RE DOWNES AND TAX AGENTS' BOARD OF QUEENSLAND

Members:
Bulley J
EK Christie M
JD Horrigan M

Tribunal:
Administrative Appeals Tribunal

Decision date: 30 September 1993

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RJ Bulley (Presidential Member), Prof EK Christie (Member), JD Horrigan (Member)

The applicant seeks review of the decision of the respondent made on the 28 September 1992 refusing his application for registration as a tax agent.

2. The applicant was born on the 17 May 1941.

3. In 1981 Mr Downes obtained a Bachelor of Business degree specializing in accounting at the Kuring-gai College of Advanced Education. Revenue law was one of the subjects he studied as part of this degree course. Mr Downes qualified as an accountant on the completion of his degree.

4. Mr Downes was a registered tax agent from 1 October 1981 to 1 April 1992 when his registration lapsed for want of renewal.

5. In 1987 the applicant obtained a Diploma as a Company Director from the University of New England. In more recent times he has been studying for a Master of Business Degree at Bond University: he states that this will be 60 per cent completed in 1993. He expects to complete his Masters in about August 1994.

6. Mr Downes is a Foundation Fellow of the Australian Institute of Company Directors, a Fellow of the Australian Institute of Management, an Associate of the Institute of Management Consultants, and a Member of the National Institute of Accountants.

7. Between 1980 and 1992 Mr Downes was to quote him, ``either self-employed or Chief Executive of a company''.

8. Until May 1983 the applicant did not lodge any tax returns for any clients. However he said he prepared returns for 3 private companies during that period and for a trust in 1983: it is however, fair to infer that he had a personal interest in these companies and in this trust. During this period he said he also prepared individual returns these being lodged through another tax agent, a Mr Higgins. Mr Higgins was a personal friend of the applicant.

9. From May 1983 to August 1984 the applicant says he performed work for Mr Higgins. Mr Downes described Mr Higgins at that stage as being 78 years old, and having become by reason of his health unable to carry on his practice. The applicant said that he took over the running of this practice for this period of about 15 months under the tax number of Mr Higgins.

10. The practice of Mr Higgins had about 60 clients.

11. The applicant stated that from January 1986 to August 1991 he was employed as the chief executive officer of a public company. This was a company he incorporated in January 1986 to take over the assets and undertakings of businesses he had run since January 1981. The company was called Consolidated Technology Limited.

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12. It would appear that in the 1984/85 tax year Mr Downes prepared 12 tax returns under his own registration number.

13. Asked by his Counsel whether he prepared returns in respect of trusts and companies when he was chief executive officer of the public company referred to in paragraph 11 of these Reasons Mr Downes responded that throughout the time from 1981 to 1991 he consistently prepared the returns for these companies and then was involved in the discussions, where appropriate, with the companies' external accountants to discuss any issues that still needed to be addressed. The returns were actually lodged via the main external accountants of and auditors of the public company.

14. In 1986 the applicant said he prepared 14 individual returns, and this number would have included some members of his immediate family. In that tax year he also prepared 2 partnership returns these clients being external to himself and his family. He also prepared 3 company and 2 trust returns in that year, all entities of which he and/or his immediate family had an interest and including only one company which was actually carrying on business.

15. During the years 1986 to 1989 Mr Downes prepared or lodged no income tax returns according to his evidence. We take it this is subject to information contained in paragraph 13 of these Reasons.

16. In 1989 Mr Downes prepared or lodged 3 company and 2 trust returns, these being as described in paragraph 14 of these Reasons. In that year he also prepared or lodged 4 individual returns, these being family members. This is the full extent of his preparation and/or lodgment of returns for 1989. He prepared or lodged no partnership returns in that year.

17. In 1990 Mr Downes prepared or lodged 4 company and 2 trust returns the additional company return being a personal friend: this extra return does not seem to have been a significant one. In that year he did one partnership return for an external client. He did 6 individual returns, all for family members. That was the extent of his preparation and/or lodgment of returns for 1990.

18. For 1991 the applicant prepared or lodged no partnership returns, he prepared/lodged returns for the same 4 companies and 2 trust entities as he had in 1990 and he did the returns for 7 individuals all family members.

19. For 1992 he prepared/lodged returns for 6 individuals, all family members, and one trust entity.

20. Mr Downes was asked in cross- examination before the Tribunal if any of the returns of any of the persons, companies or trusts lodged between 1990 and 1992 were associated with Consolidated Technology Limited. Mr Downes responded that the companies would have been shareholders in or have some interest in Consolidated Technology and the individuals were - ``well, for my wife and myself, certainly employees. The other family members are the beneficiaries under trusts. I mean in that sense they would be associated''. The applicant also agreed that the companies were corporate trustees to those trusts. He then agreed to the proposition ``So they were all associated with Consolidated Technology Limited?''

21. Clearly the extent of the applicant's preparation and lodgment of returns as described in paragraph 20 of these Reasons should encompass the 1989 year as well. As paragraph 16 of these Reasons sets out the returns for that year were in effect all associated with the public company in some respect or other.

22. Mr Downes lodged his subject application for registration as a tax agent on the 7 September 1992. He admitted that in the 5 years leading up to this date he had advised no more than 3 entities as to tax matters who were not associated with himself as family members or in which he had a financial interest. One of these entities was a company, a stonemason company. He advised this company for no more than 2 years. He did not prepare an objection for that company, he did advise on assessments, and ``things to do with group tax and prescribed payments tax''.

23. Mr Downes says that over the past 18 months he has been advising on tax matters but not charging a fee, although sometimes he has during that period charged for general consulting advice. All his clients in the last tax year were people associated with him. Indeed he agreed that in the last 4-5 years ``apart from one aberration'', all the clients he had as a tax agent were associated with him.

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24. It is fair to say that Mr Downes has not kept his tax library up to date. He did say he would go to a library for up to date tax knowledge. However he later admitted that the last time he had consulted a library for income tax advice was between January and the end of April 1992.

25. Mr Downes said he also keeps himself up to date by the seminars he attended and the journals he reads: however this seems quite limited. He clearly was quite floridly incorrect when he stated one could contact the Tax Agents' Board for a list of specialists in the tax field. We accept the evidence in this respect of the secretary of the Board, Mr Rienecker. We otherwise accept the evidence of Mr Rienecker.

26. A tax agent registered prior to 1 November 1988 was brought within the scheme of the amended Part VIIA of the Income Tax Assessment Act 1936 (hereinafter referred to as the Act) by subsec. 55(16) of the Taxation Laws Amendment Act (No 2) 1988 (hereinafter referred to as the Amendment Act). Subsection 55(16) provides:

``(16) A person or partnership whose registration as a tax agent under Part VIIA of the Principal Act was in force immediately before the commencement of this subsection (including a tax agent whose registration is suspended) shall be deemed, for the purposes of Part VIIA of the amended Act, to have been registered under section 251JA of the amended Act immediately after the commencement of this subsection.''

27. Thus a tax agent registered prior to 1 November 1988 continued to be registered after that date as though the registration had been effected under sec. 251JA of the Act. This meant that the applicant Mr Downes continued to be so registered subsequent to the 1 November 1988.

28. By virtue of subsec. 55(18) of the Amendment Act a tax agent's former registration ceased to be in force on 1 April 1989. This applied to Mr Downes. Thenceforth the tax agent would be considered to be re- registered pursuant to sec. 251JC of the Act.

29. Prior to the amended Part VIIA of the Act coming into effect, registration of a tax agent would continue indefinitely upon that tax agent giving an annual notice. Since the amendment sec. 251JG(2) of the Act provides that the registration of a tax agent under sec. 251JA or 251JC unless terminated, cancelled or surrendered, will continue in force for 3 years. Once the 3 years expires, the tax agent must apply for re-registration pursuant to sec. 251JB of the Act. At such stage the tax agent must satisfy the Tax Agents' Board, pursuant to sec. 251JC of the Act, that, inter alia, he or she is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters.

A scheme of continuing registration has been replaced by one which requires that the Tax Agents' Board make a positive finding of fitness and propriety every 3 years.

30. Under sec. 251JB(4) of the Act a time limit is provided for the making of an application for re-registration as a tax agent. It is not in dispute that the applicant Mr Downes did not make such an application in time and that as a result his registration as a tax agent expired on 1 April 1992 by virtue of sec. 251JG of the Act.

31. By application dated 7 September 1992 Mr Downes sought registration as a tax agent pursuant to sec. 251JA of the Act. Section 251JA provides:

``251JA(1) [Requirements for registra- tion] The Board shall register the applicant as a tax agent if the applicant satisfies the Board that:

• (a) if the applicant is a natural person:
  • (i) the applicant is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters; and
  • (ii) the applicant is not an undischarged bankrupt;
• (b) if the applicant is a partnership:
  • (i) a partner specified in the application as the original nominee of the partnership is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters;
  • (ii) in the case of each partner who is a natural person - the partner:
    • (A) has attained the age of 18 years at the date on which the application is made; and
    • (B) is of good fame, integrity and character;

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  • (iii) in the case of each partner that is a company - each executive officer of the company:
    • (A) has attained the age of 18 years at the date on which the application is made; and
    • (B) is of good fame, integrity and character; and
  • (iv) there is no partner who is an undischarged bankrupt; or
• (c) if the applicant is a company:
  • (i) a person employed by the company and specified in the application as the original nominee of the company is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters;
  • (ii) each executive officer of the company:
    • (A) has attained the age of 18 years at the date on which the application is made; and
    • (B) is of good fame, integrity and character;
  • (iii) except where the company is an authorised trustee company - the company is a company in which qualified directors have a substantial interest; and
  • (iv) the company has not gone into liquidation.

251JA(2) [Refusal of registration in other cases] The Board shall refuse to register the applicant in any other case.

251JA(3) [Notice of refusal] Where a Board makes a decision refusing to register an applicant as a tax agent, the Board shall cause to be served on the applicant a notice in writing setting out that decision and giving the reasons for that decision.''

32. The applicant based an argument on the provisions of sec. 251BC(1) of the Act that since the applicant by reason of the fact of the matters in truth (and as found by the Board at p. 6 of its decision at T2, dated 28 September 1992 refusing Mr Downes' application for registration) - as set out in subsec. 251BC(1)(a) to (f) inclusive - should be held to be ``not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters'', it necessarily followed that he was ``a fit and proper person'' as that phrase is used in sec. 251JA(1)(a) of the Act. The argument proceeds that Mr Downes is then automatically entitled to registration.

33. Section 251BC(1) of the Act provides:

``251BC(1) [Disqualifying factors] Without limiting the generality of an expression used in this Part, but subject to this section, a person is not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters, as at a particular time, if:

• (a) the person is not a natural person;
• (b) both of the following conditions are satisfied:
  • (i) the person was not registered as a tax agent, or as a nominee, for the purposes of this Part immediately before the commencement of section 39 of the Taxation Laws Amendment Act (No. 2) 1988;
  • (ii) the person does not hold such qualifications (whether academic, by way of experience or otherwise) as are prescribed;
• (c) the person has not attained the age of 18 years;
• (d) the person is not of good fame, integrity and character;
• (e) the person has been convicted of a serious taxation offence during the previous 5 years; or
• (f) the person is under sentence of imprisonment for a serious taxation offence.''

34. It is not disputed that Mr Downes does not fit in with any of the matters set out in sec. 251BC(1).

35. The Tribunal does not accept the applicant's argument as set out in paragraph 32 of these Reasons. We consider that sec. 251BC(1) is referable only to deciding in particular circumstances when a person is ``not a fit and proper person''. In other words it is not concerned with setting up criteria to base a decision on whether a person is positively ``a fit and proper person''. If one adopted the argument postulated by the applicant this would make an absurdity of the underlying purpose and scheme of these amending sections forming

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Part VIIA. The substantial amendments to Part VIIA of the Act in 1988 reflect the objective that tax agents have appropriate knowledge of income tax law and practice. As Deputy President Forrest observed in
Re Civiti and Tax Agents' Board of Victoria 90 ATC 2039 at p. 2042:

``The substantial amendments to the Act introduced by the Taxation Laws Amendment Act (No. 2) No. 78 of 1988, which came into force from 1 November 1988, reflect the objective that persons who prepare income tax returns or transact business in income tax matters for reward have appropriate knowledge of income tax law and practice. The respondent has the responsibility of assuring that objective. In the present circumstances it must be satisfied that the applicant has had substantial involvement in income tax matters, including the preparation or examination of a broad range of returns. That necessarily involves an objective assessment of the applicant's experience.''

These remarks quoted with approval by Deputy President Forgie in
Re Ellis and Tax Agents' Board of Queensland 92 ATC 2001 at p. 2005. And see
Re D'Alessandro and Tax Agents' Board 93 ATC 2028 at pp. 2033-2034 where the Tribunal stated as follows:

``17. When Mr Pietka gave evidence, he drew attention to the introduction in recent years of the system of self-assessment by taxpayers. He said that that had made it imperative that tax agents have a thorough knowledge of income tax law and practice. He referred to an address given by the Second Commissioner, Mr B. Nolan, at a Taxation Institute of Australia seminar in June 1990 where Mr Nolan had described the role of tax agents under the new system as `helping taxpayers meet their obligations through a service rather than processing role'. Mr Pietka said that the respondent ran courses for tax agents to assist them to understand what their responsibilities were now. They included giving advice to tax- payers not only on their taxation liability but on the records which they needed to keep for taxation purposes. Before November 1988 it had been comparatively easy to become a tax agent. Since then, however, the legislation now in force had set stringent standards. Those standards were necessitated by the change in the responsibilities of tax agents.''

36. This Tribunal is satisfied that the applicant is not caught by any of the paragraphs of subsec. 251BC(1) of the Act and that therefore he is not disqualified as a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters by virtue of the provisions of subsec. 251BC(1). He is then capable of being considered as a fit and proper person under subsec. 251JA(1).

37. Although Mr Downes does not fall within one of the paragraphs of subsec. 251BC(1) he must in our view satisfy the Board pursuant to subsec. 251JA(1) that being a natural person and not an undischarged bankrupt he is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters.

38. The words ``fit and proper person'', depending on their statutory context, endow a licensing body with a wide discretion: see
Hughes and Vale Pty Ltd & Anor v The State of New South Wales & Ors (No 2) (1955) 93 CLR 127. In their joint judgment at p. 156 of this report Dixon CJ, McTiernan and Webb JJ stated:

``The expression `fit and proper person' is of course familiar enough as traditional words when used with reference to offices and perhaps vocations. But their very purpose is to give the widest scope for judgment and indeed for rejection. `Fit' (or `idoneus') with respect to an office is said to involve three things, honesty knowledge and ability: `honesty to execute it truly, without malice affection or partiality; knowledge to know what he ought duly to do; and ability as well in estate as in body, that he may intend and execute his office, when need is, diligently, and not for impotency or poverty neglect it' - Coke.''

39. Between 1980 and 1986 Mr Downes was self-employed, running his own business enterprises. In 1986 these enterprises in short terms were converted into a public company of which Mr Downes then became the Chief Executive Officer: he remained in this office until 1992.

40. Mr Downes became a registered tax agent in 1981. Until 1983 he did not lodge any returns for clients but he prepared returns for his 3 private companies and his private trust but it seems these returns were lodged by and the responsibility for them taken by external tax agents.

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41. For 15 months in 1983-84 the applicant ran the practice of his friend Mr Higgins under the tax number of his friend.

42. In 1984-85 Mr Downes prepared 12 tax returns under his own tax number. It appears that in 1985-86 he prepared 14 individual returns including some members of his family and some company, partnership and trust returns all associated with himself and/or his family.

43. From 1986 to 1989 Mr Downes seems to have had very little involvement in the preparation or lodgment of returns.

44. In the years 1989, 1990, 1991, and 1992 the applicant's involvement with the preparation and lodgment of returns was very largely restricted to matters involving his own family, himself and entities in which he and/or members of his family were involved. These returns were quite small in number.

45(a). Mr Downes has not kept up his own tax library in recent times. He did not impress generally as having a good grasp of tax matters at this time. Certain matters of concern about some of the applicant's answers in cross- examination were raised by the respondent's Counsel in her final address. These matters include his admission that he has since his registration lapsed been giving tax advice under the guise of management consultant, even though he really has not been keeping up to date with changes in the income tax legislation; and the fact that he could not get it right that it was the Tax Office, not the Board one contacted for a list of specialists. We share these concerns.

45(b). Generally Mr Downes was not as careful as he might have been in giving evidence. Further, closer inspection of some of his testimony by cross-examination revealed deficiencies in some of the assertions he made in his evidence in chief. Ms Wolfe referred to some of these in her final address.

46. The Tribunal considers that bearing in mind the purpose and intent of the amending Act relating to the new provisions of Part VIIA of the Act, Mr Downes has not had sufficient experience over such a period of time and over as broad a range of tax matters as would be appropriate, and of enough intensity in terms of number of and type of matters and in terms of work for external clients and in recent years as to satisfy us that he should be classed as being ``a fit and proper person to prepare income tax returns and transact business on behalf of tax- payers in income tax matters'' as those words are used in subsec. 251JA(1)(a) of the Act.

47. Thus we would refuse to register the applicant as a tax agent. As this result is the same as that reached by the respondent in its decision of the 28 September 1992 we affirm the decision under review.