RE PARKER AND TAX AGENTS' BOARD OF NEW SOUTH WALES

Members:
BJ McMahon DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 7 September 1995

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BJ McMahon (Deputy President)

This is an application to review a decision of the respondent Board made pursuant to s 251K(2) of the Income Tax Assessment Act to cancel the registration of the applicant as a tax agent. The ground relied upon is contained in paragraph (d) namely, that the tax agent is not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters. Section 251BC elaborates upon the meaning of that phrase without limiting the generality of the expression. A person falls within the description in paragraph 251K(2)(d) if that person is not of good fame, integrity and character.

2. The applicant offered no evidence in response to the allegations made by the respondent directed to her fitness and propriety. She simply asked that this Tribunal exercise the discretion conferred upon it by sub-section 43(5B) of the Administrative Appeals Tribunal Act 1975 and to specify that its decision (which

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she accepted would affirm the decision under review) should not come into operation until a date, some 6 months later. The purpose of this was to enable her to dispose of her practice in an orderly manner. I will return to the discretionary factors to be taken into account later in these reasons. It is necessary first, however, to give some account of the facts as I find them.

3. A document headed ``statement of allegations'' was tendered as exhibit 1 without objection. It sets out the facts that form part of public records of convictions in various contexts. As no attempt was made to contradict any of this material and as it is all supported by affidavit evidence of the audit team manager, employed in the Taxation Office, who was responsible for much of the investigation prior to this application, I find the material set out in exhibit I to be factually correct and to be relevant in the present proceedings.

4. It deals first with convictions of the applicant. Between 21 July 1982 and 27 October 1989, she was convicted and fined on 3 occasions for failing to remit group tax in respect of her practice. Further inspections in September and November 1991 revealed further failures to remit group tax. Payment of the outstanding amount was followed by a warning in writing. Notwithstanding this warning, a further inspection on 12 July 1993 showed that the applicant continued in her conduct of late payment of her group tax obligations.

5. In respect of her personal income tax liabilities, she has been convicted and fined on a number of occasions for failing to lodge her income tax return for relevant years. Between 14 February 1985 and 24 May 1988 there were 4 such convictions for failing to lodge her returns for the years 1984 to 1987 inclusive. Following assessments, default was made in payment of her tax. A default judgment was entered against her on 9 January 1992 for $22,783, representing unpaid income tax plus penalties, together with a sum representing court costs for the years 1982 to 1990 inclusive. As that judgment was not satisfied, a bankruptcy notice was issued followed by a creditor's petition. These proceedings did not conclude in sequestration and were presumably settled prior to that final step being taken. Notwithstanding this history, the pattern re- emerged when on 26 August 1994 the applicant was again convicted and fined for failing to lodge her income tax return for the year ended 30 June 1994. Judgment was entered against her on 8 December 1994 for unpaid income tax for the years ended 30 June 1992 and 30 June 1993. A second bankruptcy notice was subsequently issued before the debt was satisfied. On 6 August 1991 the applicant was convicted of a breach of s 8K of the Tax Administration Act 1953 for making a false statement to a tax officer. This was in connection with the renewal of her registration as a tax agent in which she failed to disclose these convictions.

6. There is a history of complaints to the respondent Board concerning the conduct of the applicant which extends over a number of years. Earlier complaints led to an investigation and a conclusion by the Board at its meeting on 9 November 1988 that the applicant had neglected the business of a principal, had been guilty of misconduct as a tax agent and was not a fit and proper person to remain registered as a tax agent. Notwithstanding this finding, the Board elected to exercise its discretion and not to cancel her registration. She was advised however that if any further matters arose requiring her to show cause, the Board would be obliged to reconsider its decision. This warning appears to have had no effect. The convictions to which I have referred and the complaints to which I will now turn, occurred both prior to and subsequent to 9 November 1988. On the material before me there is little discernible change in the general pattern of conduct of the applicant.

7. A number of her clients were convicted because of the applicant's neglect. Details of these convictions are also set out in exhibit 1. Details of the experiences of the various corporate and personal clients are similar. They were convicted for failing to lodge income tax returns, for failure to comply with orders of the Court to lodge income tax returns and for failing to pay amounts assessed. The reasons for the apparent delinquency of her clients was in fact the applicant's own misconduct. Typically, she would fail to forward to her principal relevant correspondence including final notices or Court documents. She was often the secretary of corporate clients and her office was the registered office and address for service. The commercial operation run by the respective company was frequently unaware of the events until steps were taken to enforce particular judgments.

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8. Many of the convictions were repeat convictions showing sustained constancy of conduct by the applicant. Over a period of years the amounts involved built up. Relevant convictions included those related to income omitted in returns prepared by the applicant. A schedule of the returns of 33 taxpayers sent by the Board to the applicant on 31 March 1995 shows that the amounts involved were almost $4million and that court fines levied against those taxpayers in respect of omitted income exceeded $500,000.

9. In addition to this repeated neglect of her clients affairs which led to convictions under the Taxation Administration Act, the applicant neglected affairs of clients in relation to superannuation matters. In one case, the applicant failed to lodge any returns on behalf of the client company with the Insurance and Superannuation Commission over a period of some years. As a result the company was liable for unpaid taxes and penalties of approximately $900,000 of which approximately $450,000 was due to the failure of the applicant to lodge the returns. I was informed, without objection, that the amount involved would have been of the order of $60,000 had the applicant attended to her responsibilities.

10. Evidence by way of affidavit was given by other accountants who had been consulted by former clients of the applicant. Their evidence gave details of the applicant's refusal or inability to communicate or to hand over records or to return telephone calls (apparently a widespread experience) and of the damage that had been suffered by their clients as a result of her maladministration of their affairs. Evidence was also given by affidavit, and through interviews reproduced in the s 37 documents, from clients themselves who experienced similar difficulties.

11. All this uncontested evidence points irresistibly to a finding that the applicant is not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters. Section 251BC makes it clear that the meaning of that phrase is not narrowed by the terms of paragraph 251BC(d). The phrase still has the broad meaning referred to in the cases cited by Senior Member Beddoe in
Re Fitzgibbon and Tax Agents' Board of Queensland 93 ATC 2053 at 2057.

12. The classical explanation of the phrase given by Lord Coke was accepted by the High Court in
Hughes and Vale Pty Limited & Anor v The State of New South Wales & Ors 93 CLR 127 at 156-157. More recently, Toohey and Gaudron JJ in
Australian Broadcasting Tribunal v Bond & Ors (1990) 94 ALR 11 at 56 observed-

``The expression `fit and proper person', standing alone, carries no precise meaning. It takes its meaning from its context, from the activities in which the person is or will be engaged and the ends to be served by those activities. The concept of `fit and proper' cannot be entirely divorced from the conduct of the person who is or will be engaging in those activities. However, depending on the nature of the activities, the question may be whether improper conduct has occurred, whether it is likely to occur, whether it can be assumed that it will not occur, or whether the general community will have confidence that it will not occur. The list is not exhaustive but it does indicate that, in certain contexts, character (because it provides indication of likely future conduct) or reputation (because it provides indication of public perception as to likely future conduct) may be sufficient to ground a finding that a person is not fit and proper to undertake the activities in question,''

13. The applicant offers no opposition to my conclusion that the decision under review should be affirmed. On the evidence before me, which is quite substantial and detailed, there could not be any other result. The question is whether the effect of such affirmation should be postponed until a later date.

14. Sub-section 43(5B) of the Administrative Appeals Tribunal Act is in these terms-

``The Tribunal may specify in a decision that the decision is not to come into operation until a later date specified in the decision and, where a later date is so specified, the decision comes into operation on that date.''

15. The sub-section was inserted by Act No 143 of 1979. It is there, presumably, to give some flexibility to the powers set out in sub- section 43(1). It does not appear to have been considered by any court or in any decision of this Tribunal. In
Re Strang and Department of Immigration and Ethnic Affairs & Anor 36 ALD 449 at 469 Senior Member Dwyer

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exercised the power conferred by the sub- section in a Freedom of Information case by postponing the operation of her decision to allow access to a document for some 28 days so as to enable the aggrieved party to appeal. There was no discussion as to the principles which should apply in the exercise of the power contained in sub-section (5B).

16. The discretion appears to be unfettered except for the ordinary rules applicable in such situations namely, that relevant considerations are to be gleaned from the subject matter, scope and purpose of the Act. In my view, this must extend beyond the terms of the Administrative Appeals Tribunal Act to a consideration of the subject matter, scope and purpose of the Act with which the Tribunal is dealing and upon which it will base its decision. It was submitted by counsel for the applicant that appropriate principles for guidance could be found in the reasoning of Davies J in
Re Dekanic and Tax Agents' Board of New South Wales 82 ATC 4560 and in particular that this Tribunal should have regard to the dislocation of the applicant's practice (referred to by His Honour at page 4561 column 2) if the order affirming the decision under review were immediately operative.

17. In my opinion, no assistance is to be derived from a consideration of the principles expressed in Dekanic. Those principles relate to an entirely different situation which arises under s 41(2) of the Administrative Appeals Tribunal Act. At the time an application is made under that sub-section, there is a possibility that the applicant may be successful. If the order staying the operation of the decision is not made, then the applicant's practice could be dislocated and, conceivably, the effectiveness of the determination could be rendered nugatory. In this case one assumes that the allegations made by the Board have been sustained and that the applicant is unsuccessful. Here there is nothing to preserve by a stay order. The determinative order is a foregone conclusion. The temporary nature of affairs pending a hearing is to be replaced with a permanent definition of the rights of the parties.

18. Counsel for the applicant made 2 principal submissions in support of the application to postpone the operation of the decision for a period of 6 months. An immediately operative decision would (he said) prevent an orderly winding up of the applicant's practice. It was submitted that the applicant was a person of limited means and that if her registration were withdrawn she would be in an invidious bargaining position. It was also submitted that, in any event, some credit should be given for her acceptance of the allegations and that to require her to accept immediate deregistration would be a harsh penalty.

19. I will deal with the second point first. In my view, proceedings under s 251K for cancellation or suspension of the registration of tax agents are not penal proceedings. They are not designed to punish. The proceedings are primarily for the protection of the commercial and taxpaying community. They are also for the purpose of the orderly administration of the Act. If the Commissioner is unable to rely upon tax agents and if clients are unable to place complete confidence in agents handling their affairs, then a very important element in Australia's administration of its tax system disappears.

20. The applicant is not entitled to any credit for accepting that the decision under review ought to be affirmed. She had all the evidence put before her prior to the hearing. If there was an answer available to her, she had every opportunity to meet that evidence. If she accepts it, she is doing no more than accepting the inevitable. The approach sometimes adopted in criminal sentencing of remitting part of an otherwise deserved penalty because of a plea of guilty is quite inappropriate in the present circumstances. In criminal cases the rationale of the practice is said to lie in the fact that the Crown is saved the expense of a trial. Even if the principle had application here, the underlying rationale would be absent. Considerable expense was incurred by the respondent in preparation for the hearing. The applicant's belated acceptance does nothing to diminish that cost.

21. As to the first matter raised by counsel for the applicant, it has to be remembered that the Tribunal's decision will be adverse to the applicant's fitness and propriety. This is based on evidence showing a consistent history of misconduct over a long period. As their Honours pointed out in Bond, I must have regard to whether the improper conduct is likely to recur and more particularly whether the general community will have confidence that it will not occur. Having regard to the history of

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events, I have no confidence that either eventuality would ensue.

22. Evidence was given by Mr Van Bruinessen, a certified practising accountant in sole practice, who is an accredited reviewer for the quality assurance program of the Australian Society of Certified Practising Accountants. He gave evidence that he carried out a survey of certain files of corporate, partnership and individual clients of the applicant. However, the selection of clients was left to her. Mr Van Bruinessen explained in evidence that only the applicant could make a proper selection of files to represent a cross section of her work. This seems to me to be a curious procedure for an audit. With some minor impairments, he found little fault in her conduct in the selected matters. He discussed the applicant's knowledge of the various Taxation Acts with her and came to the conclusion that she is ``an expert tax agent''. In view of the fact that he was completely unaware of the allegations that have been made by the Board, and that he based his work upon such a limited approach, and that his own experience was itself quite limited, I did not derive any assistance from his assessment of the capabilities of the applicant. Certainly he did nothing to persuade me that the nature of her activities as a tax agent would be likely to change in the next 6 months.

23. In any event, no case has been made out by the applicant for departure from the usual rule as to the operation of this Tribunal's decisions, even if one were to take into account any personal hardship of the applicant. Firstly the provision of taxation services is only part of the practice which she describes as that of a consulting accountant. There was evidence of commercial and marketing advice which she offered to clients, of services involving permission to export fruit, of services involving licence agreements from foreign companies and for general commercial financial advice offered to her clients. She does not now offer, and has never offered, a complete accountancy service. Her evidence was that she does not carry out audits, that she has never been registered as an auditor and that she has never applied for such registration. There is no real reason to doubt that she can continue to carry on her practice as a commercial financial adviser without provision of services that can be rendered only by a registered tax agent.

24. Furthermore, there is no evidence that she has seriously sought to sell her practice since she first became aware of the possibility of losing her registration. Time and again the evidence points to requests for postponements or adjournments as the applicant's first reaction to critical stages of transactions. More often than not, obligations which were postponed were not satisfied within the extended times. The present request for postponement of the operation of this Tribunal's decision comes from the same matrix. I am not satisfied that any postponement for 6 months would result in an orderly disposition of her practice. More importantly, however, such a consideration is clearly subordinated to public considerations.

25. There is a public and urgent interest in the normal course being followed. If the past is any guide to the future, no one can be confident that in the next 6 months further conduct would not take place indicative of the lack of the applicant's fitness and propriety to be registered as a tax agent. The arguments for delay are unconvincing and are contrary to the policy considerations arising from the operation of Part VIIA of the Income Tax Assessment Act dealing with registration of tax agents to which I must have regard. It could well be argued that once having found the applicant not to be a relevantly fit and proper person, there is no scope to allow such a person to do for the next 6 months what she is patently unfit to do. My decision will therefore simply be that the decision under review is affirmed.