Re Pappalardo and Tax Agents' Board of Victoria
[2003] AATA 990
•2 October 2003
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2003] AATA 990
ADMINISTRATIVE APPEALS TRIBUNAL )
) No V02/533
GENERAL ADMINISTRATIVE DIVISION ) Re PAUL PAPPALARDO Applicant
And
TAX AGENTS’ BOARD OF VICTORIA
Respondent
DECISION
Tribunal Mrs Joan Dwyer, Senior Member Date2 October 2003
PlaceMelbourne
Decision The Tribunal affirms the decision under review. (Sgd) Joan Dwyer
Senior Member
TAX AGENT – review of decision cancelling registration as a tax agent – whether “a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers .. . .” – meaning of “serious taxation offences” – discretion as to whether to cancel registration of a tax agent who is not “a fit and proper person . . .” – relevant factors failure to lodge own tax returns for five consecutive years – no explanation for failure such as to persuade Tribunal that discretion to cancel registration should not be exercised ‑–failure to respond or respond adequately to correspondence from the Tax Agents’ Board – lack of contrition – competence and conduct as a professional tax agent – decision affirmed
WORDS AND PHRASES – “serious taxation offence” “a fit and proper person”
Income Tax Assessment Act 1936 ss 251A 251K(2)(b) and (d), 251BC(1) and (3)
Taxation Administration Act 1953 ss 8B(2)(a)(ii), 8C(1)(a), and 8E
Crimes Act 1914 ss 85ZM, 85ZV(1), 85ZZH
Re Su and Tax Agents’ Board of South Australia 82 ATC 4284
Case U122 87 ATC 731
Re Carbery & Associates Pty Ltd and Tax Agents’ Board of Queensland 2001 ATC 2025 [2001] AATA 107
Re Cowlishaw & Ors and Tax Agents’ Board of Queensland [1999] AATA 412; ATC 2231
Re Houvardas and Tax Agents’ Board of New South Wales 91 ATC 2032
Re Fitzgibbon and Tax Agents’ Board of Queensland (1993) ATC 2053
Stasos v Tax Agents’ Board of New South Wales 90 ATC 4958
REASONS FOR DECISION
2 October 2003 Mrs Joan Dwyer, Senior Member 1. This is an application under the Income Tax Assessment Act 1936 (“the Act”) for review of a decision to cancel Mr Pappalardo’s registration as a tax agent. The reviewable decision was made by the Tax Agents’ Board (“the Board”) on 24 April 2002, pursuant to s 251K(2) of the Act.
2. Mr Pappalardo lodged an application for review by this Tribunal pursuant to s 251QA of the Act. At the same time he applied for a stay of the respondent’s decision to cancel his registration. That stay was granted by Deputy resident Forgie on 28 June 2002, until determination of the application.
3. Mr Pappalardo was represented by Mr Duggan of Counsel. Mr McInerney, a solicitor with the Australian Government Solicitor’s Office, appeared for the Board. The Tribunal had before it the documents (“the T documents”) lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (“the AAT Act”) and also the exhibits tendered during the hearing. The Tribunal was assisted by a chronology of events prepared by Mr McInerney which summarises some aspects of the information contained in the T documents. Mr Pappalardo was directed by Deputy President Forgie on 30 January 2003 to advise whether he required Mr Basile or Mr Vincent, both of whom had provided written statements of the evidence they would give (R1 and R2), to attend for cross-examination. He did not advise that he required either of them to attend. Their statements were taken into evidence as exhibits R1 and R2.
4. Mr Pappalardo was first registered as a tax agent on 4 April 1985 (T4). He held that registration until it was cancelled on 24 April 2002, but because of the stay he has been entitled to practice as a tax agent (R4) until the delivery of this decision. The evidence established that his practice as a tax agent is very small. He lodged nine tax returns in the year ended 30 June 2002 and was the registered tax agent for another 17 taxpayers.
RELEVANT LEGISLATION
5. The provisions as to cancellation of registration as a tax agent are found in s 251(2)K of the Act. The paragraphs relied on by the Board in this matter are paragraphs 251K(2)(b) and (d) which provide as follows:
(2)A Board may suspend or cancel the registration of any tax agent upon being satisfied that:
(b)the tax agent:
(i)has neglected the business of a principal; or
(ii)has been guilty of misconduct as a tax agent; or
. .. .
(d)if the tax agent is a natural person - the tax agent is not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters;
. . .
6. In considering paragraph 251K(2)(d) it is necessary to refer to the definition of a “fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters”, which is found in s 251BC of the Act. Section 251BC(1), so far as relevant, provides:
(1)Without limiting the generality of an expression used in this Part, but subject to this section, a person is not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters, as at a particular time, if:
. .. .
(d)the person is not of good fame, integrity and character;
(e)the person has been convicted of a serious taxation offence during the previous 5 years; or
. . .
7. Mr McInerney relied in his Statement of Facts and Contentions, and in the written submissions he handed up to the Tribunal, only on paragraph 251BC(1)(e), namely, conviction “of a serious taxation offence during the previous 5 years”.
8. The T documents, at T20 p46, contain an evidentiary certificate under s 8Z of the Taxation Administration Act 1953 (“the TAA”) showing that Mr Pappalardo was convicted at Broadmeadows Magistrates Court on 2 May 2000 of five offences under s 8C(1)(a) of the TAA, of failing to lodge returns for the taxation years ending 30 June 1994, 1995, 1996, 1997 and 1998. The certificate indicates that Mr Pappalardo was fined $750.00. The remarks column (T20 p46) states: “Returns Lodged”. Mr Vincent, is an officer of the Australian Taxation Office. In his witness statement (R2) he stated at paragraph 16:
The defendant appeared at the hearing of the matter on 2 May 2000, pleaded guilty and was convicted of all five charges and fined $150 on each and ordered to pay costs of $88.
9. Mr McInerney, in paragraphs 23-27 of the respondent’s Submission, explained how those convictions mean that Mr Pappalardo has been convicted of a “serious taxation offence” during the previous 5 years. He stated:
23. A "serious taxation offence" is relevantly defined in section 251A ITAA [the Act] as:
(c)an offence that is:
(i)a taxation offence within the meaning of Part III of the Taxation Administration Act 1953; and
(ii)punishable on conviction by either or both of the following:
(A) a fine exceeding $2,000;
(B) imprisonment.
24. Part III of the Taxation Administration Act 1953 (the TAA) includes a number of offences and penalties and relevantly includes section 8C of the TAA. The provisions of section 8C(1)( a) of the TAA state relevantly:
(1)A person who refuses or fails, when and as required under or pursuant to a taxation law to do so:
(a)to furnish a return or any information to the Commissioner or another person: .... to the extent that person is capable of doing so is guilty of an offence.
25. The penalty provisions for a breach of section 8C are contained in section 8E of the TAA which state relevantly:
(1)Subject to subsections (2) and (3), an offence against section 8C ... is punishable on conviction by a fine not exceeding $2,000.
(2)Subject to subsection (3), where:
(a)a person is convicted of an offence against section 8C ...; and
(b)the court before which the person is convicted is satisfied that the person has previously been convicted of a relevant offence,
the penalty that the court may impose in respect of the first-mentioned offence is a fine not exceeding $4,000.
26. A "relevant offence" is defined in section 8B of the TAA and relevantly states:
(1)A reference in this Subdivision to a relevant offence is a reference to:
(a)an offence against section 8C ...
Section 8C is within the Subdivision referred to in section 8B.
27. The definition of a previous conviction is also set out in section 8B of the TAA and states:
(2)For the purposes of this Subdivision, a person who is convicted of an offence against section 8C .. .(in this subsection referred to as the "subsequent offence") shall be treated as having been previously convicted of a relevant offence (in this subsection referred to as the "earlier offence") if:
(a)the person was convicted of the earlier offence and the subsequent offence before the same court at the same sitting and the earlier offence was committed:
(ii) at the same time, or on the same day, as the subsequent offence.
10. Mr McInerney submitted there can be no dispute about whether Mr Pappalardo has been convicted of “serious taxation offences”. He has been convicted of five offences of failing to lodge tax returns as required under taxation law. Those are “taxation offences” as defined in s 8C of the TAA. Although the maximum penalty for one offence is a fine not exceeding $2000, where there is a previous conviction, the penalty may be a fine not exceeding $4000. In this matter there are “previous convictions” as defined in s 8B(2)(a)(ii) of the TAA. Thus, under s 8C, the penalty for the subsequent offences is a fine not exceeding $4000. Accordingly those offences are “serious taxation offences” as defined in s 251A of the Act.
11. I find that Mr Pappalardo has been convicted of “serious taxation offences”. Therefore s 251BC(1)(e) of the Act provides that he is “not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters”. However, the use of the word “may”, in s 251K(2) of the Act, as set out in paragraph 5 of these reasons provides a discretion as to whether the registration of a tax agent should be suspended or cancelled where any of paragraphs 251K(2)(a) to (f) apply. Thus the finding that Mr Pappalardo is “not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters”, (perhaps somewhat surprisingly) does not, necessarily, mean that his registration as a tax agent, whose duty it is to perform those tasks, should be suspended or cancelled.
12. Section 251BC(3) of the Act provides the Board, when it is considering an application for re-registration as a tax agent, with a discretion to disregard convictions, if the Board is satisfied that “because of special circumstances” the conviction should be disregarded. There is no similar “special circumstances” provision in regard to cancellation. Instead there is a general discretion in s 251K(2), indicated by the use of the word “may”, as to whether or not the registration of a tax agent should be cancelled.
RELEVANT FACTORS AS TO EXERCISE OF DISCRETION
13. Mr McInerney submitted that the Tribunal should exercise its discretion to cancel Mr Pappalardo’s registration in order to protect the public. As would be expected there is discussion in relevant authorities as to the matters to be considered in exercising the discretion in s 251K(2) of the Act. The matters discussed are:
(i)failure to lodge the tax agent’s own tax returns;
(ii)failure to respond adequately to correspondence from the Board;
(iii)lack of contrition;
(iv)competence and conduct as a professional tax agent.
(i) failure to lodge tax agent’s own tax returns
14. Mr McInerney relied on the often quoted paragraph from the reasons for decision of Davis J, in the matter of Re Su and Tax Agents’ Board of South Australia 82 ATC 4284, where his Honour said, at pp4290-4291:
In all the circumstances of the case, I am of the opinion that Mr Stephen Tien-Ping Su is not a fit and proper person to be registered as a tax agent. Although the power to remove a name from the register is discretionary, this is not a situation where personal hardship can be allowed to prevail over community interest. As was said in relation to legal practitioners by Blackburn CJ, Connor and Davies JJ in Re Guild, & Re Legal Practitioners Ordinance 1970 (1978) 32 ACTR 13 at 35-36:
"The object of disciplinary proceedings is the protection of the public and the maintenance of proper standards in the legal profession. Disciplinary proceedings are not taken by way of punishment, per Barwick CJ in Harvey v Law Soc of NSW (1975) 49 ALJR 362 at 364; 7 ALR 227 at 230, or to exact retribution, per Fox, Blackburn and Woodward JJ in Ex parte A-G (Cth); Re a Barrister and Solicitor (1972) 20 FLR 234 at 244. In the former case, Barwick CJ said that the function of the court was '... to examine the material proffered to it in order to determine whether that material establishes that the solicitor has failed, by action or inaction, to maintain in his conduct the standards required of him as a member of the profession. The court's duty is to ensure that those standards of the profession are fully maintained ...'. In the latter case, Fox, Blackburn and Woodward JJ said that the object of disciplinary action is '... to protect the public and the reputation of the profession'. Their Honours discussed the principles to be applied in determining whether conduct of the practitioner has been of such a nature as to justify the intervention of the court. We respectfully adopt the principles enunciated by their Honours. At 243 their Honours said: 'When it is a question of removal from the roll, there is, in the end, a single question, namely, whether the legal practitioner who has been charged is a fit and proper person to remain a member of the profession (see per Latham CJ in Re Davis (1947) 75 CLR 409 at 416). In Ziems v Prothonotary of Supreme Court of NSW (1957) 97 CLR 279 at 298, Kitto J said that the issue is not capable of more precise statement'."
15. Mr Duggan did not dispute that the reason for cancellation is to protect the public, but he submitted that cancellation was not necessary in Mr Pappalardo’s situation. He submitted that the Tribunal should choose a modest suspension, in “the large expanse of middle ground” between no action and cancellation. The cancellation of Mr Pappalardo’s tax agent registration, Mr Duggan submitted, would be inappropriately severe. He submitted that Mr Pappalardo should not find himself “in the same position as other tax agents who have, at the extreme end of the spectrum, engaged in quite elaborate schemes of tax evasion involving the opening of false bank accounts and the tailoring of other people’s tax returns to suit the agent’s own taxation – tax evasion scheme” (trans. p84).
16. The decisions relied on by Mr McInerney show that this Tribunal has, on a number of occasions, commented that a failure by a tax agent to manage his own taxation affairs, so as to lodge accurate tax returns on time indicates a lack of competence. In Case U122 87 ATC 731 delivered 2 April 1987 Deputy President Thompson said at p735:
The next irregularity alleged was in respect of the applicant’s tax returns. First, he submitted them late, not just once but in several years. Normally a taxpayer is required to lodge his return by the end of August, i.e. within two months of the end of the preceding tax year. Tax agents are given a certain amount of leeway and are permitted to lodge their returns by 31 December. The applicant admitted that he was aware that as a tax agent that was the latest date by which he was required to lodge his tax return. Nevertheless, he did not lodge until 22 February 1985 his return for the tax year which ended on 30 June 1984; he has not yet lodged his return for the tax year which ended on June 30 1986. A tax agent who is competent and desires, as he should, to comply with the law, should be able to lodge his own tax return within the time allowed. The fact that the applicant did not do so is significant; it indicates either incompetence or disregard for the law, or both.
17. Similarly, in Re Carbery & Associates Pty Ltd and Tax Agents’ Board of Queensland 2001 ATC 2025 [2001] AATA 107, Senior Member Fayle said at para 21 (p2033):
In the opinion of the Tribunal, this failure on the part of Mr Carbery to comply with basic requirements of the Australian Taxation Office in regard to its conditions for lodgement of the personal income tax returns of tax agents, is tantamount to a gross dereliction of a fundamental duty. This failure is exacerbated, in the opinion of the Tribunal, because it is a failure to comply by a person who, himself is responsible for the management of his clients’ income tax compliance requirements. (footnote omitted)
18. In this matter the problem of the failure by Mr Pappalardo to lodge his own tax returns is exacerbated by the fact that the conviction on 2 May 2000 was in respect of income tax returns for five consecutive years. Although, as the remarks column shows, those returns had been lodged prior to the hearing of the matter at the Magistrate’s Court, they had not been lodged prior to 17 September 1999. On that date the Board wrote to Mr Pappalardo advising that, as part of its process of checking whether Mr Pappalardo was a fit and proper person to be granted re-registration as a tax agent, it had found that he had not lodged his personal returns of income for the years ended 30 June 1994 and following. Prior to that date, on 10 August 1999, Mr Pappalardo had been served with a final notice requiring him to lodge those tax returns by 24 September 1999, attachment “B” to Mr Vincent’s statement (R2). A summons was issued on 11 November 1999 stating that the returns had not been lodged by that date.
19. Up until shortly before the hearing Mr Pappalardo was not represented. However, he is a solicitor, having been admitted to practice on 31 December 1985. He prepared a Statement of Facts and Contentions and the contentions, no doubt, reflect his understanding of the significance of his failure to comply with his statutory obligation to lodge income tax returns. I find that he has failed to recognise, as pointed out by the Tribunal in Case U122 and in Re Carberry that a tax agent who is competent and desires to comply with the law should lodge his tax return within the time allowed. A failure to do so, not only once but five times in succession, is a gross dereliction of a fundamental duty. A failure which lasts beyond the period allowed in a final notice served on the tax agent is an indication that the person is not a “fit and proper person” to perform the functions of a tax agent.
20. Unfortunately Mr Pappalardo’s attempts to explain or justify his failure to lodge his tax returns on time did not provide any reason for me to change my view that Mr Pappalardo is not a “fit and proper person” to be a tax agent. Nor did they persuade me that the discretion to cancel his registration should not be exercised.
21. Mr Pappalardo stated in his Statement of Facts and Contentions (p2):
I believe that the Magistrates' decision was incorrect, although he suggested that a return should have been lodged, although I knew is was wrong, false or misleading, this could have actually created more trouble later as was signing tax declaration knowing it to be false. I did not expect to these low fines would have fallen into the category of serious offences, because if I was to appeal the decision the cost factor would have been very high, so as an economic decision I decided it was better to just pay the fine and move on.
Also the Magistrates either did [not] believe me or did not understand as I was putting my tax returns in paper format, it does take between 6 to 10 weeks to process, or even to have them initially keyed into having them been received. As my letter to the TAB was dated 24th October, 1999, and my tax returns for the 1994 to 1998, were completed and lodged within 7 to 10 days prior to the that date, so 14th to say 24th October, 1999, but I did not have them date stamped just lodged at the Moonee Ponds Office.
Unfortunately, to my surprise a summons issued on the 11th November, 1999 for non lodgement, so my tax returns although lodged would not show up on the tax office system, even if the Tax Office prosecutor look up the computer on the 10th November, 1999. Also these summons were not served until much later, at this time I can not quote the date, but the summons were extended on the 1st December, 1999, for some unknown reason.
22. I find that each of those paragraphs is inaccurate and misleading. The first paragraph implies that Mr Pappalardo pleaded not guilty and did not appeal the convictions because of the cost of an appeal and the relatively low fines. However Mr Vincent stated (R2 paras 14-16) that on the day of final hearing, 2 May 2000, Mr Pappalardo appeared and pleaded guilty.
23. Mr Pappalardo, as a solicitor, should have known that low fines would not have stopped the offences being “serious taxation offences”, as defined in the Act, because the definition looks to the penalty which may be imposed rather than the penalty which is imposed.
24. Further I find from the statement of Mr Vincent (R2) that, on 10 August 1999, Mr Pappalardo had been served with a final notice requiring him to lodge those tax returns by 24 September 1999, (R2 attachment “B”). The offences were committed on 25 September 1999 when Mr Pappalardo failed to lodge the tax returns as required by the final notice. Thus the Magistrate’s decision was not incorrect, even though the returns had been lodged before the hearing.
25. The summons was issued on 11 November 1999, in respect of the failure to lodge the returns by 24 September 1999. Mr Pappalardo, in his Statement of Facts and Contentions at p2, para 6, stated that the returns were lodged prior to 24 October 1999. I find that assertion was not true. I make that finding because in Mr Pappalardo’s letter to the Tax Agent’s Board dated 24 October 1999 (T17 p43), he stated:
Generally, I believe until I had a clear idea of the amount of money recoverable (if any), I was unable to lodge, and as the liquidator has paid out nothing this write off has brought my income below $5400 so I would be exempt by implication to lodge a return. However, as I am now in a better position to quantify my loss I believe I should lodge a return for carried loss purposes only to provide a continuity purposes to write off this loss against following years.
26. If Mr Pappalardo’s returns had been lodged prior to 24 October 1999, he would not have stated in his letter, “I believe I should lodge a return”. In his evidence, (at trans. p32), Mr Pappalardo said he believed he had lodged the tax returns in the last week of October or the first week of November. In his evidence at the hearing, Mr Pappalardo maintained that the returns had been lodged some weeks prior to 19 November 1999. I do not accept that evidence. I find that the returns were lodged as Mr Vincent stated in R2, para 13, in the week ending 19 November 1999.
27. In the third paragraph of his Statement of Facts and Contentions quoted in paragraph 21 of these reasons, Mr Pappalardo said that the return date of the summons was “extended for some unknown reason”. The extension was from 14 December 1999 to 15 February 2000 (R 2 attachment C). The evidence includes an affidavit of attempted service (R2 annexure D) setting out unsuccessful attempts to serve that summons on 18, 21 and 24 November 1999. It further states “female at address said he is overseas for three months”. Mr Vincent’s statement, (R2) includes an annexure E, which is an Immigration Check showing no record of Mr Pappalardo having left or entered Australia at the relevant time. Mr Pappalardo said that he was not responsible for his wife having given incorrect information to the process server. As I said at the hearing, I doubt that Mrs Pappalardo would have taken that course if she did not consider it to be in accordance with her husband’s wishes. I find that Mr Pappalardo was not frank with the Tribunal in saying the summons was adjourned for “some unknown reason”.. I find that Mr Pappalardo should have been well aware that the reason why the return date was extended was that he had evaded service in November 1999.
28. Mr Pappalardo, in his Statement of Facts and Contentions, stated as to the “serious taxation offences” of which he was convicted (p3):
Nevertheless, although these convictions are now on the record, the TAB should not be allowed to again reuse them after they have already accepted your explanation, also as I have already been punished for non lodgements it would be double punishment to reuse those charges to suspend or cancel registration.
That statement shows a misunderstanding of the concept of a “serious taxation offence” and its role in regard to whether a tax agent is a “fit and proper person” as defined in the Act. It fails to recognise that a decision by the Board to cancel a tax agent’s registration is made for protection of the public, rather than as a punishment of the tax agent. Mr Pappalardo’s statement raises doubt about his competence as a tax agent, and is another factor indicating that cancellation of his registration as a tax agent is appropriate.
29. Another matter of considerable concern was Mr Pappalardo’s evidence as to why he had not lodged tax returns for the years ended June 1994 to June 1999, until late in the year 1999. His explanation was that he could not lodge the returns as he did not know how much he would be receiving from a liquidation. In cross-examination Mr McInerney asked him on what basis he prepared his returns. He said he used a cash received basis. Mr McInerney then put to him that the fact that he did not know what he would be receiving, if anything, out of a liquidation of a company of which he was a creditor, was irrelevant to tax returns which are prepared on a cash received basis, and thus was not a reason to delay preparation of his tax returns. Mr Pappalardo did not have any satisfactory response to that suggestion.
(ii) failure to respond or respond adequately to correspondence from the board
30. The authorities have established that it is a very significant matter for a tax agent to fail to respond adequately to correspondence from the Board. This matter was referred to in Re Cowlishaw & Ors and Tax Agents’ Board of Queensland [1999] AATA 412; ATC 2231. The Tribunal, at para 9, commented on the applicant’s failure to adequately respond to correspondence from the Tax Agents’ Board. It said:
The material placed before the tribunal also shows that the applicants failed to adequately respond to correspondence from the Tax Agents' Board. The tribunal regards the failure to treat the Tax Agents' Board with proper respect, as a serious neglect of the business of a tax agent.
31. Mr McInerney, in his chronology of events, pointed out the number of occasions when the applicant did not respond within the time specified or at all to correspondence from the Board. They are as follows:
Date of Letter from Board Board’s requirement as to response Mr Pappalardo’s
response4 December 2000
(T24 p54)14 days No response 4 January 2001 (T26 p56) 14 days reply dated 17 January 2001 received 22.1.2001 (T30 p62) 19 January 2001
(telephone message T27 p57)
19 January 2001 (T29 p60)14 days
(letter hand delivered)No response
No response
25 January 2001 (T34 p67) no time limit given No response 15 February 2001
(telephone message T35 p68)No response 23 February 2001
(further telephone message T35 p68)No response 28 February 2001
(T37 p72)within 14 days reply dated 16.3.01
received 27.3.01 (T39 p78)2 April 2001 (T40 pp79-80) within 14 days No response 11 April 2001 (T42 p83) no time limit specified No response 12 April 2001 (T43, p84) no time limit specified No response 8 May 2001 (T45 p88)
23 May 2001 (T46 p89)
(Notice of intention to cancel registration as a Tax Agent)5 July 2001 (T53, p98)
30 August 2001 (T54 p99)
no time limit specified
14 days
(Letter returned as undeliverable)14 days
14 days
reply dated
28 May 01
received 8 June 01
(T48 p91)Letters dated 28, 29, 30 and 31 May 01 dealing with matters raised by the Board earlier. Letters received on 8 June (T48-51)
No response
Response 14.9.01
(T55 p100) received 20.9.014 October 2001 (T57 p105) Notice of suspension
32. Many of the letters from the Board raised significant matters in respect of a complaint made by Brown Baldwin Accountants, to the effect that Mr Pappalardo had not responded to their correspondence concerning the transfer of clients’ files to them, as the clients wished to engage Brown Baldwin to prepare future tax returns. Those matters were relevant to a decision whether to suspend or cancel Mr Pappalardo’s registration as a tax agent. It shows a lack of proper respect for the Board and for Brown Baldwin and the clients who wished to retain them as their tax agents, that Mr Pappalardo did not respond to those letters within the time specified, or at all. Further, the failure to respond shows gross incompetence. A person who is competent, and fit and proper to be a tax agent would clearly appreciate the importance of responding fully and promptly to correspondence from a regulatory authority.
33. It is relevant to set out the evidence before the Tribunal as to the complaint made by Brown Baldwin Accountants. The Tribunal had a witness statement (R1) in respect of that complaint. It concerned clients who had formerly been clients of Mr Pappalardo and who had decided, prior to 1 September 2000, to ask Brown Baldwin to prepare their current and future tax returns. Mr Basile, an employee of Brown Baldwin, in his statement, faxed to the Tribunal on 11 November 2002 said that on 1 September 2000 he wrote to Mr Pappalardo:
a.advising that the B…’s had approached our firm to prepare their income tax returns for the 2000 year and into the future;
b.requesting Mr Pappalardo’s advice on any ethical reason that would preclude our firm accepting the appointment; and
c.requesting certain business records, including the B…’s 1999 year assessments, income tax returns, group tax files, loan details and contracts, contracts of property purchases, GST details.
34. Mr Pappalardo did not respond to that letter which appears to be a perfectly proper professional letter. Nor did he respond to three telephone messages left by Mr Basile or to a further letter sent to Mr Pappalardo by Brown Baldwin on 20 October 2000.
35. On 23 November 2000 Mr Baldwin of Brown Baldwin wrote to the Board (T23 p51) advising of the problems the firm had experienced in attempting to make contact with Mr Pappalardo. Mr Basile in his statement (R1) stated that during December 2000 he left a number of telephone messages for Mr Pappalardo, but there was no response to any of those messages. By 4 January 2001, the client had instructed a solicitor to act on his behalf in attempting to obtain his documents from Mr Pappalardo.
36. It seems from Mr Basile’s statement that it was not until 15 January 2001 that the clients signed an authorisation for Mr Pappalardo to release their file to Brown Baldwin Accountants. However prior to that date, Mr Pappalardo had not responded to Brown Baldwin explaining that the lack of a written authorisation was the reason why he had not handed over the documents requested.
37. On 18 January 2001 Mr Basile stated that he attended at Mr Pappalardo’s residential and business address, and as there was no response at the door, left a letter under the door along with a copy of the authority signed by the clients. On 23 February 2001, Mr Basile again attended Mr Pappalardo’s residence. Mr Basile stated in para 23 of his statement:
23On 23 February 2001, I attended Mr Pappalardo’s residence with Mr Luiga Perta of our Office. Mr Pappalardo saw us approach the residence and speak to his wife but drove off without speaking to us. Mrs Pappalardo denied any knowledge of Mr Pappalardo’s business and advised that the address was a private residence.
In paras 25 and 26 Mr Basile further stated:
25.To this date our office has not received any of the documentation requested from Mr Pappalardo.
26.No bill or invoice has been provided to our office or the B…’s.
38. Mr Pappalardo produced at the hearing an invoice dated 16 December 1999 (A1) which he claimed had been sent to the clients on or about that date and which remained unpaid at the date of hearing. I stated at the conclusion of the first day of hearing that I had considerable doubt as to whether that invoice, which was a self serving document, had ever been provided to the clients. If it had, I said I found it incredible that Mr Pappalardo had never responded to Brown Baldwin explaining that the reason why he was not providing the material requested, was that there was an account for $950 rendered on 16 December 1999 and still outstanding. I invited Mr Pappalardo to consider whether he could provide any further evidence at the resumed hearing proving that the account was sent to the clients on or about the date it bears. No such evidence was produced. Further matters which cause me to doubt Mr Pappalardo’s evidence on this issue are that although he claimed in correspondence with the Board on 16 March 2001 (T39 p78) and 31 May 2001 (T51 p94) to be holding the relevant file under a lien for unpaid costs, he never gave any indication as to the amount of those costs. Nor did he state that he had rendered an account to the clients or forwarded any copy of the account to the Board.
39. In his response to the Board of 17 January 2001 (T30 p62), Mr Pappalardo had written that there was “a matter of fees, accounts and out of pocket disbursements that are still outstanding which needs to be settled and paid”. The Board suggested on 25 January 2001 (T34 p67), 11 April 2001 (T42 p83) and 8 May 2001 (T45 p88) that he provide itemised accounts to the former clients. The Board also asked in its letter of 11 April 2001 why Mr Pappalardo had not issued an account when first approached by Brown Baldwin in September 2000.
40. Mr Pappalardo never responded to the Board that he had rendered an account on 16 December 1999, nor did he ever send the Board a copy of that invoice.
41. I am not satisfied that the invoice was prepared and sent to the clients on or about the date it bears. This is because if it was in existence, it would have been logical for Mr Pappalardo to refer to it and send a copy of it to Brown Baldwin when he received their correspondence, and to the Board when it suggested to Mr Pappalardo on three occasions that he send an itemised account to the clients. Further he would surely have referred to it in response to the Board’s letters seeking explanations for his refusal to acknowledge correspondence and to forward the clients’ file to Brown Baldwin. I cannot accept that he would not have referred to the account if he had rendered it in December 1999, when the Board expressly asked in its letter of 11 April 2001, why he had not issued an account (T42 p83).
(iii) lack of contrition
42. The cases, particularly, the Federal Court decision of Hill J, in Stasos v Tax Agents’ Board of New South Wales [1990] 90 ATC 4950 at p4957, make it clear that a lack of contrition or a failure to appreciate the error of his or her ways is a factor relevant to whether a person is “a fit and proper person” to exercise a particular occupation. His Honour said:
Where the issue is whether a person, who has been guilty of misconduct is at a time somewhat after that misconduct a fit and proper person to exercise a particular occupation carrying with it privileges and responsibilities, it will be relevant whether that person has understood the error of his ways. Failure so to do would, of itself, demonstrate his unfitness: NSW Bar Assoc v Evatt (1968) 117 CLR 177 at 184. Thus, where a legal practitioner has been struck off and subsequently seeks readmission to the profession, he may lead evidence that he has redeemed his earlier errors and demonstrate that they did not reflect any permanent defect in character: Ex parte Lenehan (1948) 77 CLR 403 at 424. It will as Lenehan demonstrates, be a step on the way, to show that the applicant now understands that what he did was in error. Failure to admit the error of his ways, and thereby to show his contrition was fatal to the application made by Mr Clyne to be readmitted: see Ex parte Clyne (Supreme Court of NSW, 12 December 1961, unreported)..
It may be noted that in the proceedings in the Supreme Court in Clyne Sugerman J said at 8 of his Honour's judgment:
The court must be convinced that there has been a complete repentance and a determination to persevere in honourable conduct - see In re Weare [1893] 2 QB 439 at 447.
43. In this matter Mr Pappalardo did not demonstrate contrition at all, nor did he demonstrate that he understood the error of his ways. I am not satisfied that he had rendered the account he produced dated 16 December 1999 to his clients. But even when his Counsel acting on his instructions that the account was genuine questioned Mr Pappalardo as to why he had not referred to it prior to the hearing, he was reluctant to admit, that he should have sent a copy of the invoice, he claimed to have sent to the clients in December 1999, to Brown Baldwin and to the Board. He persisted with the claim that he had lodged his five tax returns prior to November 1999, even though some of his statements on that issue were not consistent with his correspondence of 24 October 1999 (as referred to in para 25 of these reasons). He continued to assert that the Brown Baldwin complaint was a civil matter between him and his clients, and that it was not appropriate for the Board to rely on it. He also gave inaccurate evidence on a number of other matters, such as the description of his clientele, and the number of tax returns he had lodged in respect of the most recent tax year. I find that those matters showed a lack of understanding of the error of his ways, a lack of contrition and a lack of respect for this Tribunal. I find that, he continued, even in his evidence at this hearing, to attempt to present a misleading picture of events, and showed no appreciation at all of the difficult position in which he had placed his former clients, and his fellow tax agents, or, of his lack of appropriate response to the Board.
(iv) competence and conduct as a professional tax agent
44. Protection of the public is of course a major object of any system of regulation of a profession or occupation. If tax agents are not competent at their work the public should be protected from relying on them for performance of the tasks required of a tax agent. Similarly the public is entitled to expect that a tax agent’s professional conduct will be appropriate.
45. That point was made by the Tribunal in Re Houvardas and Tax Agents’ Board of New South Wales 91 ATC 2032 where O’Connor J, President said at paragraph 26:
The primary purpose of exercising the discretion to cancel is to protect the public.
The Tribunal affirmed the decision cancelling the applicant’s registration saying at paragraphs 27 and 28:
27. .. . . The applicant has committed a number of serious tax offences and made false statements to the Taxation Board in respect of these matters on two occasions and he has seriously neglected his clients' interests.
28. In weighing these matters against the explanations given by the applicant in his evidence and on his behalf by his Counsel, the Tribunal is not convinced that they are of sufficient weight to counter the need to allow the public to be confident that those who practice as tax agents are fit and proper persons and competent professional people.
46. In this matter I am not satisfied that Mr Pappalardo conducts himself as a competent professional tax agent. He has demonstrated a lack of competence and a failure to appreciate his own obligations and the role of the Board.
47. As discussed earlier in these reasons he failed to appreciate the significance of his “serious taxation offences” in regard to cancellation of his registration. He also gave an explanation as to why he had not lodged his tax returns on time which was not consistent with the fact that he prepared his own tax return on a cash received basis. Further his explanation as to when he believed he had lodged the tax returns, and his claims that he had forwarded an account to his clients in the Brown Baldwin matter in December 1999 were not consistent with other matters referred to in the correspondence. I find that much of Mr Pappalardo’s evidence was confused or intentionally misleading, in respect of those matters.
48. Other matters giving rise to questions about Mr Pappalardo’s competence and conduct as a tax agent were his failure to appreciate the significance of correspondence from the Board and the difficulty he appeared to have in receiving mail from the Board and replying promptly to that mail or to mail from Brown Baldwin.
49. Mr Pappalardo claimed that he did not receive a number of letters which were forwarded to him. I do not accept his evidence as to the number of letters which he claimed went astray, particularly in view of the fact that telephone messages left for him, by both Mr Basile and the Board, were on the evidence before me, unacknowledged. Further, according to Mr Basile’s unchallenged statement, Mrs Pappalardo on 23 February 2001 refused to accept a professional message from Mr Basile, claiming that the address which Mr Pappalardo has at all times maintained as his professional address was a private residence. Tax agents or other professional people should conduct themselves so that they do not fail to respond to mail and telephone messages and should have a professional address at which they may be contacted.
50. Similarly, there is evidence of Mr Pappalardo avoiding and evading contact from accountants and process servers in a manner which is totally inappropriate for a person having professional obligations on behalf of taxpayers in income tax matters. I refer to the account given by Mr Basile in his letter to the Board of the steps Mr Pappalardo took to avoid speaking to Mr Basile and Mr Perta, when they called at his professional address, as set out in paras 23 and 24 of Mr Basile’s statement and Annexure “K” to that statement. I refer also to the statement of Mr Vincent (R2, and annexure D) as to the unsuccessful attempts by a process server to serve a summons, at Mr Pappalardo’s registered address, including his wife advising that he was out of the country, when the Department of Immigration records showed otherwise.
51. In Re Su, Davis J, said that it was distasteful to have to say that he thought some of Mr Su’s evidence before him was either untruthful or misleading. He said at p4290:
Finally, it is necessary that I add, though distasteful that I should have to do so, that I think that some of Mr Su's evidence before me was either untruthful or misleading. I refer, for example, to the fact that the evidence as to the May and June 1981 deductions, in respect of which Mr Su laid blame upon Mr Bong's misappropriation of money, was inconsistent with the evidence later given that Mr Bong remained with Mr Su as his employee until March 1982. And, further, I think that the extent to which blame for Mr Su's problems was placed on others belies credulity. Perhaps some of Mr Su's evidence was not deliberately untruthful. But I think that at least Mr Su's problems have reached such a stage that he is no longer able to think clearly about them.
That passage indicates that the giving of untruthful or misleading or confused evidence is relevant to considering the issue of professional conduct and competence.
52. Another issue which gave rise to concern about Mr Pappalardo giving evidence which was untruthful or misleading arose in respect of an earlier conviction for failing to lodge a tax return. By the time of this hearing that earlier conviction for failure to lodge a tax return was a spent conviction under s 85ZM of the Crimes Act 1914 (“the Crimes Act”).
53. Bearing in mind the purpose of the provision as to spent convictions and the fact that for a conviction for a serious taxation offence to render a person “not a fit and proper person”, it must be a conviction within the last five years, I do not regard the conviction in 1989 (R2 para 3), as itself, of relevance to these proceedings. However there is no breach of the Crimes Act in the respondent having made reference to it. The Crimes Act does make provision for such a conviction to be referred to by a Tribunal for the purposes of making a decision.
54. The relevant sections of the Crimes Act provide as follows:
Meaning of "conviction" and "spent" conviction
85ZM. (1) For the purposes of this Part, a person shall be taken to have been convicted of an offence if:
(a) the person has been convicted, whether summarily or on indictment, of the offence;
(b) the person has been charged with, and found guilty of, the offence but discharged without conviction; or
(c) the person has not been found guilty of the offence, but a court has taken it into account in passing sentence on the person for another offence.
(2)For the purposes of this Part, a person's conviction of an offence is spent if:
(a) the person has been granted a pardon for a reason other than that the person was wrongly convicted of the offence; or
(b) the person was not sentenced to imprisonment for the offence, or was not sentenced to imprisonment for the offence for more than 30 months, and the waiting period for the offence has ended.
The term “waiting period” is defined in s 85ZL of the Crimes Act as follows:
waiting period, in relation to an offence, means:
(a) if the person convicted of the offence was dealt with as a minor in
relation to the conviction - the period of 5 years beginning on the day on
which the person was convicted of the offence; or
(b) in any other case - the period of 10 years beginning on the day on which
the person was convicted of the offence
.
Thus, according to paragraph (b) of the above definition, Mr Pappalardo’s conviction on 20 June 1989 became a spent conviction on 21 June 1999. Section 85ZV(1) of the Crimes Act provides:
Spent convictions
85ZV. (1)Subject to Division 6, but despite any other Commonwealth law or any State law or Territory law, if a person's conviction of a Commonwealth offence or a Territory offence is spent, the person is not required:
(a) in any State or Territory - to disclose to any person, for any purpose, the fact that the person has been charged with, or convicted of, the offence; or
Thus from 21 June 1999, Mr Pappalardo would not have been required to disclose that conviction to any person for any purpose, but he was required to disclose it when he filled in his application for re-registration as a tax agent on 1 March 1998 (T15 pp37-40). He did not do so.
55. That matter may be raised in this application because s 85ZV is subject to Division VI, which provides in s 85ZZH:
Exclusions
85ZZH. Division 3 does not apply in relation to the disclosure of information to or by, or the taking into account of information by a person or body referred to in one of the following paragraphs for the purpose specified in relation to the person or body:
. . .
(c) a court or tribunal established under a Commonwealth law, a State law or a Territory law, for the purpose of making a decision, including a decision in relation to sentencing;
. . .
Thus section 85ZZH entitles this Tribunal to consider Mr Pappalardo’s conviction on 20 June 1989 in its reasons for decision.
56. The only issue arising from the spent conviction which is of relevance is the fact that Mr Pappalardo did not disclose it in his application for re-registration as a tax agent on 21 February 1992, at which time the conviction was not spent. When Mr McInerney asked him why he had not done so, Mr Pappalardo stated that he had not regarded it as a conviction, even though he had been present at court on the day of the hearing. The evidentiary certificate, Annexure “A” to Mr Vincent’s statement, (R2) states that the defendant was convicted of the relevant offence and fined $400.00. I have difficulty accepting Mr Pappalardo’s evidence that, having attended Moonee Ponds Court on the day of the hearing and having been fined $400.00, he, as a solicitor, and a registered tax agent, did not know that he had been convicted of the offence of failing to lodge his 1988 tax return. I find that is another instance in which Mr Pappalardo gave misleading evidence.
57. In that respect this matter is similar to Re Fitzgibbon and Tax Agents’ Board of Queensland (1993) ATC 2053, which involved a tax agent who had made a false statement that he had not been declared bankrupt. Senior Member Beddoe described the false statement in para 34, “as a serious lack of honesty”. He concluded at para 34-37:
34. In his application for re-registration as a tax agent, the applicant demonstrated a serious lack of honesty in his non-disclosure of his status as an undischarged bankrupt. The application form itself reflected the legislative interest in the state of bankruptcy. The formal caveat appended to the form reinforced the seriousness of any representation made on the form. Notwithstanding this the applicant falsely represented to the Board that he was not an undischarged bankrupt and I so find.
35. Further the applicant displayed an inadequate sense of his obligations under the Act combined with an evident reluctance to ascertain and comply with them. Conditions for registration as a tax agent encompass matters beyond financial and technical capabilities and require fitness and propriety in the widest sense given the context and purpose of the Act.
36. The false representation is inconsistent with the integrity required for registration as a tax agent. It follows that the applicant is not a fit and proper person to be registered as a tax agent and the Tribunal so finds.
37. For these reasons the decision under review will be affirmed.
CONCLUSION
58. In Stasos v Tax Agents’ Board of New South Wales 90 ATC 4958, Hill J, at p4958, referred to registration as a tax agent as a “privilege” carrying with it a consequent set of obligations and responsibilities and requiring that a person demonstrate that he is “a fit and proper person to prepare tax returns and transact business on behalf of clients in tax matters”, and that as at the date of the application he is of “good fame integrity and character and has the necessary knowledge and experience to equip himself to perform these tasks”.
59. In this matter Mr Pappalardo is, by definition, not “a fit and proper person to prepare income tax returns” and perform the other specified tasks as a tax agent. Thus under s 251K(2) of the Act there is a discretion to suspend or cancel his registration as a tax agent. I have found that not only was Mr Pappalardo convicted in the relevant period of four “serious taxation offences”, but his explanation as to why he committed those offences is unsatisfactory and raises questions as to Mr Pappalardo’s competence in managing his own affairs and also as to the reliability of his evidence. Mr Pappalardo has repeatedly failed to respond adequately to correspondence from the Board and has shown a lack of appreciation of his obligations in that respect and also of his obligations to clients or former clients and to other tax agents. If a tax agent shows contrition and recognition of the obligations of a tax agent, it is reasonable to expect that the tax agent’s future conduct would be appropriate. In this matter Mr Pappalardo showed no contrition at all, nor did he demonstrate that he understood the error of his ways. I found much of his evidence to be confused and misleading and to give rise to concern about his competence and conduct as a tax agent.
60. To adopt the words of Senior Member Beddoe in Re Fitzgibbon, I find that Mr Pappalardo has displayed an inadequate sense of his own obligations as a tax agent and an evident reluctance to comply with them. I have considerable doubts about his competence, and about the accuracy of his evidence to the Tribunal. I find that he has not conducted himself so as to demonstrate that he has the qualities required of a tax agent under the Act. I find that his registration as a tax agent should be cancelled.
61. The decision under review will be affirmed.
I certify that the 61 preceding paragraphs are a true copy of the reasons for the decision herein of Mrs Joan Dwyer, Senior Member
Signed: Nick Fletcher
Associate
Dates of Hearing 12 March and 9 April 2003
Date of Decision 2 October 2003
Counsel for the Applicant Mr P DugganSolicitor for the Respondent Mr D McInerney,
Australian Government Solicitor
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