Re Li and Tax Practitioners Board

Link copied
Case Copied 41 min read

[2014] AATA 299

Division GENERAL ADMINISTRATIVE DIVISION

File Numbers

2013/3896 & 2013/4154

Re

Cheng Cheng Li

APPLICANT

And

Tax Practitioners Board

RESPONDENT

DECISION

Tribunal

Ms J L Redfern, Senior Member

Date 14 May 2014
Place Sydney

The decision under review is affirmed.

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

Ms J L Redfern, Senior Member

CATCHWORDS

Registration as tax agent – Termination of registration and prohibition on applying for registration for 3 years – Refusal to renew registration - Whether “fit and proper person” – Breaches of the Code of Professional Conduct – Unwitting involvement in fraud by third parties - Failure to keep client information confidential - Failure to take reasonable care in establishing client’s circumstances - Failure to provide tax agent services competently – Decision under review affirmed

LEGISLATION

Tax Agent Services Act 2009 (Cth): ss 20-5, 20-20-15, 20-25, 20-50, 30-10, 30-15, 30-20, 40-5, 40-25, 50-20, 50-35, 60-95, 60-125.

CASES

Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321
Australian Securities and Investments Commission v Adler and ors (2002) 42 ACSR 80; [2002] NSWSC 483
ReSu v The Tax Agents Boardof South Australia (1982) 61 FLR 1
Rich v Australian Securities and Investments Commission (2004-5) 220 CLR 129
Stasos v Tax Agents’ Board (1990) 21 ALD 437
Tung and Tax Practitioners Board [2012] AATA 615

REASONS FOR DECISION

Ms J L Redfern, Senior Member

14 May 2014

Background

  1. Mr Cheng Cheng Li (also known as Tom Lee) conducted business as a registered tax agent from November 2010 until his registration was terminated by the Tax Practitioners Board (the Board), effective from 20 August 2013. The Board also disqualified Mr Li from re-applying for registration as a tax agent for a period of three years.

  2. These decisions were made by the Board following an investigation into Mr Li’s apparently unwitting involvement in fraud by third parties, which resulted in the tax file numbers of over 450 taxpayers being compromised. The Board found that Mr Li had breached the Code of Professional Conduct for registered tax agents, was not of good fame, integrity and character and had failed to meet the registration requirements that he be a fit and proper person. The Board also found Mr Li had breached certain provisions of the relevant regulatory legislation by preparing and lodging tax returns for 370 taxpayers for the 2011 financial year in respect of which he was reckless as to whether the statements made in those tax returns were false, incorrect or misleading. The Board commenced proceedings in the Federal Court against Mr Li for pecuniary penalties in respect of these alleged breaches. These proceedings have not yet been determined and are not the subject of review.

  3. After the investigation had commenced but before it had concluded Mr Li made an application for renewal of his registration on 4 March 2013. This application was rejected by the Board on 5 August 2013. But for the cancellation, Mr Li’s registration would have been due for renewal on 1 December 2013.

  4. Mr Li made…

CaseChat AU logo

Keep reading for free

Create a free CaseChat account to read Re Li and Tax Practitioners Board and more:

  • Read every judgment in full
  • Ask AI and get answers linked to paragraphs
  • See how each paragraph was cited in later cases
  • Download judgments as PDF or Word
Continue with Google

One click creates your free account or signs you in.

By continuing you agree to the Terms and Privacy Policy.

Details
Case
[2014] AATA 299
Decision Date

CaseChat Overview and Summary

The case of Re Li and Tax Practitioners Board involved the respondent, Mr Li, who was a registered tax agent. The Tax Practitioners Board brought proceedings against Mr Li to terminate his registration and disqualify him from reapplying for registration for three years. Mr Li sought to challenge these decisions, as well as the rejection of his application for renewal of his registration. The court had to determine whether the Board's decisions were correct and preferable, and whether Mr Li should be reinstated as a registered tax agent.

The key legal issues before the court were whether the Board's decisions to terminate Mr Li's registration and disqualify him from reapplying for registration for three years were appropriate. The court also had to consider whether Mr Li's registration should be renewed. The court had to consider the nature and extent of Mr Li's breaches of the Tax Agent Services Code and the Tax Agent Services Act 2009 (Cth), as well as whether Mr Li was a fit and proper person to be registered as a tax agent. The court also had to consider whether Mr Li's existing clients required protection from improper tax agent practices.

The court found that Mr Li was not a fit and proper person to be registered as a tax agent and that his registration should be terminated. The court was not satisfied that the proposed plan of supervision was an acceptable alternative to termination and disqualification for a period given the circumstances of the case. The court found that there was no rationale for excluding Mr Li's existing clients from the plan of supervision, and that there was no evidence as to how the proposed plan for supervision would be implemented. The court also found that the plan would be difficult to monitor and would be costly and impractical. The court noted that Mr Li had not demonstrated a good understanding of the gravity and serious consequences of his breaches, and that a plan which allowed his continued practice as a tax agent, albeit under supervision, did not address the significant regulatory concerns raised by the Board's investigations.

The court affirmed the Board's decisions to terminate Mr Li's registration and disqualify him from reapplying for registration for three years. The court also rejected Mr Li's application for renewal of his registration. The court noted that the termination of Mr Li's registration and the disqualification for a period of three years would have a negative impact on Mr Li's ability to generate income through his own business, but that this was a necessary step to protect the public from any repeat of Mr Li's conduct.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Counsel for the Board submitted, and I accept, that the key issue for determination was whether the decisions of the Board to terminate Mr Li's registration and disqualify him from reapplying for registration for three years are correct and preferable. If so, the rejection of Mr Li’s application for renewal necessarily follows from the earlier decisions and all decisions should be affirmed. If not, Mr Li would be properly be reinstated as a registered tax agent and all decisions, including the decision to reject his application for renewal, would be set aside.The Evidence Mr Li commenced trading as a registered tax agent on 24 November 2010 from an office in Parramatta under the name “Accountant Professional Services”. He was a sole trader and was the only person with access to his ATO portal. The ATO portal is a web based system for tax agents, which gives the agent online access to information about taxpayer records and other tax agent services. Prior to this, Mr Li worked for a number of years preparing tax returns as an employee. In August 2011, a man claiming to be “Mr Saiful Islam” attended Mr Li's business premises - without any prior appointment or referral - and asked him to prepare a large number of tax returns for clients. Mr Islam represented himself as an employee of a recruitment agency, and produced a business card from “Kelly Services”. According to Mr Li, Mr Islam wore a suit, conducted himself professionally and was very convincing. Mr Li noted that there was a website for Kelly Services at the time that was consistent with Mr Islam's representations, and for that reason Mr Li accepted the legitimacy of the request. He did not question the instructions at this time. Mr Li requested that Mr Islam provide him with details for the taxpayers relating to their name, date of birth, address, bank account details, occupation and PAYG payment summaries. Mr Li did not seek to verify Mr Islam’s employment with Kelly Services and did not meet or request to meet or make direct contact with any of the clients referred by Mr Islam. Mr Islam told him another man would make contact with him, “Sam”, in the near future. Sam attended at his office about a week later with documentation for the returns. Sam attended his office a few times with bundles of documents. A person who identified himself as “Mr Sunny Rahman” attended Mr Li’s business premises a few weeks later. He said that he was from “Sunny Employment Services” but presented no business card or other identification. Mr Rahman provided documentation for the preparation of tax returns. Mr Li did not meet any of the clients referred by Mr Rahman, nor did he seek to verify his employment or the existence of Sunny Employment Services. Mr Li was asked to prepare 454 income tax returns by Mr Islam and Mr Rahman. There is no contest about the following matters:(a)The two intermediaries did not advise how they became aware of Mr Li’s practice. Mr Li did not enter into letters of engagement with the intermediaries, nor did he receive letters of authorisation from the taxpayers;(b)Mr Li did not contact or speak directly to any of the taxpayers;(c)Mr Li had never prepared so many tax returns before at any one time, and the preparation of the tax returns comprised two thirds of his practice for the 2011 financial year;(d)The majority of the taxpayers had high levels of tax withheld relative to their income, and were, in the face of the returns, entitled to refunds. A number of the taxpayers claimed deductions of about $300. Mr Li queried the level of tax withheld and was advised that many of the taxpayers were overseas residents and/or students;(e)Mr Li charged $60 for each of the tax returns and was paid $22,200 in fees for preparation and lodgement of the returns. He spent about 30 minutes on the preparation of each return;(f)As part of his process for preparing and lodging returns, Mr Li printed out two pages of the unsigned returns on recycled paper (being the first page and the second last page containing the taxpayer declaration) and handed these copies to the intermediaries for them to have signed by the relevant taxpayer. The copying on recycled paper was done by Mr Li to save money;(g)Mr Li lodged the completed tax returns after Mr Islam, Sam or Mr Rahman had returned the signed copies to his office ;(h)Mr Li did not use the ATO portal to check information and did not use the pre-filling function to assist with lodging returns;(i)Between about mid-August 2011 and about 19 September 2011, Mr Li prepared and lodged, or attempted to lodge, 454 tax returns for the taxpayers on the instructions of Mr Islam, Sam or Mr Rahman; (j)Of these 454 returns, Mr Li was unsuccessful in the lodgement of 60 returns. The ATO did not process these 60 returns and they were stopped for review. Mr Li was aware the returns were not processed at the time he attempted to lodge them;(k)The 454 taxpayers did not authorise the two intermediaries to arrange for tax returns to be prepared and lodged on their behalf; the intermediaries were perpetrating a scam to obtain access to refunds from the ATO. The PAYE summaries were not legitimate and the nominated employers, occupation and bank details were incorrect;(l)Kelly Services is a recruitment company but Mr Islam was not employed by the company;(m)As part of an investigation by the ATO, an ATO compliance officer reviewed internal records for returns lodged by Mr Li for the 2011 tax year. He found that there were about 400 returns lodged by Mr Li where the salary, wages and tax instalment deductions did not match those recorded on the payment summary details as reported to the ATO by the respective taxpayers’ employers; (n)There were different bank accounts nominated for the majority of the taxpayers, but in some instances the same bank accounts were nominated for multiple unrelated taxpayers; (o)33 of the returns which had been printed on ‘recycled’ paper contained information about 85 other taxpayers, of which two were taxpayers unrelated to the scam. The use of recycled paper involved printing two of the pages for the clients (the first and the second last pages) on the reverse side of copy or original draft returns for other clients which were, in some cases, signed and/or included TFN details for the other clients; (p)After investigation, the ATO found that 454 tax file numbers for returns prepared and lodged, or sought to be lodged, by Mr Li had been compromised. The ATO cancelled the tax file numbers, requiring the taxpayers to attend the ATO to provide identification and apply for a new tax file numbers. The ATO also cancelled the returns, although tax refunds were deposited into bank accounts apparently unrelated to the taxpayers;(q)On 11 January 2013 the Board commenced investigations into Mr Li’s conduct with respect to the lodgement, or attempted lodgement, of 454 income tax returns for the 2011 financial year. As part of that investigation, investigators interviewed Mr Li, inspected and analysed documents, issued notices to third parties and interviewed a number of the taxpayers for whom returns were lodged. Mr Li co-operated with the investigation; (r)Other than the issues raised in the Board’s submission to the Board Conduct Committee following the investigation, there have been no other compliance issues regarding Mr Li’s tax agent practice;(s)Prior to consideration of the matter, Mr Li was given the opportunity to respond to a draft submission to the Board Conduct Committee, which he did by letter dated 14 June 2013.

Decision

Reasons for decision

In ASIC v Adler Santow J identified the factors relevant to disqualification. I am of the view that these matters are similarly relevant to my consideration of whether termination is appropriate in the circumstances of this case and, if so, whether disqualification of Mr Li from re-applying for registration for a period of three years is also appropriate. The factors referred to by Santow J, that would also be relevant to this case, can be summarised as follows:(i)Banning orders are designed to protect the public from the harm; (ii)The banning order is protective against present and future breach;(iii)A banning order has a motive of personal deterrence, though it is not punitive;(iv)The objects of general deterrence are also sought to be achieved;(v)In assessing the fitness of a person to be permitted to provide tax agent services, they have an understanding of their role and obligations;(vi)In assessing an appropriate length of prohibition, consideration has been given to the degree of seriousness of the contraventions, the propensity that the defendant may engage in similar conduct in the future and the likely harm that may be caused to the public;(vii)Longer periods of disqualification are reserved for cases where contraventions have been of a serious nature such as those involving dishonesty;(viii)It is necessary to balance the personal hardship to the defendant against the public interest and the need for protection of the public from any repeat of the conduct;(ix)A mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming;(x)It is necessary to assess matters such as the character of the person, the nature of the breaches, risks to others from the continued registration of the person;(xi)Factors which lead to the imposition of the longest periods of disqualification include large financial losses, high propensity for the person to engage in similar conduct and lack of contrition or remorse.Findings and Conclusion Having regard to the guiding principles in ASIC v Adler, the objects of the TAS Act, my findings about Mr Li’s conduct and his breaches of the Code and Mr Li’s failure to accept the gravity of the breaches or to satisfy me they will not reoccur, I find Mr Li is not a fit and proper person to continue to be registered as a tax agent and his registration should be terminated. I am not satisfied the proposed plan of supervision is an acceptable alternative to termination and disqualification for a period given the circumstances of the case. First, there is no rationale for excluding Mr Li’s existing clients from the plan of supervision. As noted by Counsel for the Board in his written submissions, Mr Li’s existing clients require protection from improper tax agent practices and there is no reason why existing clients should be treated differently from new clients. Secondly, there is no evidence as to how the proposed plan for supervision would be implemented. Thirdly, the plan would be difficult to monitor and would be costly and impractical. In this regard, it should be noted that Mr Li provided no evidence as to how he would implement and pay for the supervision, the cost of which is likely to vastly exceed Mr Li’s usual fee for preparing and lodging returns. Finally, Mr Li has not demonstrated a good understanding of the gravity and serious consequences of his breaches. As such, a plan which allows his continued practice as a tax agent, albeit under supervision, does not address the significant regulatory concerns raised by the Board’s investigations.

Ratio Decidendi

Legal Principle Established

Mr Li has a wife and two children. There was no dispute that the termination of Mr Li’s registration and the disqualification for a period of three years would have a negative impact on Mr Li’s ability to generate income through his own business.Consideration The issues for determination are whether Mr Li’s registration should have been terminated, whether he should be disqualified from reapplying for registration for three years and whether his subsequent request for renewal of his registration should have been rejected. The Board found Mr Li had breached ss 30-10(6), (7) and (9) of the Code and s 50-20 of the TAS Act. Mr Li’s registration was terminated by the Board on the basis he no longer satisfied the “fit and proper” requirement for registration under s 20-5(1) of the TAS Act. While the Board did not terminate Mr Li’s registration for breach of the Code under s 30-30, the nature and extent of those breaches were clearly relevant to the Board’s consideration of whether Mr Li was “fit and proper”. Having made these findings, the Board also determined it was appropriate to disqualify Mr Li from applying for registration for three years and rejected his application for renewal of his registration. I am not bound by the Board’s findings but I am nonetheless persuaded by this approach. In my view it is relevant to consider whether Mr Li is fit and proper having regard to the nature and extent of any breaches of the Code. The Code establishes professional standards for tax agents and, while a breach of the Code does not preclude eligibility, repeated or serious breach may demonstrate that the tax agent is not of good fame, integrity and character and thereby, not fit and proper. If I find Mr Li is not a fit and proper person to be registered as a tax agent there is discretion under s 40-5(1) as to whether I terminate his registration. There is also discretion as to whether I terminate Mr Li’s registration if I find that there have been breaches of the Code. However, as already noted, if I find Mr Li is not a fit and proper person to be registered as a tax agent, there is no discretion to renew his registration. As provided by s 20-25(1) of the TAS Act, I must reject the application for renewal. As such, the issue of whether there have been breaches of the Code is relevant to, and will inform, the question of whether Mr Li is a fit and proper person to be registered as a tax agent but the critical issue in determining these various applications for review, at a practical level, is whether Mr Li satisfies the fit and proper requirement for eligibility to be registered. The comments of Hill J in Stasos v Tax Agents’ Board (1990) 21 ALD 437, although made with reference to the former regime, remain authoritative in light of the continuing relevance of the “fit and proper” test. In that case, his Honour observed that the legislature chose to confer on registered tax agents “a virtual monopoly in the preparation for reward income tax returns and objections and in relation to the transaction of any business on behalf of the taxpayer in income tax matters for reward”. Hill J stated at [443] as follows:The conferral of this privilege upon registered tax agents carries with it a consequent set of obligations and responsibilities. A person is required, before being registered as a tax agent to demonstrate that he is a fit and proper person to prepare income tax returns and transact business on behalf clients in tax matters and, inter-alia, that as at the date of the application he is of good fame, integrity and character.