Nwokeiwu and Tax Practitioners Board - [2024] AATA 804

Nwokeiwu and Tax Practitioners Board [2024] AATA 804 (28 March 2024)
Division:Taxation and Commercial Division
File Number(s):2024/0234, 2024/0302 and 2024/0306
Re:Michael Nwokeiwu
APPLICANT

Tax Practitioners BoardAnd
RESPONDENT

DECISION
Tribunal:Mr Rob Reitano, Member
Date:28 March 2024

Place: Sydney
I dismiss the application for a stay of the Tax Practitioners Board’s decisions of 7 December 2023 terminating the registration of Mr Nwokeiwu’s, Mun Accountants and Tax Advisors Pty Ltd and Aussie Tax Professions Pty Ltd under the Tax Agent Services Act 2009, the effect of which is to dissolve the interim stay granted on 19 January 2024.
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Mr Rob Reitano, Member
CATCHWORDS
PRACTICE AND PROCEDURE - STAY APPLICATION – tax agents registration – false and misleading statements – underreported income – good and services tax shortfall – fringe benefits tax shortfall - failure to lodge returns and business activity statements prospects of success - public interest – hardship – early hearing – dissolution of interim stay
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth)
Tax Agent Services Act 2009 (Cth)
CASES
Scott v Australian Securities and Investment Commission [2009] AATA 798
Australian Securities and Investments Commission v PTLZ [2008] FCAFC 164
REASONS FOR DECISION
Mr Rob Reitano, Member
27 March 2024

This is an application under s 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) by Dr Michael Nwokeiwu (Mr Nwokeiwu), Aussie Tax Professionals Pty Ltd (Aussie Tax) and Mun Accountants & Advisers Pty Ltd (Mun Accountants) for a stay of three decisions of the Tax Practitioners Board (Board) on 7 December 2023, which terminated the registration of each of them under the Tax Agent Services Act 2009 (Cth) (TAS Act) with effect from 22 January 2024.
On 19 January 2024 the Tribunal, by consent, granted an interim stay until this application for a stay of the decisions could be heard. I have decided to refuse the application for a stay, and these are my reasons for doing so.
THE REGULATORY CONTEXT
Sub-section 2.5(1) of the TAS Act provides that the object of the TAS Act is to ‘support public trust and confidence in the integrity of the tax profession and of the tax system by ensuring that tax agent services are provided to the community in accordance with appropriate standards of professional and ethical conduct’. Sub-section 2.5(2) of the TAS Act provides that the object in ss 3(1) is to be achieved, amongst other things, through providing for a system of registration and regulation of tax agents, a Code of Professional Conduct (Code) and a system of sanctions and discipline of tax agents.
Sub-section 30-10 of the TAS Act provides for the Code which includes a series of obligations with which tax agents are expected to comply. It is unsurprising that the very first obligation in s 30-10(1) is that a tax agent ‘must act with honesty and integrity’. In fact, many of the obligations are rudimentary matters of professional practice involving things like compliance with taxation laws in their own personal affairs, acting competently and maintaining knowledge and skills. It is not necessary to set out the other obligations here, but they all serve to achieve the objective to which I have referred.
Underlying those obligations is the fact that to obtain registration under the TAS Act the Board must be satisfied that person is a fit and proper person to be registered. Again, there are other requirements for registration, but it is not necessary to refer specifically to them.
A breach of the Code or a failure to conform to the requirements of registration renders a tax agent liable to termination of registration.[1] For breaches of the Code there are other, lesser sanctions, that may apply such as cautions, suspensions, orders to complete prescribed training and so on.[2]
[1] TA Act Part 4A.
[2] Ibid, ss 30-1.
Overlaying the scheme is a prohibition on people, other than those who are registered under the TAS Act, from providing tax agent services. Providing tax agents services without registration attracts a civil penalty which is presently set at a maximum penalty of 250 penalty units which translates to something just over $78,000.[3]
[3] Ibid, ss 50-5.
The consequence of the above is that the TAS Act has its focus on achieving the objective in ss 3(1) by restricting those acting as tax agents to fit and proper people and requiring them to conform to various prescribed standards of professional behaviour. In simple terms, and by way of example only, a failure to act honestly or with integrity is inimical to supporting public trust and confidence in the tax profession, such that, a failure to act with honesty or integrity may see a tax agent deregistered or subject to other sanctions, so that that person would be proscribed from providing tax agent services. Likewise, such a failing may form the foundation for the Board’s opinion that a person is not a fit and proper person to be a tax agent and so, should have their registration terminated. Again, termination of registration would prevent someone from providing tax agent services
THE ISSUE
The issue is not, at this stage, whether Mr Nwokeiwu’s, Mun Accountants and Aussie Tax’s registration should be terminated. That question will be decided when the application is determined after a final hearing.
The issue now is whether the decision of the Board to terminate each of their registrations should take effect with the consequence that they will not be able to work as tax agents until the matter is finally determined. That issue, ultimately, resolves itself by reference to whether Mr Nwokeiwu’s registration should take effect as the registration of Mun Accountants and Tax Advisors and Aussie Tax depends upon Mr Nwokeiwu’s registration.
The issue is a reasonably confined one and involves consideration of the discretion that resides in ss.41(2) of the AAT Act. That section provides:
The Tribunal may, on request being made by a party to a proceeding before the Tribunal (in this section referred to as the relevant proceeding), if the Tribunal is of the opinion that it is desirable to do so after taking into account the interests of any persons who may be affected by the review, make such order or orders staying or otherwise affecting the operation or implementation of the decision to which the relevant proceeding relates or a part of that decision as the Tribunal considers appropriate for the purpose of securing the effectiveness of the hearing and determination of the application for review.
The matters relevant to the granting of stay is well established. In Scott v Australian Securities and Investment Commission [2009] AATA 798 Downes J, President, considered the matters that were relevant to the grant of a stay. They included: the prospects of success, the consequences of the refusal of a stay for the applicant and for others, the consequences of granting a stay for the respondent, the public interest, whether the refusal of a stay would render the final relief nugatory, the time between the granting or refusal of the stay and the final hearing and decision and any other matters that might be relevant. This approach has consistently been applied by the Tribunal and I will apply it here. I will return to consider these matters after referring to a little of the background.
BACKGROUND
The background for present purposes can briefly be summarised by recording something about the chronology of events. I should make clear that I am by no means intending by this review of the background to be comprehensive as that is not necessary at this stage. Nor should I be thought to be expressing a final view on the background or the facts that give rise to the matter, as that will be considered fully upon a final hearing.
The matters that gave rise to the present application have their origins in the review that was commenced on 2 February 2021 by the Australian Taxation Office (ATO). That review concerned Mr Nwokeiwu’s income tax return as the trustee for the Krumn Trust (Trust) for the tax year ending 30 June 2019. On 19 May 2021, the matter was escalated by the ATO to an ‘audit of [Mr Nwokeiwu’s] income tax return from 1 July 2018 to 30 June 2020’.
On 23 February 2022, the ATO wrote to Mr Nwokeiwu advising him of the results of the audit, providing summaries of changes and reasons for its decisions. The letter attached an audit report that ran for some 39 pages which, identified that the 2019 tax return that had been lodged by Mr Nwokeiwu for the Trust, did not, amongst other things, correctly report net income and that GST on purchases and sales had not been correctly reported either. The letter contained a significant amount of detail about the conclusions that it arrived at. The discrepancies were substantial. The audit concluded that the ‘net income of the trust will be increased from $14,434 to $637,199’. The amount of $14,434 was the amount that appeared on the 2019 tax return that was lodged by Mr Nwokeiwu in respect of the Trust. The audit also concluded that there was a GST shortfall of about $74,000.
On 19 July 2022, the Board wrote to Mr Nwokeiwu to tell him it was conducting preliminary enquiry in relation to his, Mun Accountants and Aussie Tax’s conduct. The letter set out, at some considerable length, various matters to which it sought a response. These things included; a consistent pattern of late lodgements of income tax returns and BAS statements for various entities associated with Mr Nwokeiwu with particular dates due and how late the lodgements were; false declarations about tax debts and lodgements, with particular reference to when the declarations were made and, what was false about them by reference to what was not done and what should have been done; matters concerning the failure to declare income for the 2019 tax year and, the incorrect supply of information concerning GST on sales and purchases again with particular reference to particular transactions which was the subject of the ATO audit; particular discrepancies in two particular clients of Mr Nwokeiwu’s tax returns for the 2019 and 2020 years; matters connected with claims for Jobkeeper and the cash flow boost; and matters connected with continuing education and indemnity insurance. The letter sought answers to 22 questions that, within many of them, had sub-questions most of which sought explanations or reasons for various things. The letter was clear about what was required to be addressed.
On 22 July 2022, three days later, Mr Nwokeiwu responded to the Board’s letter. The letter, rather unfortunately, did not respond item by item and in turn to the Board’s various requests for explanations. The reply did not neatly address many of the things the Board wanted to know about and, as I have said, about which the Board had provided a great deal of particularity. Although the reply was laced with the flavour of general denial, it is not really possible to determine in any meaningful way what the response or answer to each of the particular allegations in the letter was. That response, it seems, set much of the tone for the later responses Mr Nwokeiwu would provide to the various allegations.
On 24 November 2022, the ATO again wrote to Mr Nwokeiwu as Trustee for the Krumn Trust, telling him about the findings of its FBT audit of the trust for the period 1 April 2018 to 31 March 2021. The audit found that the trust had underreported its FBT by about $79,000. Together with the earlier claims about underreported income and GST there was something of a pattern emerging and it involved serious allegations about Mr Nwokeiwu’s dealings with the ATO so far as it concerned his own tax matters.
On 5 December 2022, the ATO wrote to Mr Nwokeiwu regarding the outcome of its audit in relation to his income tax return for the 2020 tax year. That audit noted that Mr Nwokeiwu had made voluntary disclosures which resulted in an income tax shortfall of about $19,500.
On 9 December 2022, the ATO wrote to Mr Nwokeiwu providing him with a copy of its penalty position paper in relation to the 2019 tax return audit and FBT audit. The penalties exceeded $360,000. More importantly, for present purposes, are some of the observations that were made in the penalty position paper. The letter went into some detail about the ATO’s view of Mr Nwokeiwu’s conduct. It referred to the making of ‘false or misleading statements in your activity statements, income tax returns and fringe benefits tax returns’ as had been referred to in earlier correspondence. The report referred to Mr Nwokeiwu’s extensive experience and qualifications as creating the real likelihood that Mr Nwokeiwu knew or should have known about his misreporting. The report referred to the ‘direct knowledge’ Mr Nwokeiwu would have had about the unreported income, GST and FBT. A particular conclusion in the report that is of note was that:
It is reasonable to infer that you therefore knowingly lodged your 2019 tax return and activity statements with underreported income and GST payable. By making these statements, with knowledge of the consequences that would arise from making these journal entries, you have demonstrated a dishonest intent by deliberately adding these amounts into your records and gaining a financial advantage at the time you lodged your returns.
Mr Nwokeiwu responded to the penalty position paper by asking, in fact pleading, that the penalty be reduced. He did not in terms or directly dispute any of the findings or observations, although that might be explained by some of his statements such as ‘…neither do I have even the mental and physical strength to ask for objection which will drive for number of years which I cannot handle’.
On 31 January 2023, the ATO confirmed its penalty decision which involved as I have said the imposition of fines amounting to more than $360,000. The letter advising of the penalty also advised Mr Nwokeiwu of his right to seek an independent review of the decision. Mr Nwokeiwu did not take up the offer of an independent review. In total, with the additional tax and penalties imposed including those on the beneficiary of the Trust, penalties exceeded $800,000.
On 6 February 2023, the ATO sent to Mr Nwokeiwu its penalty position paper relating to the 2020 financial year. That paper said that the ATO considered Mr Nwokeiwu was liable to penalty as a result of making a false and misleading statement in his 2020 tax return.
On 23 June 2023, the ATO allowed an objection by Mr Nwokeiwu to his 2019 income tax assessment so that the assessment was reduced by $251,505.90 and the penalty for the income tax shortfall was reduced by $226,355.30.
On 20 October 2023, the Board commenced an investigation into Mr Nwokeiwu’s conduct which was said to potentially have involved breaches of various obligations under the TA Act. The allegations the subject of the Board’s investigation were serious, some of them, for example, involved: breaches of obligations concerned with honesty and integrity, breaches of compliance with tax laws in Mr Nwokeiwu’s conduct of his own affairs and, failures to act lawfully in the best interest of clients. The investigation was also to look to whether Mr Nwokeiwu was a fit and proper person to be a registered tax agent.
On 6 November 2023, Mr Nwokeiwu was provided with a copy of a submission that dealt with the investigation that had been conducted and was given an opportunity to respond to it. The submission made serious allegations about Mr Nwokeiwu’s conduct which included; making false and misleading statements to the ATO over a large number of matters, such as his failure to declare all trust income and taxable income in his personal tax return over several tax years; failing to correctly report GST and FBT; knowingly receiving a financial benefit by making false statements about income and expenses, in his own and his related entities tax lodgements, that he should have known he was not entitled to claim; falsely telling the Board that his and those of his related tax entities affairs were up to date at various times when they were not, as there were a large number of returns and BAS that had been lodged late; and dishonestly lodging BAS returns which contained inflated or unsubstantiated payments for wages and involving claims for Jobkeeper that he should have known one of his entities was not entitled to. In addition, there was a large amount of documentary material that supported the allegations. The allegations being made by the Board were large in number and at a high level of seriousness for a tax agent given that they squarely raised questions of honesty and integrity.
At some stage after he was presented with the Board’s submission Mr Nwokeiwu prepared a response. The response did not engage much with the significant detail that was found in the Boards submission. It referred generally to the pandemic, Mr Nwokeiwu’s having been overseas, difficulties recruiting staff, computer problems and matters of that kind which, did not seem on the face of things, to have much to do with anything, far less the allegations that needed to be answered. There were some general denials about late lodgements. There was nothing specific about the Board’s detailed allegations. There was some attempt to explain the income that was underreported by reference to deposits of school fees from family and friends, but no evidence was produced to support that assertion. Ultimately, the response did not really engage with the Boards very detailed and particular allegations, other than, by way of what might be considered to be denials of any wrongdoing.
The position taken with the Board was much the same as that taken in the stay application. Although some additional matters were put forward they did not, in any real sense, engage with most of the particular allegations, especially so far as underreported income, GST, and FBT are concerned and so far as a failure to conform to tax obligations was concerned. There was some attempt to explain some of the late lodgements although the explanation was not particularly clear.
SHOULD THE DECISION BE STAYED?
Mr Nwokeiwu’s case, as things presently stand and without dealing with the actual evidence and full argument, does not appear to be a strong one. The evidence appears to be straightforward, supports the allegations and points only in one direction. The evidence about late lodgements, for example, is contained in documents which record many late lodgements that were contrary to written declarations that Mr Nwokeiwu had made to the Board. It is difficult to conceive that all this objective evidence will be shown to be wrong at a final hearing, especially given that Mr Nwokeiwu has produced little to suggest so much to date. Likewise, the evidence of the ATO’s tax audit findings concerning unreported income, GST and FBT, appears relatively straightforward. It is not necessary or useful to say much more about the strength of the case and its prospects of success especially given that there may be more, or different evidence at the final hearing and given that I have not heard full argument about the case. It is sufficient to note so far as what seem to be two of the most serious allegations Mr Nwokeiwu’s does not appear to be on strong ground.
I should add that in some of Mr Nwokeiwu’s submissions there is something of a concession that he may be ultimately unsuccessful because he suggests he is, ‘[s]eeking for (sic) reduced period of my tax agent registration cancellation, a suspension and/or for a shorter period than cancellation’ or, that a final warning might be appropriate. His written submissions open with the words: ‘[s]ome decisions made by both ATO and TPB and factors relied upon in making those decisions were wrong’ or, ‘I take responsibility for lodging some related entities late, but this was an oversight…’. Those kinds of statements and references to some sanction as being appropriate tend to acknowledge that Mr Nwokeiwu’s case is not a strong one, at least so far as findings concerning the allegations are concerned. I consider that Mr Nwokeiwu’s prospects of success are not good based on the evidence and submissions made on the application for stay.

Next, it is significant that the Board, that is the regulator, has made an adverse finding against Mr Nwokeiwu which has led it to the conclusion that the public should be protected by terminating Mr Nwokeiwu’s registration. That is consistent with its role and, more importantly, the object of the TAS Act. As things presently stand, in the view I take, the public interest is likely to be adversely affected by Mr Nwokeiwu continuing to act as a tax agent, even if for a limited time. Sight should not be lost of the fact that the whole of the scheme of the TAS Act is directed to the public interest in supporting trust and confidence in tax agents. That interest is damaged in circumstances where the Board, as regulator, has determined that Mr Nwokeiwu has involved himself in what are serious acts of misconduct in contravention of the Code, and which are not consistent with the registration requirements for tax agents. Even should he be permitted to practice for a short time until the hearing, the public interest will be damaged.
I accept that the effect of not granting a stay is likely to cause some hardship for Mr Nwokeiwu and his family. There was no detailed evidence about the effect of Mr Nwokeiwu not being able to work as a tax agent, so it is not possible to say much more about this aspect of the matter. There were no financial statements of any kind concerning assets or income produced. Any hardship will, of course, be necessarily ameliorated by bringing about a speedier final hearing.
I also accept that refusing to stay the decision will also cause inconvenience for Mr Nwokeiwu’s clients, but again there was not much precise evidence about how clients or even which clients might be adversely affected by refusing stay. The evidence was very general and there was no detail about any of it. All decisions terminating the registration of tax agents will, of course, necessarily inconvenience clients. The position of Mr Nwokeiwu is much the same, there was no detailed evidence about how many staff or, who they were and precisely how they will be affected by the implementation of the Board. I nonetheless accept that there will be some adverse impact upon them.
I have made directions programming the matter for final hearing and have set down the final hearing for the first week of June which is a little over two months away. It is likely, at this stage, that a decision will be handed down fairly quickly after the final hearing. The fact that the hearing will happen so soon, and the matter will be decided shortly after that, will significantly ameliorate any hardship to Mr Nwokeiwu and any inconvenience to his clients should he be successful. That approach was one that Downes and North JJ referred to as being desirable in Australian Securities and Investments Commission v PTLZ [2008] FCAFC 164 at [29].
Ultimately, I do not consider that it is desirable to stay the operation of the Board’s decision to terminate Mr Nwokeiwu’s registration as a tax agent. I do not consider that staying the decision is ‘appropriate for the purpose of securing the effectiveness of the hearing and determination of the application for review’. This is mainly because of the view I have taken about the seriousness of the main allegations concerning, Mr Nwokeiwu’s honesty and integrity so far as his own dealings with the ATO are concerned in relation to income, GST and FBT reporting in the 2019 tax year and, his apparent false declarations concerning his compliance with tax obligations. These factors inform the significance of the public interest which is contrary to staying the decision. The fact that a reasonably quick final hearing will take place also means that any hardship or inconvenience is much likely to be confined.
DECISION
I dismiss the application for a stay of the Tax Practitioners Boards decisions of 7 December 2023 terminating the registration of Mr Nwokeiwu’s, Mun Accountants and Tax Advisors Pty Ltd and Aussie Tax Professions Pty Ltd under the Tax Agent Services Act 2009, the effect of which is to dissolve the interim stay granted on 19 January 2024.

I certify that the preceding 36 (thirty-six) paragraphs are a true copy of the reasons for the decision herein of Mr Rob Reitano, Member.

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Associate
Dated: 27 March 2024

Date(s) of hearing: 21 March 2024

Applicant: In-Person

Solicitors for the Respondent: P. A. Walker, Counsel

Date(s) of hearing:	21 March 2024
Applicant:	In-Person
Solicitors for the Respondent:	P. A. Walker, Counsel