB’s interpretation of the fitness and proprietary requirements of the TASA. It provides relevantly that:
Management of personal income tax obligations
77. As a tax practitioner is responsible for providing tax agent services (including BAS services and tax (financial) advice services) on behalf of other entities, non-compliance by a tax practitioner with their personal taxation obligations may be considered relevant in determining whether the tax practitioner is a fit and proper person. [29]
78. The personal taxation obligations of a tax practitioner include, but are not limited to, the tax practitioner's timely lodgement of personal income tax returns and activity statements, payment of superannuation guarantee contributions and PAYG withholding and instalment payments.
79. In considering a tax practitioner's management of his or her personal income tax obligations, individual circumstances will need to be considered. [30] A pattern of behaviour or conduct in this regard may be relevant. [31]
80. A failure to accurately complete tax returns and notices and to comply with other requirements of the Commissioner or the TPB may indicate a lack of competence, good fame, integrity and character, such that the individual concerned cannot be relied upon to adequately provide tax agent services.[32]
81. Subsequent (and belated) compliance with tax laws, when faced with adverse administrative and legal action, does not necessarily demonstrate fitness and propriety in the face of past misconduct.[33]
82. A tax practitioners inability to comply with the practitioner's own taxation affairs could subsequently cast doubt over the competence with which the practitioner provides tax agent services to clients.
83. On the basis of the above, a tax practitioner who fails to comply with the practitioner's own taxation obligations will not be considered a person of sufficient competence, good fame, integrity and character or sufficiently fit and proper to be registered as a tax practitioner.[34]
Relationship with the TPB
88. In general, a lack of cooperation with the TPB and failure to deal with the TPB appropriately may also reflect adversely on a tax practitioner's fitness and propriety for registration. This is because it could demonstrate a lack of appreciation of the significance of completely and promptly responding to requests from regulatory authorities, and noting also that there is a legal obligation on registered tax practitioners in the Code to respond to requests and directions from the TPB in a timely, responsible and reasonable manner. [40]
(emphasis added)
The Tribunal is not bound to apply the Explanatory Paper 02/2010, but it may, and it should, apply it in exercising its discretion unless it is unlawful or “tends to produce an unjust decision”.[16]
[16] Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 640.
Brennan J explained the relevance of an adopted policy to decision-making in Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 (“Drake”) at 640:
Decision-making is facilitated by the guidance given by an adopted policy, and the integrity of decision-making in particular cases is the better assured if decisions can be tested against such a policy. By diminishing the importance of individual predilection, an adopted policy can diminish the inconsistencies which might otherwise appear in a series of decisions, and enhance the sense of satisfaction with the fairness and continuity of the administrative process.
The Tribunal is not aware of any cogent reason for not following the Explanatory Papers.
Section 30-10 of the TASA sets out the Code that registered tax agents must comply with to maintain their registration. The following subsections of section 30-10 of the TASA are relevant here:
(a)section 30-10(2) provides that a registered tax agent:
“…must comply with the taxation laws in the conduct of your personal affairs”.
(b)section 30-10(14) provides that a registered tax agent:
“…must respond to requests and directions from the Board in a timely, responsible and reasonable manner..”
Explanatory Paper TPB(EP) 01/2010: "Code of Professional Conduct" (“Explanatory Paper 01/2010”) also provides guidance in relation to general principles and matters relating to the Code that may be relevant to the professional practice of registered tax agents.
If, having conducted an investigation of a registered tax agent, the TPB is satisfied that the tax agent has failed to comply with the Code, the TPB may terminate the registered tax agent’s registration pursuant to section 30-30 of the TASA. The termination of a registered tax agent’s registration takes effect on the day specified in the notice provided by TPB of the decision to terminate the registration.
ISSUE FOR THE TRIBUNAL
The issue for the Tribunal is whether to terminate Mr McCarthy’s tax agent registration.
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.
CONSIDERATION
Conduct 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 page40
FINDINGS 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.
In Stasos v Tax Agents Board of NSW (1990) 21 ATR 974 Hill J held (at 983) that in determining whether a person is fit and proper, it is also “relevant whether the person has understood the error of his ways”. Hill J also referred to a tax agent’s dealings with the ATO as another relevant indicator of fitness. Hill J said (at 984):
In addition to the tax agent dealing with his client, he will, almost invariably have dealings with officers of the Australian Taxation Office and perhaps the Boards or Tribunals to which I have already referred. Those dealings must be able to be carried on in an atmosphere of mutual trust. The Commissioner and his officers must be able to accept that, to the best of the ability of the tax agent, returns have been prepared which are true and accurate.
Hill J went on (at 985):
…a person who has been shown to be other than fit and proper to be registered must satisfy the tribunal considering his registration or cancellation of his registration as the case may be that he appreciates the significance of his wrongdoing and that he regrets it…and that it is truly unlikely that there will be any lapse in the future of the standards which are required of him.
(emphasis added)
The TPB also referred the Tribunal to the decision of Deputy President McDonald in Proh v Tax Agents’ Board of Victoria (2010) 78 ATR 663 who noted that:
[15] It is generally accepted, and the Tribunal accepts, that a failure of an agent to attend to his/her own taxation affairs demonstrates a lack of suitability, rendering the agent unfit to handle the affairs of those who may seek to utilise his/her services.
In Su, Davies J (then President of the Tribunal) found that a failure to comply with taxation obligations may render a person unsuitable to be a registered tax agent because of the impact such conduct would have on the person’s relationship with the ATO which may in turn reflect on their handling of their client’s taxation affairs. Davies J referred to Re Charles Stuckey (District Court of Queensland, 20 July 1959), where Judge Taylor said:
'In principle, I consider that a sufficiently bad personal record in tax matters by a tax agent, even if no question of fraud or dishonesty arises, could constitute misconduct, accepting misconduct to be a course of conduct which would be reasonably regarded as disgraceful or dishonourable by his professional brethren of good repute and competency. I also consider that a sufficiently bad personal record in tax matters by a tax agent, even if no question of fraud or dishonesty arises, could render that person not a fit and proper person to remain registered as a tax agent.'
(emphasis added)
In Su, Davies J found that the failure of Mr Su to lodge his personal income tax returns and the failure to pay group tax instalments on time suggested incompetence.
In Toohey and Tax Agents Board of Victoria [2009] AATA 603 the Tribunal noted that (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 the general public, should be able to entrust their taxation affairs to him and have confidence that he will be able to lead by example and file his tax returns on time as required by the law.
In Shmuel and Tax Practitioners Board [2019] AATA 2168 the Tribunal found that an agent failing to comply with their own tax obligations reflected adversely on their good fame and character and is inconsistent with the fit and proper person requirement.[22] The Tribunal said (at [23]):
There is clear authority that a failure by a tax agent to comply with taxation obligations is sufficiently serious of itself to justify a finding that a person fails to meet the fit and proper person requirement. Complying with taxation obligations is a fundamental duty of a tax agent and goes to the heart of an agent’s capacity and willingness to perform their function. A failure to comply with taxation obligations must raise serious doubt about the capacity and commitment of an agent to competently handle other people’s taxation affairs. As described by Deputy President Handley and Senior Member Professor Creyke, in the case of a tax agent, compliance with taxation obligations is a matter that goes to the agent’s competence and ability and that “a tax agent’s demonstrated conduct should be above reproach, being central to the service provided to his clients”.[9] In addition, a failure to comply with taxation laws in the conduct of your personal affairs is a breach of the Code, which itself provides basis for termination of a tax agent’s registration under section 30-30 of the Act.
[22] [2019] AATA 2168, at [24]
In GJ Brown & Co Ltd v Tax Practitioners Board [2016] AATA 740 the Tribunal found that, not only was a failure to comply with tax obligations a breach of the taxation law, it is conduct which undermines clients’ confidence.[23]
[23] [2016] AATA 740, at [71].
TPB’s Contentions
The TPB raised five grounds for why Mr McCarthy should not be considered a fit and proper person for the purposes of tax agent registration:
[1] The amount owing to the ATO is significant and the debts have been accruing for more than four years.
[2] In the four year period that the debts have remained outstanding, Mr McCarthy has not made any meaningful progress towards repayment. In the TPB’s submission, Mr McCarthy “continues to blatantly disregard his obligations to the ATO in circumstances where he neither disputes the amounts owed or is unable to make faster repayments”.[24] The TPB also notes that Mr McCarthy has continued to earn income and says he has put his own interests ahead of his professional obligations and duties as a tax practitioner.
[3] An inference can be drawn that Mr McCarthy’s failure to comply with his tax obligations “is calculated and deliberate”. The basis of this contention is that, although Mr McCarthy has previously claimed to have material wealth and assets,[25] this has not translated into his reducing the tax debt obligations he owes. Recent notices of assessment for the 2018 and 2019 financial years show that Mr McCarthy’s income been in excess of $200,000.[26] A draft profit and loss statement for Mr McCarthy’s tax practice for the period ending 31 December 2020, indicates a net profit before tax of close to $200,000.[27] In the TPB’s submission this indicates that Mr McCarthy is able to enter into a payment arrangement with the ATO of the repayment of his outstanding tax liability. The TPB points to Mr McCarthy’s statement where he indicates that he had pre-approved finance to repay the debt but was reluctant to do so without the support of the TPB.[28] In other words without the TPB agreeing to withdraw its termination decision, Mr McCarthy was not inclined to obtain the finance to pay his tax debt.
[4] The amount of unpaid SG, for the benefit of Mr McCarthy’s employees, is significant and although some payments have been made to reduce this debt, a significant amount still remains outstanding. Again, this debt remains outstanding in a situation where he is continuing to earn income in his practice.
[5] Mr McCarthy has failed, through his conduct, to indicate any significant contrition, remorse or insight into his conduct and that an inference can be drawn that he fails to take his tax obligations seriously. The TPB submits that this weighs very strongly against a finding that Mr McCarthy is a fit and proper person to be a tax agent.
[24] Exhibit 12, page 4, paragraph 12, Respondents Statement of Facts, Issues and Contentions.
[25] T Documents, T4, page 69, Submission to Board Conduct Committee.
[26] Supplementary T Documents, ST1, page 218, Notice of Assessment for year ending 30 June 2018.
[27] Exhibit 5, Affidavit of Mr McCarthy dated 12 January 2021, annexure L.
[28] Exhibit 12, Statement of Facts Issues and Contentions, para 29-30.
The Tribunal notes that there is no suggestion that Mr McCarthy has failed to act competently with respect to his clients. At the hearing the TPB accepted that there was no evidence of any issues regarding clients.[29] The TPB, conceded that “there is no evidence of lack of competence or neglect in proper professional standards in providing services to clients”.[30] There is also no suggestion that Mr McCarthy should be penalised for his initial failure to lodge BAS on time or for his accumulation of such a significant tax debt. The TPB acknowledged that personal family health issues (which do not need to be expanded upon here) contributed to this issue.[31]
[29] Transcript, page 11
[30] Transcript, page 19
[31] Exhibit 12, Statement of Facts, Issues and Contentions , paragraph 8.
Mr McCarthy’s contentions
Mr McCarthy contends as follows:[32]
[32] Exhibit 20, Submissions made by Applicant dated 28 January 2020.
[1] Regarding he amount of debt and delay in payment:
I do accept full responsibility for previous cycles of debt and lump sum repayment. I have made many mistakes with inattention to my own affairs. I have learned from these mistakes. Over the past seven months I am providing for and repaying historic liabilities together with current liabilities and I have had additional support to ensure management of my Practice better. These payments have been funded from business profits. The high standard of work our team provide for clients is unchallenged by the Respondent.
[2] In relation to the Mr McCarthy’s repayment of the debt:
[the] data which the Respondent relies upon which is incorrect -namely that monies owed to the Tax Office are continuing to accumulate. I refer to enclosures supplied earlier which confirm this. Since a payment plan for liabilities was established on 8th June 2020 I have been paying $2000/week towards historic liabilities and the calculated reduction in monies owed (after allowing for GIC to accrue) is $33,426 for the period 8.6.2020-14.1.2021. The payment plan arranged on 8th June 2020 was mutually agreed between myself and Michael O'Neill of the ATO to be cancelled as at 30th November 2020 as I was unable to make a lump sum payment of $345,000 by that date. Negotiations are continuing with a revised payment plan offer due 31st January 2021. Mr O'Neil suggested that we cancel this payment plan, rather than the worse result of it being in default. Any offer for a renewed payment plan can only be made by me after the current AAT hearing in my opinion.
[3] In relation to whether his conduct was “calculated and deliberate”:
Our immediate family assets are the Practice, which I own and which represents an intangible asset (Goodwill); our home is owned jointly and our office, which is owned by my wife. Whilst we are comfortable, we are not wealthy, our lifestyle is very quiet and is based around home. Any income we earn is by working very hard. There are demands on my income by our financiers (who require that we increase monthly payments on loans given our age) and medical expenses/treatment.
In the current economic environment, it is impossible for me to get any finance against the value of the Practice goodwill which is the sole asset I control. I have been unable to get consent from my wife for a refinance against our home equity or her equity in the office until the future of my career as a Tax Agent is confirmed.
There have been multiple ways investigated by me to get finance for any lump sum, without needing my wife's approval. All have failed because they require at least, in part, security against a real property asset, which I cannot deliver (alone). These other avenues investigated include:
a. Bank funding of Harris Black Accountants for on-lending to me
b. Financing from first, second and third tier financiers
c. Partial sale of our office to an external investor/expressions of interest
d. Caveat loans - floating charge over a property
e. Unsecured lending
We have consulted with experienced mortgage brokers/clients and we do have in-principle approval for a refinance to pay liabilities based on our net financial position - but this of course requires support from my wife.
In the interim I have been paying attention to improving Practice profits, working hard, not giving up and committing profits to payment of historic and current liabilities as this is the only way that I can control my own affairs to repay monies owed at this stage. I accept that the rate of interest on outstanding Tax Office amounts is higher than what it would be if a home loan or office loan were refinanced but this is the current course subject to any renegotiated payment plan with the ATO.
It is regretful that inferences and unprofessional slurs form part of the Respondent's reasoning in this point
[4] In relation to the impact on employees from his failing to keep SG payments up to date:
a.Employees are being paid their current superannuation as due.
b. Past period/historical superannuation is recorded as owed and all of the $2,000 per week is being paid against the SGC liabilities so that the employees will get their money first.
c.The amounts of historical superannuation owed is adjusted for an interest amount to compensate for lost superannuation earnings due to late payment.
d.Payment of historic superannuation amounts are non-tax deductible. In effect the punishment for late payment of historic amounts is the interest for late payment, the administration fee and the non-deductibility
e.Penalties can be raised as well by the Tax Office
[5] As to whether he is genuinely contrite and regretful for his actions:
In the absence of a settlement or a resolution of the matter I have continued with the payment of current liabilities, I have continued with the payment of historic liabilities at $2000/week and I have been engaging with Michael O'Neill of the Tax Office for suitable terms for a fresh payment plan for liabilities.
Mention is made in my settlement offer (which forms part of evidence supplied earlier) of what I believe is a reasonable punishment for the mistakes I have made and the inattention of my affairs. I believe they are reasonable given there is improvement of conduct in the last twelve months and that amounts liable and owing to the Tax Office are falling and continue to reduce:
a. Details of my conduct and any discipline be listed under my Tax Practitioner Board Registry listing
b. Disclosure of the above be disclosed to all future clients of the McCarthy & Co Practice for the next four years
c. Supervision of my conduct to ensure continued compliance with the Code of Professional Conduct by a Registered Tax Agent and Registered BAS Agent (Details supplied)
d. Notification of the Board when a payment arrangement for liabilities has been made with the Tax Office.
As there is no challenge about the quality of professional work I believe that this provides suitable consumer protection.
At the hearing Mr McCarthy said he had learned to listen and had introduced measures to ensure compliance with tax obligations in the future.[33]
[33] Transcript page 36
Mr McCarthy told the Tribunal he takes full responsibility for his mistakes.[34]
[34] Transcript page 37
Mr McCarthy produced statements of colleagues to attest to his being fit and proper.
Mr McCarthy submitted that termination is unwarranted and that he was a fit and proper person because there was no concern for the general public, and that he has made efforts to repay the debt and to enter into a payment plan with the ATO.
CONCLUSION
Failure to Pay Debts
It is not in dispute that Mr McCarthy failed to pay debts owed to the ATO when required.
On 8 June 2020 Mr McCarthy entered into three payment arrangements with the ATO in relation to debts totalling more than $850,000. The first arrangement was with respect to his SG debt totalling $116,263.68 (“SG Payment Arrangement”).[35] The second arrangement was with respect to his Activity Statement account balance totalling $374,956.68 (“Activity Statement Payment Arrangement”).[36] The third arrangement was with respect to his Income Tax Balance totalling $373,074.86 (“Income Tax Payment Arrangement”).[37]
[35] Exhibit 13, Affidavit of L Garbutt dated 11 June 2020, LG-1.
[36] Exhibit 13, Affidavit of L Garbutt dated 11 June 2020, LG-1.
[37] Exhibit 13, Affidavit of L Garbutt dated 11 June 2020, LG-1.
Pursuant to the SG Payment Arrangement Mr McCarthy was to pay five instalments of $8,000 and a final payment of $79,260.51 on 30 October 2020. The first instalment was paid on 10 June 2020.[38] The SG Payment arrangement was not complied with, in that the total amount has never been paid. As a result, the SG Payment Arrangement was cancelled by the ATO.[39]
[38] Exhibit 14, Tender Bundle at page 78
[39] Exhibit14, Tender Bundle, page 1.
Pursuant to the Activity Statement Payment Arrangement Mr McCarthy was to pay a series of instalments commencing with a payment of $265,739.49 on 30 October 2020. This arrangement was not complied with, and, as a result the Activity Statement Payment Arrangement was cancelled by the ATO.[40]
[40] Exhibit14, Tender Bundle, page 1.
Pursuant to the Income Tax Payment Arrangement Mr McCarthy was to pay a series of 66 monthly instalments between 20 December 2021 to 20 May 2027. This arrangement was not complied with and has never been paid and, as a result, the Income Tax Payment Arrangement was cancelled by the ATO.[41]
[41] TB1
Mr McCarthy gave evidence that the Payment Arrangements were “conditional upon the matter being resolved with the Tax Practitioners Board”. This is an unsubstantiated assertion. There is nothing in the Payment Arrangement documents referring to such a condition, and, it would be irregular if there was. The TPB is independent of the ATO. The ATO does not consult with the TPB when negotiating payment arrangements with registered tax agents. The Payment Arrangements refer to other conditions such as Mr McCarthy needing to make all of the payments on time and to lodge and pay all of his other tax obligations by their due dates. Copies of the Payment Arrangements were annexed to an affidavit of Mr Lyndon Garbutt, Legal Practitioner. Mr Garbutt acted for Mr McCarthy previously. No where in Mr Garbutt’s affidavit is there any reference to the Payment Arrangements being conditional upon the matter being resolved with the Tax Practitioners Board. There is also no reference to this condition in Mr Garbutt’s letter to the TPB on 9 June 2020.[42] Mr McCarthy asserted it would be a reasonable person’s “belief” that the payment arrangement was conditional as he asserts. His exchange with Mr McKechnie at the hearing went as follows:[43]
MR MCKECHNIE: I put it to you - let's go back to the letter of 9 June, Annexure G to your statement?---9 June?
Yes, the one from your lawyer to Mr McDonald?---Yes, Mr Garbett; that's right.
So I suggest to you again that the terms of the approved payment plan, which are set out in paragraph 2, do not include a term that the plan is conditional upon the Tax Practitioners Board renewing your registration?---But if that was requested in correspondence and then we had the payment plan, that was our belief.
Your belief?---A reasonable person's belief is that if you ask for a payment plan conditional on the disciplinary matter, with a lump sum payment of a significant amount to significantly reduce the outstanding amount conditional on the disciplinary matter being reversed, and then in your next correspondence we have a payment plan from the ATO, a reasonable person would assume that that was acceptance of the terms. It became clear and apparent subsequently that that's not the case.
Mr McCarthy, I suggest to you that if that was the case, your lawyer would have clearly set that out in correspondence to Mr McDonald at the Tax Practitioners Board?---Well I disagree, because I believe that both the ATO and the board needed to come together to help resolve the matter, and who is to say if it was Mr Ryan McDonald of the TPB who had the authority to grant such an action.
In any case, you failed to make the lump sum payment in October, didn't you?---I was unable to do it, correct.
[42] Page 185
[43] Transcript pages 75-76
No explanation was given for Mr McCarthy’s belief that the ATO and the TPB needed to come together to help resolve the matter.[44]
[44] Transcript, page 76.
Mr McCarthy owed and still owes, a significant amount of tax. Whether this tax debt is payable or not, it is not conditional on Mr McCarthy’s tax agent registration.
There was only one party to the arrangements with the ATO that considered it a condition, and that was Mr McCarthy. That condition was never accepted by the ATO. Mr McCarthy entered into a Payment Arrangement with the ATO with full knowledge that he may not comply with its terms.
Mr McCarthy told the Tribunal that:
(a)he was continuing negotiations with the ATO for a revised payment plan;
(b)for the last 7.5 months, has been paying $2,000 per week towards reducing the debt;[45]
(c)an ATO officer required him to submit a revised payment plan by 31 January 2021.
[45] Transcript page36; For example, see TB1-100 and 103
Mr McCarthy also indicated that he may not be able to enter into a further payment arrangement with the ATO and may cease making regular $2,000 payments. He said:[46]
It’s difficult to enter into a payment arrangement with the Australian Tax Office until this disciplinary matter is resolved and that was one explanation that was supplied to Mr O’Neill because if the decision is affirmed it will be very difficult for me to maintain payment of historic liabilities at the rate of $2,000 a week
[46] Transcript page 81.
The ATO confirmed in an email to Mr McCarthy on 21 January 2021 that:
(a)there was no suitable payment arrangement in place; and
(b)the fact that he was paying $2,000 per week did not mean that the Commissioner of Taxation had acquiesced to such a payment arrangement;
(c)“the payment of $2,000 per week is in itself not acceptable for such a large debt”; and
(d)without a suitable arrangement being put in place consideration would be given to enforcement of the debt without further notice.[47]
[47] Exhibit 16
There is no evidence of any negotiations taking place, as asserted by Mr McCarthy.[48] In fact, during cross-examination Mr McCarthy admitted that when he said he was in negotiations with the ATO, he had not actually made an offer or a proposal to them. Mr McCarthy explained that this was because:[49]
…the matter is largely dependent upon what is my professional future first of all. To make a payment plan without having a degree or knowledge about future income, how could you make a decision about a capacity to pay?
[48] Transcript page92
[49] Transcript page 93
Mr McCarthy said that prior to the ATO’s email of 12 January 2021, he always thought the ATO knew that the lump sum payment being paid was conditional on his registration being reinstated.[50] The Tribunal finds that implausible. There is no evidence that the ATO was proceeding on that basis as already discussed.
[50] Transcript page97
The Tribunal has no confidence that Mr McCarthy’s is going to repay the debt owed or enter into a suitable payment plan.
Between 8 June 2020 and 14 January 2021, Mr McCarthy had only reduced his total liabilities by $33,426.89.[51] Mr McCarthy agreed he was well aware from January 2020, from the date of the TPB Decision, that the TPB expected that he pay his debt or at the very least enter into a payment plan.[52]
[51] Exhibit 17
[52] Transcriprt page78
Since 30 January 2020 Mr McCarthy’s tax liabilities have, overall increased as follows:[53]
[53] Exhibit 14, Tender Bundle 1 at 22, 33 and 125.
Debt Type 30/01/2020 14/01/2021 Difference IT $ 290,298.28 $ 386,782.06 $ 96,483.78 CAC $ 220,299.09 $ 381,467.18 $ 161,168.09 SGC $ 70,128.41 $ 49,190.11 -$ 20,938.30 Total $ 580,725.78 $ 817,439.35 $ 236,713.57
Mr McCarthy said it was misleading of the TPB to contend that his liabilities had increased because at the time of the original debt arrangements all of his outstanding lodgements for income tax and GST had not yet been calculated.[54] The Tribunal finds this kind of submission distracting and unhelpful and this does not weigh in favour of Mr McCarthy. The reality is that there is a debt currently owed totalling $817,439.35. At the time the debt arrangements had been entered into the tax office only had information to calculate the debt at the lower amount of $580,725.78. As a result, once the additional, and notably late, lodgements had been taken into account in or around March 2020, the debt inevitably increased.
[54] Transcript page 63
Mr McCarthy’s wife, Tony Jean McCarthy, provided a statement for the purpose of the hearing. Mrs McCarthy stated that as a result of the TPB’s decision, she had taken over the management of Mr McCarthy’s practice in order to ensure that financial obligations were attended to.
In his witness statement Mr McCarthy stated that he had the wealth and assets and pre-approved finance to repay the debt.[55] Mrs McCarthy stated that Mr McCarthy is unable to obtain finance on his own and that the only real estate he owns is a joint interest with Mrs McCarthy in the family home. As a result, he would require Mrs McCarthy’s consent to borrow any money using the marital home as security. Mrs McCarthy says that she will not consent to the family home being used in that way and that she was reluctant to do so in the event that Mr McCarthy did not maintain his right to practice as they will suffer from a loss of family income and an inability to service existing debts, let alone an increased personal debt.[56]
[55] Exhibit 9, T Documents, T4, page 69 and January statement, para 29
[56] Exhibit 8, page 4, paragraph 21, Statement of Toni McCarthy.
At the hearing Mr McCarthy confirmed he did not have formal finance approval in place.[57] There were no corroborating documents before the Tribunal regarding Mr McCarthy’s attempts to obtain finance over the last 18 months.
[57] Transcriptpage 81
The Tribunal asked Mr McCarthy why he waited until June 2020 to enter into a payment plan with the ATO despite having been ordered to do so by the TPB more than 18 months earlier. Mr McCarthy says there were challenges at home but he then said, “I really cannot disclose because I can’t recall what happened in that 12 month period between November ’18 and when the [TPB commenced its next investigation around the end of October 2019].” Once Mr McCarthy brought all of his outstanding lodgements up to date he was then able to negotiate a payment arrangement with the ATO.
Mr McCarthy acknowledged that “the payment of the lump sum was tied in with…a demonstration that if it was done then the matter of the disciplinary – the disciplinary matter against me would be dropped”[58]. When he did not pay the lump sum the ATO officer contacted him and gave him a further month’s grace. Mr McCarthy said:[59]
MEMBER: Yes?‑‑‑I'd hoped that the matter would still be settled at that time. It’s a classic chicken egg scenario.
So just so I can understand your evidence?‑‑‑Yes.
You didn't make the lump sum payment?‑‑‑That’s correct.
Because you didn't have the guarantee from the board about reversal of its decision?‑‑‑I tried everything, Madam Member, to - - -
Just yes or no?‑‑‑Okay. Couldn’t do it, no.
For that reason, that’s what I mean?‑‑‑I could not do it.
[58] Transcript page 84.
[59] Transcript page85
Mr McCarthy has effectively been holding his tax debt payment as a bargaining tool against the ATO, the TPB and the Tribunal. It is clear that he will not pay the money owing unless the TPB, and now the Tribunal, overturns the TPB Decision to terminate his registration. Neither the TPB, the ATO, nor the Tribunal are responsible for Mr McCarthy’s accumulation of such large tax debts.
Mr McCarthy is of the misguided view that having such a large outstanding debt to the ATO is acceptable in circumstances where he has not been able to negotiate successfully with the TPB. At the hearing Mr McCarthy even pointed out that he felt the ATO was “handsomely compensated for the fact that from 29 October onwards I’ve not been able to make a lump sum” because they charge such high penalty interest.[60] This evidence indicates that Mr McCarthy has no genuine contrition about not paying his debt. The fact that a registered tax agent would have such an attitude is highly inappropriate, and weighs strongly against his being fit and proper. Mr McCarthy should be well aware of the reasons penalties and high interest rates are imposed for late payments. Tax is what keeps Australia operating and what enables the Commonwealth Government to provide the community with essential services. If everyone decided it was reasonable to not pay their tax debts when due, the country would be in financial dire straights. Such an attitude as Mr McCarthy’s is irresponsible and immature, particularly for someone who is seeking to remain on the tax agents’ register. At the hearing Mr McCarthy agreed with the proposition that that the best way for him to show any contrition or insight about his conduct in this case would be to ensure that the amount that is owing is repaid.[61] He has not done so.
[60] Transcript page79
[61] Transcriptpage 81
Mr McCarthy may have made offers to the TPB and the ATO, but they have not been sufficient to indicate that Mr McCarthy fully intends to pay his tax debt to the ATO in a timely manner.
There was also no corroborating evidence of the attempts Mr McCarthy says he made to obtain finance to repay the debt.
As can be seen from Mr McCarthy’s written submissions (see paragraph 51 [1] – [5]above), he seems to equate an obligation to pay the balance of his tax debt with circumstances in which the TPB revokes its decision and allows him to continue practicing. This demonstrates a complete lack of insight into his conduct and the seriousness of the situation, and a lack of good will.
It is clear from the authorities referred to in paragraphs23 and 41 – 49 above, that a failure to comply with personal tax obligations is inconsistent with a person being fit and proper. In light of the circumstances outlined, the Tribunal finds that Mr McCarthy is not a fit and proper person as required by section 20-5 of the TASA.
IS THE SANCTION IMPOSED APPROPRIATE IN THE CIRCUMSTANCES?
Where the TPB determines that an agent has breached the Code, the following sanctions may be imposed:[62]
[62] Tax Agents Services Act 2009 (Cth).
30‑15 Sanctions for failure to comply with the Code of Professional Conduct
(1) This Subdivision applies if the Board is satisfied, after conducting an investigation under Subdivision 60‑E, that you have failed to comply with the *Code of Professional Conduct.
(2) The Board may do one or more of the following:
(a) give you a written caution;
(b) give you an order under section 30‑20;
(c) suspend your registration under section 30‑25;
(d) terminate your registration under section 30‑30.
The types of orders that may be imposed, set out in section 30‑20(1) of the Code, include “but [are] not limited to, the following” (“Orders”):
(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 or BAS agent specified in the order;
(c) providing only those tax agent services that are specified in the order.
Time periods within which Orders are to be complied with may also be imposed (section 30-20(2)).
If an agent’s registration is terminated under section 30-30 of the Code the TASA sets out what sanctions may be imposed. Pursuant to section 40‑25:
(1) If the Board terminates your registration, the Board may also determine a period, of not more than 5 years, during which you may not apply for registration
In this instance the TPB has determined that termination is an appropriate sanction and has imposed a four year period during which the Applicants may not reapply for registration.
As this Tribunal said in Yvonne Anderson and Associates Pty Ltd and Tax Practitioners Board (Taxation) [2020] AATA 1881:
[71]…Deregistration of tax agents is a step taken by the TPB to protect the public; it is not a punishment.[63] The TPB’s focus is on ensuring that taxpayers can have confidence that they are obtaining competent services.
[63] See Stasos v Tax Agents’ Board of New South Wales (1990) 21 ATR 974, at 978.
Deregistration also acts as a deterrence to the agent under investigation and to other agents. In Kishore and Tax Practitioners Board [2017] AATA 271 where Deputy President S E Frost said:
[16]The imposition of a sanction is not for the purpose of punishing the individual, but for the protection of the public and the maintenance of proper standards within the regulated industry. A sanction may also serve the purpose of personal deterrence (to encourage the individual to comply with standards in the future) or general deterrence (to encourage others to comply).
Mr McCarthy submitted that his conduct is not as serious as to warrant a termination or four year prohibition on his ability to reapply for registration. Mr Morgan, Counsel assisting Mr McCarthy suggested it must not be too serious because “the ATO could collect [the debt] and hasn’t”. The Tribunal queried the relevance of whether the ATO had commenced debt collection measures. The exchange went as follows:[64]
[64] Transcript pages 107-108
MR MORGAN: All right, I can withdraw the submissions and simply make this point. The ATO could collect this amount and hasn't.
MEMBER: Well I don’t think there's any evidence about why, is there? What inference can I draw from that?
MR MORGAN: Well there is the correspondence that's been referred to this morning between the ATO and Mr McCarthy.
MEMBER: Yes.
MR MORGAN: Where payments of sums have been a bone of contention.
MEMBER: Yes. What I was asking you about is that you've just made a point that the ATO has not collected the money. What does that go to?
MR MORGAN: Yes.
MEMBER: What does that go to?
MR MORGAN: It goes to how heavily it not having yet been paid goes to fit and proper person. Yes, it's a large amount. Yes, if the Tax Office collected it there would be a day of reckoning and (indistinct) it's just that the wider task that the tribunal has, of assessing whether he's a fit and proper person - this is only one of the considerations, and my point about the Tax Office could collect is just to throw into whatever weight or whatever light the tribunal think is is appropriate about the weight the Board are giving this matter.
MEMBER: The weight of the Board or the weight of the Tax Office?
MR MORGAN: Yes it's a large sum.
MEMBER: I don’t understand the submission. I'm not going to second guess what you want me to take from that statement, that the ATO has not yet collected the balance. That is a fact; it's not in dispute, but what do you want - what am I to take from it? That the ATO therefore must assume that Mr McCarthy is fit and proper? Is that what your submission is?
MR MORGAN: No.
MEMBER: Okay.
MR MORGAN: My submission is that the Board has given more weight than it deserves in assessing the fit and proper person test, which is multifaceted.
MEMBER: No, I understand that submission. I'm not sure where the fact that the ATO has not yet collected or commenced enforcement proceedings - what has that got to do with the weight that the Board has given to the amount?
MR MORGAN: Well, if I can go forward with the submissions about - or the - my comments about the Board's submissions as they unfold, the tribunal might get a sense of what significant the Board is putting on this and on - - -
MEMBER: So you're not going to answer my question? That's where I'm getting to. That's okay, I'll just leave it.
MR MORGAN: Okay. No, no, if you can re-ask the question I can make sure I answer it.
MEMBER: I'm not asking it again. I've asked it now three times, so we'll just keep going.
Mr McCarthy’s attempt to downplay the significance and seriousness of his conduct in unacceptable.
Mr Morgan suggested that whether Mr McCarthy repaid the ATO debt was up to his wife, and that Mr McCarthy “should not be assessed, or indeed sanction be taken, by virtue of what his wife will or won’t do”.[65] This is a remarkable submission. This submission weighs heavily against Mr McCarthy. It essentially means that Mr McCarthy takes no responsibility for his conduct and that he believes he should not be sanctioned at all. It demonstrates a lack of contrition, and insight into his obligations.
(emphasis added)[65] Transcript page 108
In the circumstances the Applicants say an appropriate sanction would be the “appointment of an approved external tax agent to manage the lodgement of their own taxation returns and statements”.[66] This does not satisfy the Tribunal and is an inefficient deterrent to other tax agents.
[66] Exhibit 20, Applicants Submissions, para 38.
The TPB referred the Tribunal to other Tribunal decisions as examples of the types of conduct in which various sanctions have been imposed.
In Delis v Tax Practitioners’ Board [2015] FCA AATA 820 (“Delis”), Mr Delis’ tax agent registration application was refused by the TPB on the grounds that it was not satisfied that Mr Delis was a fit and proper person. The Tribunal found that Mr Delis had entered into a pattern of conduct in respect of his taxation obligations which included failing to pay tax assessments on time, defaulting on payment arrangements, and failing to lodge BAS when they became due. The Tribunal found that this history of non-compliance disclosed a pattern of behaviour over a 14 year period likely to continue in the future. In addition to outstanding personal tax liabilities, there was also outstanding superannuation guarantee liabilities and a history of non-compliance in the lodgement of BAS. In his defence Mr Delis contended that his health and financial circumstances had adversely affected his ability to comply with his taxation obligations. As in this matter, Mr Delis did not produce all relevant medical or financial evidence to the Tribunal at the hearing. The Tribunal found that, amongst other things, the failure to make the required statutory superannuation guarantee payments was inexplicable and upheld the decision of the TPB. The Tribunal finds this case has some similarities to the conduct of Mr McCarthy and that a decision to deregister the applicants would be consistent with Delis and is the appropriate sanction.
In Cleary v Tax Practitioners Board [2014] AATA 260 (“Cleary”), the TPB found that the applicant had failed to lodge ITRs, had a tax debt under $80,000. The Tribunal found that an appropriate sanction was a 12-month suspension. A 12-month suspension appears minor compared to a 4-year termination contended for here. However, the debt in Mr McCarthy’s case is ten times larger than that of Mr Clearly, which is a significant factor. Further, there is no current genuine attempt to renegotiate a payment plan with the ATO. The Tribunal found in Clearly (at [19]) that his:
“failure to meet his obligations constitutes not only breaches of the law but a failure to uphold the confidence and trust that the public are entitled to expect in the services offered by a registered tax agent”.
In Phillip Same Accountants Proprietary Limited v Tax Practitioner’s Board [2010] AATA 439, the Tribunal found that:
[24]balance must be reached between the failures of the past with the actions taken to correct them plus proposals that conduct will be modified in the future. The only way in which this can be done is for the decision maker to have regard to the past performance or lack of it. In this case the failures are extensive and Mr Same has had the use of money which ought to have been paid to the ATO. The public can expect those such as Mr Same, who as the result of registration as tax agents, to lead by example by meeting their obligations to file required returns and to pay tax owing on time. It is clearly a breach of trust for money, which should be set aside for the ATO, to be diverted for other purposes. That breach of trust occurs in circumstances when the clients are unaware that money, they have paid for remission to the ATO as GST, has been diverted for use by Mr Same until such time as he chooses to pay it or indeed…, if it is ever paid
In Ridden and Hill v Tax Practitioners Board [2020] AATA 678 (“Hill”) two-year bans were considered appropriate. There are some similarities and some differences but suffice it to say they also involved a failure to comply with tax obligations. In Ridden there was, as here, no issue with respect to the agent’s competence.
In Hill and Ridden there were false declarations made to the TPB. There is no suggestion of a false declaration being made by Mr McCarthy.In both Ridden and Hill, there was conduct in relation to clients, which is not present here. Both of those cases concerned a failure by the agent to comply with their own tax affairs and failing to comply with TPB directions. In Hill there were repeatedly failures to declare outstanding tax to the TPB and a significant tax debt of $720,000. The TPB thought Mr Hill’s conduct warranted a five year ban but the Tribunal varied it to two years.
Each matter must be assessed objectively based on its own facts. DP McCabe cautioned in Ridden v Tax Practitioners Board [2020] AATA 422 (“Ridden”), at [40] that “[t]here is some danger in rifling through reported cases in search of comparisons”. The Tribunal agrees with this notion to the extent that other cases should not be slavishly followed. The Tribunal must exercise independent discretion based on the unique facts before it. It is also important that there is consistency in Tribunal decisions. Although the Tribunal is not bound by other decisions, it can be guided by them, with a view to ensuring that parties are treated equally and fairly and providing a form of precedence that the public can take notice of. In Drake Brennan J (as President of the AAT) noted (at 643) that consistency with comparable cases and decisions is “[o]ne of the factors to be considered in arriving at the preferable decision”.[67]
[67] Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 643.
The only case where this Tribunal could find where the Tribunal found that a four-year ban on reapplying for registration was appropriate was Middlebrook v Tax Practitioners Board [2020] AATA 3698 (“Middlebrook”).
In Middlebrook, the Tribunal found that Mr Middlebrook had failed to take proper steps to verify clients’ identities. Mr Middlebrook lodged in excess of 100 tax returns on the clients’ behalf and some of those turns turned out to be fraudulent. The Tribunal found that through his “sloppiness [Mr Middlebrook] inadvertently facilitated the frauds”. Mr Middlebrook had also lodged personal ITRs which underclaimed his income by $660,000. The Board commenced an investigation into all of this following a referral from the Commissioner. The applicant failed to respond in a timely and cooperative way. The Tribunal found this was a “significant problem” noting that “the Board’s efficacy as a regulator is undercut if registered agents do not cooperate. Delayed and drawn out processes are also costly”. Mr Middlebrook also failed to disclose his overdue tax debts to the TPB. It also turned transpired that Mr Middlebrook was involved in the lodgement of ITRs after his registration had been terminated. Mr Middlebrook had also had his registration cancelled on a previous occasion. Deputy President McCabe found that:
[30]While there is no direct evidence of dishonesty, the applicant’s lack of rigour in the conduct of his affairs and his apparent disregard for the duties of his role adds up to something that is almost as bad, and which certainly reflects poorly on his integrity and character. He may not be dishonest, but he has not demonstrated the commitment to competent and conscientious behaviour that one would expect of a tax agent
(emphasis added)
The Tribunal in Middlebrook found that deregistration was appropriate and that he should not be permitted to apply for registration for a period of four years. The Tribunal took into account the serious nature of the conduct, the repeated conduct, personal circumstances, his dire financial affairs, his age, and ability to obtain new work and the need for general deterrence.
Conclusion
Here there has been a failure to comply with employee SG obligations to the detriment of employees, failure to pay significant tax debts over a four year period, a failure to comply with payment arrangements entered into with the ATO, and a failure to comply with a TPB Order. In addition, almost half of the tax debt owed relates to GST which Mr McCarthy collected. It was never his money to use. Mr McCarthy, not the Australian taxpayer, has had the benefit of that money. Mr McCarthy also considers it reasonable to make his need to pay the debt somehow conditional upon being able to remain in practice as a tax agent.
In the current matter the Tribunal considers Mr McCarthy’s conduct to be serious. A lack of rigour in the conduct of one’s own tax affairs reflects poorly on Mr McCarthy’s character. Not only that, Mr McCarthy kept and (clearly used) money belonging to the ATO (GST monies). He also failed to keep his employee superannuation payments up to date. This conduct is unacceptable and warrants a deregistration. The Tribunal also considers that Mr McCarthy’s conduct in passing on the responsibility for the debt repayment to the TPB, and now the Tribunal, is inexcusable and reflects very poorly on Mr McCarthy’s character.
The Tribunal is not satisfied that Mr McCarthy is a fit and proper person as required by section 20-5 of the TASA.
In the Tribunal’s view a four-year prohibition is inappropriate given the uncontested dire family circumstances and taking into account that there is no allegation of incompetency. A four year prohibition is also inconsistent with other Tribunal decisions.
The Tribunal considers that a two-year prohibition is more appropriate, and varies the decision under review accordingly.
DECISION
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.
I certify that the preceding 112 (one hundred and twelve) paragraphs are a true copy of the reasons for the decision herein of Member D K Grigg
......................[SGD].....................
Associate
Dated: 25 March 2021
Date/s of hearing:
27 and 28 January 2021
Counsel for the Applicant
Mr J Morgan (by videoconference)
Counsel for the Respondent:
Mr M D McKechnie
Solicitors for the Respondent:
Tax Practitioners Board
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