KOLYA v TAX PRACTITIONERS BOARD

Members:
RM Creyke SM

Tribunal:
Administrative Appeals Tribunal, Canberra

MEDIA NEUTRAL CITATION: [2011] AATA 73

Decision date: 8 February 2011

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RM Creyke (Senior Member)

1. On 20 December 2010, the Tax Practitioners' Board (Board) terminated the registration of Mr Peter Kolya as a Business Activity Statement (BAS) agent. Mr Kolya has sought a stay of that decision.

2. Earlier on 6 October 2010, the Board decided that Mr Kolya's notification for recognition as a tax agent under the Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009 (Cth) was ineffective. In proceedings before the Tribunal on 21 December 2010 (AAT No 2010/4695) the Tribunal found that the decision was not reviewable and dismissed the application.

3. Mr Kolya also has separate proceedings before the Tribunal seeking review of the decision of the Board not to accept his application for transitional registration as a tax agent.

4. On 25 January 2011, an interlocutory hearing was held in relation to the stay application.

History

5. Following his arrival in Australia, Mr Kolya worked in a number of occupations before being employed by the Australian Tax Office (ATO) in Penrith between 1996 and 2000. At the same time, his wife was working for the Tax Office in Canberra. Mr Kolya was commuting between Sydney and Canberra which was difficult for the family.

6. He sought a transfer with the ATO to Canberra but this was denied. He then wished to explore the possibility of working as a tax agent. Mr Kolya had a Bachelor of Commerce degree from Makerere University, Kampala, Uganda. However, his Ugandan qualifications were not recognised by the former NSW Tax Agents' Board for the purposes of practice as a tax agent in Australia. Accordingly, Mr Kolya said at the hearing that he completed three postgraduate courses in business law, corporations law and income tax law at the Australian National University. He said he obtained credits in all three subjects. Despite his efforts these qualifications still did not enable him to be recognised for tax agent registration purposes. Since at least June 2009, Mr Kolya has also been registered as a migration agent,

7. He was advised he would not be able to work as a tax agent on his own account in Canberra and when he approached H&R Block, a large tax accounting company, he was told he would need to buy a franchise if he wished to work in Canberra under their auspices.

8. In 2001, relying on an H&R Block Innovations website that offered an online Affiliate Program, Mr Kolya completed the course and claimed he thereby became an "affiliate" of H&R Block Innovations. He was given a tax agent number. At the hearing he said he was rung from the United States and given the registration number over the telephone. When asked by the Tribunal whether he followed up the offer and required confirmation of the number in writing, he said he had not done so and admitted this was a mistake. Mr Kolya does lodge tax returns in the United States for Australians working in the USA. The registration number he was given is, however, a number allocated to H&R Block at its Belconnen premises.

9. Mr Kolya said he also undertook training with the Association of Tax Management Accountants (ATMA) and said he understood this meant he was admitted to practise as a tax agent because the ATMA is a recognised professional association under Part VIIA of the Income Tax Assessment Act 1936 (Cth). Prior to 2010 that Act dealt with registration of tax agents.

10. Mr Kolya's ATMA membership certificate was in evidence before the Tribunal. The certificate states that Mr Kolya is entitled to use the "postnominals MTMA". However, since the acronym stands only for Member of the Association of Tax Management Accountants, it is not clear that the certificate supports his assertion.

11. Mr Kolya practised as a tax agent and, since 2009, as a BAS agent. The letterhead of his business was "HP Kolya DBA H&R Block". That description of his business appeared in taxation records in 2009 and 2010. In his application in March 2010 for transitional registration as a tax agent, Mr Kolya also responded "Yes" to Question 11 "Are you currently or have you previously been registered as a tax agent or a nominee of a tax agent". In response to the supplementary question "Name under which you are/were registered" he listed "H&R Block". He did not indicate whether this was a current or past association.

12. Mr Kolya claims that H&R Block in Australia is a franchise of H&R Block Innovations, USA and that the US company affiliates national franchisees. In his view, that entitled the US company to issue tax agent numbers. However, on 10 November 2008, Mr Phillip Hunt, Managing Director of H&R Block Ltd provided a statement in which he denied that Mr Kolya had ever been an associate or affiliate with H&R Block Ltd. The statement also denied that the "Affiliate program" conferred any right to use the H&R Block trademark and denied that it permitted "the use of any tax agent number that has been registered by H&R Block or any of its Australian franchisees".

13. The statement also pointed out that solicitors for H&R Block had written to Mr Kolya requesting he "immediately cease and refrain from using the H&R Block trademark" and that he immediately cease using the allocated tax agent number he had acquired. The statement also affirmed that "H&R Block Limited has the sole right to grant tax return preparation licences in Australia on behalf of HRB Innovations Inc" and that to qualify for such a licence, the applicant must also be a registered tax agent with the relevant Tax Agents' Board. Mr Kolya was not registered as a tax agent with the Tax Agents' Board of New South Wales, formerly the relevant Tax Agents' Board for ACT residents.

14. H&R Block also wrote to the Board on 3 September 2010 indicating that Mr Kolya had never been employed by H&R Block, had not been granted a franchise or other agreement entitling him to use H&R Block in his description of his business or to undertake bookkeeping services under the H&R Block name. The letter also stated that Mr Kolya had not been authorised to prepare tax returns under the tax agent number he uses.

15. On 7 November 2008, Mr Kolya registered HP Kolya as a business name and at the hearing he claimed he had been a sole trader since 2009. Nonetheless, as the earlier evidence indicates, Mr Kolya's tax records in 2009 and 2010 continued to indicate he was operating as HP Kolya DBA H&R Block.

16. The Tribunal had evidence of concerns by the ATO as to Mr Kolya's competence. An email exchange on 27 and 28 May 2010 in relation to Mr Kolya's application for registration as a tax agent under the transitional provisions questioned his competence in these terms:

ATO have brief of evidence to prosecute him for 16 s 251L offences. MEI have conducted audits on a range of his "clients" which resulted in numerous adjustments and some of his clients have lodged objections. Convicted of failing to provide information under sect 264 request. Attached anonymous complaint paints a dim picture also.

17. An anonymous complaint to the Board dated 23 April 2010 referred to an alleged tax liability of Mr Kolya, errors identified in the ATO Tax Return Processing/Audit area and noted "I have personally been audited as Peter misled me to claiming deductions which I was not entitled to". The complaint also noted Mr Kolya's unsuccessful applications to be registered as a tax agent, and his "under cover" representation as a tax agent under a registration number allocated to H&R Block.

18. An email from the Board to the ATO dated 2 June 2010 noted:

We suggest that the BAS notice may bear more scrutiny as in view of H&R Block's claims [that he was not affiliated and was infringing their intellectual property rights] he may not have been complying with s 251L(6)(b) and therefore special rule 5 may not be applicable.

19. There is also a complaint by a former client of Mr Kolya's to the Board against him dated 5 August 2010.

20. At the same time, Mr Kolya has character references including one from Mr Bob McMullan MP and a complimentary letter by three of his clients, one of 6 years' standing. He also has a Certificate of Registration as a migration agent.

21. At the hearing Mr Kolya noted that his BAS services are only a small proportion of his business. He says he provides taxation services to about 800 clients, two-thirds of these are for tax returns and lodging objections. His BAS-related services are provided to about 350 clients. Mr Kolya also indicated he has three employees in his business; one works full-time and the other two, part-time. They perform both tax agent and BAS services and, possibly migration services as well.

22. On 6 October 2010, the Board notified Mr Kolya that his notification under the Tax Agent Services (Transitional and Consequential Amendments) Act 2009 (Cth) (TPCA Act) to be recognised as a tax agent was ineffective. On the same date, the Board rejected his application for transitional registration. As a consequence, he was no longer able to practise as a tax agent. The decision that his application was ineffective was not reviewable by the Tribunal. At a hearing before the Tribunal on 21 December it was affirmed that the Tribunal had jurisdiction to review only the decision to reject the application for transitional registration.

23. When asked by the Tribunal at the hearing in January 2011 how his employees had been occupied since 6 October 2010 when the Board decided not to register him as a tax agent, he said that they had been taking periods of leave and continuing to provide BAS services.

24. As a result of a special rule (rule 5) provided in the TPCA Act Mr Kolya was taken to be registered as a BAS agent for the period 1 March 2010 to 1 March 2012, unless his recognition was terminated by the Board or surrendered.

25. On 29 September 2010, the Board considered Mr Kolya's continued registration as a BAS agent. On 6 October 2010, the Board wrote to Mr Kolya providing him with an opportunity to say why he could be considered to be a "fit and proper person" to be a registered BAS agent.

26. Mr Kolya responded to the Board in October 2010. Despite his response, on 20 December 2010 the Board terminated Mr Kolya's registration as a BAS agent effective from 24 January 2011.

27. The Board stated in its reasons that it was "not satisfied that you are a fit and proper person within the meaning of the TASA" [Tax Agent Services Act 2009 (Cth)] because:

• • you knowingly provided false and misleading information on your Transitional Application in relation to your association with H&R Block, which adversely affects your good fame, integrity and character;
• • your comments in relation to H&R Block Innovations demonstrate a lack of understanding of the regulatory regime for registered tax practitioners under the TASA;
• • you have indicated that you have been operating as an unregistered preparer in relation to the provision of tax agent services which adversely affects your good fame, integrity and character; and
• • you have been convicted of two taxation offences and filed to declare these convictions on your Transitional Application, which adversely affects your good fame, integrity and character.

28. Mr Kolya has sought review of that decision by the Tribunal. As an interim step, he has sought to stay the operation of the Board's 20 December 2010 decision to terminate his registration as a BAS agent.

Legislation

29. A new national scheme for managing tax agents and BAS agents was established in 2009. The legislative framework for the new scheme comprises the Tax Agent Services Act 2009 (Cth) (TAS Act), the Tax Agent Services Regulations 2009 (Cth) and the Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009 (Cth) (TPCA Act). Previously the legislation was found in Part VIIA of the Income Tax Assessment Act 1936 (Cth) (ITAA). That Part was repealed in its entirely by the TPCA Act.

30. Part 6 of the TAS Act substituted the Tax Practitioners Board for the individual State Tax Agents' Boards. The Board has the responsibility of registering tax agents and BAS agents, and exercising the disciplinary function over professionals in the area. The bulk of the scheme came into force on 1 March 2010. As the new scheme was in force at the time of the decision about Mr Kolya's status as a BAS agent, it is that scheme which applies to this application.

31. The relevant legislation follows.

"Tax Agent Services Act 2009 (Cth)

2.5 Object

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; and
• (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.

20.5 Eligibility for registration as registered tax agent or BAS agent

Individuals

• (1) An individual, aged 18 years or more, is eligible for registration as a registered tax agent or BAS agent if the Board is satisfied that:
  • (a) the individual is a fit and proper person; and
  • (b) the individual meets the requirements prescribed by the regulations (including, but not limited to, requirements relating to qualifications and experience) in respect of registration as a registered tax agent or BAS agent. …

20.15 Criteria for determining whether an individual is a fit and proper person

In deciding whether it is satisfied that an individual is a fit and proper person, the Board must have regard to:

• (a) whether the individual is of good fame, integrity and character; and
• (b) without limiting paragraph (a):
  • (i) whether an event described in section 20-45 has occurred during the previous 5 years …

20.45 Certain events may affect your continued registration

The following events may affect your continued registration as a registered tax agent or BAS agent:

• (a) you are convicted of a serious taxation offence …

40.5 Termination of registration - individuals

• (1) If you are a registered tax agent or BAS agent and an individual, the Board may terminate your registration if:
  • (a) an event affecting your continued registration, as described in section 20-45, occurs; or
  • (b) you cease to meet one of the tax practitioner registration requirements; or
  • (c) you breach a condition of your registration.

  Note: The Board may also terminate your registration for breach of the Code of Professional Conduct: see Subdivision 30-B. …

30.5 Application of the Code of Professional Conduct

The Code of Professional Conduct applies to you if you are a registered tax agent or BAS agent.

30.10 The Code of Professional Conduct

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.
• (3) If:
  • (a) you receive money or other property from or on behalf of a client; and
  • (b) you hold the money or other property on trust;

  you must account to your client for the money or other property.

Independence

• (4) You must act lawfully in the best interests of your client.
• (5) You must have in place adequate arrangements for the management of conflicts of interest that may arise in relation to the activities that you undertake in the capacity of a registered tax agent or BAS agent.

Confidentiality

• (6) Unless you have a legal duty to do so, you must not disclose any information relating to a client's affairs to a third party without your client's permission.

Competence

• (7) You must ensure that a tax agent service that you provide, or that is provided on your behalf, is provided competently.
• (8) You must maintain knowledge and skills relevant to the tax agent services that you provide.
• (9) You must take reasonable care in ascertaining a client's state of affairs, to the extent that ascertaining the state of those affairs is relevant to a statement you are making or a thing you are doing on behalf of the client.
• (10) You must take reasonable care to ensure that taxation laws are applied correctly to the circumstances in relation to which you are providing advice to a client.

Other responsibilities

• (11) You must not knowingly obstruct the proper administration of the taxation laws.
• (12) You must advise your client of the client's rights and obligations under the taxation laws that are materially related to the tax agent services you provide.
• (13) You must maintain the professional indemnity insurance that the Board requires you to maintain.
• (14) You must respond to requests and directions from the Board in a timely, responsible and reasonable manner.

90.1 Dictionary

'registered BAS agent' means an entity that is registered under this Act as a registered BAS agent.

'serious taxation offence' means:

• (a) an offence against section 134.1, 134.2, 135.1, 135.2 or 135.4 of the Criminal Code, if the offence relates to a tax liability (within the meaning of the Taxation Administration Act 1953); or
• (b) a taxation offence that is punishable on conviction by a fine exceeding 40 penalty units, or imprisonment, or both.

'taxation offence' has the meaning given by section 8A of the Taxation Administration Act 1953.

Taxation Administration Act 1953 (Cth)

• 8A 'taxation offence' means:
  • (a) an offence against a taxation law; or
  • (b) an offence against:
    • (i) section 6 of the Crimes Act 1914; or
    • (ii) section 11.1, 11.4 or 11.5 of the Criminal Code;

    being an offence that relates to an offence against a taxation law."

Consideration

32. The application for a stay order relates solely to the decision to terminate Mr Kolya's registration to operate as a BAS agent. The Tribunal cannot stay the decision to reject Mr Kolya's application for transitional registration as a tax agent. Since Mr Kolya had not formerly been registered as a tax agent, he had no right which the Tribunal could stay to continue to operate as a tax agent.^[1] Re Alexander and Migration Agents Registration Board (1995) 40 ALD 99 .

33. Mr Kolya claimed that the decision of the Tax Practitioners' Board was: "…in bad faith, expeditious and not based on the law". He also claimed that:

It is inconsistently adverse to my professional[al] practice as well as to me as a tax professional. It offends several Acts: included are Trade Practices Act 1974 etc. It is also unconstitutional.

In addition, Mr Kolya said the decision would "lead me suffering severe financial hardship".

34. In deciding whether to make a stay order, the Tribunal must be satisfied that in his dealings with the Board, Mr Kolya has been treated fairly,^[2] Re Dekanic and Tax Agents’ Board of NSW 82 ATC 4560 ; (1982) 6 ALD 240 . that he meets the legislative criteria for registration, that refusal of the stay would not seriously damage Mr Kolya's financial circumstances, or cause serious dislocation to his employees,^[3] Re Thomson and Tax Agents’ Board of Queensland (1993) 30 ALD 747 and that it is not against the public interest, for example, because of dislocation to his clients' affairs, or to his employees.^[4] Re Dekanic and Tax Agents’ Board of NSW 82 ATC 4560 ; (1982) 6 ALD 240 at 242 Against this is the need to protect the public if the continuation of the person's operations would disadvantage clients due to the person's in competency to perform the required service.^[5] Id at 242–3.

Natural justice

35. The Tribunal is satisfied on the evidence that Mr Kolya has been given the opportunity to present his case and has taken advantage of that opportunity to present facts and reasons why his registration as a BAS agent should not be cancelled. Those opportunities have been provided to him to present evidence in person, by videolink and in written statements.

Legislative criteria: "serious taxation offence"

36. The public interest in protecting the public against incompetent practitioners is an issue for consideration by the Tribunal in this stay application. It involves the Tribunal considering the statutory criteria for registration as well as the cases which have dealt with whether a person is of good fame and character.

37. The eligibility criteria for registration are that the person is a "fit and proper person" and meets the requirements in the regulations.^[6] Tax Agent Services Act 2009 (Cth) (TASA) s 20.5. To decide whether someone is a "fit and proper person" requires an examination of whether the person "is of good fame, integrity and character".^[7] TASA s 20.15. In turn that includes whether the person has been convicted of a "serious taxation offence".^[8] TASA s 2015, 20.45.

38. Mr Kolya was convicted in the ACT Magistrates Court on 17 September 2010 of 2 offences contrary to s 264(1)(a) and (b) of the Income Tax Assessment Act 1936 (Cth). He was fined $550, court costs of $59, and a CIC levy of $50, for each offence.

39. These offences were not "a serious offence" as defined in the TAS Act since they were not punishable on conviction by a fine of greater than 40 penalty units or imprisonment.^[9] TASA s 90.1 — definition of “serious taxation offence” (b). The Board, at a meeting on 10 November 2010, and their representative at the Tribunal hearing accepted that this was the correct position.

40. It appears, however, that Mr Kolya was convicted earlier, in 2007, of an offence of failing to lodge a tax return and being in breach of section 264 of the Income Tax Assessment Act 1936 (Cth). On that occasion, according to his statement of 14 September 2010, Mr Kolya said he was fined $1,300 on each of two charges. Again this is not a "serious taxation offence" since at most this represents 22 penalty units.^[10] Crimes Act 1914 (Cth) s 4AA(1), a “ penalty unit ” for an individual is $110. Mr Kolya was in Uganda at the relevant time and claimed he had advised the Australian Taxation Office in advance of his leaving the country.

41. On 9 July 2008, Mr Kolya was convicted of an offence of failing to attend the ATO and was convicted and fined $550 with court costs of $99 for each of two offences. Again this was not a "serious taxation offence".^[11] Taxation Administration Act 1953 (Cth) s 8C, 8E.

42. In summary, despite the finding by the Board on 21 December 2010 that Mr Kolya had been convicted of two taxation offences, the concession by the Board and its representative at the Tribunal hearing that those offences did not come within the meaning of "serious taxation offence" was correct and the Tribunal so finds.

Legislative criteria: good fame, integrity and character

43. At the same time, for there to be three occasions in the space of four years on which Mr Kolya has been convicted for failing to comply with taxation obligations is a matter which adversely affects his "good fame, integrity and character". As a BAS agent it is expected that he be knowledgeable about how to comply with taxation obligations, including his own. As Davies J said in
Re Su and Tax Agents' Board of South Australia of the characteristics to show fitness as a tax agent, or by analogy a BAS agent, the person must be:^[12] Re Su and Tax Agents’ Board of South Australia 82 ATC 4284 at 4286

A person of good reputation, has proper knowledge of taxation laws, is able to prepare income tax returns competently and is able to deal competently with any queries which may be raised by officers of the taxation department. He should be a person of such competence and integrity that others may entrust their taxation affairs to his care. He should be a person of such reputation and ability that officers of the taxation department may proceed upon the footing that the taxation returns lodged by the agent have been prepared by him honestly and competently.

44. The defaults are also relevant to whether Mr Kolya is a person who acts with integrity as required in the Code of Professional Conduct for BAS agents.^[13] Australian Securities and Investment Commission v Administrative Appeals Tribunal (2009) 113 ALD 449 . Compliance with the Code is one of the objects of the TAS Act and accordingly must be taken into account by the Board.^[14] Australian Securities and Investment Commission v Administrative Appeals Tribunal (2009) 113 ALD 449 . It is notable that Mr Kolya failed to declare these convictions on his application for transitional registration as a tax agent at Question 24 of the application form.

45. Another ground for termination of Mr Kolya's registration as a BAS agent was that he provided "false and misleading information" in his application for Transitional Application to be registered as a tax agent in relation to his association with H&R Block.

46. That information is contested by Mr Kolya on the basis either that he is a registered tax agent having been granted a genuine Australian registration number by H&R Block Innovations, the US parent company, following his completion of the online affiliate program offered by that company, or that he was entitled as a member of the ATMA to be so recognised.

47. In his view, the first argument is supported by the fact that despite threatening legal action against him, H&R Block has never implemented that threat. According to Mr Kolya he had not:

… at anytime purported to hold a franchise from HR Block Limited. But by providing a tax agent service within a particular area of the taxation laws under TASA, I was to some extent of practice "employed" by HR Block Innovations.

48. Despite his claim that he had not represented that he held a franchise from H&R Block, the representation to the ATO in 2009 and 2010, that he was operating as "HP Kolya DBA H&R Block" and his reference to H&R Block in response to Question 11 in the application form for transitional registration that he was or had been registered as a tax agent or nominee of a tax agent, namely, H&R Block, are indications that he did purport to have an association with that company.

49. Further his argument that he "was to some extent of practice "employed" by HR Block Innovations" is not only confusing but it indicates a failure to understand what is required by law to practise as a BAS agent in Australia. Nowhere in that law does de facto operation as a BAS agent indicate a person is accordingly employed "to some extent" as such. The fact that the claimed employer is a United States company also demonstrates a lack of understanding of the regulatory regime for tax agents and BAS agents in Australia.

50. The second of the arguments appears to be based on Mr Kolya's claim that as a member of ATMA he was a member of a "recognised professional association" for the purpose of Part VIIA of the ITAA.^[15] Income Tax Assessment Act 1936 (Cth) s 256L(6), (9) . No evidence was provided at the hearing that ATMA was listed as a "recognised professional association". The Tribunal has not fully explored this argument since the provision has been removed from the ITAA following the introduction of the Tax Agent Services Act 2009 (Cth).^[16] TPCA Schedule 1, Item 7. The issue will be explored further at the substantive hearings in this matter.

51. There are conflicting statements in the evidence as to Mr Kolya's competency. That is not a matter which can be decided on this stay application. The truth or otherwise of those assertions, it is expected, will be tested at the substantive hearing. These are matters which go to his good fame, integrity and character.

Exercise of discretion by the Tribunal

52. The Tribunal notes that the power to issue a stay order is at large. In deciding whether to order a stay, the Tribunal must consider whether refusal of the stay order would adversely affect the claimant.^[17] Administrative Appeals Tribunal Act 1975 (Cth) s 41(2). The Tribunal notes that Mr Kolya has claimed he would be in financial hardship. At the same time, he also stated that his BAS agent work was only a small part of his practice.

53. Although the Tribunal is aware that Mr Kolya is already unable to do his former tax agent work, Mr Kolya does remain registered as a migration agent and his wife is employed. In these circumstances, and given the small proportion of his business represented by his BAS agent work, it is unlikely that any dire financial hardship would be experienced by him were the stay order to be refused.

54. Another factor to be taken into account is the impact on employees. Mr Kolya has three employees but only one works full-time. The nature of the work each undertakes is not known. Since, however, by Mr Kolya's admission only a small proportion of his business is involved in handling BAS applications and objections, his employees are not likely to suffer significant disclocation if the stay order is not granted.

55. The Tribunal's principal concern, however, is with Mr Kolya's clients. At the hearing, Mr Kolya estimated that annually he undertook BAS services for approximately 350 clients. If Mr Kolya was unable to manage to provide BAS services to that number of people because the stay order had been refused it would cause considerable dislocation to them. For this reason, the Tribunal has decided it will grant the stay order. At the same time, mindful of the evident concerns about Mr Kolya's level of competence, the Tribunal will seek an expedited hearing of the substantive application in this matter.

56. Mr Kolya is no longer able to offer tax agent services. However, until the finding on the substantive application challenging the termination of his registration as a BAS agent, he is able to continue to conduct that element of his business. The application to oppose the stay order is dismissed.