The Tax Agents' Board of Queensland v. Seymour

Judges:
Pincus J

Court:
Federal Court

Judgment date: Judgment handed down 6 April 1990.

---

Pincus J.

This is an appeal from the Administrative Appeals Tribunal [reported at 90 ATC 2001] which ordered that the respondent (who was the applicant before the Tribunal) be registered as a tax agent with effect from 15 December 1989. The matter came to the Tribunal on an application to review a decision of the applicant Board given on 18 July 1989. That decision was one refusing the respondent registration as a tax agent on the ground that he did not meet the requirements of reg. 58CA of the Income Tax Regulations, referred to below.

Part VIIA of the Income Tax Assessment Act 1936 deals with registration of tax agents. It provides for the constitution of a Tax Agents' Board in each State (Div. 2). Section 251J makes provision for registration of persons and partnerships as tax agents and sec. 251JA(1) requires the Board to register an applicant as a tax agent if the applicant satisfies the Board that (so far as relevant) he is a ``fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters''. Section 251BC provides, among other things, that a person is not such a fit and proper person as just mentioned if:

``the person does not hold such qualifications (whether academic, by way of experience or otherwise) as are prescribed''

- para. (1)(b)(ii).

For the purpose of that provision, reg. 58CA(1) prescribes certain qualifications. Apart from certain academic requirements which, it is common ground, the respondent has fulfilled, that regulation requires that an applicant shall have:

``(A) been engaged in relevant employment on a full-time basis for not less than a total of 12 months 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);...''

In what follows, these provisions will simply be called ``para. (A)'', ``para. (B)'' and ``para. (C)''.

It will be noted that the expression ``relevant employment'' is used in each of these conditions; that is defined in reg. 58CA(2) as follows:

``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

---

ATC 4264

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.''

In what follows, the provision just quoted will be called ``subreg. (2)''.

The questions of law which were raised were concerned with the construction of these provisions. They were, in substance:

• 1. Does the word ``employment'' in para. (C) include a contract under which work is done other than as an employee in the ordinary sense - i.e. other than under a contract of service?
• 2. Does the word ``equivalent'' in that paragraph connote precise equivalence?
• 3. To comply with para. (C), must the applicant have had substantial involvement in income tax matters including all three of (a), (b) and (c) in subreg. (2)?

The Tribunal, which is empowered to review Board decisions by sec. 251QA of the Act, heard evidence from the respondent that in the fiscal year ended 30 June 1986 and 30 June 1987, he ``formed an association with a franchisor of income tax preparation businesses'' and paid the franchisor a fee for ``auditing and signing, as tax agent, income tax returns prepared by the applicant''. In the two following fiscal years, he formed a similar association with a tax agent called Ballard. Although Ballard charged each client a fee and paid the respondent only a proportion of it, he ``made no effective contribution in the preparation of the returns''; that is, during this association with Ballard, the respondent himself prepared the returns Ballard signed. The respondent has established a full-time business preparing tax returns for clients. In the year ended 30 June 1988, the respondent prepared 65 returns and in the following year 98 returns; he did not sign any of them. In addition, in the former year the respondent prepared a number of returns to help another practitioner.

There was evidence that the respondent had been involved in giving advice to clients on income tax matters, but he had not prepared or examined objections to assessments. The latter work is mentioned in para. (b) of subreg. (2).

The Tribunal held that the applicant had had a substantial involvement in income tax matters, except in relation to objections. The Tribunal also held, in effect, that the respondent qualified under para. (C), having ``been employed, on his own account, in employment equivalent to being engaged in relevant employment'' under para. (A). This conclusion requires one to read ``employment by a person'' in subreg. (2) as covering work done in one's own business for a series of clients.

Miss M.A. Wilson, for the applicant Board, said that the word ``employment'' in subreg. (2) means working under supervision or, at least, working as an employee in the strict sense, not as an independent contractor. She referred to sec. 251L and 251N of the Act in support of this contention. Of these provisions, the first prohibits persons other than registered tax agents from receiving money for preparing tax returns or objections, subject to an irrelevant exemption. The second reads in part as follows:

``(1) A registered tax agent or a person exempted under section 251L shall not allow any person, not being his employee, a registered tax agent or, in the case of a partnership which is registered as a tax agent, a member of that partnership -

• (a) to prepare on his behalf, either directly or indirectly, his own or any other income tax return or objection; or
• (b) to conduct on his behalf, either directly or indirectly, any business of himself or any other person relating to any income tax return or income tax matter.

Penalty: $1,000.

(2) A partnership or company which is registered as a tax agent shall not allow any person to do anything specified in paragraph (1)(a) or (b) except under the supervision and control of a registered nominee of the partnership or company.

Penalty: $1,000.

---

ATC 4265

(2A) A natural person who is registered as a tax agent shall not allow any person to do anything specified in paragraph (1)(a) or (b) except under the supervision and control of:

• (a) the tax agent; or
• (b) a registered nominee of the tax agent.
• Penalty: $1,000.''

Reading sec. 251N with the prohibition in sec. 251L in mind, the intention is seen to be that the work of preparing returns and objections for fees is to be done only by registered tax agents, their partners and their employees. The expression ``employee'' in sec. 251N(1) prima facie refers to a person working under a contract of service - i.e. an employee in the ordinary sense; see the Oxford English Dictionary (2nd ed.) and as an example
Morren v. Swinton and Pendlebury Borough Council (1965) 1 W.L.R. 576. That construction is reinforced, to some extent, by the terms of subsec. (2) and (3) of sec. 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.

Miss Wilson then contended that, if one reads subreg. (2) in such a way as to make its effect consistent with the intention of sec. 251N, the word ``employment'' there must have a meaning corresponding with that which it has in sec. 251N.

The regulation-making power is, as is usual, limited to the making of regulations not inconsistent with the Act: sec. 266. One should, if possible, read subreg. (2) in such a way as not to create a conflict between the regulations and the Act. If ``employment'' in subreg. (2) includes work done under numerous contracts for services - i.e. not as an employee in the ordinary sense - then an unusual position arises. On that view, subreg. (2) allows, as one of the qualifications for registration, working in a way which is specifically prohibited by the Act. If it is enough to qualify as having been engaged in ``relevant employment'' under the regulations, that an applicant for registration as a tax agent has, while unregistered, been in his own business of preparing returns, it is difficult to see how that could be valid under sec. 266.

One argument in favour of the view that ``employment'' in subreg. (2) has a broad meaning is that the subregulation contemplates that there may be ``employment'' as a member of a partnership. Under the general law, that could not be so, for a person cannot contract with himself: but see sec. 50 of the Property Law Act 1974 (Qld) and discussion of the New South Wales counterpart of that provision in
Stewart v. Hawkins (1960) S.R. (N.S.W.) 104. The question is whether the introduction of the concept that a person may be in ``relevant employment'' as a member of a partnership necessarily produces the result that ``employment'' in subreg. (2) covers any sort of work whatever, whether as an employee or (as here) in one's own business.

The scheme of the Act is that a partnership may be registered as a tax agent even if not all its members would be entitled to be so registered: sec. 251JA(1)(b). There must be an ``original nominee'' who is a ``fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters'' - see subpara. (b)(i) of that provision. The words just quoted take their meaning, as I have explained above, from sec. 251BC.

If a partnership is registered, then its ``original nominee'' is registered as the nominee of the partnership: sec. 251KA(1). The nominee must supervise and control employees and others who prepare tax returns and the like on its behalf: sec. 251N(2); it appears that the nominee must supervise members of the partnership.

I have dealt with the position of a registered partnership because the mention of partnership in subreg. (2) was a factor in the Tribunal's reasoning in
Crowley v. Tax Agents' Board 90 ATC 2005. In holding that an applicant may be registered under para. (C) on the basis of work he has done when ``self-employed'' the Tribunal remarked (at p. 2011):

``To find otherwise would lead to an absurd result whereby a partner in a firm could be accepted under reg. 58CA(1)(a)(ii) but a self-employed person, not in a partnership, but with exactly the same experience would not be so accepted.''

With respect, I do not understand what is thought to be the absurdity. It is plain that a partner in a firm may qualify as to experience, by working in so-called ``employment'' in the

---

ATC 4266

partnership, but if he does so, sec. 251N (set out above) requires that he act under the supervision and control of a registered nominee.

A ``self-employed'' person on the other hand, not being himself a registered tax agent, is simply not dealt with by the provisions of the Act dealing with registration of tax agents except, of course, that he is subject to the sanctions I have mentioned: sec. 251L would prevent him from demanding or receiving a fee. It should be added that sec. 251O(1) would prevent him from advertising ``in any manner whatsoever that income tax returns will be prepared by him or that any other matter in connection with income tax will be attended to by him''.

That is, an unregistered partner in a registered partnership may prepare returns for fees, working under a registered nominee, but there is no provision in the Act providing that an unregistered person may prepare returns for others in his own business. It is true that an unregistered person may lawfully prepare returns without fee, but it is improbable that in doing so he would accumulate sufficient experience to qualify under para. (C).

The fact that a partner in a firm may prepare returns and the like working under the firm's nominee (sec. 251N) and the fact that subreg. (2) contemplates that a member of a partnership so working may be treated as if in ``employment'' do not create any anomaly, in my respectful opinion. ``Employment'' in subreg. (2) has a wider scope than ``employee'' in sec. 251N, in that it includes working as a partner, but apart from that its meaning corresponds with that of ``employee''. It appears to me to follow that the word ``employment'', where twice used in para. (C), is used in the same sense. I cannot agree, with respect, that para. (C) departs entirely from the scheme created by the Act.

It may be objected that it is unduly restrictive to preclude aspiring tax agents from qualifying by working on their own, rather than as an employee or partner under the supervision of a registered person. One hazard of that policy is that registered tax agents might tend so to arrange matters as to make it difficult for others to enter their vocation and compete with them. Considerations of that sort may suggest the desirability of applying para. (C) generously, but cannot, in my opinion, force a construction of the regulation which is, as a practical matter, irreconcilable with the intention of the Act.

The conclusion which I have come to, namely that the Tribunal was wrong in deciding that the respondent was in ``employment'' within the meaning of the relevant provisions, makes it unnecessary to consider the other points raised by Miss Wilson. Since I have a view about one of them, however, I have decided to express it. It is my opinion that the word ``equivalent'' in para. (C), read in context, does not connote precise equivalence to the qualification in para. (A). The question is what the Board regards as equivalent, and it may properly treat as equivalent to the work specified in subreg. (2), work which is of a different description, as long as the applicant has done the work while in ``employment'' in the sense I have explained.

In summary, it is my view that the word ``employment'' in reg. 58CA is used in a sense which excludes those simply working alone in their own business - the so-called ``self-employed''. It follows that the respondent was not qualified under that regulation. The decision of the Tribunal must be set aside.