FEDERAL COURT OF AUSTRALIA
Tax Practitioners Board v Li [2015] FCA 233
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- AGLC
- Tax Practitioners Board v Li [2015] FCA 233
- Case
- [2015] FCA 233
- Decision Date
CaseChat Overview and Summary
In the Federal Court of Australia, the Tax Practitioners Board brought proceedings against Mr Cheng Cheng Li, also known as Tom Lee, for contravening section 50-20 of the Tax Agent Services Act 2009 (Cth). The issue before the Court was to determine the appropriate penalty for Mr Li's contraventions. The Court had to consider the relevant principles and factors to be taken into account when determining the penalty, including the principles of general deterrence, specific deterrence, and parity. The Court also had to consider the mitigating factors presented by Mr Li, such as his lack of intent to deceive and his cooperation with the Australian Taxation Office.
The Court found that the mitigating factors presented by Mr Li were relevant in determining the appropriate penalty. The Court also found that the termination of Mr Li's registration as a tax agent and the costs order he will have to meet as a result of this proceeding were sufficient punishment. The Court held that the seriousness of Mr Li's contraventions did not warrant subjugating him, his wife, their children, and the wider family they provide and care for, to any greater financial deprivation going forward.
The Court ordered that Mr Li should not be required to pay any penalty to the Commonwealth. The Court also ordered that the respondent pay the applicant's costs of the proceeding as agreed or taxed.
The Court found that the mitigating factors presented by Mr Li were relevant in determining the appropriate penalty. The Court also found that the termination of Mr Li's registration as a tax agent and the costs order he will have to meet as a result of this proceeding were sufficient punishment. The Court held that the seriousness of Mr Li's contraventions did not warrant subjugating him, his wife, their children, and the wider family they provide and care for, to any greater financial deprivation going forward.
The Court ordered that Mr Li should not be required to pay any penalty to the Commonwealth. The Court also ordered that the respondent pay the applicant's costs of the proceeding as agreed or taxed.
Orders
Orders of the court
3. The respondent pay the applicant’s costs of the proceeding as agreed or taxed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
In his amended defence filed on 1 September 2014, Mr Li admitted that he had contravened s 50-20 by making statements to the Commissioner, as a registered tax agent, reckless as to whether the statements were false, incorrect or misleading in a material particular.STATEMENT OF AGREED FACTS A statement of agreed facts (“SAF”) was filed on 23 September 2014 in the following terms:The following facts are agreed between the parties pursuant to s191 of the Evidence Act 1995 (Cth) for the purposes of this proceeding only. This agreement is not to be taken as containing admissions by [Mr Li] to these facts outside that context.BACKGROUND1.Mr Cheng Cheng Li (“Mr Li”), also known as Tom Lee, became a registered tax agent under the Tax Agent Services Act 2009 (Cth) (“TASA”) on 24 November 2010. His registration was terminated by the Applicant on 20 August 2013.2.At the relevant time, Mr Li was an individual registered tax agent with an office at Level 2, Suite 54, 48-50 George Street, Parramatta, New South Wales. He traded under the business name “Accountant Professional Services”.3.Mr Li has not before been the subject of any complaint to the Tax Practitioners Board (“Board”), or the Australian Taxation Office (“ATO”).4.At all material times the ATO operated and managed a web based database system named the Tax Agent Portal (“the Portal”) via the ATO’s website, which gave registered tax agents 24 hour on-line access to its information, functions and services. Mr Li was a sole practitioner and the only person within his business with access to the Portal.5.Mr Li was approved and registered to use the Electronic Lodgment Service (“ELS”) on 27 January 2011. Mr Li’s ELS approval number, password (which changed periodically), and ATO access codes made up his unique identification, enabling him to use the ELS while a registered tax agent. These credentials were maintained by Mr Li at all relevant times.6.The ELS is an electronic exchange data system hosted by the ATO which allows the transmission and receipt of electronic versions of particular returns and reports, forms and data, to and from the ATO. The main feature of the ELS is its ability to accept the electronic lodgement of income tax returns, as well as other superannuation and tax returns, by registered tax agents. This feature is not available on the Portal.CIRCUMSTANCES IN WHICH [MR LI’S] CONDUCT HAS TAKEN PLACE7.Mr Li admits the contraventions of s50-20 of the TASA (making false or misleading statements to the Commissioner).8.In August 2011, a man who introduced himself as Saiful Islam attended Mr Li’s office. Mr Islam told Mr Li that he worked for a recruitment agency and produced a business card from ‘‘Kelly Services,” which is in fact an established recruitment agency with its own website.9.Mr Islam asked Mr Li to prepare and lodge income tax returns (“returns”) on behalf of a large number of taxpayers. The identities of those taxpayers had in fact been stolen, although it is not alleged that Mr Li was aware of that fact. According to Mr Li in his statements later to the ATO and to the Administrative Appeals Tribunal, Mr Islam wore a suit, conducted himself professionally and was very convincing. Mr Li did not seek to verify Mr Islam’s employment with Kelly [S]ervices other than by checking the website for Kelly Services, and did not meet or request to meet or make direct contact with any of the taxpayers referred by Mr Islam.10.Mr Li agreed to prepare and lodge the returns and asked Mr Islam to provide him with information about each taxpayer, such as PAYG summaries and bank account details. The information was contained in several bundles of documents that were subsequently delivered to Mr Li by one of Mr Islam’s associates, a person who called himself “Sam”.11.A few days later, Mr Li was approached in his office by another man who introduced himself as Sunny Rahman and who claimed to work for an employment agency known as “Sunny Employment Services.” Mr Rahman also asked Mr Li to prepare and lodge income tax returns on behalf of a large number of taxpayers. The identities of those taxpayers had in fact been stolen, although it is not alleged that Mr Li was aware of that fact.12.Mr Li agreed to prepare the returns and was provided with documentation by Mr Rahman.13.In bringing the current proceedings against Mr Li, the [Board] relies on 90 income tax returns (“returns”) that Mr Li prepared and lodged, between about mid-August 2011 and 19 September 2011.14.Mr Li charged his usual fee of $60 for each tax return and received a total of $5,400 in fees for work which is the subject of the proceedings. He did not require either of Mr Islam or Mr Rahman to sign any letter of engagement.15.According to the documentation that was provided to Mr Li by Messrs Islam and Rahman:15.1.The majority of the taxpayers had high levels of tax withheld relative to their income and were, on the face of the returns, thereby entitled to refunds.15.2.Work related deductions of about $300 for expenses relating to laundry and uniforms or shoes were claimed. In the case of Mr Azrin Majeed, the work related deductions exceeded $300. Mr Li lodged returns claiming these deductions.15.3.There were different bank accounts nominated for the majority of the taxpayers, but in some instances, the same bank accounts were nominated for multiple unrelated taxpayers. Each bundle of documents had different account numbers for each client, but some of the same accounts were used in later bundles of documents.16.Mr Li queried the level of tax withheld and was told that many of the taxpayers were overseas residents and/or students. Mr Li did not make any inquiries in order to establish the residence status of the taxpayers and, contrary to what he was told by either Mr Islam or Mr Rahman, lodged all 90 returns as residents which had the effect of triggering inflated refunds. 17.Mr Li proceeded to lodge the returns after signed copies had been returned to his office by Mr Islam, Mr Rahman or one of their associates. However, the returns were not signed by the taxpayers.18.In about the second or third week of September 2011, Mr Li was informed by an ATO officer, Ms Teena Walker, that there was a problem with one of the returns because the relevant taxpayer had attempted to submit their return for the 2011 financial year but were unable to because a return had already been lodged on their behalf by Mr Li.19.In about October 2011, Mr Li had several telephone conversations with Ms Luini D’Souza from the ATO. Mr Li says he told Ms D’Souza about his discussion with Ms Walker in September and requested that the processing of relevant returns be stopped. He then faxed through two lists of taxpayers’ names whose returns he was concerned about. The ATO went on to identify a total of 60 returns that were subsequently stopped at the processing stage and selected for a review. Mr Li says Ms D’Souza Instructed Mr Li not to tell Messrs Islam and Rahman that there was a problem and to try to get more information from them.20.Mr Li stated in his 14 June 2013 letter to the ATO that he subsequently told Messrs Islam and Rahman that he could not lodge any more returns unless he received copies of the taxpayers’ drivers licenses and agreements authorising the intermediaries to arrange for the preparation and lodgement of their tax returns. Messrs Islam and Rahman said they had the information from their clients and would provide it but never did so.21.Mr Li did not lodge any further returns after this time.22.The information Mr Islam, Sam and Mr Rahman provided Mr Li, purportedly relating to each of the Schedule C taxpayers (see below), included a false type-written payment summary and, in many cases, handwritten information (sometimes written onto a post-it note) purporting to relate to the Schedule C taxpayers. They did not provide Mr Li with written authorisations from the Schedule C taxpayers that they were claiming to represent. Mr Li did not require either of Mr Islam or Mr Rahman to sign any letter of engagement.23.[Mr Li] does not have a complete record of the returns lodged for Mr Islam, Mr Rahman and Sam.Schedule C Taxpayers24.Between August 2011 and September 2011, 90 income tax returns were prepared and lodged by Mr Li in the name of each of the Schedule C taxpayers, being the total taxpayers in Schedules A and B of the Statement of Claim (lodged between about 11 August 2011 and 14 September 11). The returns were for the tax year ending on 30 June 2011 (“the 2011 tax year”). [Mr Li] lodged each of these income tax returns (hereinafter referred to individually as a “Schedule C return” and collectively as “the Schedule C returns”) using the Electronic lodgement Service (“ELS”). All of the 90 returns were cancelled by the ATO because the Tax File Numbers (“TFNs”) for the actual taxpayers named in the returns had been compromised as they had been used by [Mr Li] without their knowledge (that is, the TFNs were used by [Mr Li] without the actual taxpayers’ knowledge). These 90 TFNs were also compromised and, accordingly, cancelled by the ATO.…26. The Schedule C returns:a.contained information relating to wages, salaries and tax instalment deductions (“TIDs”), which did not accord with the payment summary details reported to the ATO by the relevant employers of the taxpayers; andb.claimed TIDs that were in fact in excess of that to which the actual taxpayers were entitled.27.The ELS recorded the tax agent details of Mr Li as the details of the tax agent who lodged each of the Schedule C returns.28.Mr Li acted on the representations of the individuals purporting to act on behalf of the Schedule C taxpayers, that they had the authority to act on behalf of the Schedule C taxpayers for the purposes of preparing and lodging the Schedule C returns using the ELS.29.At the time Mr Li lodged the income tax returns he either knew that there was a real risk or was grossly indifferent as to whether or not the individuals that attended his office had that authority.30.Mr Li did not use the pre-filling on the Portal or use the Portal to check the PAYG Payment Summaries and other information such as prior year return information, for the 90 Schedule C taxpayers prior to lodging income tax returns on their behalf.31.Employers were required to lodge annual reports of their PAYG payment summaries (known as a “PAYG withholding payment summary annual report”), together with originals of their PAYG payment summary statements issued to their employees and others by 14 August 2011.32.If Mr Li had checked the Portal when preparing and lodging returns after 14 August 2011, being the dates by which employers are required to lodge annual reports of their PAYG withholding payment summaries of their employees to the ATO, it would have alerted him to mismatches between the payment summaries he received and the information on the database (where employers had complied with their statutory obligations).33.The Portal allowed a registered tax agent to, among other things add or delete a client, update client details (such as their name, address, email address and contact details), view a client’s income tax lodgement status and their income tax account balance details, and obtain a pre-generated “pre-filling report” to assist in completing a client’s income tax return.34.The pre-filling report for the 2011 tax year (“pre-filling report 2011”) displayed amongst other things:a)a taxpayer client’s details (name, sex, Australian residency at date of report, address, phone number and date of birth);b)information from PAYG payment summaries lodged by employers with the ATO; andc)particular prior year income tax return details (based on the income tax return lodged for the previous tax year), including spouse as at the previous 30 June (name, sex. date of birth) if a spouse tax offset had been claimed in the previous year’s income tax return.35.The Schedule C returns prepared by Mr Li:a.largely returned assessable income between $27,000 and $32,000;b.leading to $3,068 and $3,744 tax payable; andc.had TIDs between $6,000 and $8,000.36.The TIDs that Mr Li declared in each of the Schedule C returns was significantly higher than the tax that would ordinarily have been deducted by the employer for the amount of wages declared in the returns.37.On 13 October 2012 an interview was conducted on a voluntary basis at Mr Li’s office, attended by Mr Gong and another ATO officer, Ms Jeevachandran.38.On each of the 90 occasions Mr Li lodged a Schedule C return, Mr Li admits that on or about the lodgement date set out in Schedule C for that return, he recklessly made false, incorrect or misleading declarations in the tax agent certificate in respect of that return because:(a)The Schedule C return was not prepared in accordance with information supplied by the corresponding Schedule C taxpayer;(b)Mr Li had not received a declaration from the Schedule C taxpayer stating that the information provided to Mr Li was true and correct; and(c)Mr Li was not authorised by the Schedule C taxpayer to lodge the corresponding Schedule C return on behalf of that Schedule C taxpayer.39.The 90 false tax agent certificates constitute 90 contraventions of s 50-20 of the TASA.40.Apart from the declarations made in the tax agent certificate for each of the Schedule C taxpayers, Mr Li also admits that he was reckless in making statements to the Commissioner in each of the 90 Schedule C returns that were that were false, incorrect or misleading in that they falsely or incorrectly stated the name, identity or details of the taxpayer, based on the information provided to him by the individuals who attended his office, relating to each Schedule C taxpayer.BENEFIT OBTAINED BY [MR LI]41.Mr Li has received a financial benefit (the fees charged) in respect of each of the 90 occasions he prepared and lodged the Schedule C returns, as set out in the Statement of Claim. Mr Li charged his usual fee of $60 for each return and received a total financial benefit by virtue of the contraventions of $5,400.00 ($60 for each return x 90).THE CONSEQUENCES OF THE CONTRAVENING CONDUCT FOR THE COMMONWEALTH AND THE 90 SCHEDULE C TAXPAYERS42.Mr Li’s conduct has contributed to loss being occasioned to the Commonwealth of Australia (“the Commonwealth”), and inconvenience and delay to the Schedule C taxpayers.43.Mr Li’s conduct resulted in the affairs of genuine taxpayers having been compromised by the fraudulent use of their TFNs. The Schedule C taxpayers were required to obtain new TFNs, and in some cases were required to make several visits to an ATO shopfront to verify their identity and to obtain a new TFN. In some cases the Schedule C taxpayers faced delay in receiving their new TFN, as a return had already been lodged in their name by Mr Li on the basis of the fraudulent information provided to him by the individuals who attended his office. This resulted in delays in their refunds being issued.44.Mr Li’s conduct, in lodging the Schedule C returns containing false information, contributed to a loss to the Commonwealth in the amount of $445,917.27 through the payment of refunds to which were not, in fact, payable.…THE CONSEQUENCES OF THE CONTRAVENING CONDUCT FOR [MR LI]46.On 11 January 2013, the [Board] commenced a formal investigation of Mr Li’s conduct for possible contraventions of the TASA. On 31 May 2013 a draft submission to the Conduct Committee of the [Board] (“the Board Conduct Committee”), which outlined evidence obtained during the course of the [Board’s] investigation, and included the material to be considered by the Board Conduct Committee, was sent to Mr Li.47.On 14 June 2013 Mr Li responded to the draft submission by letter.48.By a letter dated 16 July 2013 the [Board] notified Mr Li that inter alia the [Board] was satisfied Mr Li had breached subsection 50-20 of the TASA and that the [Board] had decided to apply to the Federal Court for an order that Mr Li pay a pecuniary penalty under Subdivision 50-C of the TASA.49.On 11 July 2013, Mr Li was informed by the Board that:(a)In accordance with subsection 60-125{2) of the TASA, Mr Li’s registration as a tax agent was terminated under paragraph 40-5(1)(b) of the TASA; and(b)Pursuant to subsection 40-25(1) of the TASA, Mr Li may not apply for registration under the TASA for a period of three years from the date the termination of his registration took place.50.On 20 August 2013, Mr Li’s registration as a tax agent was terminated.51.On 9 August 2013 Mr Li subsequently filed proceedings in the Administrative Appeals Tribunal seeking review of the [Board’s] decisions set out above. The Tribunal affirmed the decisions of the [Board] to terminate Mr Li’s registration as a tax agent, to set a period of three years during which Mr Li may not apply for registration and to reject his application to renew his registration.
Evidence
Evidence Before The Court
This is only a very short affidavit of two paragraphs in which Mr Li seeks to clarify paras 26 and 27 of Ex A. It was objected to on the basis that it raised “a new topic”, but having regard to the considerations referred to in [10] and [11] above in relation to Ex A, I have concluded that Ex B should be allowed into evidence.OTHER EVIDENCEExhibit A Contrary to the submissions of the Board, most of Ex A is relevant and I propose to set it out in full, although only one or two of the annexures. Exhibit A reads:Background1. I am 56 years old.2. I also so go by the name Tom Lee.3. I was born in Swatow in Guangdong, China.4. My occupation in China was a high school teacher.5.I came to Australia in January 1990. I studied accounting at TAFE and Macquarie University.6.Between 1999 and 2006 I worked as an accountant for Naamoro Aboriginal Employment Services.7. In 2002 I became a member of the Institute of Public Accountants .8.From 2006 to 2008 I worked for UCG Tax Pty Ltd. I later moved to an accounting firm called Prompt Accounting, where I worked from 2008 to 2010.9.I became a registered tax agent on 24 November 2010. I started a business known as “Accountant Professional Services” and began operating as a sole practitioner out of a small office on George Street in Parramatta.Falling victim to fraud10.In August 2011, a man walked into my office and introduced himself as Saiful Islam. I had never seen or spoken with Mr Islam before.11.Mr Islam said words to me to the following effect:Islam:My name is Saiful Islam. I Work as a recruitment officer for a recruitment agency called Kelly Recruitment Services. My role is to help my clients find employment and assist them with other services, such as finding accommodation and lodging their tax returns. I would like you to prepare and lodge tax returns on behalf of my clients.12.Mr Islam was dressed in a suit and very well spoken. His conduct was very professional. He handed me a business card, which appeared to be professionally printed and contained the name “Kelly Services.” Annexed to this affidavit and marked “CCL1” is a copy of the business card that I received from Mr Islam.13.We then exchanged words to the following effect:Me:In order to prepare the returns, I will need the following information about each client: their full name, date of birth, address, tax file number, bank account details, occupation, PAYG payment summaries, the details of any other income and the details of any work-related expenses, including copies of invoices and receipts if those expenses are over $300. My fee will be $60 per return.Islam:Yes, I have all of that information. Someone from my office will provide it to you shortly.14.Mr Islam then left the office.15.When Mr Islam was gone, I used my computer to look up the website for Kelly Services that was printed on his business card. I found the website and confirmed that the address for the company was the same as the address that appeared on Mr Islam’s business card. Annexed to this affidavit and marked “CCL2” is a print-out of the website for Kelly Services.16.The Kelly Services website, the business card and Mr Islam’s professional manner and attire all led me to believe that he did in fact work for Kelly Services.17.A few days after Mr Islam’s visit, another man came to my office and introduced himself as Sunny Rahman. I had never seen or spoken with Mr Rahman before.18.Mr Rahman said words to the following effect:Rahman:My name is Sunny Rahman. I work for an employment agency. We have agreements with our clients to help them find employment and assist them with other services, such as finding accommodation and lodging their tax returns. I have a number of clients who need to have their tax returns prepared and lodged, are you able to do it?19.We then exchanged words to the following effect:Me:In order to prepare the returns, I will need the following information about each client: their full name, date of birth, address, tax file number, bank account details, occupation, PAYG payment summaries, the details of any other income and the details of any work-related expenses, including copies of invoices and receipts if those expenses are over $300.Rahman:OK, I will provide all of that.20.Within a few days of attending my office, Messrs Islam and Rahman returned separately with some of paperwork relating to their clients for the tax returns. They came back to my office on several occasions to drop off more documents.21.I reviewed the documentation that had been provided by Messrs Islam and Rahman. It contained all of the information about each taxpayer that I had requested. The taxpayers’ names appeared to match the names on the bank accounts and the bank account numbers appeared to be different. It looked as if the information had been provided by genuine taxpayers.22.I thought that the only way that Messrs Islam and Rahman could have been in possession of personal information relating to a large number of taxpayers was if the taxpayers had willingly provided that information to their employment agencies. I also thought that Messrs Islam and Rahman hoped to get a low fee by having one agent prepare multiple returns.23.I went ahead and prepared the returns that had been submitted by Messrs Islam and Rahman.24.I charged my normal rate of $60 per tax return.25.Most taxpayers had claimed no more than $300 in work-related deductions, with some exceptions. Since the ATO only requires records to be submitted in respect of work related deductions over $300, I thought there was no need to ask for receipts for deductions below $300. But I did ask Mr Islam and Mr Rahman separately to provide copies of receipts or invoices in relation to claimed deductions over $300. If the requested receipts were not provided, I reduced the corresponding deductions to nil or less than $300. This meant that for some taxpayers, there was a difference between the amount of the deduction appearing in the information that was provided to me by Mr Islam or Mr Rahman and the amount of the deduction that was actually claimed in the final tax return that I prepared and lodged on the taxpayer’s behalf.26.I noticed that a high level of tax had been withheld for each taxpayer according to the PAYG summaries that had been provided to me. I raised this separately with Mr Islam and Mr Rahman, in words to the following effect:Me:The PAYG summaries show that there has been quite a high level of tax withheld for each taxpayer. Why is that?lslam/Rahman: These taxpayers are non-residents for tax purposes. A lot of them are foreign students.27.After speaking with Messrs Islam and Rahman, I used the ATO website to check the applicable rates of withholding tax for non-residents. The rates seemed consistent with the amounts of tax that had been withheld in relation to each taxpayer.28.Once the draft returns had been completed, I printed a copy of each tax return and additional copies of the first and last page, which had to be signed by the taxpayer. I gave the documents to Messrs Islam and Rahman so that they could arrange for their clients to sign the papers.29.I lodged the tax returns after Messrs Islam and Rahman had separately returned the signed copies to me and paid my fees.30.In about early September 2011, I received two or three telephone calls from different people at the ATO. On one of the calls I was asked to confirm a taxpayer’s name. On a separate call I was asked to provide a copy of a taxpayer’s PAYG summary. I complied with these requests and the relevant returns were processed by the ATO.31.In about the second or third week of September 2011, I received a telephone call from Ms Teena Walker at the ATO. Ms Walker advised me one of the taxpayers whose return I had already lodged had tried to lodge another return for the 2011 financial year.32.After speaking with Ms Walker, I logged into the ATO’s tax agent portal and discovered that some of the PAYG summaries that had been provided to me by Messrs Islam and Rahman were not recorded on the ATO’s system.33.I had not logged into the portal previously for several reasons. First, I thought the information that had been provided to me about each of the taxpayers, such as PAYG summaries, bank account details and so on, was very clear. Secondly, none of the taxpayers had declared any other income aside from the income stated in their PAYG summary, and I had asked Messrs Islam and Rahman to provide me with the details of any other sources of income that was being claimed by the taxpayers. Thirdly, on the information that had been provided to me, none of the taxpayers were entitled to receive any Centrelink payments because, as I understood from Messrs Islam and Rahman, the taxpayers were mostly overseas students.34.Moreover, in my experience, the information displayed in the ATO portal was not always reliable. For example, the portal might record a taxpayer as having received Centrelink payments when in fact they had not. On other occasions, a client would tell me that they had received income in the form of interest, but the relevant field in the portal would simply say “no details are recorded check with client before lodging.” For these reasons, I would typically check the portal only if I had doubts about the accuracy of the information that had been supplied to me by a taxpayer, or if I needed more information.35.I asked my office assistant, Mr Hoai Nguyen, to look up the telephone numbers for the relevant employers on the internet. Itchen attempted to speak to those employers by telephone. Some of the people I spoke to said they would check their files and call me back, or have a manager call me back. I never heard back from any of the employers I contacted.36.I contacted the ATO and spoke to several officers, none of whom were willing or able to provide me with any assistance.37.Eventually I spoke to Ms Luini D’Souza from the ATO. I explained how I had been asked by Messrs Islam and Rahman to prepare tax returns on behalf of their clients and how they had provided me with information about each taxpayer. I also told Ms D’Souza about the call that I had received earlier from Ms Walker and my concerns regarding the missing employer information. I suggested to Ms D’Souza that the ATO hold off on processing the tax returns that I had lodged.38.I sent three fax messages to Ms D’Souza containing lists of taxpayer names, tax file numbers and bank account details. Annexed to this affidavit and marked “CCL3” are copies of the faxes that I sent to Ms D’Souza in about late September or early October 2011.39.During one of our conversations, Ms D’Souza said words to me to the following effect:D’Souza:Do not inform Mr Islam or Mr Rahman of the situation. Please try to get more information from them to help the ATO uncover the fraud,40.Ms D’Souza also provided me with the telephone number for her direct line, which I used to speak with her on several occasions.41.After speaking with Ms D’Souza, I stopped lodging any more tax returns.42.I was worried about confronting Messrs Islam and Rahman because I thought they might try to threaten me or my family. I decided nonetheless to follow the ATO’s request to attempt to obtain more information from them.43.In about late September or early October 2011, I telephoned each of Mr Islam and Mr Rahman and said words to the following effect:Me:I want you to provide me with a copy of each taxpayer’s drivers license and a copy of the agreement that you have with each client authorising you to lodge tax returns on their behalf.44.Mr Islam responded to the following effect:Islam:Aim going on holidays. My colleague Sam will bring all the information you need to you.45.I had a conversation with Mr Rahman to the following effect:Rahman: Some people do not have a driver’s license.Me: In place of a driver’s license, you can provide me with a copy of the taxpayer’s passport.Rahman:I promise I will bring all the information you need next time.46.Neither Mr Islam nor Mr Rahman provided me with the requested Information.47.Mr Rahman came to my office during the evening a few days later and we had a conversation to the following effect:Rahman:Did you lodge the tax returns I gave to you last time?Me:No, as I had not gotten the information you had promised to give me.48.I did not see or speak to either of Mr Islam or Mr Rahman again.49.On 10 October 2011, I received a telephone call from Mr Run Gong of the ATO. Mr Gong said words to the following effect:Gong:I would like to make an appointment to see you at your office.50.Mr Gong came to my office with another ATO officer, whose name I recall being Angeline, on 13 October 2011. Mr Gong introduced himself and then asked me some questions, such as how I prepared and lodged tax returns, how much I charged and whether l saw clients face-to-face when preparing their tax returns. I responded to all of Mr Gong’s queries.51.I also told Mr Gong about Messrs Islam and Rahman. I told Mr Gong everything that had happened and provided him with all the documents that were in my possession. I cooperated fully with every request that was made of me.52.On 17 December 2011 I received a letter from the ATO thanking me for my cooperation with their investigation and advising me to exercise greater care in verifying the identities of future clients. Annexed to this affidavit and marked “CCL4” is a copy of the ATO’s letter dated 15 December 2011.53.I now know that I was the victim of a sophisticated scam perpetrated by Messrs Islam and Rahman against the ATO.54.I never intended to act dishonestly or to do anything to assist in the commission of the fraud.55.I deeply regret having been caught up in the scam. It has cost me my only source of income on which my entire family and extended family was dependent. I have worked very hard since I arrived in Australia to acquire the skills and experience to conduct a business through which I could support my family. I have now lost not only that business, but the ability to work in any of the areas for which I have training and experience.56.It has cost me dearly in terms of my good reputation in the fields in which I have worked, with the cancellation of my tax agent registration now being public on the Internet. It has embarrassed me in front of all of my professional peers and colleagues that I have been found not to be a fit and proper person to be a tax agent. It has embarrassed me in front of my former clients, who l have had to send away to other tax agents and who are unlikely ever to return to me once the period of my cancellation expires. At that point I will be 58 years old.57.It has also caused me great embarrassment, as well as stress and anxiety, with my family. My children, who are in high school, have the shame of a father who is unemployed. I have difficulty paying the additional expenses for them at school, and in giving them the kinds of things that other kids their age have. For example, our 13- year-old daughter, who is at North Sydney Girls High School, needed a computer for her school work, which I could not afford. One of the other parents gave me a computer, which I have not told my daughter about in order to avoid embarrassing her. I could only pay the parent for the computer after I received money from Centrelink.58.Prior to the incidents arising out of my involvement with Messrs Islam and Rahman, I had never been the subject of any complaint or investigation before the Tax Practitioners Board or any other professional association.Current financial situationFamily dependants59.I am currently living in my family home in West Pennant Hills with my wife, two children, mother and parents-in-law.60.My children are aged 13 and 15. Both are currently attending state high schools.61.My wife does not work because she spends all of her time caring for her father and my mother at home.62.My mother is 82 years old and suffers from dementia. She is unable to look after herself and requires 24 hour care. Annexed to this affidavit and marked “CCL5” is a copy of a letter from Dr Allan Mak regarding my mother’s condition.63.My father-in-law is 79 years old and in extremely poor health. He has osteoarthritis, diabetes and Alzheimer’s disease. He is unable to walk unassisted and requires 24 hour care. Annexed to this affidavit and marked “CCL6” is a copy of a Centrelink medical report concerning his condition.64.At the time of swearing this affidavit, my father-in-law was recently diagnosed with lung cancer. He was recently admitted to hospital. Annexed to this affidavit and marked “CCL7” is a copy of a letter from Hornsby Hospital concerning my father-in-law’s recent treatment. I have also been informed by Centrelink that I am eligible to apply for a carer payment because of my father-in-law’s condition. I have sent an application form to Centrelink and have not yet received a reply at the time of swearing this affidavit.65.My parents-in-law are currently ineligible to receive any Centrelink benefits because they only migrated to Australia about 11 months ago. Annexed to this affidavit and marked “CCL8” are copies of my parents-in-law’s passports and a letter from the Department of Immigration and Citizenship confirming their receipt of permanent visas to Australia.66.My wife, children, mother and parents-in-law are all financially dependent on me as the only income-earner in the family.Efforts to find employment67.I have been unable to find work since my registration as a tax agent was cancelled in August 2013. I had to turn away former clients who still wanted me to prepare their income tax returns because I could no longer practise as a registered tax agent.68.A short time after my registration was cancelled, I found out that my membership of the Institute of Public Accountants will be terminated. This will make it impossible to find work as an accountant performing regular bookkeeping tasks.69.Any accounting or bookkeeping job that I apply for I will have to tell about my time as a tax agent, and the cancellation of my registration. As someone who has been cancelled for not being a fit and proper person, the chances of getting work in accounting or bookkeeping seem to be very small. I have applied for many such jobs since my cancellation but have not been successful. In order to maintain Centrelink payments, I must apply for at least six jobs each fortnight, which I have done. On most occasions I have in fact applied for more than six jobs each fortnight.70.Because I have not been able to get work in accounting or bookkeeping, I have been applying for other jobs. I have no other experience, except in accounting and bookkeeping, and have not been able to get any other job. In about May, I applied for a job at Brighting International Pty Ltd in Rhodes as a warehouse assistant and cleaner. The job was advertised in the newspaper. At the interview, I was told that I was too old and not strong enough to do the job.71.I only received one other phone call from a potential employer who asked me why I had stopped running my business. They never offered me a job.72.I am currently receiving unemployment benefits from Centrelink. Assets and income73.Prior to the cancellation of my registration as a tax agent, my wife used to work for me as an administrative assistant. Our combined net income from the business was approximately $60,000 per annum. After August 2013, we had to close the business. Annexed to this affidavit and marked “CCL9” are copies of notices of assessment of income tax for me and my wife for the income year ending on 30 June 2013.74.My family’s current sources of income comprise the following:(a)my Centrelink New Start allowance, which is approximately $238.50 per week;(b)my wife’s Centrelink New Start allowance, which is approximately $238.50 per week;(c)my wife’s carer allowance for her father, which is approximately $59.10 per week; and(d)my mother’s pension, which is approximately $400 per week.75.My wife and I own our family home, which we purchased in about 2001 for $390,000. I estimate that its current market value is about $720,000. We still owe about $137,808 on the mortgage to ING. I approached some mortgage brokers to refinance the loan in about May, but all of them refused to do so because I have no income to make repayments.76.My only other assets comprise:(a)a 2003 Toyota, which has a market value of approximately $2,500;(b)Telstra shares with a value of approximately $9,000;(c)AMP shares with a value of approximately $1,500; and(d)cash deposits in bank accounts with the National Australia Bank, Westpac and Citibank totalling approximately $736.65 as at August 2014.77.Annexed to this affidavit and marked “CCL10” are copies of account statements from Westpac, the National Australia Bank and Citibank. Liabilities78.Annexed to this affidavit and marked “CCL11” is a spreadsheet that I prepared listing my family income and expenses. My current liabilities comprise:(a)mortgage repayments of approximately $242 per week;(b)council rates;(c)water and electricity bills;(d)telephone and internet expenses;(e)petrol;(f)car registration and insurance;(g)food and groceries;(h)medicine;(i)dental treatment and health insurance ;(j)clothing and footwear;(k)schooling and stationery expenses; and(l)general household expenses.79.In addition to the liabilities listed above, I also owe:(a)Resolve Litigation Lawyers $8,748 in legal fees; and(b)the Australian Taxation Office $1,087.10 in unpaid income tax.
Decision
Reasons for decision
In my considered view, the factors put on behalf of Mr Li in mitigation at [94] and [95] above, are not only relevant in respect of the quantum of the penalty contended for by the Board, but are factors which can be taken into account in arriving at a lesser penalty than any principle of parity coming out of Su might otherwise dictate.CONCLUSION The primary submission on behalf of Mr Li was that the circumstances of this case, including the significant mitigating factors raised in [98] and [99] above, could support a finding that he should not be required to pay any penalty to the Commonwealth. I agree with that submission. The loss of his registration and the costs order he will have to meet as a result of this proceeding are such that he should not be subjected to any further penalty. The seriousness of Mr Li’s contraventions, as a single course of conduct, do not warrant subjugating Mr Li, his wife, their children and the wider family they provide and care for, to any greater financial deprivation going forward.
Ratio Decidendi
Legal Principle Established
In considering the principles to be applied in respect of determining an appropriate penalty under s 76(1) of the Trade Practices Act, Merkel J said at [9]:The size of the contravening companies and their respective capacities to pay a penalty were relied upon as factors in mitigation in the present case. Plainly, such factors can be relevant to the penalty that is necessary to deter the company from contravening the Act in the future. Size may also be relevant to general deterrence because other potential contraveners are likely to take notice of penalties imposed on companies of a similar size. However, a contravening company’s capacity to pay a penalty is of less relevance to the objective of general deterrence because that objective is not concerned with whether the penalties imposed have been paid. Rather, it involves a penalty being fixed that will deter others from engaging in similar contravening conduct in the future. Thus, general deterrence will depend more on the expected quantum of the penalty for the offending conduct, rather than on a past offender’s capacity to pay a previous penalty. I therefore respectfully agree with the observation of Smithers J, referred to by Burchett and Kiefel JJ in NW Frozen Foods, to the effect that, a penalty that is no greater than is necessary to achieve the object of generally deterrence, will not be oppressive. I have approached the issue of corporate penalties on that basis. The penalties in relation to the individuals may need to be tempered by personal considerations.(Emphasis added, internal citations omitted.) His Honour’s observations regarding general deterrence were thus clearly directed toward the imposition of penalties against the corporate respondents in Leahy, as opposed to the individual offenders. As regards the latter category, his Honour expressly stated that “personal considerations” were relevant to the assessment of penalties. The distinction drawn by Merkel J is not reflected in the summary of Leahy that appears at [43] of Nicholson J’s judgment in Clarity1, and does not appear to have been discussed in subsequent cases in which the relevant passages in Clarity1 and Leahy have been cited with approval. Moreover, Merkel J went on to explain in Leahy (at [11]) that, in the circumstances of that case, the giving of undue weight to the corporate respondents’ capacity to pay would “not only produce anomalous outcomes, such as the most culpable offender receiving the lightest penalty, but would also reward companies for carrying on business in a manner that resulted in those companies having few, if any, assets available to pay a penalty when it is imposed”. Those circumstances are clearly distinguishable from the facts of the present case. In any event, the object of deterrence should be given less weight in the circumstances of this case, because of the termination in August 2013 of Mr Li’s registration as a tax agent. This approach was taken by Jagot J in Su at [21] (see [125] below).