Wadsworth and Tax Agents' Board of New South Wales
[2004] AATA 1321
•13 December 2004
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2004] AATA 1321
ADMINISTRATIVE APPEALS TRIBUNAL )
) No A2004/222
GENERAL ADMINISTRATIVE DIVISION ) Re GARY WADSWORTH Applicant
And
TAX AGENTS' BOARD OF NEW SOUTH WALES
Respondent
DECISION
Tribunal Mr S. Webb, Member Date13 December 2004
PlaceCanberra
Decision The decision under review is affirmed. ..............................................
Mr S. Webb, Member
CATCHWORDS
TAX AGENT REGISTRATION – application for registration – fit and proper person - qualifications for registration – meaning of “relevant employment” – contract for service – prescribed qualification not satisfied – decision affirmed
Income Tax Assessment Act 1936 ss 251BC, 251JA, 251L, 251N, 251O, 251QA, 266,
Income Tax Regulations 1936 r 156
Taxation Administration Act 1957, Schedule 1, s 12-35
Commissioner of Taxation of The Commonwealth of Australia v Griffin & White (1985) 7 FCR 566
Tax Agents' Board of Queensland v Seymour (1990) 21 ATR 200
Re Ax03F and Tax Agents’ Board of NSW (2004) 56 ATR 1022
Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16
Tax Agents' Board of New South Wales v Martin [1997] 249 FCA (17 April 1997)
Re Underwood v Tax Agents’ Board of Queensland (1993) 93 ATC 2137
Re S. & T. Income Tax Aid Specialists Pty. Limited & anor and Tax Agents' Board, New South Wales [1987] AAT 3364
Country Metropolitan Agency Contracting Services Pty Ltd v Slater and WorkCover/CGU Workers Compensation Insurance (SA) Pty Ltd [2003] SAWCT 57 (30 May 2003)
Willett v Boote (1860) 6 H and N 26 : 158 ER 11
Builders Workers’ Industrial Union of Australia & Oliver & Anor v Odco Pty Ltd (1991) 99 ALR 735
Chenoudra v Tax Agents’ Board of NSW (1991) 22 ATR 3179
REASONS FOR DECISION
December 2004 Mr S. Webb, Member 1. By this application Gary Wadsworth is seeking relief from a decision of the Tax Agents’ Board of New South Wales (“the Board”) to reject his application for registration as a tax agent.
2. The matter came on for hearing in Canberra on 1 December 2004. Mr Wadsworth represented himself with the assistance of a friend, Mr A. Snashall, and gave oral evidence. Mr M. Allatt represented the Board. Mr J. Leury gave oral evidence and materials tendered during the hearing were labelled as exhibits. Mr Wadsworth tendered written submissions dated 9 September 2004 (“Wadsworth submissions”). Reference will be made to those submissions in the following reasons.
factual context
3. The following facts arise from the materials before me and are not in dispute.
4. During all relevant periods Mr Wadsworth and his wife were company directors of Micro Automats Pty Ltd (“Micro Automats”). The business of Micro Automats was providing “entertainment, electronics and computer services” that included “information technology, point of sale and financial management information systems” (Wadsworth submissions, p1).
5. During all relevant periods Mr Wadsworth was the principal employee of Micro Automats.
6. From 15 February 2000 to May 2003 Mr Wadsworth provided certain services to John P. Leury and Associates (“J.P.Leury”) via an unwritten agreement with Micro Automats. By that agreement J.P.Leury paid fees to Micro Automats and Micro Automats paid Mr Wadsworth’s salary and related Pay as You Go (“PAYG”) taxation contributions.
7. John P. Leury was a registered taxation agent during all relevant periods (Tax Agent Number: 58278015).
8. From 16 May 2003 Mr Wadsworth provided certain services to Mattkat Taxation Solutions (“Mattkat”), a partnership between Mr Timothy Smith and Mattkat Taxation Solutions Pty Ltd, by an unwritten agreement with Micro Automats, whereby Mattkat paid fees to Micro Automats and Micro Automats paid Mr Wadsworth’s salary and related taxation contributions.
9. Mattkat was a registered taxation agent during all relevant periods (Tax Agent Number: 73627002).
10. On 22 March 2004 Mr Wadsworth lodged an application for original registration as an individual tax agent attaching statements of employment by J.P.Leury and Mattkat (T4 folios 10-12 and 13-15 respectively).
11. On 24 June 2004 the Board considered Mr Wadsworth’s application and decided not to grant registration, subsequently stating on 1 July 2004 that “[the Statement of Relevant Employment from Mattkat Taxation Solutions] is from an employment company not controlled by the agent and consequently does not comply with the ‘relevant employment’ requirements” (T2 folios 3-4).
12. On 27 July 2004 Mr Wadsworth lodged an application for review of the Board’s decision by the Administrative Appeals Tribunal (“the Tribunal”) (T1).
legal principles
13. Mr Wadsworth’s application rises pursuant to s 251QA of the Income Tax Assessment Act 1936 (“the Act”). Under the Act the Board “shall register” a natural person as a tax agent if “the applicant is a fit and proper person to prepare tax returns and transact business on behalf of tax payers in income tax matters” and is not an undischarged bankrupt (ss 251JA(1)). However, a person is not a fit and proper person if the person, inter alia, does not “hold such qualifications (whether academic, by way of experience or otherwise) as are prescribed” (ss 251BC(1)).
14. The Income Tax Regulations 1936 (“the Regulations”) set out the qualifications required for the purposes of subparagraph 251BC(1)(b)(ii) (reg 156). Relevantly in this case reg 156 (1)(c) applies. The issue in dispute is whether the arrangements between Mr Wadsworth and J.P.Leury and Mattkat, respectively, are within the terms of the prescribed qualifications relating to “relevant employment”, specifically:
“(c) the person:
…
(ii) shall have:
(A) been engaged in relevant employment on a full-time basis for not less than a total of 2 years in the preceding 5 years;
(B) otherwise been engaged in relevant employment to an extent that the Board regards as equivalent to that referred to in sub-subparagraph (A); or
(C) been engaged in such other employment and for such time as the Board regards as equivalent to being engaged in relevant employment as referred to in sub-subparagraph (A); and …”
“Relevant employment” is given meaning by reg 156(2), which states:
“(2) In this Regulation relevant employment means employment by a person or a partnership or as a member of a partnership in the course of which there has been substantial involvement in income tax matters including:
(a) the preparation or examination of a broad range of income tax returns;
(b) the preparation or examination of objections to assessments issued in respect of such returns; and
(c) the provision of advice in relation to income tax returns, assessments or objections.”
issues for determination
15. The issue for determination is whether Mr Wadsworth is a fit and proper person to prepare tax returns and transact business on behalf of tax payers in income tax matters. Specifically, it must be determined whether Mr Wadsworth has the requisite qualifications for registration as a tax agent.
summary findings
16. Mr Wadsworth does not hold qualifications as prescribed by the Regulations to prepare tax returns and transact business on behalf of tax payers in income tax matters and therefore is not a fit and proper person to be registered as tax agent.
decision
17. The decision under review is affirmed.
reasons for the decision
18. Making this decision I have carefully considered the evidence, the submissions made by the parties, the relevant caselaw and legislation.
19. The issues agitated before me in these proceedings were confined to the proper construction of the prescribed qualifications for registration as a tax agent, concerning “relevant employment”. It was accepted that reg 156(1)(c) appropriately applies in the circumstances and that Mr Wadsworth satisfies the requirements of reg 156(1)(c)(i) and (iii). That being so, it remains for me to determine whether Mr Wadsworth holds qualifications within the requirements of reg 156(1)(c)(ii), and if so, to determine whether he is a fit and proper person for the purposes of s 251JA of the Act.
20. In the Board’s submission, Mr Wadsworth was not in “relevant employment” in the five years prior to his application for registration and does not, therefore, satisfy the prescribed qualification requirements. It was contended that Mr Wadsworth’s working relationship with J.P.Leury and Mattkat, respectively, is properly characterised as that of a contractor, whereby Micro Automats contracted to provide services to J.P.Leury and Mattkat on a fee for service basis and Mr Wadsworth delivered the services as an employee of Micro Automats.
21. That analysis of the arrangements between Micro Automats and J.P.Leury and Mattkat is reinforced by evidence that fees were paid by the putative employers to Micro Automats on presentation of invoices in relation to the work conducted by Mr Wadsworth (Exhibits R1 and R5). It is germane to briefly consider the specific arrangements between Mr Wadsworth and J.P.Leury concerning fees, which can be summarised as follows:
(a)Micro Automats was paid a fee of $40 per hour for time spent by Mr Wadsworth on J.P.Leury’s account, liaising with Mr Leury and “senior staff” (Mrs Glennys Leury), liaising with and interviewing clients, entering tax related data and preparing tax returns on J.P.Leury’s IT system, reviewing databases and downloading MYOB software files from the Internet, undertaking MYOB book-keeping functions and preparing client file notes;
(b)Micro Automats was paid a fee, being 75 percent of the charge billable by J.P.Leury, for tax returns lodged by J.P.Leury on behalf of clients introduced by Mr Wadsworth, some of whom, at least, were clients of Micro Automats. I note Mr Wadsworth’s evidence was that he would interview such clients and prepare their tax returns in J.P.Leury’s premises. In Mr Leury’s words “[Mr Wadsworth’s] clients were billed through my firm… He took 75 percent of the [$132 tax return] fee… they were clients of JP Leury… I retained 25 percent to cover overheads”;
(c)J.P.Leury was paid a fee by Micro Automats, being 25 percent of the charge billable by Micro Automats, for work, such as MYOB book-keeping, that Mr Wadsworth undertook on Micro Automats’ account on behalf of clients of J.P.Leury.
22. Mr Wadsworth gave evidence that a similarly constructed arrangement for the payment of fees continued during his association with Mattkat.
23. Annual taxation returns lodged by Mr Wadsworth and Micro Automats (Exhibits R3 and R5 respectively) reveal plainly enough that Mr Wadsworth was an employee of Micro Automats and was not an employee of either J.P.Leury or Mattkat during all relevant periods. By Mr Wadsworth’s own account he continued to conduct the business of Micro Automats during the period he was providing services to J.P.Leury and “Micro Automats has satisfied statutory PAYE, PAYG W, superannuation and workers compensation requirements in regards to my employment by the tax agents (another entity’s) according to the relevant legislations” (Wadsworth submissions, p3). Documents tendered during the hearing by Mr Wadsworth are not evidence that he was an employee of either J.P.Leury or Mattkat during the periods in question (Exhibits A-J). To the extent that those documents have any evidentiary value they are evidence that he worked at J.P.Leury’s practice and the practice charged $120 per hour for his services to clients (Exhibit C).
24. I note in passing that Mr Wadsworth’s name does not appear in J.P.Leury’s payroll tax records or in records of wage and salary earners during the relevant periods (Exhibit R2). There is a document returned under summons by Mattkat which suggests that Mr Wadsworth was a wage and salary earner of that business from May 2003 (Exhibit R6). However, that document is not a primary document that is compliant with the terms of summons and has little, if any, evidentiary value: it is not evidence of the matters it purports to convey and I attach no weight to it.
25. In Mr Wadsworth’s submission, he was a “permanent part time employee” of J.P.Leury from February 2000 to May 2003 and he was a “full time employee” of Mattkat from May 2003 ongoing. The position contended for by Mr Wadsworth was that a master servant relationship pertained in his work with J.P.Leury and Mattkat and that his work was conducted under the supervision and control of the tax agents. Mr Wadsworth pointed to Taxation Rulings, TR 1999/13 – Income Tax: tax instalment deduction, IT2121 Income Tax: Family Companies and Trusts in Relation to Income from Personal Exertion and TR 2000/14, Pay As You Go - withholding from payments to employees, contending that the transference of salary payments through a third party entity (Micro Automats) interposed into the employee/employer relationship, does not extinguish that relationship. I am not satisfied that those taxation rulings are applicable to the present circumstances in the manner contended for by Mr Wadsworth. However, that is not a matter about which it is necessary to express a concluded view. I note, however, that Mr Wadsworth has not sought or obtained formal advice or a ruling from the Australian Taxation Office about the arrangements that he was contending were within the terms of “relevant employment”. Whether any of the entities relevant to these proceedings complied with applicable income or payroll tax laws, for example under s 12-35 of Schedule 1 of the Taxation Administration Act 1957, is not before this Tribunal and I make no findings in that regard.
26. Mr Wadsworth submitted that “The purpose of Micro Automats Pty Ltd was to provide supplementary income in consideration of the rate of pay afforded to a supervised accounting employee” (Wadsworth submissions, p3). Plainly, Mr Wadsworth chooses to describe his business arrangements in a manner that is consistent with his ambition, however, it is plain that Micro Automats was in existence and operating a business, with Mr Wadsworth as its principal employee, prior to and during the periods that are under examination. Micro Automats cannot be characterised as an entity that was interposed into an employment relationship in the manner contended for by Mr Wadsworth nor can it properly be described as an entity that was established for the purpose of providing income supplementary to that produced by the employment relationships contended for by Mr Wadsworth. Furthermore, on Mr Wadsworth’s evidence, his efforts to obtain registration as a tax agent were supplementary to his business interests, then pursued by and through Micro Automats, and presently represented by Micro Automats and a new corporate entity that Mr Wadsworth has established for the purposes, prospectively, of his business as a presumptive tax agent. It is in that context that Mr Wadsworth’s submission must be considered.
27. For present purposes, the question that must be answered is whether the services Mr Wadsworth provided to J.P.Leury and Mattkat were provided on the basis of a contract of service, as an employee, or on the basis of a contract for service, as an independent contractor.
28. There is a considerable body of caselaw concerning the meaning of employment. Nonetheless what is abundantly clear is that the meaning of the word “employment” derives from its context. I am mindful of Lockhart J’s comments on the subject in Commissioner of Taxation of The Commonwealth of Australia v Griffin & White (1985) 7 FCR 566 at paragraph 5:
“5. The word "employment" is not defined in the Act. It is a word of infinite and wide content. Its meaning must be taken from its context. Sometimes it may be used in the narrow sense of employment arising from the relation of master and servant. It may also mean a person's profession, occupation or vocation. It may encompass the business of a self employed person. Each of these meanings is recognised by the dictionaries. The word is no stranger to the law reports. Different meanings have been ascribed to it by courts over many years in a variety of contexts.”
29. It is necessary, therefore, to consider the context in which “employment” is used in relation to the prescribed qualifications set out in reg 156 for the purposes of s 251BC. The construction of the regulation must be consistent with the intention of the Act (s 266) (Tax Agents’ Board of Queensland v Seymour (1990) 21 ATR 200 at 203). Under the Act a registered tax agent must not allow, inter alia, an unregistered person who is not an employee to prepare a tax return or an objection or to conduct any business relating to any income tax matter on his or her behalf, either directly or indirectly, unless that activity is done under the supervision and control of the tax agent or a registered nominee of the tax agent (s 251N). Furthermore, such an unregistered person not in the employ of a registered tax agent is precluded from demanding or receiving a fee in relation to matters set out at s 251L, including the preparation or lodging of a tax return on behalf of a taxpayer, and is precluded from advertising that the unregistered person will prepare tax returns or will attend to any other income tax matter (s 2510).
30. Pincus J held in Tax Agents’ Board of Queensland v Seymour (supra) at 204:
“”Employment” in sub-reg [156(2)] has a wider scope than “employee” in s 251N, in that it includes working as a partner, but apart from that its meaning corresponds with that of “employee”.”
His Honour held that:
The expression “employee” in sub-s 251N(1) prima facie refers to a person working under a contract of service – ie an employee in the ordinary sense… That construction is reinforced, to some extent, by the terms of sub-s (2) and (3) of s 251N which, by referring to supervision and control, point to the conclusion that the person actually doing the work is an employee in the strict sense, not an independent contractor.”
In circumstances that are similar to the present case, the decision in Tax Agents’ Board of Queensland v Seymour (supra) was followed by the Tribunal in Re Ax03F and Tax Agents’ Board of NSW (2004) 56 ATR 1022.
31. It is clear from Stevens v Brodribb Sawmilling Company Pty Ltd (1986) 160 CLR 16 that determining whether a person is an employee of another person or an independent contractor is not amenable to a single objective test and the totality of the relationship must be considered.
32. Relevant indicia of the relationship between Mr Wadsworth and J.P.Leury or Mattkat may include the terms of contract between the parties; whether either of the putative employers had the lawful right to exercise control over Mr Wadsworth or to dismiss him or to impose sanctions in relation to performance; whether Mr Wadsworth was working on his own account, creating goodwill or saleable assets in the course of his work; the mode of remuneration and the relativity of remuneration to results; the specific terms of engagement, in terms of obligation to work certain hours and entitlements to leave; whether income tax or superannuation contributions were deducted from payments made; the provision of equipment; the right to delegate work and risk attaching to or arising from the work that was carried out and sanctions. This list is not exhaustive of relevant indicia.
33. Considering the particular circumstances of this case and the context in which “relevant employment” is used in the Regulations in reference of s 251BC of the Act, I am satisfied that the indicia of an employee employer relationship between Mr Wadsworth and J.P.Leury or Mattkat are largely absent. There was no written contract by which services were provided to either putative employer by either Micro Automats or Mr Wadsworth. Plainly, on the evidence, Mr Wadsworth was working on his own account for Micro Automats, developing his business and related goodwill, for at least part of the time that he was engaged in work with J.P.Leury and Mattkat. Remuneration for Mr Wadsworth’s services was by payment of fees and commissions to Micro Automats. The quantum of remunerative fees was calculated, in part at least, on the basis of a percentage of fees generated by the introduction of Micro Automats clients to either of the putative employers, and visa versa. No deductions were made in relation to income tax or superannuation by either of the putative employers.
34. I accept however, that some of the work undertaken by Mr Wadsworth on account of either J.P.Leury or Mattkat was performed under their supervision and control and in their premises using equipment they had provided. However, those factors do not persuade me to conclude that the relationship between Mr Wadsworth and either J.P.Leury or Mattkat was properly considered to be that of an employee and an employer. The simple fact is Mr Wadsworth was the employee of his private company which entered into contracts for service with J.P.Leury and Mattkat, respectively, to provide Mr Wadsworth to perform certain services as an accessory to those businesses. He was not obliged to work set hours and was not entitled to leave or other entitlements that would commonly be recognised in the terms of employment or the remuneration of an employee. Neither J.P.Leury nor Mattkat had the lawful right to terminate his employment or to impose any sanction in relation to performance: he was an employee of Micro Automats. Their rights of termination and sanction were limited to termination of the contract for service with Micro Automats on its terms or the imposition of sanctions provided for thereby. Fees or results-based commissions were payable to Micro Automats on referral of its clients to either of the putative employers by Mr Wadsworth and similar fees were payable by Micro Automats to either of the putative employers when Mr Wadsworth conducted work for clients of those businesses on Micro Automats’ account. That arrangement is an arrangement of mutual benefit between businesses and does not constitute an employment relationship.
35. To that extent and following the decided cases to which I have referred I am satisfied that Mr Wadsworth was not in “relevant employment” in the five years preceding his application for registration as a tax agent.
36. Mr Wadsworth pointed to a number of cases in support of his claim, including Re Underwood v Tax Agents’ Board of Queensland (1993) 93 ATC 2137; Re S. & T. Income Tax Aid Specialists Pty. Limited & Forward and Tax Agents' Board, New South Wales [1987] AAT 3364; Country Metropolitan Agency Contracting Services Pty Ltd v Slater & WorkCover/CGU Workers Compensation Insurance (SA) Pty Ltd [2003] SAWCT 57 (30 May 2003); Willett v Boote (1860) 6 H and N 26 158 ER 11. Builders Workers’ Industrial Union of Australia & Oliver & Anor v Odco Pty Ltd (1991) 99 ALR 735.Each of those cases is distinguished on its facts from the present case.
37. While assistance may be derived from the Country Metropolitan Agency Contracting Services Pty Ltd v Slater, Willett v Boote and Builders Workers’ Industrial Union of Australia & Oliver & Anor v Odco Pty Ltd (supra) in relation to the meaning of employee and employment in the contexts there pertaining or under the common law, they do not provide assistance in the specific context that pertains in this case.
38. The cases of Re Underwood and Tax Agents’ Board of Queensland (supra) and Re S. & T. Income Tax Aid Specialists Pty. Limited and Tax Agents’ Board of NSW (supra) are concerned with issues of supervision in the context of employment. They are not on all fours with the circumstances in this case. While I have accepted that Mr Wadsworth was not simply working alone in his business during the periods in which he provided services to J.P.Leury and Mattkat, and was under the supervision of J.P.Leury when dealing with taxation matters in that business, that is not sufficient to establish that he was an employee in relevant employment during those periods. By contrast Mr Underwood was an employee who was not working under appropriate supervision in his employment, whereby, following Re Tax Agents' Board of Queensland and Seymour (supra), the Tribunal held, inter alia, that he was not in relevant employment during those periods.
39. It would appear that Mr Wadsworth’s submissions, at least in part, were directed on the basis that compliance with s 251N in relation to supervision and control would be sufficient to satisfy the “relevant employment” test. That is not the case. As the Tribunal stated in Re Underwood and Tax Agents’ Board of Queensland (supra), following Re Tax Agents' Board of Queensland and Seymour (supra), at paragraph 14:
“The combined effect of the Act and the regulations is that for employees to be engaged in “relevant employment”, they must be under the supervision and control contemplated in Section 251N.” [emphasis added]
40. Mr Wadsworth was not an employee of either J.P.Leury or Mattkat. It follows therefore that Mr Wadsworth was not in “relevant employment” and does not satisfy the qualification requirements prescribed in reg 156(1)(c)(ii)(A) or (B).
41. Turning to consider reg 156(1)(c)(ii)(C), that is, whether Mr Wadsworth was engaged in other such employment and for such time to be equivalent to the aforementioned requirements pertaining to relevant employment, I am satisfied that he was not. “Other such employment” refers to employment of that is of a character that is not within the meaning of “relevant employment” but, in the course of which, the person is substantially involved in income tax matters in a manner that is not inconsistent with the objects of regulation 156(2). It should not be forgotten that reg 156 is made in reference to s 251BC(1)(b)(ii) and its purpose is to prescribe the requisite qualifications “by way of experience or otherwise” of a fit and proper person to be registered as a tax agent. The equivalence that is required, therefore, is both qualitative and quantitative in relation to the prescribed qualifications in relevant employment.
42. In this case, I am satisfied that Mr Wadsworth does not have the requisite qualitative or quantitative experience to satisfy reg 156(1)(c)(ii)(C) and so find. The evidence is that Mr Wadsworth spent only a proportion of his time as an employee of Micro Automats working on taxation matters under the supervision of either J.P.Leury or Mattkat. Even if I was satisfied that the quality of the supervision provided by J.P.Leury and Mattkat was satisfactory for present purposes, the quantum of Mr Wadsworth’s experience under that supervision is not sufficient to qualify him as a fit and proper person to be registered as a tax agent. On the evidence of Mr Wadsworth and Mr Leury, Mr Wadsworth spent only a proportion of the 15 hours per week he spent at J.P.Leury’s premises (T4 and T7) working on taxation matters under supervision. He also undertook work on his own account and in relation to MYOB functions. I am satisfied that Mr Wadsworth was not substantially involved in income matters within the scope and meaning of reg 156(2) (Chenoudra v Tax Agents’ Board of NSW (1991) 22 ATR 3179) for the equivalent of 2 years full time in the five years preceding his application for registration. I so find.
43. Whatever business or taxation benefits Mr Wadsworth derived from the construction of his arrangements with J.P.Leury and Mattkat, those arrangements are not consistent with what is contemplated by the Act, the regulations or the decided cases. He does not hold the requisite qualifications and is not, therefore, a fit and proper person to prepare tax returns and transact business on behalf of taxpayers in income tax matters pursuant to s 251BC of the Act. It follows that the Board’s decision to refuse to register Mr Wadsworth as a tax agent pursuant to ss 251JA(2) was the correct and preferable decision.
decision
44. The decision under review is affirmed.
I certify that the preceding 44 paragraphs are a true copy of the reasons for the decision herein of Mr Simon Webb, Member.
Signed: Z. Khan
AssociateDate/s of Hearing 1 December 2004
Date of Decision 13 December 2004
Representative for the Applicant Self
Representative for the Respondent Mr M. Allatt
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