RE FITZGIBBON AND TAX AGENTS' BOARD OF QUEENSLAND

Members:
KL Beddoe SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 28 April 1993

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KL Beddoe (Senior Member)

The applicant seeks review of a decision made on 18 August 1992 and notified to the applicant in a letter dated 1 September 1992 which decided to refuse an application for registration as a tax agent because the applicant was not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters. The relevant application was refused under sub-paragraph 251JA(1)(a)(i) of the Income Tax Assessment Act 1936 (``the Act'').

2. Section 251JA of the Act provides for the registration of tax agents:

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``251JA(1) 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)...
  • (ii)...
  • (iii)...
  • (iv)...
• (c) if the applicant is a company:
  • (i)...
  • (ii)...
  • (iii)...
  • (iv)...

251JA(2) The Board shall refuse to register the applicant in any other case.

251JA(3) 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.''

3. Sub-section 251BC(1) defines persons who are fit and proper to prepare income tax returns and provides disqualifying factors:

``251BC(1) 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.''

4. An application by the applicant dated 26 February 1992 for reregistration as a tax agent was received by the respondent on 2 March 1992 [Document T3]. In that application, to the question ``Have you been declared bankrupt?'' the applicant ticked the answer ``No''. If the answer had been ``Yes'', the form required the applicant to supply ``full details (including date of bankruptcy, registry in which bankruptcy administered, date of discharge and conditions of discharge).'' [T3 Folio 12]. At the end of the application form is the formal caveat: ``Note: The taxation laws provide penalties for the making of false or misleading statements.'' [T3 Folio 13].

5. At the time the applicant answered the question he was an undischarged bankrupt. He had been declared bankrupt pursuant to a sequestration order made in the Federal Court on 15 August 1991 and was discharged from that bankruptcy on 24 April 1992 [T4 Folio 27].

6. Sub-section 251KG(a) of the Act requires a registered tax agent who is a natural person ``forthwith'' to notify the Board by which he was registered if he becomes an undischarged bankrupt.

7. Sub-section 251K(3C) requires the Board to cancel the registration of a natural person if that person is an undischarged bankrupt.

8. Although he had just been reregistered as a tax agent, upon the Board becoming aware of the applicant's bankruptcy the applicant's registration as a tax agent was cancelled by the respondent on 5 May 1992 i.e. after the discharge from bankruptcy.

9. In an application dated 13 May 1992, the applicant applied for registration as a tax agent. In that application, to the question ``Have you ever been declared bankrupt?'' the applicant ticked ``yes'' and supplied the details of the bankruptcy as 15 August 1991 as date of

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declared bankruptcy and 24 April 1992 as the date of discharge from bankruptcy in the Queensland registry. The application was supported by two character references and a copy of the certificate of discharge from bankruptcy.

10. On 18 August 1992 the respondent decided to refuse the application for registration as a tax agent [T7] and it is this decision which is the subject of review in this Tribunal.

11. The applicant contends that the application dated 13 May 1992 was correct in all details and that the respondent did not then deal with the current facts [Transcript 6]. The applicant further contends that the respondent had failed to consider ameliorating circumstances in the applicant's favour.

12. The applicant in evidence to the Tribunal stated that he had been registered as a tax agent ``for at least ten years without any complaint or blemish'' [Transcript 6] and was both in character and ability a fit and proper person to prepare tax returns. It was further stated that the bankruptcy occurred as a result of personal guarantees given as a director of a new manufacturing company at the venture stage and was in no way connected with his business as a tax agent [Transcript 6].

13. The applicant detailed his involvement as one of four directors of the manufacturing company, Process Engineering Consultants Pty Ltd (``PEC''), which was a company involved in bacterialising abattoir pond sludge to produce an organic fertiliser [Exhibit 4; Transcript 7-9]. A pilot plant was built to test the process and then PEC marketed a product called ``Biocrop'' in July 1990. The directors had obtained capital from share issues, leasing of equipment, bank and personal loans; additional security was given over homes and personal guarantees were signed [Exhibit 4]. For various reasons detailed to the Tribunal, the applicant was left as the only director with any assets of substance when the company failed and the creditors sought to enforce their security.

14. The applicant stated that though the company had prospects of commercial success, there were internal problems in the operation and in the obtaining of credit. One particular creditor petitioned for the company to be wound up and since the company was technically insolvent [Transcript 8] a provisional liquidator was appointed in December 1990 and the business was unsuccessfully advertised for sale.

15. It was further said in evidence that the assets of PEC were then disposed of by sale or repossession; creditors called on guarantees and there was a shortfall since the number of directors with effective assets had been substantially reduced. Additionally, an immediate reduction of an unsecured personal overdraft facility of the applicant's was requested at or about the same time by the petitioning creditor.

16. The applicant told the Tribunal that, in an effort to stave off a declaration of bankruptcy, he engaged a firm of insolvency consultants which proposed a scheme of arrangement. The applicant stated that the petitioning creditor was not formally apprised of the proposed meeting of creditors and, since the applicant was insolvent at the time, proceeded with the bankruptcy action which resulted in the applicant's being declared bankrupt on 15 August 1991. I formed the impression that the applicant's evidence to the Tribunal was truthful and should be accepted and I so find.

17. In an affidavit dated 12 March 1992 and filed in the Federal Court on 23 March 1992 the applicant applied for grant of discharge under the Bankruptcy Act [Exhibit 4] and stated he had been shocked by the declaration of bankruptcy. In evidence to the Tribunal the applicant stated that he had hoped to have a composition out of bankruptcy which would have had the effect of annulling it back to the date of declaration of bankruptcy [Transcript 13]. Subsequent to the declaration and the sale in November/December 1991 of the applicant's home which had been caught by a guarantee, the applicant's financial position had deteriorated [Transcript 9] and he stated that he was advised to apply for discharge from bankruptcy. The applicant testified [Transcript 9] that the date of the hearing for discharge was 27 March 1992.

18. The applicant said in evidence and I so find that in the interim period, between the date of the declared bankruptcy and the discharge from bankruptcy, he received an application for reregistration as a tax agent. This is document T3 which was signed by the applicant on 26 February 1992 and received by the respondent on 2 March 1992.

19. The applicant said in evidence [Transcript 9-10] that during the period of

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bankruptcy he had heard nothing from the Tax Agents' Board about his status as a tax agent and while he realised he should have informed the respondent, he delayed in the expectation that the respondent would discover the fact of the bankruptcy. When the Board gave no indication of this and instead an application for reregistration form was received by the applicant from the Board, the applicant decided to deny his bankruptcy on the form by ticking the ``NO'' box [Exhibit B], because he had an expectation that he might be discharged very soon after the application was processed by the respondent, and to avoid disruption to clients.

20. In a statement of facts and contentions in dispute dated 15 February 1993 [Exhibit B], the applicant stated that he did not inform the Australian Society of Certified Practising Accountants nor the Tax Agents' Board Queensland because ``my trustee said I had no obligation to inform anyone''. In an affidavit dated 12 March 1993 [Exhibit 1] the Trustee in bankruptcy stated:

``I have a clear recollection of discussing this matter with Mr Fitzgibbon and I am certain that what I did say to him was that I, as Trustee of the bankrupt estate, did not have any obligation, of which I was aware, to inform that part of the Australian Taxation Office dealing with Tax Agents registrations of his bankruptcy. Mr Fitzgibbon asked if he had any obligation to inform the Australian Taxation Office and I said that presumed he had and the matter was left for him to further investigate.''

21. The applicant distinguished [Transcript 14] between the obligations he had to give notice of bankruptcy under the Bankruptcy Act and those he had come to understand he had under the Income Tax Assessment Act. Questioned by the Tribunal as to why he had not consulted the Income Tax Assessment Act as to his obligations the applicant replied that his area of small business work took him to narrow areas of the Act; that he was hoping to be discharged from bankruptcy prior to deregistration and he only became aware subsequently of his duty to inform the Tax Agents' Board of his status as an undischarged bankrupt.

22. In evidence before the Tribunal the applicant contrasted his treatment by the Australian Society of Certified Practising Accountants which, upon its disciplinary committee hearing the applicant's explanation of the circumstances of his bankruptcy and failure to notify, imposed the minimum penalty: an admonition [Exhibit 5].

23. Exhibit 3 is an extract from the Members' Handbook (Society Section) Volume Four of the Australian Society of Certified Practising Accountants. In that extract, under ``Regulation of Conduct'' paragraph 27(2)(e) shows admonishment as one of a number of penalties that may be imposed by the National Council of that body. It is not the most minimal, however. Nor, as counsel for the respondent elicited in cross-examination, had a false statement been made to the Society [Transcript 41].

24. In cross-examination the applicant agreed, and I so find, that he failed in his duty to advise the respondent of his true status [Transcript 37] and that at the time he completed the reregistration form he had no basis for believing he was anything other than an undischarged bankrupt. He also agreed [Transcript 41] that the administration of taxation laws involving the registration of tax agents depends on honesty and integrity upon which the respondent and the taxation administration can rely.

25. In the course of the hearing there was examination of the applicant's small business operations on the Gold Coast but for the purpose of these proceedings they are not relevant and do not assist the Tribunal in its decision.

26. Mr Innes, counsel for the respondent, submitted that sub-section 251BC(1)(d), and in particular the words ``integrity and character'', was the focus in the present matter. He further submitted that included in the defined meaning of ``integrity'' was the attribute of honesty. The administration of the taxation system depends upon the honesty with which documentation is completed. This, it was asserted, was especially applicable when a professional adviser makes a solemn declaration to those whose task is to administer the system. In support of this assertion the respondent alluded to substantial penalties payable under the Taxation Administration Act 1953 for false or misleading statements. It was submitted for the respondent that the applicant disqualified himself under paragraph 251BC(1)(d) by having knowingly made a false statement in his application for reregistration as a tax agent dated 26 February 1992.

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27. In direct consequence it was further submitted that in the application for registration dated 13 May 1992, the applicant had demonstrated by his false statement on his application for reregistration dated 26 February 1992 that he did not meet the conditions set out in paragraph 251JA(1)(a)(i) so that the respondent could not be satisfied that the applicant is a fit and proper person to be registered as a tax agent. The respondent also contended that the seriousness with which the Income Tax Assessment Act viewed the state of bankruptcy is apparent in sub-paragraph 251JC(1)(a)(ii) which provides for a condition which is absolute. If the correct information had been given to the Board, it could not have been satisfied that the applicant was not an undischarged bankrupt and, therefore, he could not be reregistered as a tax agent. I so find.

28. Sub-section 251JA(1)(a)(i) is a mirror provision to section 251JC which sets out the criteria for reregistration as a tax agent:

``251JC(1) The Board shall re-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;''

29. The question that the Tribunal must answer is whether the applicant meets the conditions for registration as a tax agent provided for in paragraph 251JA(1)(a) of the Act. The issue before the Tribunal is whether the applicant is not a ``fit and proper'' person and therefore not qualified to be registered as a tax agent.

30. ``Fit and proper person'' was the subject of judicial consideration in
Hughes and Vale Proprietary Limited & Anor v The State of New South Wales & Ors (1955) 93 CLR 127 at 156-157 where it was stated by Dixon CJ, McTiernan and Webb JJ:

``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. When the question was whether a man was a fit and proper person to hold a licence for the sale of liquor it was considered that it ought not to be confined to an inquiry into his character and that it would be unwise to attempt any definition of the matters which may legitimately be inquired into; each case must depend upon its own circumstances: R. v. Hyde Justices (1912) 1 K.B. 645, at p. 664. In another such case it was decided that if in the view of the justices the security of tenure enjoyed by the proposed licensee in the premises was insufficient, that was a good ground for holding that he was not a fit and proper person to be the holder of the licence:
R. v. Holborn Licensing Justices; Ex parte Stratford Catering Co. Ltd. (1926) 42 T.L.R. 778. It is evident that under par. (a) of sub-s. (4) the Commissioner is invested with an authority to accept or reject an applicant the exercise of which depends on no certain or definite criteria and which in truth involves a very wide discretion. If guidance is sought in that paragraph of sub-s. (3) which more or less corresponds, namely par. (c), nothing more definite will be found. What under par. (c) the commissioner is required to have regard to is `the character, suitability and fitness of the applicant to hold the licence applied for'.''

31. In a more recent High Court case it was said by Toohey and Gaudron JJ in
Australian Broadcasting Tribunal v Bond & Ors (1990) 94 ALR 11 at 56 that:

``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,

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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.''

32. The public interest demands that the administration of tax matters be performed with utmost propriety and responsibility. The Act requires professional advisers licensed as tax agents under the Act to exercise the power conferred by the licence with scrupulous honesty.

33. The Tribunal accepts that the applicant has had a previously unblemished record as a registered tax agent and so finds. The Tribunal also accepts and so finds that the bankruptcy that occurred was as a result of personal guarantees made as a director of the PEC company and was in no way connected with the applicant's business as a tax agent.

34. In his application for reregistration as a tax agent, the applicant demonstrated a serious lack of honesty in his non-disclosure of his status as an undischarged bankrupt. The application form itself reflected the legislative interest in the state of bankruptcy. The formal caveat appended to the form reinforced the seriousness of any representation made on the form. Notwithstanding this the applicant falsely represented to the Board that he was not an undischarged bankrupt and I so find.

35. Further the applicant displayed an inadequate sense of his obligations under the Act combined with an evident reluctance to ascertain and comply with them. Conditions for registration as a tax agent encompass matters beyond financial and technical capabilities and require fitness and propriety in the widest sense given the context and purpose of the Act.

36. The false representation is inconsistent with the integrity required for registration as a tax agent. It follows that the applicant is not a fit and proper person to be registered as a tax agent and the Tribunal so finds.

37. For these reasons the decision under review will be affirmed.