FEDERAL COURT OF AUSTRALIA Phillip Same Accountants Pty Ltd v Tax Practitioners Board [2011] FCA 36 Citation: Phillip Same Accountants Pty Ltd v Tax Practitioners Board [2011] FCA 36 Appeal from: Phillip Same Accountants Pty Ltd v Tax Practitioners Board [2010] AATA 439 Parties: PHILLIP SAME ACCOUNTANTS PTY LTD v TAX PRACTITIONERS BOARD File number: VID 539 of 2010 Judge: MIDDLETON J Date of judgment: 1 February 2011 Catchwords: ADMINISTRATIVE LAW – appeal from decision of Administrative Appeals Tribunal – where applicant's application for re-registration as a registered tax agent refused under s 251JC of the Income Tax Assessment Act 1936 (Cth) – where Tribunal correctly applied the test under s 251JC – where Tribunal correctly evaluated evidence when considering whether tax agent was a fit and proper person Legislation: A New Tax System (Goods and Services Tax) Act 1999 (Cth) Administrative Appeals Tribunal Act 1975 (Cth) Income Tax Assessment Act 1936 (Cth) Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009 (Cth) Cases cited: Australian Broadcasting Tribunal v Bond [1990] 170 CLR 321 Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 Tax Agents' Board v Bray (2004) 58 ATR 118 TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation (1988) 82 ALR 175 Toohey v Tax Agents' Board of Victoria (2007) 67 ATR 522 Toohey v Tax Agents' Board of Victoria (No 2) [2008] FCA 1796 Date of hearing: 31 January 2011 Date of order: 31 January 2011 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 41 Counsel for the Applicant: Mr S Ure Solicitor for the Applicant: Alan Shnider & Co Counsel for the Respondent: Mr P Gray Solicitor for the Respondent: Australian Government Solicitor IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 539 of 2010 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: PHILLIP SAME ACCOUNTANTS PTY LTD Applicant AND: TAX PRACTITIONERS BOARD Respondent JUDGE: MIDDLETON J DATE OF ORDER: 31 JANUARY 2011 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The name of the respondent be changed to 'Tax Practitioners Board'. 2. The appeal be dismissed. 3. The applicant pay the respondent's costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 539 of 2010 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: PHILLIP SAME ACCOUNTANTS PTY LTD Applicant AND: TAX PRACTITIONERS BOARD Respondent JUDGE: MIDDLETON J DATE: 1 FEBRUARY 2011 PLACE: MELBOURNE REASONS FOR JUDGMENT INTRODUCTION 1 This proceeding is an appeal by the applicant against a decision of the Administrative Appeals Tribunal ('the Tribunal'). The issue is whether or not the Tribunal made an error of law in applying the provisions of s 251JC(1)(c) and s 251BC(1) of the Income Tax Assessment Act 1936 (Cth) ('the Act'). The appeal is brought pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) ('the AAT Act'). 2 An appeal under s 44 of the of the AAT Act is concerned solely with a question of law, which is not merely a qualifying condition to ground the appeal, but also the subject matter of the appeal itself (see eg Toohey v Tax Agents' Board of Victoria (2007) 67 ATR 522; and TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation (1988) 82 ALR 175 at 178 per Gummow J). 3 The approach to be taken on an appeal from a decision of the Tribunal was outlined by the Full Court in Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 286: The limitation of the jurisdiction to the resolution of questions of law imposes a significant constraint upon the role of the Court in reviewing decisions of the Tribunal. 4 This translates to a practical as well as principled restraint. It is important at the outset to also recall that the Court will not be concerned with looseness in the language of the Tribunal nor with unhappy phrasing of the Tribunal's thoughts. The Tribunal's reasons in this appeal must be read sensibly, not seeking to perceive error, but concentrating on the task of the Court which is to interfere only when the identified error is one of law (see for example the approach of the Full Court and Hely J in Tax Agents' Board v Bray (2004) 58 ATR 118 at [22]; Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 at 272 and Toohey v Tax Agents' Board of Victoria (No 2) [2008] FCA 1796 at [10]). A BRIEF OUTLINE OF THE STATUTORY CONTEXT 5 A registered tax agent may apply to the Tax Practitioners Board ('the Board') by which the tax agent was registered for re-registration: s 251JB(1) of the Act. The applicant was registered with and made application for re-registration with the Tax Agents' Board. 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. 6 Section 251JC(1)(c) of the Act relevantly provides that: The Board shall re-register the applicant as a tax agent if the applicant satisfies the Board that: (a) if the applicant is a company: (i) a person employed by the company and specified in the application on 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 … 7 Section 251BC(1) sets out a number of factors which disqualify a person as being a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters. 8 As I stated in my earlier judgment of Toohey v Tax Agents' Board of Victoria (2007) 67 ATR 522, at [9]: … the Board is required, in essence, to consider and determine whether the applicant is the prescribed fit and proper person. In determining the matter, the Board is directed by the legislature that a disqualifying factor for a person not being the prescribed fit and proper person is, relevantly, if the person is not of 'good fame, integrity and character': s 251BC(1)(d)… The enquiry is whether the applicant is the prescribed fit and proper person, and the disqualifying factors set out in s 251BC(1) do not limit the generality of that enquiry (see s 251JC(1)), although it may well inform that inquiry. The fact that a person is not of good fame, integrity and character means that that person cannot be regarded as the prescribed fit and proper person. However, even if this or other disqualifying factors do not apply, the applicant may still not satisfy the Board that he or she is the prescribed fit and proper person. If not satisfied, the Board 'shall refuse' to re-register the applicant: s 251JC(2). 9 In the course of deciding the ultimate issue of whether an applicant is the prescribed fit and proper person, s 251BC(3) of the Act provides that certain matters may be disregarded because of special circumstances. In this matter the applicant has conceded that no such 'special circumstances' apply. As such s 251BC is not considered further, other than to note that late lodgement of income tax returns is not specifically referred to as a disqualifying factor in s 251BC(1). THE FACTUAL AND PROCEDURAL BACKGROUND 10 Mr Phillip Same is the sole director, secretary, owner and registered nominee of the applicant. In order for the applicant to be re-registered, the original nominee, Mr Same, must satisfy the Board that he 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 Act. 11 The Board decided on 2 October 2009 to refuse to approve the applicant's application. This decision was taken on the basis that the applicant had failed to satisfy the Board that it met the criteria for re-registration set out in s 251JC(1) of the Act. 12 Having sought review of the Board's decision by the Tribunal, on 11 June 2010 the Tribunal affirmed the Board's decision that the applicant would not be re-registered as a tax agent. 13 A more detailed background to this proceeding can be found in the Tribunal's Reasons for Decision dated 11 June 2010. 14 By notice of appeal dated 8 July 2010, the applicant appealed the decision of the Tribunal to this Court. THE TRIBUNAL'S REASONS 15 In the appeal against the decision of the Board, the Tribunal was tasked to determine whether Mr Same, in his position as nominee of the applicant, was a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters (see s 251KE(1) of the Act). As set out above, the determination of who is a 'fit and proper person' is done by reference to s 251BC of the Act. 16 Ultimately, the Tribunal found Mr Same not to be a fit and proper person, and affirmed the Board's decision to reject his application for re-registration. 17 Factually, the Tribunal found: [8] Mr Same has a lengthy period of unsatisfactory behaviour vis-à-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 and 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. … [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. … [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 ten 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 [been] 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. 18 Paragraphs [23], [24] and [25] represent the Tribunal's principal conclusions: [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 a 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. 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 register 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 registered as a tax agent. GROUNDS OF APPEAL AND THE APPLICANT'S SUBMISSIONS 19 The applicant raises four questions as to which it asserts the Tribunal made errors of law. These are: (a) Whether, having regard to the A New Tax System (Goods and Services Tax) Act 1999, amounts paid in respect of GST to a supplier of goods or services ('supplier') are held on trust by the supplier for: i. the acquirer of goods or services ('acquirer'); or ii. the Commissioner of Taxation. (b) Whether it is a breach of trust for a supplier to use for purposes other than remission to the ATO money paid to the supplier in respect of GST by an acquirer of goods or services. (c) Whether in determining whether a person is of good fame, integrity and character within the meaning of s 251BC(1)(d) and s 251(1)(c)(ii)(B) of the Income Tax Assessment Act 1936 the Board may have regard only to the person's past performance or lack of it. (d) Whether in determining whether a person is a 'fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters' within the meaning of s 251BC of the Income Tax Assessment Act 1936, the Board may have regard only to the person's past performance or lack of it. 20 With regards to questions (a) and (b) of the applicant's grounds of appeal, the applicant argues that the Tribunal found, in error, that a trust relationship had arisen between the applicant, as trustee, and acquirers of the applicant's services, as beneficiaries, or between the applicant, as trustee, and the Commissioner of Taxation, as beneficiary. The applicant further argues that the Tribunal went on to find that it was a breach of trust for money paid to the applicant for remission to the ATO as GST to be diverted for other purposes (see [24] of the Tribunal's reasons). 21 With regards to questions (c) and (d) of the applicant's grounds of appeal, the applicant argues that the Tribunal misdirected itself as to the matters it was entitled to take into account in determining whether it was satisfied that Mr Same was a relevant fit and proper person. In developing this argument the applicant contends that the Tribunal wrongly assessed Mr Same's 'good fame, integrity and character' solely in the context of evidence as to his past performance or lack of it. The applicant contends the evaluation exercise was not performed in light of evidence of Mr Same's character and reputation, his present attitude to his past performance, remedial measures adopted to improve future performance and evidence of Mr Same's professional skills and expertise. 22 The applicant contends that the above errors of law contributed materially to the Tribunal's decision which should, as such, be set aside, and the matter remitted to a differently constituted Tribunal. CONSIDERATION 23 On 31 January 2011 the Court dismissed the applicant's appeal, as I found no error of law in the way the Tribunal approached its task. My reasons for coming to this conclusion are stated below. 24 The real dispute between the parties in this matter is a dispute as to the characterisation of the passages of the Tribunal's reasons which are relied upon by the applicant. The applicant has raised four questions of law which are based on its interpretation of the Tribunal's reasons. 25 I now turn to deal with the first two questions raised by the applicant. 26 Although the Tribunal used the expression "breach of trust" (at [24]) in the context of the applicant's, and its nominee, Mr Same's, failure to remit GST paid by clients, the Tribunal did not base its decision on a finding that the applicant or Mr Same had breached a trustee's obligations in relation to a trust established at law or equity. Rather, the Tribunal found that: (i) a failure by a tax agent to meet the requirement to file his/her own returns in a timely way constitutes "a failure to uphold the confidence and trust attaching to the status of the agent" (at [19]); and (ii) the applicant's failure to file Business Activity Statements permitted the nominee, Mr Same, the use of moneys which ought to have been, and which clients would have expected to be, remitted to the ATO (at [19], [22] and [24]). 27 Keeping in mind the proper approach in considering and reviewing the reasoning of the Tribunal I do not accept that it was the Tribunal's intention to recognise or imply that a formal trustee and beneficiary relationship existed between either the applicant and its clients, or the applicant and the Commissioner of Taxation. 28 I agree that nothing in the scheme of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) ('the GST Act') suggests that an acquirer retains an equitable interest in the part of the price representing the amount of GST payable on the supply. 29 Further, I accept that no trust arises in favour of the Commissioner of Taxation in respect of the GST component of a price paid as consideration for a taxable supply. 30 It would be a very unlikely extension of both the GST Act and the law of trusts to find such a relationship to exist in either circumstance. 31 However, the correct interpretation of the Tribunal's reasons, when it refers to a "breach of trust" at [24], is the dishonouring or violation of the trust and confidence, in the non legal sense of both words, held in the applicant as a registered tax agent by its clients or the public at large. The effect of such a violation being that the public, the applicant's clients or potential clients, can no longer repose confidence in the applicant (see [23] last sentence of the Tribunal's reasons). 32 The Tribunal, on this characterisation of its reasoning, made no errors of law as submitted by the applicant. 33 I now turn to consider the applicant's last two questions. 34 Here the applicant's contention is that in determining the 'ultimate question' of whether the applicant's nominee was a person of good fame, integrity and character, and the prescribed fit and proper person, the Board, and the Tribunal, cannot have regard only to the person's past performance or lack of it. If the Tribunal had so approached its task I would accept that an error of law would have occurred. 35 In deciding the 'ultimate issue' of whether the applicant is a fit and proper person, the Tribunal must take into account all the material concerning the ultimate issue, and place that material in the context of the matters relied up by the appellant. As I set out in Toohey v Tax Agents' Board of Victoria (2007) 67 ATR 522, at [16]: In determining whether a person is a fit and proper person the enquiry is directed not only to whether improper conduct has occurred, but whether it is likely to occur again, and whether the community will have confidence that it will not occur. 36 In Toohey (No 2) I adopted the reasoning of Toohey and Gaudron JJ in Australian Broadcasting Tribunal v Bond [1990] 170 CLR 321. Their Honours stated (at 380): 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. 37 As such, if the applicant can show that the Tribunal did not properly consider Mr Same's past conduct and likelihood of future conduct, including a proper evaluation of his character and reputation, then the Tribunal would have made an error of law and the matter should be remitted to a differently constituted Tribunal for redetermination. 38 In arguing that the Tribunal, in error, relied solely on the applicant's past performance, or lack of it, the applicant relied on the following extract found at [24] of the Tribunal's reasons: 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. 39 Despite this wording, I accept the respondent's contention that as well as considering and evaluating the applicant's past conduct, in the course of reaching its decision the Tribunal also had regard to, and weighed the evidence by the applicant in relation to, the measures it had taken to improve its compliance with taxation obligations (at [14], [23] and [24]) and the likelihood of compliance in the future (at [23], [24] and [25]). The Tribunal also appropriately considered and evaluated the applicant's evidence as regards character and reputation (at [15] – [18], [20] and [21]). 40 The Tribunal's reasons were, therefore, consistent with the principles espoused in Toohey (No 2), applying Bond, and no error of law has been made by the Tribunal. 41 Undoubtedly the Tribunal placed more weight on the evidence of Mr Same's past conduct in order to determine his likely future conduct, than it did on the evidence presented which related to Mr Same's character and reputation. The Tribunal was perfectly entitled to do so, this being a factual matter for the Tribunal. Some factual errors may have been made by the Tribunal as to the timing of remedial measures taken by Mr Same, but these had no impact on the overall factual assessment made by the Tribunal. The Tribunal 'balanced' each of the matters it specifically mentioned in coming to the ultimate conclusion it did in affirming the Board's decision. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton. Associate: Dated: 1 February 2011