Vac Corporate Pty Ltd and Tax Practitioners Board

[2021] AATA 4098

Vac Corporate Pty Ltd and Tax Practitioners Board [2021] AATA 4098 (28 October 2021)

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2021/0634

Re:Vac Corporate Pty Ltd

APPLICANT

AndTax Practitioners Board

RESPONDENT

REASONS FOR DECISION

Tribunal:Member Reitano

Date of decision:               28 October 2021

Date of Written reasons:        9 November 2021

Place:Sydney

The Tribunal affirms the decision under review.

..........[Sdg].................................................
Member Reitano

Catchwords

TAX AGENTS – temporary suspension of registration for submitting returns containing false statements  – breach of obligations of honesty and competence – protection of the public – specific deterrence – general deterrence - appropriate sanction – Decision under review affirmed

Legislation

Tax Agents Services Act 2009 (Cth)

Superannuation Industry (Supervision) Act1993 (Cth)

REASONS FOR DECISION

Member Reitano

9 November 2021

1. On 28 October 2021 the Tribunal gave an oral decision with reasons. The following is a written reduction of those oral reasons.

2. This case is about what happens when a registered tax agent makes false declarations to the Australian Taxation Office (ATO) in annual returns lodged on behalf of trustees of self-managed superannuation funds. 

3. The Tax Practitioners Board (Board) imposed a sanction on Vac Corporate Pty Ltd (Vac Corp) for that conduct, which included a suspension of its registration for three months.  The conduct involved lodging annual returns that contained false statements and other conduct relating to that. Vac Corp has sought a review of the Board’s decision.

   The facts

4. Vac Corp has been a registered tax agent under the Tax Agents Services Act 2009 (Act) since 31 March 2017.  Ms Janet Chen has always been Vac Corp’s sole supervising tax agent. 

5. On various dates between 21 June 2017 and 3 October 2019, a period of just over two years, Vac Corp lodged 20 annual returns for self-managed superannuation funds with the ATO. The annual returns contained a declaration that each of the funds for each of the relevant years had been audited by a named auditor.  As things turned out, they had not been audited by that auditor or, indeed, by a self-managed superannuation fund auditor at all. The matter came to light following the ATO’s notice to Vac Corp that it was conducting a review of the accuracy of information that had been provided to the ATO.

6. Within days of receiving the notification, Vac Corp told the ATO that the funds had not been audited because of: ‘[a] strained relationship with our ex-auditor and because we did not provide sufficient time for the funds to be audited by him and so we went ahead and lodged them’.

7. On 20 July 2020 the Board told Vac Corp that it was investigating the matter under the Act and sought a response. 

8. On 14 August 2020 Vac Corp responded to the Board telling the Board what it had already told the ATO and acknowledged that ‘[w]e made a mistake and we are rectifying the situation’ and indicating that ‘[a]fter this incident any super funds that we have completed have been audited before we lodged them’.   

9. On 12 November 2020 the Board issued a notice of alleged failure to comply with the Act, which identified two breaches of the Code of Professional Conduct in section 30-10 of the Act (Code).  

10. First, there was alleged a  breach of the obligation to act honestly and with integrity by making false statements through the misuse of an auditor’s number on 13 self-managed superannuation fund annual returns in respect of eight clients.

11. Second, there was alleged a breach of an obligation to act competently by failing to ensure that the superannuation funds of those eight clients were audited before lodging the relevant returns.  As it turned out, ultimately, that there were 20 returns lodged with false statements in them. 

12. On 8 December 2020, Vac Corp wrote to the Board admitting that it had made the ‘mistake’ of ‘not providing sufficient time for the funds to be audited before we went ahead and lodged them’ and indicating that rectification had been undertaken. 

13. On 11 December 2020, Vac Corp told the ATO about 19 of the annual returns that had not been audited.  The Board was not aware of that letter until the hearing, but not much seems to turn on that except it reinforces Vac Corp’s owning up to what it did. 

14. On 17 December 2020, the Board was satisfied that both breaches of the Code, that is the breach of the obligation to be honest and act with integrity and the breach of the obligation to be competent, occurred and decided to impose administrative sanctions. 

15. The sanctions imposed involved a written caution, an order that Ms Chen undertake three courses of education; one in the Act, one in ethics and one in self-managed superannuation funds and provide evidence about her completion of those courses and an order suspending Vac Corp’s registration under the Act for three months.  I should interpose that the question of the written caution is not a reviewable decision. It is also appropriate to indicate that Ms Chen has diligently completed the courses, which she was required to undertake.

16. On 15 January 2021, the Board told Vac Corp about the sanctions and indicated the suspension would take effect from 15 February 2021. 

17. On 4 February 2021, Vac Corp made an application to the Tribunal for a review and later in February 2021, subject to some conditions, the decision to suspend Vac Corp’s registration was stayed pending finalisation of the review. 

18. On 3 March 2021, Vac Corp lodged amended annual returns for all of the funds except one.  Two of the amended annual returns resulted in taxation adjustments.  It is safe to assume from the submissions made by the Board that there were no serious consequences, in a practical sense, for any of the funds that followed from the breaches. 

19. On 13 May 2021, the Board found out about the seven further funds that were the subject of the notification to the ATO on 11 December 2021. 

    The Act

20. The Act regulates the provision of tax agent services with the object of making sure that those services are provided to people in accordance with standards of professional and ethical conduct. It does that by establishing a board to register agents, establishing the Code and by providing sanctions to discipline tax agents, which include the ultimate sanction of termination of registration. 

21. The Code is legislatively prescribed and, unsurprisingly, contains an obligation in section 30-10(1) that registered tax agents must act honestly and with integrity and a later obligation that the tax agent services provided by an agent are to be provided competently. 

22. The Board may, following an investigation, impose administrative sanctions which include a caution in writing, suspension of registration for a period determined by the Board and terminating a tax agent’s registration where there is a found breach of the Code. The Board may also make orders requiring the agent to take action such as undertaking a course and requiring an agent to be supervised or limiting the kinds of services an agent may provide. 

23. The Tribunal when reviewing a decision of the Board to impose a sanction or sanctions stands in the position of the Board in determining what, if any, sanctions should be imposed. 

24. I should add a reference to two other legislative matters that are important. First. s.35C of the Superannuation Industry (Supervision) Act1993 requires for each year of income the trustee of the self-managed superannuation fund must ensure that an approved self-managed superannuation fund auditor is appointed to give the trustee a report for the entity for that year. The auditor is required to be appointed within a period set out in the regulations.  The failure to appoint an auditor is an offence. 

25. Second, s.35D of that Act provides that self-managed funds, or superannuation funds, are required to lodge returns by a particular date, which is, for present purposes, a date specified by the Commissioner as the day the taxpayer was required to lodge their income tax return.

    The issue

26. The issue is a very narrow one because Vac Corp has admitted the two breaches of the Code: that is, that it did not act with honesty and integrity and did not act competently. The issue is whether the administrative sanction, in addition to the written caution, which is not capable of being reviewed, and the education orders, which are not subject to such an application here, should be imposed. 

27. Vac Corp says very succinctly, and pointedly, that it does not consider that the sanction involving a three-month suspension is reasonable given that it is its first offence. Vac Corp relies upon the fact that it co-operated in the Board’s investigation from the outset, that it did not try to mislead the Board in its investigation, that it acknowledged its mistake and that it took every step it was required to take.  Vac Corp points to the fact that the education orders have been complied with.

    The appropriate sanction

28. There are two significant features of the breaches that have occurred in this case that are significant.  First, that they involved dishonesty and, secondly, that they were repeated over a fairly long period of time. 

29. There are two possible views of the dishonesty. The first is simple. Vac Corp knew that the superannuation funds had not been audited and despite its knowing that made the false statement to the Commissioner that the appointed auditor, or an accredited auditor, had, in fact, audited the superannuation funds. 

30. The second is a little bit more complicated. It arises from an understanding Vac Corp’s statement that the cause of the ‘[s]trained relationship with our ex-auditor and because we did not provide sufficient time for the funds to be audited by him and so we went ahead and lodged them’. And the statement: ‘[w]e made the mistake of not providing sufficient time for the funds to be audited before we went ahead and lodged them’.

31. These statements suggest that Vac Corp did not know that the audit had been undertaken before the annual returns were lodged but that was for a different reason, namely that not enough time had passed.  The statement that it did not provide sufficient time as being the reason suggests that Vac Corp had no intention of verifying one way or another whether the audit had been conducted before lodging the annual returns. If sufficient time had passed, it seems quite irrespective of whether the audits were conducted and whether or not the audited annual returns had been provided to Vac Corp, or to anyone else, they would have been lodged with a statement suggesting that the audit had been undertaken.  In that sense, the breaches would have been intentional and that they involved a complete disregard for ascertaining what the truth might be. 

32. The statements made to the ATO that, after ‘careful review’, it was found out that these funds had not been audited needs to be understood in that light, namely because of the assumed position that had been taken that the audits had been undertaken, ‘careful review’ was necessary to uncover the fact that the assumed position was wrong. 

33. In that light, the dishonesty had a slightly different character from out and out dishonesty, or intentional dishonesty in the face of known facts to the contrary, because it did not involve knowing the true position and presenting another one. Rather, it was because of wanton or reckless behaviour that had no regard to the real or true position because there was no intention of ascertaining what the truth was. Vac Corp proceeded without finding out whether the audit had, in fact, been conducted so long as it allowed enough time for an audit to be undertaken. Viewed that way, Vac Corp’s statement that it made a mistake is a little more understandable. 

34. I do not think it matters too much which view of the dishonesty is involved. It goes without saying that a professional and ethical process of tax administration using registered tax agents relies very heavily on the public’s and the ATO’s ability to have trust and confidence in tax agents. When a tax agent gives their word to someone, perhaps, especially the ATO but probably equally others, that should be the end of the matter. There should never be any reason to doubt the word of a registered tax agent. 

35. The obligation on behalf of registered tax agents to be honest carries with it an obligation, not only to tell the truth, but to make inquiry so as to ensure that what they are telling the ATO is, in fact, true.  The making of a statement without any basis for knowing whether or not it is true carries the real risk that the tax agent’s word cannot be relied on. That is antithetical to honesty and integrity: representing something without a proper basis for making the representation is as dishonest as representing something that is known not to be the case.  As I have said, on either view, the fact that the same thing happened over a few years also gives the conduct a very different character.  It demonstrates a repeated failure to be honest.

36. Although the conduct involved a course that constituted a single breach, and that is the way in which the Board presented the matter, its repetition time and time again demonstrates a continuing failure over time to understand that what was being done was, in fact, dishonest.  The conduct may have been viewed very differently if it involved a single breach in relation to a single annual return on a single occasion.  The colour of the conduct is much different to that because it happened about 20 times over a period of something like two years.

37. The Board points to the serious consequences for the relevant funds involving exposure to criminal sanction. Although that is true, in my view, I do not think it alters greatly the character of what Vac Corp did. It told the ATO something that was either not true, or something which it did not know to be true.  In the same way, Vac Corp points to the fact that there were no consequences as a result of what it did. That, too, is, in my view, not all that relevant given that what the ATO was told was untrue and the ATO should have had no reason at all to doubt Vac Corp’s word. In the view I take, it is not to the point to suggest that the consequences were great or small. The ATO should be entitled to rely on the tax agent’s word regardless of what the consequence of untruthfulness might be.

38. The purpose of any sanction imposed for a breach of the Code is protection of the public. This is achieved by resort to the mechanisms of specific and general deterrence.  By imposing a sanction Vac Corp will be deterred from breaching the Code in the future and so, too, will other registered tax agents who see what has happened in this case. The need for specific deterrence must take into account Vac Corp’s early disclosure of its breaches, although it has to be said, in the light of the information that the ATO held, it is difficult to see how Vac Corp could have done anything different, such as to deny any of the breaches. 

39. Also, Vac Corp has rectified all of the breaches and that is a factor that needs to be measured in the balance when considering the need for specific deterrence.  So, too, should account be given to the fact that Ms Chen has undertaken, with some degree of diligence, the courses that she was ordered to undertake.  Ms Chen also said that Vac Corp has learnt from its mistake. There was an air of believability in what she said but, again, it occurs against the background that I have outlined. Those things mean that considerations of specific deterrence are not as significant as they might otherwise be. Had I not been impressed by Ms Chen’s acceptance of her wrongdoing I would have considered a much longer period of suspension as appropriate.

40. In my view, the role of general deterrence in protecting the public is more important in this case because it involves, as I have said, dishonesty over a long period of time on more than a dozen occasions. The message needs to be sent to the registered tax agent community generally that any dishonesty, with great or small or no consequence, in dealings with the ATO, or with others, will not be countenanced. That is consistent with a system of professional and ethical tax agent conduct. There needs to be a demonstrable censure of the conduct that operates as a serious deterrent for others doing likewise. 

41. In the end, it is because the breach was so serious, so egregious, involving such a central obligation of tax agents, to be honest, that a meaningful sanction going beyond a caution and education orders is required. As I have said, it is probably no mere matter of coincidence that honesty appears as the very first of the obligations in the Code. The circumstances here involving a recently registered tax agent, with an otherwise unblemished record, and the significant response involving admissions, rectification and remorse, means that a sanction at the lower end of the scale should be preferred.

42. I consider that in the circumstances a suspension of registration for a period of three months in addition to the education orders and the caution is appropriate.  

    DECISION

43. The Tribunal affirms the decision under review.

44.     I certify that the preceding 43 (forty-three) paragraphs are a true copy of the written reasons of the decision herein of Member Reitano

............[Sgd]..................................................

Associate

Dated:   9 November 2021

Date of hearing:	28 October 2021
Representative for the Applicant:	Ms Chen and Ms Li
Counsel for the Respondent:	Ms Horan