Nei Tung and Tax Practitioners Board
[2012] AATA 615
•14 September 2012
[2012] AATA 615
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2012/3159
Re
Nei Tung
APPLICANT
And
Tax Practitioners Board
RESPONDENT
DECISION
Tribunal M D Allen, Senior Member
Date 14 September 2012 Place Sydney The decision under review is affirmed.
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M D Allen, Senior Member
CATCHWORDS
TAX AGENTS – Registration terminated as a result of submitting unverified returns – Applicant failed to properly investigate thus enabling fraudulent returns to be lodged – Not a fit and proper person to prepare income tax returns – Applicant argued deregistration and three year ban on reapplying manifestly excessive – Decision under review affirmed.
LEGISLATION
Tax Agent Services Act 2009 ss 20-5; 20-15; 30-5; 30-10; 40-25
CASES
Australian Securities Commission v Kippe & Anor (1996) 67 FCR 499
Stasos v Tax Agents’ Board of New South Wales [1990] FCA 379; (1990) 21 ALD 437
Re Musumeci and Australian Securities and Investments Commission [2009] AATA 524; (2009) 109 ALD 677
Rich & Anor v Australian Securities and Investments Commission (2004-5) 220 CLR 129
Royal Brunei Airlines v Tan [1995] 2 AC 378REASONS FOR DECISION
M D Allen, Senior Member
14 September 2012
By application made 24 July 2012, the Applicant sought review of a decision by the Respondent on 21 June 2012 to:
(i)Terminate his registration as a tax agent; and
(ii)Declare that he may not apply for registration as a tax agent or BAS Agent for a period of 3 years.
In February 2012 the Respondent conducted an investigation into the Applicant, who conducted his practice as a tax agent under the name of Peter Tung & Co, following a complaint by a taxpayer.
The allegations against the Applicant, which were found proven on the balance of probabilities, were that the Applicant breached:
(i)Subsection 30-10(1) of the Code of Professional Conduct for tax agents in that he did not act honestly and with integrity;
(ii)Subsection 30-10(7) of the Code of Professional Conduct in that he did not ensure that a tax agent service provided by him was provided competently;
(iii)Subsection 30-10(8) of the Code of Professional Conduct in that he did not maintain knowledge and skills relevant to the tax agent services provided by him; and
(iv)Subsection 30-10(9) of the Code of Professional Conduct in that he did not take reasonable care in ascertaining a client’s state of affairs.
Additionally as a result of its finding that the breaches of the Code of Professional Conduct were proved the Respondent determined that the Applicant was not a fit and proper person to prepare tax returns.
The legislative basis upon which the Respondent made its decision is contained in the Tax Agent Services Act 2009 (TAS Act) section 20-5 of that Act states inter alia:
“(1) An individual, aged 18 years or more, is eligible for registration as a registered tax agent or BAS agent if the Board is satisfied that:
(a)the individual is a fit and proper person; and
(b)…”
Section 20-15 of the TAS Act then provides:
“In deciding whether it is satisfied that an individual is a fit and proper person, the Board must have regard to:
(a) whether the individual is of good fame, integrity and character; and
(b) …”
Section 30-5 TAS Act states:
“The Code of Professional Conduct applies to you if you are a registered tax agent or BAS agent.”
The “Code” is set out at section 30-10 TAS Act, and subsections 30-10(1), (7), (8) and (9) TAS Act states inter alia:
“(1)You must act honestly and with integrity.
…
(7)You must ensure that a tax agent service that you provide, or that is provided on your behalf, is provided competently.
(8)You must maintain knowledge and skills relevant to the tax agent services that you provide.
(9)You must take reasonable care in ascertaining a client’s state of affairs, to the extent that ascertaining the state of those affairs is relevant to a statement you are making or a thing you are doing on behalf of the client.”
The essential facts upon which the Respondent made its decision were not challenged by the Applicant in these proceedings. Those facts are succinctly set out in Exhibit R1 and the Tribunal adopts that recitation of the facts, namely that:
(i)The Applicant was approached by six third-party agents and lodged tax returns in respect of 346 tax file numbers on the basis of representations made by those agents.
(ii)The Applicant did not ask for proof of identification of any of the six third-party agents.
(iii)The Applicant received up-front cash payments in respect of the 346 tax returns.
(iv)The Applicant took no steps to verify the accuracy of the documentation prior to lodging the 346 tax file numbers. He did not see or interview any individual clients for whom he lodged returns other than the six third-party agents.
(v)The Applicant charged at least $20 and as much as $70 more than his usual fee for a basic income tax return, in respect of each of the 346 tax returns, even though they took half the length of time to complete. The Applicant failed to explain this adequately.
(vi)The Applicant was aware that information on the ATO portal for particular tax file numbers did not match the information provided to him by the six third-party agents. He made no further inquiries about this.
(vii)The Applicant was aware that the PAYG instalments in payment summaries for all of the 346 returns were high in comparison to the income of the taxpayer. The salary and tax instalment deduction amounts on payment summaries presented to the Applicant by the six third-party agents showed deductions that consistently exceeded the published withholding rates. The Applicant said he did not question this.
(viii)The Applicant originally claimed to be unable to provide the surnames of three of the six third-party agents.
(ix)The Applicant never initiated contact with the six third-party agents – they called him a few times and came to his office of their own accord.
(x)401 lodgements made by the Applicant were cancelled by the ATO. 346 of these were identified to be connected to the information provided by the six third-party agents.
(xi)The Applicant says he believed that the tax file numbers belonged to friends of the third-party agents who were too busy to lodge themselves, including Mr Alam for whom he prepared 102 income tax returns.
(xii)The Applicant says that he considered the arrangement he had with these third-party agents was “fine” because he was provided with bank details for all the individuals, and he had no reason to doubt the legitimacy of the taxpayer’s bank account. Yet 17 bank account numbers were used on four or more occasions and as many as eight occasions.
In these proceedings the Applicant stated that he had originally been approached by a person known to him as Fahad Salauddin. He prepared Salauddin’s tax return and then Salauddin asked him to prepare returns for friends of his. Apparently those friends were too busy to attend to their own tax affairs. Salauddin then provided the Applicant with details and payment certificates.
Similar activities took place with five other persons. The Applicant said he had no reason to doubt these people. Cross examined, the Applicant conceded that he had been acquainted with the six people who presented him with lists of clients for only six weeks.
Asked about the basis upon which he charged his clients the Applicant said that he charged on the basis of what he had saved the client and stated that if the client did not know about the deduction (to which he or she was entitled) then he was entitled to charge more.
Questioned regarding the enquiries he made regarding the authenticity of the returns the Applicant stated “Tax agents are not auditors”. This reply is similar to his comment to investigators from the Australian Taxation Office (ATO) to whom he said that tax agents are not policemen.
The Applicant appears to have adopted a cavalier approach to the filing of returns. He conceded that some of the returns he lodged following the details supplied by the six persons did not conform to details held by the ATO in their Portal, but stated that if the Portal rejected the return that was “OK” as the ATO system would sort it out.
In cross examination the Applicant conceded that he did not take the ATO enquiries seriously, stating that he had payment summaries and bank account details.
The Applicant’s actions are summarised by stating that he accepted from six people, hitherto unknown to him, details of some 346 alleged taxpayers and was asked to prepare tax returns for those people. He then did not ask for any proof of identification and charged up-front cash payments in excess of his normal fees. Where details in the ATO tax portal indicated discrepancies he ignored this and lodged returns in any event without further enquiries.
The Applicant is not unintelligent. His evidence was that he holds a Masters’ Degree in Business Administration from an American university. He had conducted his practice as a tax agent for 17 years.
Given the undisputed facts in this matter, the following conclusions are open:
(i)That the Applicant was well aware that the returns he was lodging were fraudulent; or
(ii)He suspected that the returns were questionable but decided not to make any further or better enquiries in case his suspicions would be confirmed; or
(iii)The conduct of his practice is so negligent that he cannot recognise a dishonest scheme even when it should have been apparent to any competent practitioner in his field.
The test of who is a fit and proper person was stated by Hill J in Stasos v Tax Agents’ Boardof New South Wales [1990] FCA 379; (1990) 21 ALD 437 at 444:
“Davies J expressed in Re Su v Tax Agents’ Board (SA) (1982) 82 ATC 4284 at 4286-7 the content of what is required of a person fit and proper to be registered or to retain registration as a tax agent in the following words:
‘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.’
With respect, but subject to the qualification that His Honour stated too narrowly the functions of a tax agent by limiting these to the preparation of returns, I agree with what His Honour there says.”
In Royal Brunei Airlines v Tan [1995] 2 AC 378 at 389 the Privy Council said:
“In most situations there is little difficulty in identifying how an honest person would behave. Honest people do not intentionally deceive others to their detriment. Honest people do not knowingly take others’ property. Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless. …”
Such comments are apposite regarding this Applicant.
Given the facts in this matter on the most favourable view to the Applicant, the only conclusion open is that he acted in circumstances where he ought to have made further enquiries regarding the materials presented to him, but deliberately refrained from doing so. His protestations that any discrepancies would be discovered by the ATO are simply attempts to justify his actions (or lack thereof).
It follows therefore that the Applicant cannot be regarded as a fit and proper person to prepare taxation returns. It is inconceivable that the officers of the ATO could have any confidence that returns lodged by him have been prepared honestly and competently.
The Applicant complained that the penalty imposed on him was too severe and that he has now taken positive steps to ensure that returns he is asked to prepare are genuine and that the identity of clients is positively verified. He gave examples of his current procedures and it would appear that he has taken steps to properly regulate his practice.
The imposition of banning orders was discussed in Australian Securities Commission v Kippe & Anor (1996) 67 FCR 499 at 508, namely:
“The immediate and direct legal effect intended by a banning order is not to impose a penalty or punishment on the person concerned, but to be preventative in that it removes a perceived threat to the public interest and to public confidence in the securities and futures industry by removing that person from participation therein.”
The above comments are not entirely apposite regarding the Applicant as he has taken steps to improve his work practices. On the other hand he does not fully appreciate the responsibilities of his position. I find it disturbing that after his deregistration as a tax agent he still continued to file returns with the ATO despite not having obtained a stay of the Respondent’s decision.
Similarly, I am concerned by comments such as “Tax agents are not auditors” and “I am not a policeman” when questioned regarding checks made by him.
Furthermore I am not satisfied by the explanation the Applicant gave as to how he managed to complete and lodge 38 returns on the same day. His explanation was simply that “maybe we spend two to three days to prepare then we lodge all on one day”.
In preparing the fraudulent returns the Applicant did not establish contact with any of the individual taxpayers. Seventy one per cent of the fraudulent returns claimed a spouse rebate. According to the Applicant when questioned by the ATO he simply asked the third-party agents whether the taxpayers had a wife and children. When questioned regarding PAYG instalments which were high when compared to income the Applicant stated that the taxpayers may have elected to have more tax deducted by their employer. (Tribunal’s emphasis). As stated, no enquiries were made of the taxpayers by the Applicant.
In Re Musumeci and Australian Securities and Investment Commission [2009] AATA 524; (2009) 109 ALD 677 at paragraph 65, Senior Member Taylor SC referring to the disqualification power under the Corporations Act 2001 stated that the principal purpose of the banning power:
“… is to contribute to the public interest by limiting the conduct of financial services business to people with the requisite capacity and integrity to provide the services in a lawful and competent manner.”
In Rich v ASIC (2004-5) 220 CLR 129 at 155, McHugh J said:
“In Elliot v Australian Securities and Investments Commission the Court of Appeal of the Supreme Court of Victoria said, correctly in my opinion:
‘Many of the propositions and factors listed by Santow J bear a similarity to sentencing principles. Matters going to aggravation and mitigation in relation to contraventions of s 588G [of the Corporations Law] need to be considered and accorded proper weight. But above all else protection of the public and deterrence, specific and general, must also be given appropriate consideration.’
Both Santow J’s list of propositions and the comments of the Victorian Court of Appeal indicate that the factors taken into account in the criminal jurisdiction – retribution, deterrence, reformation, contrition and protection of the public – are also central to determining whether an order of disqualification should be made under the Corporations Act and, if so, the appropriate period of disqualification. Those factors also support the conclusion that the jurisdiction exercised under this part of the Corporations Act cannot properly be characterised as purely protective”. [Citation omitted.]
Given the Applicant’s conduct and the loss occasioned to the taxpayer from the fraudulent returns, plus the affairs of genuine tax payers being compromised by the fraudulent use of their tax file numbers, I find that disqualification is the only penalty that can properly be imposed in this case.
Pursuant to section 40-25 TAS Act, the Respondent applied a period of three years before the Applicant could apply for re-registration.
I consider similar arguments apply to the period of disqualification as to the disqualification itself. See particularly the comparison by McHugh J in Rich v ASIC supra between banning orders and the law relating to sentencing.
In this matter there is a need not only for general deterrence to make it clear to other tax agents that wilful blindness to fraudulent schemes will be met by condign punishment, but also individual deterrence to this Applicant taking into account the severity of his conduct.
Given the Applicant’s conduct it is unlikely that in the immediate future he could satisfy the Respondent that he is a fit and proper person to prepare taxation returns. In Stasos supra Hill J said at 21 ALD 445:
“However, a person who has been shown to be other than a fit and proper person to be registered must satisfy the Tribunal considering his reregistration or cancellation of his registration as the case may be, that he appreciates the significance of his wrongdoing, that he regrets it and that he has rehabilitated himself such that it is truly unlikely that there will be any lapse in the future of the standards which are required of him. The more serious his dereliction from duty the longer may be the time necessary to show this. It will not be sufficient for him to merely express his contrition. The Tribunal must be satisfied on the balance of probabilities that not only is that contrition actually felt, but that he will not again deviate from the high standards required of him as a registered tax agent.”
A definite period of deregistration allows a degree of certainty and nominates the period in which the Applicant may take steps to restore his reputation. The period in this matter, namely three years, is to my mind entirely appropriate.
The decision under review is affirmed.
I certify that the preceding 37 (thirty-seven) paragraphs are a true copy of the reasons for the decision herein of Mr M D Allen, Senior Member.
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Associate
Dated 14 September 2012
Date of hearing
5 September 2012
Applicant
In person
Counsel for the Respondent
Mr M Bennett
Solicitor for the Respondent
Australian Government Solicitor
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