Stantin Partners Pty Ltd and Tax Practitioners Board
[2022] AATA 3913
•18 November 2022
Stantin Partners Pty Ltd and Tax Practitioners Board [2022] AATA 3913 (18 November 2022)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2022/5385
Re:Stantin Partners Pty Ltd
APPLICANT
AndTax Practitioners Board
RESPONDENT
File Number(s): 2022/5386
Re:Leonie Ladgrove
APPLICANT
AndTax Practitioners Board
RESPONDENT
Decision
Tribunal:Senior Member G Lazanas
Date:18 November 2022
Place:Sydney
Pursuant to s 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth), the Tribunal decides:
1. subject to (2), the decisions under review are stayed pending final determination of the substantive matters or until further orders of the Tribunal;
2. the Applicants:
(a) must not take on any new clients, including any related entities of existing clients, unless there was a formal retainer in place with that client on or before close of business on 18 November 2022;
(b) must inform existing clients on or before close of business on 2 December 2022, by way of letter in a form approved by the Respondent, of the administrative actions taken by the Respondent and the proceedings currently on foot at the Tribunal;
(c) must inform existing employees on or before close of business on 2 December 2022, by way of letter in a form approved by the Respondent, of the administrative actions taken by the Respondent and the proceedings currently on foot at the Tribunal;
(d) must inform any new employees before or within two weeks of their commencement of employment, by way of letter in a form approved by the Respondent, of the administrative actions taken by the Respondent and the proceedings currently on foot at the Tribunal.
3. the stay order will lapse if the Applicants fail to comply with the requirements in 2.
Pursuant to s 35 of the Administrative Appeals Tribunal Act 1975 (Cth), the Tribunal refuses the confidentiality orders sought by the Applicants.
..............................[SGD]...................................
Senior Member G Lazanas
Catchwords
PRACTICE AND PROCEDURE – applications for stays of decisions – applications for confidentiality – termination of tax agent registrations and imposition of two year bans – whether conditional stay should be granted pending decisions on applications for review – factors relevant to the granting of a stay – prospects of success – consequences if stay not granted – public interest – consequences for respondent in carrying out its functions – whether substantive applications would be rendered nugatory – stay applications granted on conditions including prohibition on taking on new clients and requirement for applicants to notify clients and employees in writing of administrative action by respondent and proceedings at the Tribunal – applications for confidentiality refused as inconsistent with stay applications granted on conditions
Legislation
Administrative Appeals Tribunal Act 1975 (Cth) ss 35, 41
Tax Agent Services Act 2009 (Cth) ss 20-5, 20-15, 30-10, 40-5, 40-15, 40-25
Cases
Evans and Tax Practitioners Board [2019] AATA 1408
Le’Sam Accounting Pty Ltd and Tax Practitioners Board [2020] AATA 3041
M & A Corporate Accountants Pty Ltd and Tax Practitioners Board [2021] AATA 4523
McCarthy and Tax Practitioners Board [2021] AATA 641
Oaklands and Australian Securities and Investments Commission [2011] AATA 199
Pochi and Minister for Immigration and Ethnic Affairs (1979) 26 ALR 247
Poidevin and Australian Securities and Investments Commission [2018] AATA 124
Scott and Australian Securities and Investments Commissioner [2009] AATA 798REASONS FOR DECISION
Senior Member G Lazanas
18 November 2022
introduction
1. On 26 May 2022, the Respondent, the Tax Practitioners Board (the Board), determined that Stantin Partners Pty Ltd (Stantin) and Ms Leonie Ladgrove (collectively, the Applicants) had breached certain sections of the Code of Professional Conduct (the Code) in the Tax Agent Services Act 2009 (Cth) (the TASA).
2. Specifically, the Board decided that the Applicants breached sections of the Code in the TASA which require registered tax agents to, amongst other things, act honestly and with integrity, comply with the taxation laws in the conduct of their personal affairs and ensure that the tax agent services provided by them or on their behalf are provided competently. Consequently, the Board was not satisfied that Ms Ladgrove met the tax practitioner registration requirement that she is a fit and proper person for the purposes of the TASA. Furthermore, the Board decided that Stantin did not meet the tax practitioner registration requirement as Ms Ladgrove, the sole director of Stantin, is not a fit and proper person. Accordingly, the Board decided to terminate the tax agent registrations of Ms Ladgrove and Stantin and to disqualify both from applying for tax registration for a period of two years.
3. On 27 June 2022, the Applicants applied to the Tribunal for a review and stay of those decisions. Broadly, s 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) allows the Tribunal to make an order that stays the operation or implementation of the decision under review until the outcome of the substantive hearing.
4. On 14 July 2022, the Tribunal ordered that the reviewable decisions be stayed on an interim basis until the Tribunal hears and determines the stay applications.
5. On 3 August 2022, the Applicants applied to the Tribunal for confidentiality orders under s 35 of the AAT Act. Specifically, the Applicants sought an order for a private hearing or, at a minimum, for confidentiality orders regarding the identities of the Applicants.
6. The applications for the stay and confidentiality orders were heard on 5 September 2022. The Applicants argued that they have good prospects of success with respect to the substantive review based on key findings made by the Board being challenged, both as to factual and legal matters, particularly as many of the Board’s findings were based on significant negative inferences. The Applicants also submitted that they would suffer significant irreversible impacts if the stay and confidentiality orders were not granted. The Applicants submitted their clients and staff would also be detrimentally impacted.
7. The Board opposed the stay applications and relied, in particular, on the sheer magnitude of the tax shortfalls of clients of Stantin arising from income tax returns (ITRs) lodged by Stantin, as well as Stantin’s own tax compliance deficiencies.
8. For the following reasons, I have decided that the stay orders should be made but on several conditions which include notifying clients and staff of the Board’s regulatory actions. I have decided not to grant the confidentiality orders because they are inconsistent with the grant of the conditional stays, for the reasons explained below.
THE FACTUAL BACKGROUND
9. The disputes involving Ms Ladgrove and Stantin with respect to their tax agent registration arise from tax investigations initially undertaken by the Commissioner of Taxation (the Commissioner) regarding several of Stantin’s clients making ineligible claims for the research and development (R&D) tax concession. The Commissioner was also concerned about Stantin’s non-compliance with its personal tax obligations.
10. In October 2020, the Commissioner notified the Board of potential misconduct by Stantin as a tax agent. In January 2021, the Board commenced an investigation under the TASA into the alleged failures by Stantin and Ms Ladgrove to comply with the TASA.
11. On 26 May 2022, the Board made the following decisions (collectively, the Reviewable Decisions):
(a)to terminate Stantin’s tax agent registration pursuant to paragraph 40-15(1)(b) of the TASA;
(b)to determine that Stantin may not apply for registration for a period of two years from the date the termination of its tax agent registration takes effect pursuant to s 40-25(1) of the TASA;
(c)to terminate Ms Ladgrove’s tax agent registration pursuant to paragraph 40-5(1)(b) of the TASA; and
(d)to determine that Ms Ladgrove may not apply for registration for a period of two years from the date the termination of her tax agent registration takes effect pursuant to s 40-25(1) of the TASA.
12. The Board made the Reviewable Decisions on the basis that:
(a)the Applicants breached ss 30-10(1), 30-10(2) and 30-10(7) of the Code;
(b)it was not satisfied that Ms Ladgrove met the tax practitioner registration requirement under paragraph 20-5(1)(a) of the TASA that she is a fit and proper person; and
(c)it was not satisfied that Stantin met the tax practitioner registration requirement under paragraph 20-5(3)(a) of the TASA that each director of the company is a fit and proper person.
13. The Board found that the Applicants had breached s 30-10(1) of the Code, in that they failed to act honestly and with integrity, by making a false representation to the Board during the Board’s investigation that the Applicants had received and relied upon third-party advice regarding R&D tax concession claims prior to lodging various ITRs for eight of their clients (collectively, the Relevant Clients) for various years of income between 30 June 2013 and 2018. The Board found that either no R&D tax advice was received, or such advice was sought post-lodgement.
14. The Board also pointed to the fact Ms Ladgrove had indirect economic interests in some of the Relevant Clients by virtue of directorships and or shareholdings in entities that were shareholders of the Relevant Clients. One of the Relevant Clients was Carbontrack Ltd (Carbontrack).
15. The Board found that the Applicants had breached s 30-10(7) of the Code, in that they failed to ensure that a tax agent service that they provided, or that was provided on their behalf, was provided competently. That is, the Applicants had lodged ITRs for the Relevant Clients in circumstances where Stantin did not have R&D tax expertise, did not receive specialist R&D advice, nor did it receive any other R&D advice from other registered tax agents supporting the claims made prior to lodgement of the ITRs. According to the Board, this failure was especially serious where the Applicants likely knew, or ought to have known, by virtue of the relationships referred to immediately above, the Relevant Clients were not entitled to the R&D claims.
16. It is appropriate at this juncture to observe that the R&D claims made in the majority of the ITRs in issue were audited by the Commissioner and significant portions were denied, primarily based on a lack of nexus with R&D activities and the absence of contemporaneous records supporting the R&D activities and claims. Significantly, the tax audit outcomes relating to those R&D claims involved tax shortfalls in the order of $4,900,000 as well as the imposition of administrative penalties of approximately $2,600,000 based on recklessness as to application of the taxation laws. The Board observed that as the R&D tax concession may give rise to a refundable tax offset, the lodgement of the ITRs resulted in either tax refunds being paid by the Commissioner to the Relevant Clients or credits being offset against their other tax debts. The Board further noted that all the Relevant Clients, except for Carbontrack, had since been deregistered or were in liquidation. That is, the tax shortfalls were ultimately not collectable by the Commissioner from the Relevant Clients, except as to a small part in the case of Carbontrack which had negotiated a tax settlement with the Commissioner.
17. The Board also found that Stantin had breached s 30-10(2) of the Code, in that Stantin failed to comply with the taxation laws in relation to its personal taxation affairs, by:
(a)failing to comply with its obligations under the Superannuation Guarantee (Administration) Act 1992 (Cth), namely, by failing to lodge 17 quarterly superannuation guarantee charge statements by their respective due dates and pay the associated superannuation liabilities; and
(b)failing to pay its income taxation debts as and when they fell due over an extensive period.
18. With respect to Stantin’s own tax compliance shortcomings, the Board noted that Stantin discharged its integrated client account tax debt in full on 25 March 2022 but its last nil balance before that was on 21 April 2011. In other words, it owed tax liabilities to the Commissioner over a considerable period and, although it had entered tax payment arrangements with the Commissioner from time to time, it had also defaulted on the arrangements and the Commissioner had frequently cancelled the payment arrangements. The Board also found that Ms Ladgrove breached s 30-10(2) of the Code in her capacity as the sole director and supervising tax agent responsible for Stantin as she had failed to cause Stantin to comply with its tax obligations.
19. The Board determined that Ms Ladgrove was not a fit and proper person on the basis that:
(a)as sole director of Stantin, she caused it to engage in conduct leading to the breaches of ss 30-10(1), 30-10(2) and 30-10(7) of the Code;
(b)she failed to show acknowledgement, understanding, or contrition relating to her conduct; and
(c)she is not a person whom the Commissioner, clients and the public could have confidence in that she would perform the functions of a registered tax practitioner competently and with integrity.
20. As Ms Ladgrove was the sole director of Stantin, the Board determined that Stantin ceased to meet the tax practitioner registration requirement that each director of the company is a fit and proper person.
STATUTORY FRAMEWORK regarding tax agents
21. The starting point in relation to the regulation of tax agents under the TASA is s 2-5 which states:
The object of this Act is to ensure that *tax agent services are provided to the public in accordance with appropriate standards of professional and ethical conduct. This is to be achieved by (among other things):
(a)establishing a national Board to register tax agents and BAS agents;
(b)introducing a *Code of Professional Conduct for *registered tax agents and BAS agents; and
(c)providing for sanctions to discipline registered tax agents and BAS agents.
22. Subdivision 60-E of the TASA provides for the investigations that the Board is empowered to undertake including, for example, under s 60-95(1), with respect to any conduct that may breach the TASA. When the Board investigates and finds that the conduct in issue breaches the TASA, then, under s 60 -125(2) the Board must either:
(a)make a decision that no further action will be taken; or
(b)do one or more of the following:
i. impose one or more sanctions under Subdivision 30-B;
ii.terminate an entity's registration under Subdivision 40-A;
iii.apply to the Federal Court for an order for payment of a pecuniary penalty under Subdivision 50-C; or
iv.apply to the Federal Court for an injunction under section 70-5.
23. Part 2 of the TASA contains, relevantly, the requirements for tax agent registration. Section 20-5 sets out the eligibility for registration requirements. Subsection 20-5(1)(a) relevantly states an individual registered tax agent, such as Ms Ladgrove, must satisfy the Board that she is a fit and proper person (paragraph 20-5(1)(a)), and a company tax agent, in this case, Stantin with a sole director, must satisfy the Board that its director is a fit and proper person (subparagraph 20-5(3)(a)).
24. Section 20-15 of the TASA sets out the criteria that the Board must have regard to in deciding whether it is satisfied that an individual is a fit and proper person, which include whether the individual is of good fame, integrity, and character.
25. Pursuant to paragraph 40-5(1)(b) of the TASA, the Board may terminate the registration of a registered tax agent individual if the individual ceases to meet one of the tax practitioner registration requirements set out in s 20-5(1) of the TASA. Pursuant to paragraph 40-15(1)(b) of the TASA, the Board may terminate the registration of a registered tax agent company if it ceases to meet one of the tax practitioner registration requirements set out in s 20-5(3) of the TASA.
26. Part 3 of the TASA contains the Code that applies to, relevantly, all registered tax agents. Section 30-10 relevantly provides as follows:
Honesty and integrity
(1)You must act honestly and with integrity.
(2)You must comply with the *taxation laws in the conduct of your personal affairs.
…
Competence
(7) You must ensure that a *tax agent service that you provide, or that is provided on your behalf, is provided competently.
…
27. Section 30-15 of the TASA provides that if the Board is satisfied, after its investigation, that the tax practitioner has failed to comply with the Code, the Board may terminate the tax practitioner’s registration under s 30 -30.
28. Subsection 40-25(1) of the TASA provides that if the Board terminates an agent’s registration, the Board may impose a period of not more than five years during which an agent may not apply for registration.
THE TRIBUNAL’S STAY POWER
29. The Tribunal’s power to grant a stay is set out in s 41(2) of the AAT Act which states:
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.
30. The Tribunal’s power to grant a stay arises only in respect of a decision reviewable by the Tribunal. As stated at [11] above, the Reviewable Decisions are the decisions to terminate the registration of the Applicants pursuant to paragraphs 40-5(1)(b) and 40-15(1)(b) of the TASA and to impose a 2-year preclusion period before they may apply for registration pursuant to s 40-25(1) of the TASA.
31. The Tribunal must be satisfied in every case that the stay is sought and granted for the purpose of securing the effectiveness of the hearing and determination of the decisions under review. In determining whether a stay is appropriate, the Tribunal may consider a range of matters including the prospects of success; the consequences for the applicant of the refusal of a stay; the public interest; the consequences for the respondent in carrying out its functions depending upon whether a stay is granted or not; whether the application for review would be rendered nugatory if a stay were not granted; and other matters that are relevant: see Scott and Australian Securities and Investment Commission [2009] AATA 798.
32. A stay may be made subject to conditions as set out in paragraph 41(6)(a) of the AAT Act.
33. The Applicants, as the parties seeking the stays, bear the burden of establishing that stays are warranted.
CONFIDENTIALITY ORDERS UNDER THE AAT ACT
34. The Tribunal’s power to order confidentiality is set out in s 35 of the AAT Act which relevantly provides as follows:
Public hearing
(1)Subject to this section, the hearing of a proceeding before the Tribunal must be in public.
Private hearing
(2) The Tribunal may, by order:
(a)direct that a hearing or part of a hearing is to take place in private; and
(b)give directions in relation to the persons who may be present.
Orders for non-publication or non-disclosure
(3)The Tribunal may, by order, give directions prohibiting or restricting the publication or other disclosure of:
(a)information tending to reveal the identity of:
(i) a party to or witness in a proceeding before the Tribunal; or
(ii) any person related to or otherwise associated with any party to or witness in a proceeding before the Tribunal; or
(b)information otherwise concerning a person referred to in paragraph (a).
(4)The Tribunal may, by order, give directions prohibiting or restricting the publication or other disclosure, including to some or all of the parties, of information that:
(a)relates to a proceeding; and
(b)is any of the following:
(i) information that comprises evidence or information about evidence;
(ii) information lodged with or otherwise given to the Tribunal.
(5)In considering whether to give directions under subsection (2), (3) or (4), the Tribunal is to take as the basis of its consideration the principle that it is desirable:
(a)that hearings of proceedings before the Tribunal should be held in public; and
(b)that evidence given before the Tribunal and the contents of documents received in evidence by the Tribunal should be made available to the public and to all the parties; and
(c)that the contents of documents lodged with the Tribunal should be made available to all the parties.
However (and without being required to seek the views of the parties), the Tribunal is to pay due regard to any reasons in favour of giving such a direction, including, for the purposes of subsection (3) or (4), the confidential nature (if applicable) of the information.
…
35. It is generally acknowledged that ss 35(1) and 35(5) reflect the fundamental principle that the Tribunal should conduct its proceedings in the public in the interest of maintaining public confidence in the fairness and integrity of those proceedings. In Pochi and Minister for Immigration and Ethnic Affairs (1979) 26 ALR 247, Brennan J stated at 270:
To exclude the public from a hearing is a serious step, for the Tribunal is required by statute (s 35(3)) to “take as the basis of its consideration the principle that it is desirable that hearings of proceedings before the Tribunal should be in public”. This is a principle which is binding upon courts of justice (see R v Tait, Federal Court of Australia, 1 May 1979, unreported), and which is calculated to ensure that public confidence in proceedings to administer justice is both warranted and maintained. It is a principle of particular importance to a Tribunal which is engaged in reviewing the exercise of administrative power, for administration has hitherto been a cloistered process (McPherson v McPherson [1936] AC 177 at 200) and its exposure to public scrutiny is calculated to enhance greater public confidence in it.
36. Accordingly, the Tribunal should only depart from the fundamental principle if there is “a real possibility of doing injustice to, or inflicting a serious disadvantage upon a party, a witness or a person giving information if the proceedings were in public; or clearly appear that publication of the proceedings would be contrary to the public interest”: see Pochi at 273.
37. The Applicants want confidentiality orders to protect their goodwill and client base as well as the retention of their staff as the Applicants argue that potential loss of clients and staff would lead to enduring commercial damage. The fact that the Applicants may suffer reputational damage, and the implications flowing from that, are not valid reasons for granting confidentiality orders. They do not involve serious disadvantage to any of the parties or witnesses nor are the public proceedings contrary to the public interest. Indeed, it would be contrary to the public interest to suppress these kinds of proceedings involving regulatory actions intended to protect the public. In any event, the granting of confidentiality orders is not appropriate in circumstances where the grants of stays are made on conditions which require notice of the Board’s regulatory action to be given to the clients and staff. Accordingly, the requests for confidentiality orders sought by the Applicants are refused.
THE EVIDENCE
38. Ms Ladgrove gave oral evidence at the interlocutory hearing in support of the stay and confidentiality orders. She was also cross-examined by counsel for the Board. I mostly accept her evidence with some reservations as indicated. One of these reservations concerns the fact that the Applicants did not put on any documentary evidence except for three letters from clients of Stantin which comprised testimonials as to Ms Ladgrove’s good fame and character and the strong relationships with Stantin. I accept those letters as providing proof of the matters contained in them as set out below.
Ms Ladgrove and Stantin
39. Ms Ladgrove is a CPA and registered tax agent and has been practising as an accountant for between 25 and 30 years. She has not previously been the subject of any disciplinary action by the Board. She stated that she started her career in accounting by first working as a receptionist at an accounting firm and then studying accounting part-time. After finishing her degree, she worked her way up through various roles to become a partner of a firm in Melbourne which rebranded in or about 2004 to become Stantin.
40. Ms Ladgrove was a director and supervising agent of Stantin at all relevant times. Besides Ms Ladgrove, the other current supervising tax agent of Stantin is Ms Tanya Schumann, who was appointed on 13 May 2021. Ms Schumann is not a director of Stantin.
Stantin’s business, clients and staff
41. Stantin’s business includes three different operations which are all conducted under the same brand and ownership. They are: (1) financial accounting preparation and tax agent practice; (2) financial advisory and wealth planning; and (3) mortgage broking and debt advisory.
42. Ms Ladgrove stated that, based on the professional insurance arranged by Stantin, approximately 45% of the revenue was directly referable to tax agent work but, in her view, if Stantin was unable to do the tax agent work for its clients, Stantin risked losing the clients altogether. This was because Ms Ladgrove considered other tax agents and advisers would take over the whole of the client relationships. She stated that Stantin’s business would likely not survive. In the written submissions lodged on behalf of the Applicants dated 22 August 2022 at [20], it is stated that nearly 90% of Stantin’s annual revenues are linked to its ability to provide registered tax agent services.
43. Stantin has approximately 450 client groups. Some were individuals but, in most cases, the groups comprised several entities such as individuals and their related companies and trusts. Ms Ladgrove stated that the average number of tax lodgements on the ATO’s tax portal was about 1,700 although she said that number had reduced in recent years. In written submissions lodged on behalf of the Applicants at [18], it is stated that Stantin lodges approximately 1,200 income tax returns annually.
44. Ms Ladgrove stated that the nature of the relationships between Stantin, herself and the clients were mostly long-standing, some more than 30 years. She stated Stantin also had several intergenerational clients. According to Ms Ladgrove, the nature of the work undertaken by Stantin was bespoke for family groups as it had corporate memory of the financial affairs and structures of its clients. She stated that Stantin did not lodge a high volume of individual tax returns.
45. The strong relationships between the Applicants and their clients as well as concerns about potential impacts such as disruption were reinforced by three testimonials provided in support of the Applicants’ stay applications, as set out below (in part).
(1)Letter from Jody Lambden, managing director of Global Edge Group Pty Ltd, dated 2 September 2022. Ms Lambden stated she had known Ms Ladgrove for 35 years and Stantin was the accounting and financial advisory firm used by her business since it commenced, for about 22 years. Ms Lambden stated that “Leonie has always acted ethically and with integrity in dealings with our company. Her advice, professionalism and integrity are beyond reproach”. Ms Lambden also stated “[i]t would be a significant disruption and quite detrimental to the continuity and success of our business were Leonie be unable to provide business and tax advice to us. (sic) Critically, it is the vast amount of corporate knowledge she retains on our business…”
(2)Letter from Mr Nick Theofilakos, principal of Frenkel Partners Lawyers, dated 2 September 2022. Mr Theofilakos stated he had been a client of Stantin for over 20 years, including in relation to taxation and financial services advice. He stated that he had “always found [Ms Ladgrove] to be professional, ethical, committed, reliable and extremely dedicated…. Loosing Stantins and Leonie’s intimate knowledge of my accounting and taxation affairs and her broader guidance would leave an immense void. (sic)”
(3)Letter from Mr Ben Patrick, principal of Patrick & Associates Lawyers, dated 2 September 2022. Mr Patrick stated Ms Ladgrove had been the accountant for his law firm and its predecessors since 2016 and had also assisted him and his wife with their personal tax affairs. He stated “Leonie has been consistently professional, conscientious and prudent … She has ensured that at all times we have remained compliant and are aware of our obligations. Leonie has assisted us with countless aspects of our business. She organised our first bookkeeper … and ensured that our accounting systems were set up and operated correctly … In the event that Stantins were required to cease trading, this would create a immediate difficulty for our business. We are currently moving the firm to join a national law firm … and require the assistance of Leonie to do this. She has been involved with the negotiations, and will be critical to ensure that our accounts are closed off correctly and assets transferred.”
46. Stantin has approximately 20 staff in total, comprising between 12 to 15 accountants, 3 administrative assistants and 3 partners, all of them reliant on Stantin for their remuneration.
R&D Advice
47. Ms Ladgrove stated that staff were never involved in advising or calculating any R&D claims. She stated this was because the partners and staff of Stantin did not have any R&D tax experience. Rather, they relied on clients to source their own R&D tax advice. Ms Ladgrove expressly stated Stantin’s involvement with R&D claims was, at most, limited to checking the amounts representing R&D claims by comparing them to the amounts in the balance sheets and profit and loss statements that were prepared by Stantin.
48. Counsel for the Board asked Ms Ladgrove whether Stantin had processes in place to check whether clients had received advice from specialist R&D advisors. Ms Ladgrove did not answer that question, as her answer was to the effect that Stantin did not have any R&D expertise nor did Stantin have any engagement with the clients’ respective R&D advisors. She stated that Stantin received “the results” from their clients in the form of “schedules” (which I understood to be R&D claim information in a form to accompany ITRs). Ms Ladgrove acknowledged that the process whereby Stantin relied on the R&D “schedules” provided by clients had previously led to problems with the Commissioner not accepting those R&D claims.
49. Ms Ladgrove also confirmed that Stantin’s processes of checking that relevant documents had been provided by the clients, and that the R&D advisers were registered tax agents had improved since the Commissioner’s investigations into the R&D claims of its clients. Ms Ladgrove stated that Stantin now insisted that clients cannot make R&D claims in ITRs lodged by Stantin unless they have detailed R&D advice together with relevant supporting documents such as timesheets. I gleaned from Ms Ladgrove’s oral evidence that she acknowledged that she and Stantin had learned from the experience of the Board’s investigation.
50. As to the timing of receipt of the R&D advice and “schedules” from clients, Ms Ladgrove indicated that these were always received by Stantin at or about the same time as when clients sent in their other tax work papers for the preparation of their ITRs, that is, the R&D advisers would send in the “schedules”, while Stantin was finalising the ITRs. Ms Ladgrove emphasised that the R&D advice was at all times received by Stantin prior to it lodging the ITRs. For example, in relation to Carbontrack, Ms Ladgrove stated that Stantin would have received the R&D advice from PricewaterhouseCoopers (PwC) in the form of a “schedule” on or about the same day Carbontrack received it, around 12 November 2022, and then lodged Carbontrack’s amended income tax returns on about 22 November 2015.
51. However, there was no documentary evidence before me to support Ms Ladgrove’s assertions that Stantin always received such R&D advice before lodgement of the ITRs. This was disconcerting in circumstances where, as counsel for the Board appropriately observed, the Board had flagged this as a key issue throughout the Board’s investigation. Additionally, it was most recently reiterated by the Board in the written submissions filed on 4 August 2022.
52. The T-Documents further reveal that the Board had compiled a table detailing the evidence and supporting information it had collated with respect to its allegations against the Applicants. Specifically, the Board listed information with respect to each of the Relevant Clients, including the dates the relevant ITRs were lodged by Stantin, the details of the R&D advisers as advised by Stantin, the details of the R&D advisers’ dates of engagement and overviews of their engagements and scope of works. That is, the Board prepared a factual matrix with respect to the alleged failure of Stantin to ensure that the Relevant Clients had procured R&D advice before lodgement of their ITRs.
53. As to Stantin’s own tax non-compliance, Ms Ladgrove testified that the income tax debts were due in part to cashflow and financial difficulties faced by Stantin following some significant involvement in ‘pro-bono work’ for a client for a considerable period which first started in about April 2011. Amongst the T-Documents are documents referencing Stantin having incurred significant amounts in opportunity cost and diverted resources to assist its client at that time, Carbontrack, in its defence against the ATO, presumably with respect to the R&D tax concession claims. As noted above, Ms Ladgrove had an indirect economic interest in Carbontrack. In my view, Ms Ladgrove’s description of this work as ‘pro bono work’, in all the circumstances, was perhaps an overly generous portrayal.
54. Separately, another explanation for Stantin’s non-compliance, according to Ms Ladgrove’s oral evidence was that Stantin was the victim of two cyber-attacks on its operations which occurred in July and October 2018 and which effectively disabled Stantin’s IT and payment systems. This led to delays in processing work, as well as some work having to be re-done. Ms Ladgrove said these IT and work issues were finally fixed in 2019 when an insurance payment was made to Stantin but, from early 2020, Stantin’s financial difficulties were compounded by the COVID-19 pandemic. Ms Ladgrove’s explanations were glib and lacking in detail, in particular as to the impact of COVID-19 on Stantin, but I accept that she may substantiate her assertions at the substantive review with documentary evidence.
55. Ms Ladgrove’s explanation for Stantin’s non-compliance with superannuation lodgements and payments was human errors; first, with respect to certain spreadsheets worked on by the internal accountant for Stantin who incorrectly set up the spreadsheet and, secondly, human errors in oversights by Ms Ladgrove as to the superannuation lodgements and payments not being made. While there were 17 quarters of underpayments, Ms Ladgrove also pointed out there were 10 quarters with underpayments of tax liabilities, although she accepted under cross-examination that the amounts owing by Stantin outweighed what was owed to Stantin. These personal tax shortcomings of Stantin, especially as they concern superannuation entitlements of staff, are particularly serious even if it is accepted that they were due to inadvertent human errors. The failures to notice these omissions over such a lengthy period reflect poorly on Stantin’s processes and gives weight to the Board’s concerns with Stantin’s processes regarding R&D advice obtained by the Relevant Clients.
56. As stated above, I mostly accept the evidence given by Ms Ladgrove and make findings accordingly, based on the limited information before me, except where I have indicated my reservations with respect to the lack of documentary evidence.
SHOULD THE TRIBUNAL GRANT STAYs?
57. The Tribunal now turns to consider whether it is appropriate to grant the stays.
Prospects of success
58. It is well established that it is not appropriate for the Tribunal to attempt an exhaustive evaluation of the merits of the case for the purposes of an interlocutory application for a stay order but it must consider whether there are facts and circumstances which, if established at the substantive hearing, would provide a basis for success: Oaklands and Australian Securities and Investments Commission [2011] AATA 199 at [11]; Poidevin and Australian Securities and Investments Commission [2018] AATA 124 at [39] – [40].
59. In my view, the Applicants have pointed to the existence of certain facts about which there may have been a genuine misunderstanding between the Applicants and the Board. In particular, the Applicants referenced potential misunderstandings between the Applicants and the Board which were the basis of the Board finding the Applicants lacked integrity and misled the Board during the Board’s investigation. For example, in relation to the alleged misrepresentation about whether Stantin had received specialist R&D tax advice before lodging ITRs for the Relevant Clients, counsel for the Applicants pointed to the fact of an invoice issued by PwC dated 27 November 2015 for R&D advice to Carbontrack regarding the financial years ended 30 June 2013 and 2014. The ITRs were lodged by Stantin on 21 October 2014 and 31 October 2014, respectively, suggesting, on their face, that the R&D tax advice had not been received beforehand as the invoice was dated 27 November 2015. This was the foundation for the allegation that Stantin had misled the Board in stating that R&D advice had been received before the lodgement of ITRs. However, counsel for the Applicants also pointed to the fact Stantin lodged amended tax returns for Carbontrack with R&D claims in November 2015 and the R&D advice had been received before those lodgements as recounted in Ms Ladgrove’s oral testimony.
60. Counsel for the Applicants argued the statements made to the Board were accurate insofar as the Applicants referenced the receipt of specialist R&D advice before the lodgement of the amended ITRs. In other words, while the Board suspected the Applicants had made false representations to the Board about having obtained expert R&D advice to protect themselves from regulatory action, it is possible there was a genuine misunderstanding about the facts, namely, which ITRs were being referenced. I am prepared to accept based on Ms Ladgrove’s oral testimony that there may have been a misunderstanding, notwithstanding the fact that the Applicants did not provide the abovementioned explanation to the Board until the interlocutory hearing.
61. Counsel for the Applicants separately pointed out that after the receipt of the abovementioned specialist R&D advice from PwC, the R&D claims made by Carbontrack in its amended ITRs were substantially increased. Counsel for the Applicants argued that the Board’s negative findings about the competence of the Applicants must be misplaced, since apparently the specialist R&D advice from PwC had endorsed even larger R&D claims. I am prepared to accept there may be some validity to this argument as PwC is one of the large accounting firms which is likely to have had some R&D advice specialists.
62. Another example of a potential misunderstanding referred to by counsel for the Applicants concerned R&D advice provided by the accounting firm ShineWing Australia Pty Ltd (ShineWing) to Carbontrack. There was correspondence to the effect that ShineWing stated their engagement did not “include registration of any activities, lodgement of any Carbontrack R&D tax schedules or company tax returns for any year” in circumstances where Stantin lodged the ITRs for Carbontrack. However, the Applicants asserted that ShineWing accepted that it did provide advice on “eligibility risks” with respect to the R&D matters in question. Counsel for the Applicants queried whether there was any meaningful distinction and suggested Carbontrack had relied on advice provided by ShineWing in relation to its R&D claims as lodged in its ITRs by Stantin.
63. As stated above, the overarching argument by the Applicants was that the Board had drawn negative inferences with respect to the information it had collated about the Applicants. This was in circumstances where the Relevant Clients with disputed R&D claims were only a handful of companies and were confined, on average, to a period of a couple of years each between 2013 and 2018.
64. On the other hand, the Board pointed to the quantum of the R&D claims, the indirect economic interests of Ms Ladgrove in most of the Relevant Clients and the fact the Relevant Clients had received the benefits of tax refunds or credits to which they were not entitled, and which were mostly unrecoverable by the Commissioner. The undisputed tax shortcomings of Stantin were also of serious concern to the Board, regardless of the explanations proffered. This was due to the prolonged period of outstanding tax liabilities (May 2010 to April 2022) and, although there were tax payment plans arranged by the Applicants with the Commissioner (the Board counted 28 such plans), the reason for so many plans was the Applicants’ repeated defaults.
65. The Applicants argued that even if the failures alleged by the Board were proven, they would not be sufficient to justify the proposed terminations and two-year preclusion periods, and that other sanctions would be more appropriate. In all the circumstances, while the Applicants’ cases may not be hopeless, the practical reality is that the Applicants have tax shortcomings including serial non-compliance with their own tax payment plans. It is unlikely that the Tribunal’s approach to such matters would be to excuse the Applicants with significantly lighter sanctions. As the prospects of success are limited, this matter weighs strongly in favour of the Tribunal refusing the stay or else only allowing the stay with conditions.
66. Ms Ladgrove accepted that Stantin had learnt from the experience with the Board’s investigation into the Relevant Clients and the R&D claims, although I had no documentary evidence before me to substantiate Ms Ladgrove’s claim that Stantin’s processes have since improved. This may be properly canvassed at the substantive review.
Consequences for the Applicants of refusing a stay or imposing conditions
67. The Applicants argued that if the stays are refused, Stantin’s business will not survive. This is because although only approximately 50% of Stantin’s revenue is directly related to the provision of financial accounting and tax agent services, the other workstreams of Stantin including financial advice, wealth planning and mortgage broking are dependent on Stantin’s tax agent relationships with clients. However, the financial implications to Stantin are not a matter that weighs heavily in favour of granting the stays because it is generally accepted that anyone who enjoys the privilege of working in a regulated occupation such as a tax agent, which confers a near monopoly on the provision of tax agent services, must be conscious that there is a risk of loss upon regulatory action by the Board: see Le’Sam Accounting Pty Ltd and Tax Practitioners Board (Taxation) [2020] AATA 3041 at [31] (per DP McCabe).
68. The fact that the different operations of Stantin were all provided by the same company with the tax agent registration resulted from the way in which the businesses were set up. Also, a loss of revenue over the short term may not necessarily lead to closure of the business and may well depend on the financial position of the Applicants to support the business in the meantime, a matter about which there was no evidence before the Tribunal. This was notwithstanding the unsubstantiated assertion in the written submissions lodged on behalf of the Applicants at [21], that Stantin acts as primary lender or guarantor for significant borrowings that may be imperilled if Stantin is unable to maintain its income.
69. I accept that the testimonials provided by a few clients support the Applicants’ argument that clients would be inconvenienced if stays are not granted considering the nature of their longstanding relationships with Stantin. Ms Ladgrove’s evidence in that regard is accepted. I also accept Ms Ladgrove’s evidence that staff would be disrupted and potentially lose their positions and sources of remuneration, if stays are not granted. However, there is some force in the argument put by counsel for the Board that the Applicants have been on notice since at least 27 April 2022 that the outcome of the investigation could result in the termination of their tax agent registrations and they could have arranged for Ms Schumann to continue to service clients of Stantin, under her own registration, with the assistance of the same staff.
70. Having regard to the abovementioned considerations, the consequences for the clients and staff of the Applicants weigh in favour of the Tribunal granting stays. However, the stays will be with conditions requiring the Applicants to notify all clients and staff so that those persons can weigh up for themselves their respective positions. In determining the conditions to impose, I have taken into account the testimonials from clients which demonstrate that they did not have significant difficulties with the fact of the Applicants being the subject of regulatory action. In all the circumstances, it follows that staff should also be made aware of the regulatory action.
Public interest considerations
71. The Applicants acknowledged the public interest in the integrity of the tax agent registration system and the role of the Board tasked with administering the TASA. In particular, the tax agent registration regime has the objective of protecting clients who depend on competent, diligent, and honest tax practitioners to provide tax agent services, as well as promoting trust and confidence in the self-assessment systems of taxation where tax agents play a crucial role: see Evans and Tax Practitioners Board [2019] AATA 1408.
72. The Applicants’ assertion that their conduct does not constitute any risk to the public nor undermine the integrity of the tax agent registration system because the allegations concern only a few clients and are in relation to discrete, historical R&D claims – especially as Stantin no longer acts for the Relevant Clients – ignores the practical reality that the R&D claims in issue were significant. The R&D claims were potentially also opportunistic as the tax debts resulting from the incorrect R&D claims were virtually entirely unrecoverable by the Commissioner. Instead, the benefits flowed to the Relevant Clients, in respect of some of which Ms Ladgrove had passive investment interests. Additionally, while a few select clients have vouched for their experiences with Stantin and Ms Ladgrove, and her good fame, integrity and character, the issue of whether she is a fit and proper person to be a registered tax agent will be canvassed more comprehensively at the substantive review.
73. Stantin’s own shortcomings with its tax compliance, especially in overlooking its superannuation guarantee lodgements and payments, further reinforces that the Applicants have not conducted themselves in a manner that is consistent with the high standards of professional and ethical conduct expected within the tax profession. This factor weighs significantly against the granting of the stays. Notwithstanding this, I agree with the Board’s argument that if a stay is granted, conditions should be imposed requiring the Applicants to notify their clients and staff. The public interest in maintaining community confidence in registered tax agents weighs in favour of the Tribunal granting a stay with conditions.
Consequences for the Board in carrying out its functions
74. Counsel for the Board submitted that if the stays are granted, the Board’s reputation as an effective regulatory body and its ability to discharge its statutory duties under the TASA may be undermined. However, counsel for the Board also acknowledged that these consequences will not be significant, so this factor does not weigh strongly against granting the stays, including stays with conditions. It is also accepted that the proposed stay conditions are consistent with recent Tribunal decisions in granting a stay of a decision regarding the termination of a tax agent registration under the TASA. See, for example, M & A Corporate Accountants Pty Ltd and Tax Practitioners Board [2021] AATA 4523 and Le’Sam Accounting Pty Ltd and Tax Practitioners Board [2020] AATA 3041.
Would the hearing be rendered nugatory?
75. The Tribunal is satisfied on the material before it that Stantin’s business may not survive if the stays are refused, particularly as some of its clients would likely retain new advisors and establish relationships with them. This consideration weighs in favour of the Tribunal granting stays, albeit with conditions for the reasons explained above.
CONCLUSION
76. These applications for review involve serious allegations against the Applicants. The Board submitted that it has a strong case on the material that is presently before the Tribunal. The Applicants also claimed to have a good case, based on both legal and factual matters that are to be challenged at the substantive review as well as the provision of further evidence. I am satisfied the stays would promote the effectiveness of the hearing. However, I consider it appropriate that the Reviewable Decisions be stayed with conditions requiring transparency as to the Board’s regulatory actions. The public interest considerations do not weigh significantly against making stay orders especially where conditions are imposed which at a minimum allow the clients and staff to be informed about the Board’s concerns.
77. As to the conditions, I consider it appropriate that the Reviewable Decisions be stayed with conditions that the Applicants:
(1)must not take on any new clients, including any related entities of existing clients, unless there was a formal retainer in place with that client on or before close of business on 18 November 2022;
(2)must inform existing clients, on or before close of business on 2 December 2022, by way of letter in a form approved by the Respondent, of the administrative actions taken by the Respondent and the proceedings currently on foot at the Tribunal;
(3)must inform existing employees on or before close of business on 2 December 2022, by way of letter in a form approved by the Respondent, of the administrative actions taken by the Respondent and the proceedings currently on foot at the Tribunal;
(4)must inform any new employees of the Applicants before or within two weeks of their commencement of employment, by way of a letter in a form approved by the Respondent, of the administrative actions taken by the Respondent and the proceedings currently on foot at the Tribunal.
78. The stay will lapse if the Applicants fail to comply with any of these conditions. Finally, for the reasons explained above, the confidentiality orders sought by the Applicants are refused.
I certify that the preceding 78 (seventy-eight) paragraphs are a true copy of the reasons for the decision herein of Senior Member G Lazanas
.............................[SGD].................................
Associate
Dated: 18 November 2022
Date(s) of hearing: 5 September 2022 Counsel for the Applicant: Mr P H Cadman Solicitors for the Applicant: Mr A Athanasiou, Thomson Geer Counsel for the Respondent: Ms M L Baker Solicitors for the Respondent: Mr J Kim, TPB Legal Unit
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