Phillip Same Accountants Pty Ltd and Tax Practitioners Board [2010] AATA 439 (11 June 2010)

Last Updated: 11 June 2010

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 439

ADMINISTRATIVE APPEALS TRIBUNAL )

) No 2009/5322

GENERAL ADMINISTRATIVE DIVISION		)
	Re		Phillip Same Accountants Pty Ltd

Applicant

And

Tax Practitioners Board

Respondent

DECISION

Tribunal

Mr G L McDonald, Deputy President

Date 11 June 2010

Place Melbourne

Decision

The Tribunal affirms the decision under review.

........(sgd G L McDonald)..........
Deputy President

CATCHWORDS

INCOME TAX ASSESSMENT ACT - Refusal to be reregister tax agent on the basis of outstanding BAS and personal income tax returns over a three year period – previous history of failure to lodge BAS on the time over a six year period followed by business liquidation with amount outstanding to the Australian Taxation Office – whether agent a ‘fit and proper person’ – no special circumstances – whether compliance likely in the future – public interest in tax agents complying with responsibilities in the area in which they practice – decision affirmed.
Administrative Appeals Tribunal 1975 (Cth) s 37
Income Tax Assessment Act 1936 ss 251BC, 251BC(1), 251BC(1)(d), 251BC(3)(a), 251(3)(c), 251JC(1)(c) and 251KE(1),
Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009 (Cth)
Tax Agent Services Act 2009 (Cth) s 30.10(2)

Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Shi v Migration Agents’ Registration Authority [2008] HCA 31; (2008) 248 ALR 390

REASONS FOR DECISION

11 June 2010

Mr G L McDonald, Deputy President

1. The applicant is seeking a review of the decision of the Tax Practitioners Board (the Board)[1], dated 2 October 2009 not to renew its registration as a tax agent. In order for a company such as the applicant to be reregistered, the original nominee must satisfy the Board that he/she is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters pursuant to s 251JC(1)(c) of the Income Tax Assessment Act 1936 (the Act).
2. The applicant was represented by Mr Sam Ure of Counsel and the respondent was represented by Mr David Brown of the Australian Government Solicitor’s Office. Mr Phillip Same is the sole director, secretary, owner and registered nominee of the applicant. He spoke before the Tribunal and several other witnesses gave testimony as to his character; one testimonial was given by a witness statement. The Tribunal had before it the documents (the “T documents”) lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (Cth) and also the exhibits tendered by the applicant’s counsel.
3. The Board determined, at its meeting of 2 October 2009, that there were three omissions by the applicant. They were that Mr Same failed to file income tax returns and business activity statements (BAS) on behalf of the applicant, and for the applicant in its capacity as the trustee of the Phillip Same Accountants Trust (the Trust) for the period between 2006 and 2009 and personal income tax returns for the 2006 and 2007 tax years.
4. Since the Board meeting, Mr Same has ensured that all of the outstanding returns have been filed. There was delay in having some of the BAS filed, because the Australian Taxation Office (ATO), upon being notified by the respondent that it had refused to reregister the applicant, withdrew access to the Tax Agent Portal through which tax agents are able to file documents.
5. The Tribunal must determine whether Mr Same, in his position as a nominee, is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters.[2] The determination of who is a ‘fit and proper person’ is to be determined by reference to s 251BC(1) of the Act. If it is decided that Mr Same is not of good fame, integrity and character[3], then he will not be a fit and proper person to be a nominee and reregistration of the applicant must be declined[4].
6. Acts or omissions, which may otherwise lead to not being reregistered, may be disregarded if ‘special circumstances’ can be established[5]. The consideration of special circumstances is otiose here, as it is conceded on behalf of Mr Same that they do not exist. Clearly, none of the facts which would or could point to the existence of special circumstances (including, Mrs Same’s injury precluding her from providing him with part-time assistance; the fact that he had a ‘large’ family to support; and that he had devoted more time to ensuring his client’s’ affairs were addressed ahead of his own) are such that individually, or collectively, that they can be considered ”unusual, uncommon or exceptional... [so that] they .. have a particular quality of unusualness that permits them to be described as special”[6].
7. Part VIIA of the Act is concerned with the suitability, or continuing suitability, of people to be, or remain, tax agents. While general consideration of a person’s behaviour cannot be excluded, consideration attaching to those aspects of a person’s general behaviour will, in the context of the Part VIIA of the Act, assume a lesser degree of importance than those attaching to a person’s behaviour in the matters of preparing tax returns.
8. Mr Same has a lengthy period of unsatisfactory behaviour vis-a-vis the filing of BAS relating to two tax agencies in respect of which he was the responsible nominee. Namely, in relation to JMN between 2000-2006 (the first period) and subsequently in relation to the applicant between 2006 and 2009 (the second period). In the period 2006–2009, he has also failed to file personal income tax returns for the years 2006-2007 and 2008-2009 on time.
9. JMN was an accounting and tax agency company established and owned by Mr Same’s two brothers. That firm was established in mid-1997 at a time when Mr Same was a bankrupt and hence disqualified from being a tax agent or nominee. After his discharge from bankruptcy in 2000, he was able to become the firm’s nominee. In mid-2006, the firm became bankrupt on the motion of the Commissioner of Taxation. The outstanding creditors were owed approximately $135,000.00. Mr Same told the Tribunal that the greater part of the liability was owned to the Taxation Commissioner. The liquidator was unable to make any distribution to the creditors. It seems the debt arose as the result of the company not remitting GST payments in respect of which there was a failure to file 37 quarterly BAS. During this period, Mr Same maintained, and the Tribunal accepts, that he was not late in filing his personal income returns.
10. In the second period, Mr Same was responsible for BAS returns for the applicant, in respect of work carried out as a tax agent, and income tax returns for the applicant, in its capacity as trustee for the Trust. Additionally, he was responsible for filing his personal income tax returns.
11. The reasons submitted for the failures are:

(a) in respect of the first period:

• he needed to acquire an understanding of the new GST tax and its operation;
• the pressure of work from clients; and
• an intra-family dispute involving unresolved litigation, which led to him being declared bankrupt in 1997.

(b) in respect of the second period:

• the pressure to complete client’s work and the need, particularly following losing a major client in 2008, to generate cash flow; and
• an injury to his wife, who was his part-time secretary, which rendered her incapable of continuing to assist him and in turn placed more pressure on him.

12. Details were presented of the applicant’s tax situation since the Board’s decision. The ATO agreed in March this year to allowing Mr Same to pay the general interest charge of $10, 249.99 by instalment. This sum accrued from the late filing of BAS returns for the Trust. Mr Same paid one instalment and then requested that the whole amount be remitted. The ATO agreed to his request[7]. In December 2009, Mr Same calculated the net GST liability of the Trust amounting to just over $36,000.00. He told the Tribunal that he was able to pay this amount thanks to being given money. The latter payment resulted not from money set aside to meet it by the applicant but from a gift.
13. Mr Same was asked a number of times why there had been such a long delay in his compliance. Especially, as he had undertaken in his initial written reply to the respondent made in 16 July 2009 to bring the filing of returns up to date within four weeks of that date. Mr Same said that it had taken longer than he anticipated as he had to compile the figures for the BAS from 2006. His personal returns were, except for the tax year concluding 2008[8], reliant on the him completing the BAS figures.
14. Mr Same maintained that he had recently updated his practice by installing updated computers and software. He estimated that it would take him at least two to three hours a week to calculate his BAS liabilities. He also stated that he had activated a bank account into which he placed the GST amounts, which contained more than he owed at any particular time as the result of him not deducting estimated credit inputs. Mr Same said that he could cope with operating his practice without employing any staff. He told the Tribunal that he worked at the practice for six days a week.
15. Rabbi Riesenberg, in his witness statement, testified that he was surprised to learn from the Mr Same that he failed to lodge returns on time. The Tribunal accepts it was the Rabbi’s evidence that in his experience, Mr Same is a meticulous person. Rabbi Riesenberg also stated that Mr Same had contributed in a regular and substantive way to the life of the Synagogue’s congregation.
16. The Hon J V Kay, a retired Justice of the Family Court of Australia, testified that Mr Same had undertaken the preparation of his, and his families’, tax returns for as long as he could recall. As far as he was concerned, Mr Same had provided very satisfactory service and advice, and he had become a personal friend.
17. Mr Tomaino is a tax agent based in Adelaide. He told the Tribunal that he had faced problems in the running of his practice. Mr Same had been referred to him by the National Tax and Accountants’ Association (the Association) in 2006 to assist him in organising the better management of his practice. At that time, the applicant had just been established and Mr Same had contacted the Association seeking locum work. Mr Tomaino stated that Mr Same had been invaluable in assisting him. Mr Same told the Tribunal that he had derived much satisfaction from undertaking the exercise.
18. Mr McGinty, who at the time worked for the Association, confirmed that Mr Same had assisted in the recovery of Mr Tomaino’s practice and that this work was carried out in conjunction with the cooperation of the ATO. Mr McGinty confirmed Mr Same’s evidence that the latter had, at the request of the Association, developed a program aimed at assisting other tax agents, who faced difficulties in the operation of their practice but that the program had not been proceeded with as the result of a change of direction in the Association.

CONSIDERATION

19. Section 251BC of the Act requires the respondent to make a finding ‘as at a particular time’. The Tribunal, standing as it does in the shoes of the respondent in hearing this case, must also make a finding as at a particular time. The particular time is as at the date the Tribunal makes its determination.[9] Any decision not to reregister a tax agent or nominee must be for the purpose of protecting the public and ensuring that the public and ATO have the necessary confidence and trust in the agent fulfilling his/her role. A duty rests on all citizens, who have an obligation to do so, to file BAS and income tax returns. Failure to do so is a breach of the law and renders the person liable to a penalty. A failure by a tax agent to meet the requirement that he/she files his/her own returns in a timely manner is not only a breach of the law, but it also constitutes a failure to uphold the confidence and trust attaching to the status of the agent.
20. In the instant case, the Tribunal is satisfied that Mr Same has attended to his clients’ tax affairs and provided assistance to another agent, whose practice fell into difficulties, while at the same time neglecting his own tax affairs. The Tribunal raised the apparent lack of action in the 2000-2006 period, when no action was taken by the respondent to have Mr Same comply with his obligations. The Tribunal was concerned that this may have led Mr Same to the conclusion that it was unimportant for him to take action to ensure that his personal tax affairs were kept up to date. Whatever the reason for that failure, the Tribunal is satisfied that, given his long history as a tax agent, the bankruptcy of JMN with outstanding tax liabilities and his more recent involvement in assisting the recovery of Mr Tomaino’s practice, Mr Same must have appreciated the need to attend to his own tax affairs.
21. The Tribunal accepts, as is indicted by the evidence of the Hon J V Kay, that Mr Same has always attended satisfactorily to his clients’ affairs. There is no evidence of any of Mr Same’s clients querying his dedication or competence. He has done this to the detriment of his own tax affairs. It is not disputed on Mr Same’s behalf that personal compliance is a relevant consideration in determining whether the person is a fit and proper person to be a tax agent. However, it is submitted that compliance is not a determinative factor. If it was a determinative factor, then s 251BC of the Act would list it as one of the disqualifying factors. This submission is clearly correct. It is a consideration of the surrounding circumstances, which will be determinative of whether a person is in fact fit and proper.
22. In this case there has been a consistent failure of personal compliance over nearly a 10 year period. The Tribunal accepts that, in the 2006-2009 period, the failure of Mr Same to submit BAS returns along with a failure to submit his personal tax returns on time is indicative of him having a disregard of his obligations. The failure to file BAS has permitted him the use of moneys, which ought to have remitted to the ATO. This further demonstrates his lack of good faith, integrity and character in the context of his obligations, not only as a citizen but as a citizen with particular responsibilities, in his capacity as the nominee of the applicant tax agent.
23. The Tribunal is satisfied that Mr Same fulfils his family and community responsibilities; the latter in particular through his work connected with his local synagogue. The Tribunal is also satisfied that Mr Same has, in the week before this hearing, installed updated computers and software to assist him in reducing the time it would otherwise take to keep his BAS and personal tax affairs up to date. It is also accepted that the failure to reregister must have had a salutary effect in bringing to his attention the need to take care of his personal tax affairs. Mr Same’s statements before the Tribunal, that his inaction with respect to his personal tax affairs was ‘a gross exercise in stupidity’ and that he would ensure this would not happen again, constitute his recognition of the unsatisfactory nature of his omissions and a strong desire that they not be repeated. However, given Mr Same’s past failures over a lengthy period of time, the Tribunal is hesitant to conclude that the public can repose confidence in these statements being reflected in timely action in the future.
24. In such cases as the present, a balance must be reached between the failures of the past with the actions taken to correct them plus proposals that conduct will be modified in the future. The only way in which this can be done is for the decision maker to have regard to the past performance or lack of it. In this case the failures are extensive and Mr Same has had the use of money which ought to have been paid to the ATO. The public can expect those such as Mr Same, who as the result of registration as tax agents, to lead by example by meeting their obligations to file required returns and to pay tax owing on time[10]. It is clearly a breach of trust for money, which should be set aside for the ATO, to be diverted for other purposes. That breach of trust occurs in circumstances when the clients are unaware that money, they have paid for remission to the ATO as GST, has been diverted for use by Mr Same until such time as he chooses to pay it or indeed, as in the case of JMN, if it is ever paid.
25. The refusal to reregister the applicant reflects the need for the public to be protected from such behaviour. In this case, the Tribunal is satisfied that there can be no confidence that this protection would exist if the applicant was reregistered as a tax agent with Mr Same as its nominee. The Tribunal is satisfied, in light of the matters already discussed, that he is not of good fame, integrity and character. Therefore, the applicant is not a fit and proper person to be reregistered as a tax agent.
26. The decision under review is affirmed.

I certify that the 26 preceding paragraphs are a true copy of the reasons for the decision herein of

Mr G L McDonald, Deputy President

Signed: ...........(sgd D De Andrade)........................

Personal Assistant

Dates of Hearing 24 and 25 May 2010

Date of Decision 11 June 2010

Counsel for the Applicant Mr S Ure

Solicitor for the Applicant Alan Shnider & Co

Solicitor for the Respondent Mr D Brown,

Australian Government Solicitor

---

[1] The Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009 (Cth) provides for the Tax Practitioners Board to assume the responsibilities of, and replace, the State-based Tax Agents’ Boards as of 1 March 2010. Thus, the respondent was previously referred to as the Tax Agents’ Board of Victoria.
[2] Section 251KE(1)of the Act.
[3] Section 251BC(1)(d) of the Act.
[4] Section 251BC(3) (a) of the Act.
[5] Section 251BC(3)(c) of the Act.
[6] Re Beadle and Director-General of Social Security (1984) 6 ALD 1 at 3.
[7] Exhibit A2.
[8] When he estimated the BAS returns.
[9] Shi v Migration Agents’ Registration Authority [2008] HCA 31; (2008) 248 ALR 390 at pp 413-414.
[10] By s 30.10(2) of the Tax Agent Services Act 2009 (Cth), the Code of Professional Conduct provides that tax agents “must comply with the taxation laws in the conduct of your personal affairs”, which applies as of the 1 March 2010.