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Explanatory Paper TPB(EP) 02/2010 Fit and proper person

Explanatory Paper TPB(EP) 02/2010

Fit and proper person

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This is a Tax Practitioners Board (TPB) Explanatory Paper (TPB(EP)). It is intended as information only. This TPB(EP) is intended as information only. It provides a detailed explanation of the Board’s interpretation of the fitness and propriety requirements in subdivision 20-A of the Tax Agent Services Act 2009 (TASA), translating these provisions into practical principles that can be applied by the profession.

This TPB(EP) is designed to assist tax practitioners, the relevant institutions, professional associations, potential registrants and the wider community to understand the factors that provide the basis for the Board’s approach to the application of the TASA.

The principles, explanations and examples in this paper do not constitute legal advice and do not create additional legal obligations beyond those that are contained in the TASA.

Document history

The TPB released this TPB(EP) in the form of an information sheet as an exposure draft on 7 April 2010. The Board invited comments and submissions in relation to the information contained in it. The closing date for submissions was 6 June 2010. The TPB has considered the submissions made and now publishes the following TPB(EP).

Issued: 16 December 2010

Purpose of explanatory paper

  1. This TPB(EP) is designed to provide assistance and explanation of some of the general principles and matters that relate to the concept of fitness and propriety to be a registered tax or BAS agent. These may be relevant to the TPB’s determination of an application for registration or to decisions to take certain actions under the Tax Agent Services Act 2009 (TASA).
  2. Unless an individual is a fit and proper person, they cannot be registered as a tax or BAS agent.
  3. An individual must be fit and proper in order to obtain original registration as a tax or BAS agent and for the purpose of maintaining continued registration under the TASA. In addition, where there is an application for registration by (or continued registration of) a company or partnership agent, the ‘fit and proper person’ requirement applies to each individual director (in the case of a company) or each individual partner and director of any company partner (in the case of a partnership).
  4. In this regard, the principles discussed in this paper are relevant to both an individual’s fitness and propriety when applying for registration and to a decision by the Board to terminate an agent’s registration under the TASA. Following from this, all general references in this paper to registration of agents, except where otherwise provided, are intended to encompass both original and continued registration.
  5. Therefore, these principles are likely to impact on all decisions that involve fitness and propriety under the TASA. This is because the TASA regime is designed to ensure that only persons who are ‘fit and proper’ and meet additional requirements can be registered, and remain registered, as tax or BAS agents under the Act.
  6. This TPB(EP) does not have the force of law and provides information and general guidance only. Therefore, it is not intended to determine or exhaust the positions or actions which may be taken by the TPB in particular cases.
  7. Rather, this TPB(EP) provides a decision making tool that may be referred to by the TPB when evaluating the ‘fit and proper’ requirement under the TASA. Tax and BAS agents may also refer to this TPB(EP) when applying for registration or when considering whether they continue to meet the ’fit and proper’ registration requirement.
  8. The principles and matters outlined in this TPB(EP) indicate the range of considerations that need to be balanced by the TPB in making an ultimate determination on fitness and propriety. They are not designed to provide a blueprint or formula that governs whether a person will be fit and proper in any given case. Rather, a finding on fitness and propriety will depend on a weighing of these considerations in the context of the particular facts and circumstances of the relevant case.
  9. Appendix 1 contains a list of key cases supporting the principles discussed in this TPB(EP) and provides a brief summary of the facts illustrating the application of these principles.

Professional conduct of tax and BAS agents

  1. The term ‘professional conduct’ refers to the way in which tax and BAS agents act while in their professional capacity. When providing services, it is expected that agents will display an appropriate, professional standard of behaviour beyond that which is expected of someone who is not acting in a professional capacity.
  2. The TPB has a range of options available to it under the TASA in making findings about the conduct of tax and BAS agents. The options open to the TPB include:
  • imposing sanctions for breach of the Code of Professional Conduct (Code)
  • applying for a civil penalty for breach of the civil penalty provisions
  • terminating an agent’s registration on the basis that the agent is no longer a fit and proper person to be a tax or BAS agent.

It is possible that matters impacting on the fitness and propriety of an agent may also be relevant to a finding under the Code or under one of the civil penalty provisions. In light of this, an overview of these areas is provided below. However, the main purpose of this paper is to consider in detail the fitness and propriety requirements contained in the TASA and the considerations that bear upon fitness and propriety.

Code of Professional Conduct

  1. The Code establishes a set of ethical and professional standards to be observed by tax and BAS agents. These provisions apply only to conduct which occurs after commencement of the TASA on 1 March 2010.
  2. The TPB may commence investigations to determine whether there has, in fact, been a breach of the Code.[1] If the TPB is satisfied, following an investigation, that there has been a breach of the Code, it may impose one or more of the following administrative sanctions: [2]
  • a written caution
  • an order requiring the tax or BAS agent to take one or more actions including, but not limited to, the following:[3]
    • completing a course of education or training specified in the order by the TPB
    • providing services (for which the tax or BAS agent is registered) only under the supervision of another tax or BAS agent that has been specified in the order
    • providing only those services specified in the order
  • suspension of registration
  • termination of registration.

Civil penalty provisions

  1. While the Code applies only to registered agents, the civil penalty provisions apply variously to unregistered persons or entities in addition to registered tax and BAS agents.[4]
  2. The civil penalty provisions will only be able to be applied in relation to behaviour which occurs after commencement of the TASA on 1 March 2010.
  3. If there is a breach of any of these civil penalty provisions, the TPB has the option of applying to the Federal Court of Australia (Federal Court) for a civil penalty order to be granted against the tax or BAS agent.[5]
  4. The TPB also has the option of applying to the Federal Court for an injunction to restrain or enforce conduct where it makes a finding that certain conduct by an agent would breach a civil penalty provision.[6] An injunction is a court order that requires a person to do, or refrain from doing, a particular action. If an agent fails to comply with the terms of an injunction as specified in the court order, the agent may be guilty of contempt of court.
  5. The TPB may apply for an injunction as an alternative to seeking a civil penalty (in the case of a permanent injunction) or in combination with a civil penalty application (in the case of an interim injunction). An interim injunction will operate until the Federal Court makes its final determination.

Termination of registration

  1. The TPB may terminate the registration of a tax or BAS agent if the TPB is satisfied that a tax or BAS agent no longer meets the ‘fit and proper person’ requirement for registration.[7]
  2. In determining whether a tax or BAS agent is a fit and proper person, the TPB can examine the agent’s previous conduct. The TPB may consider actions or omissions that occurred prior to 1 March 2010 to the extent that the behaviour is relevant to the agent’s present fitness and propriety.
  3. The relevant considerations in determining whether an individual is a fit and proper person to be a tax or BAS agent is the subject of this paper.

Fit and proper – Overview

  1. Section 20-15 of the TASA establishes the criteria the TPB must consider in determining whether it is satisfied that an individual is a fit and proper person for the purposes of registration as a tax or BAS agent.
  2. This ‘fit and proper’ requirement applies to each individual agent, each director (in the case of a company agent) and each individual partner and director of any company partner (in the case of a partnership agent).
  3. Section 20-15 of the TASA provides:

    In deciding whether it is satisfied that an individual is a fit and proper person, the Board must have

          regard to:

              (a) whether the individual is of good fame, integrity and character, and
              (b) without limiting paragraph (a)

                        (i) whether an event described in section 20-45 has occurred during the previous five
                            years, and
                        (ii) whether the individual had the status of an undischarged bankrupt at any time during
                            the previous five years, and
                        (iii) whether the individual served a term of imprisonment, in whole or in part, at any time
                             during the previous five years

  4. Section 20-45 of the TASA provides:      

    The following events may affect your continued registration as a registered tax agent or BAS agent:

              (a) you are convicted of a serious taxation offence
              (b) you are convicted of an offence involving fraud or dishonesty
              (c) you are penalised for being a promoter of a tax exploitation scheme
              (d) you are penalised for implementing a scheme that has been promoted on the basis of conformity
                   with a product ruling in a way that is materially different from that described in the product ruling
              (e) you become an undischarged bankrupt or go into external administration
              (f) you are sentenced to a term of imprisonment.

  5. A ‘serious taxation offence’ under section 20-45 is, in brief, one of a number of offences specified in the Criminal Code (if it relates to a tax liability) or a taxation offence that is punishable by a fine exceeding 40 penalty units or imprisonment (or both).
  6. The term an ‘offence involving fraud or dishonesty’ takes its ordinary meaning and is determined by reference to community standards. For example, the Criminal Code (which is an Act or legislation of Parliament) defines ‘dishonest’ as dishonest according to the standards of ordinary people in circumstances where the defendant is aware of these standards.
  7. An individual is considered to have been ‘penalised for being a promoter of a tax exploitation scheme’ if they have been ordered to pay a civil penalty for engaging in conduct that results in the entity (or another entity) being a promoter of a tax exploitation scheme as defined in Division 290 of Schedule 1 to the Taxation Administration Act 1953.
  8. An individual is considered to have been ‘penalised for implementing a scheme’ within the terms in section 20-45 of the TASA if they have been ordered to pay a civil penalty for engaging in such conduct as defined in Division 290 of Schedule 1 to the Taxation Administration Act 1953.
  9. An individual ‘become(s) an undischarged bankrupt’ if they have been declared bankrupt under the Bankruptcy Act 1966 and have not been discharged from the bankruptcy. A company ‘go(es) into external administration’ if it goes into external administration as defined in the Corporations Act 2001. This generally means that its directors are required to relinquish direction of its affairs to a receiver, administrator, provisional liquidator or liquidator.
  10. An individual is ‘sentenced to a term of imprisonment’ if a sentence is imposed on the individual and that sentence includes a term of imprisonment. To be ‘sentenced’ to a term of imprisonment, an individual need not have actually served any part of the term of imprisonment, provided that a court has imposed a sentence on the individual.
  11. The TPB must consider an event described in section 20-45 if it occurred within the previous five years for the purpose of deciding whether an individual is fit and proper for registration, even if the event occurred prior to 1 March 2010.

Obligation to notify of a change of circumstances

  1. Under section 30-35 of the TASA, an individual is obliged to notify the TPB if, amongst other matters, they no longer meet one of the requirements for tax or BAS agent registration (e.g. the ‘fit and proper’ requirement).
  2. Corresponding obligations to notify the TPB are imposed on partnerships and companies registered under the TASA. A partnership which is registered as a tax or BAS agent must notify the Board in writing whenever it ceases to meet one of the tax practitioner registration requirements – e.g. if an individual partner or director of a company partner is no longer a fit and proper person.
  3. Similarly, a company which is registered as a tax or BAS agent must notify the TPB in writing whenever it ceases to meet one of the tax practitioner registration requirements – e.g. if one of the directors is no longer fit and proper for registration.
  4. An individual, partnership or company that breaches section 30-35 also commits a breach of section 8C of the Taxation Administration Act 1953 (failure to comply with a requirement under a taxation law) and principle (2) of the Code under section 30-10 of the TASA (which requires registered tax and BAS agents to comply with the taxation laws in the conduct of their personal affairs).
  5. This TPB(EP) provides guidance on principles relevant to the TPB’s determination of fitness and propriety. However, the onus remains on an individual registered agent, registered partnership or registered company to evaluate whether, in all the circumstances of a particular case and having regard to the principles outlined in this TPB(EP), the agent, a partner or director is no longer a fit and proper person or of good fame, integrity and character.
  6. To comply with its obligation to notify, a registered partnership or company agent will need to ensure that it implements and maintains appropriate systems and procedures as part of its internal governance framework for detecting and dealing with conduct issues regarding a partner or director.
  7. This obligation to notify is not intended to impose a general requirement that a partnership or company agent actually detect all conduct issues relating to its partners or directors. Rather, the partnership or company agent will be considered to have satisfied this obligation if it implements, as part of its existing arrangements, appropriate systems for its circumstances that are designed to manage and respond to any conduct issues that may arise and through these processes actually does notify the TPB as required.
  8. In addition, the TPB recommends that, to comply with its obligations, a partnership or company that is uncertain of whether the conduct of a partner or director may adversely affect the fitness and propriety of that person should disclose the relevant matters to the TPB.
  9. A determination by the TPB of whether a registered individual, partnership or company agent has satisfied their obligation to notify under section 30-35 of the TASA will be made with regard to all the relevant circumstances of the given case and in accordance with the TPB’s obligations as an administrative decision-maker under the Administrative Decisions (Judicial Review) Act 1977 and the general law.

Case principles on fitness and propriety

  1. Administrative Appeals Tribunal and other cases decided under Part VIIA of the Income Tax Assessment Act 1936 (ITAA 1936) establish a number of principles concerning how a determination of fitness and propriety should be reached and what considerations and conduct were relevant to such a determination.
  2. These Tribunal cases relate to decisions by the former State based Tax Agents’ Boards to cancel or suspend registrations of tax agents or to refuse applications for original or re-registration under the relevant provisions of Part VIIA of the ITAA 1936.
  3. Those provisions generally required that, in the case of original and re-registration applications, individual applicants and original nominees of partnership and company applicants were ‘fit and proper person(s) to prepare income tax returns and transact business on behalf of taxpayers in income tax matters.’
  4. Further, State Boards could suspend or cancel the registration of tax agents upon finding that individual agents or nominees of agents did not meet the above ‘fit and proper’ requirement.
  5. Under the old law in Part VIIA of the ITAA 1936, the absence of good fame, integrity and character automatically rendered a person not fit and proper for registration under that Act.
  6. Under the TASA, an applicant is not eligible for tax or BAS agent registration (or renewal of such registration) unless they can satisfy the TPB that they, or a partner or director where relevant, are a ‘fit and proper’ person. Further, the TPB is able to terminate the registration of an agent upon finding that one of the tax practitioner registration requirements (including the fit and proper requirement) is no longer satisfied.
  7. Generally, the considerations and conduct relevant to determining fitness and propriety under Part VIIA of the ITAA 1936 were equally applicable to determining whether an individual was of good fame, integrity and character.
  8. The TPB must have regard to whether an individual is of good fame, integrity and character for the purpose of determining the individual’s fitness and propriety for registration under section 20-5 of the TASA. Therefore, it is considered that these principles will be equally instructive to the TPB's determination on the ‘fit and proper’ registration requirement under the TASA.
  9. The principles relating to fitness and propriety generally that were established in Tribunal cases under Part VIIA will also be relevant in determining whether a tax or BAS agent fails to meet the ‘fit and proper’ registration requirement, thereby possibly warranting termination of their registration under Division 40 of the TASA.[8]
  10. The further matters the TP must consider under paragraph 20-15 (b) of the TASA are questions of fact. If one of the events defined in this section occurs in relation to an individual, the TPB must consider this in determining whether that individual is a fit and proper person. The meanings of these events are considered above and are relatively non-contentious. Whether one of these events has in fact occurred will be a question of fact to be determined by the TPB on the basis of the evidence available to it.
  11. While there is no single consideration that will be determinative of the fitness and propriety of a tax or a BAS agent in every situation, the cases arising from the previous State Tax Agents’ Boards’ decisions highlight some fundamental concepts and specific conduct that have informed the approach of those boards and the courts in determining fitness and propriety.
  12. This TPB(EP) considers these principles arising from the cases under the following headings:   

    a) Fundamental concepts in assessing fitness and propriety
    b) Standards and functions of the profession
    c) Management of personal income tax obligations
    d) Relationship with the Board, Commissioner and clients
    e) Conduct of the applicant/agent in circumstances of misconduct or wrongdoing
    f) Previous conduct issues
    g) Further considerations
      

  13. While the cases referred to only considered fitness and propriety in relation to tax agents, the principles they establish are equally relevant to determining the fitness and propriety of BAS agents as required under the TASA.
  14. Appendix 1 to this TPB(EP) contains a list of key cases supporting these principles and provides a brief summary of the facts illustrating the application of these principles.
  15. In relation to conduct impacting on fitness and propriety, this TPB(EP) refers to a range of concepts, including ‘misconduct,’ ‘improper conduct,’ ‘unprofessional conduct’ and ‘wrongdoing.’ References to these terms are generic and intended to cover any conduct that may be relevant to a determination on fitness and propriety, whether or not the conduct constitutes a minor or serious breach of the standards expected of a tax or BAS agent in the conduct of their practice.
  16. Conduct that impacts on fitness and propriety may also be relevant in determining whether a registered tax or BAS agent has complied with the Code under section 30-10 of the TASA. A full discussion of the application of the Code principles is contained in the separate Explanatory Paper ‘Section 30-10 of the Tax Agent Services Act 2009: Code of Professional Conduct’.
  17. This conduct may also be relevant in determining whether any of the civil penalty provisions apply. For further information, refer to the section of this TPB(EP) titled ‘Professional conduct of tax agents and BAS agents’.

Fundamental concepts in assessing fitness and propriety

Determining fitness and propriety

  1. There is no general, universally applicable formula for determining whether a person is a fit and proper person for the purpose of registration as a tax or BAS agent.
  2. A determination on whether a person is a fit and proper person requires the TPB to make a value judgment in the context of the activities in which the person is or will be engaged considering all the circumstances of a given case.[9]
  3. Therefore, a determination on whether a person is fit and proper is not made by applying a single, standard test or rule, but rather, by balancing a range of considerations that may be seen to be relevant to fitness and propriety generally. Whether or not the considerations present in a given case result in a finding that a person is not fit and proper for registration will depend on a range of considerations, including (but not limited to) the nature and degree of the misconduct or improper conduct, any prior conduct or experience of the agent and any relevant surrounding circumstances.
  4. The principles contained in this TPB(EP) indicate how various considerations and specific conduct have been considered by the State Tax Agents’ Boards and tribunals in reaching this determination.

Primacy of the public interest

  1. Maintaining the public interest and trust is integral to the functioning of the tax and BAS agent professions.[10]
  2. The principal purpose underlying the provisions applying to tax and BAS agent registration is to protect the public and maintain public confidence in the tax and BAS agent professions and not to penalise or punish misconduct or improper or unprofessional conduct.[11]
  3. This ultimate objective is achieved through ensuring that only those individuals that possess the requisite knowledge, ability, good fame, integrity and character are registered as tax or BAS agents.[12]
  4. Consequently, individuals presenting an unacceptable risk to the public in the role of a tax or BAS agent should not be registered and, if previously registered, should be removed from the register.[13]
  5. Consistent with the public protection rationale, an agent who has committed previous misconduct or improper or unprofessional conduct must satisfy the TPB as part of its determination on fitness and propriety that the conduct was merely temporary or isolated and unlikely to recur in the future. Here the focus of the TPB’s determination is not limited to prior conduct, but extends to the likelihood of future misconduct or improper conduct.[14]

Special circumstances

  1. Previously, under Part VIIA of the ITAA 1936, the State based Tax Agents’ Boards were required, in certain situations, to take into account any special circumstances in relation to an agent for the purpose of disregarding particular conduct when determining whether an individual was a fit and [15] proper person.
  2. While there is no longer a specific requirement that the special circumstances of an individual be taken into account, the TPB may continue to treat the particular circumstances of the individual as a relevant consideration in determining fitness and propriety. The circumstances that may be considered for this purpose may be circumstances occurring prior to, or after, 1 March 2010 to the extent that they are relevant to the fitness and propriety of the individual.
  3. While the particular circumstances of an agent may be relevant to a determination of whether an individual is a fit and proper person, the TPB must weigh the public interest in the tax or BAS agent continuing in practice against the public interest in protecting clients from a recurrence of the relevant conduct.[16]
  4. Considerations of personal circumstances of an individual cannot override this primary consideration which must not be considered in isolation from the public interest in ensuring proper and competent provision of tax agent services to the public.[17]

Scope of what may be considered

  1. Beyond the words of section 20-15 of the TASA, there is no statutory definition of the expression ‘fit and proper person’.
  2. While the TPB must consider the matters contained in section 20-15 of the TASA in determining whether an individual is a fit and proper person, these matters do not limit the generality of the expression or restrict the matters the TPB may consider in determining fitness and propriety.[18]

Standards and functions of the profession

Functions of the profession

  1. The function of a tax or BAS agent is to provide tax agent services.[19]
  2. The role of a tax or BAS agent in providing these services across a wide range of business, professions, occupations and clients is not to be taken lightly. It is a task that requires such attributes as competence, good fame, integrity and character in dealing with the Commissioner, the TPB and clients.[20]
  3. The conduct of a tax or BAS agent should be such that the TPB, the Commissioner, clients and the public can have confidence that the agent will perform their function competently and with integrity.[21]

Conduct indicative of a lack of fitness and propriety

  1. Conduct falling short of this standard may indicate that an individual is not a fit and proper person.[22] The significance of the conduct will vary depending on, among other things, the type of conduct, whether it is part of a pattern of behaviour and when the conduct occurred.
  2. Certain offences are so inconsistent with performing the role of a tax or BAS agent that conviction for these offences will render a person not fit and proper to be registered.[23] Tax evasion is considered to be an offence of this nature because a conviction for tax evasion is wholly inconsistent with the role of providing tax agent services competently and with integrity.[24]
  3. In general, conduct (including convictions) involving fraud and/or dishonesty of a tax or BAS agent business may bear greater weight in the determination of fitness and propriety for tax or BAS agent registration than other considerations. Such conduct is particularly relevant to ‘good fame, integrity and character’ in a profession that invariably requires the maintenance of client trust and confidence and often involves the handling of or advising in respect of client moneys and the payment of taxes.[25]
  4. Conversely, while particular acts or omissions may not be enough, viewed separately, to warrant a sanction under the TASA, it is possible for multiple less serious matters, if sufficient in number, to provide a basis for the TPB to determine that an agent does not meet the fit and proper requirement.[26]

Persistent misconduct or improper conduct

  1. It will be more difficult for an applicant or agent to satisfy the requirements underlying fitness and propriety where they have committed misconduct or improper or unprofessional conduct extending over several years.[27]

Management of personal income tax obligations

  1. As a tax or BAS agent is responsible for providing tax agent services on behalf of other entities, non-compliance by an agent with their personal taxation obligations may be considered relevant in determining whether the agent is a fit and proper person.[28]
  2. The personal taxation obligations of a tax or BAS agent include, but are not limited to, the agent’s timely lodgement of personal income tax returns and activity statements, payment of superannuation guarantee contributions and PAYG withholding and instalment payments.
  3. In considering an agent’s management of his or her personal income tax obligations, individual circumstances will probably need to be considered. A pattern of behaviour or conduct in this regard may also be relevant.
  4. A failure to accurately complete tax returns and notices and to comply with other requirements of the Commissioner or the TPB may indicate a lack of competence, good fame, integrity and character, such that the individual concerned cannot be relied upon to adequately provide tax agent services.[29]
  5. A tax or BAS agent’s inability to comply with the agent’s own taxation affairs could subsequently cast doubt over the competence with which the agent has prepared the returns of the agent’s clients. This could also result in adverse treatment of the clients’ returns on the basis that there is no assurance that the returns were completed competently.[30]
  6. On the basis of the above, a tax or BAS agent who fails to comply with the agent’s own taxation obligations will not be considered a person of sufficient competence, good fame, integrity and character or sufficiently fit and proper to be registered as a tax or BAS agent.[31]

Relationship with the TPB, the Commissioner and clients

  1. Broadly, the cases highlight that a tax or BAS agent must properly maintain their relationships with the TPB and the Commissioner such that these agencies can rely on the agent to undertake their role honestly, competently and with integrity, and therefore with the level of fitness and propriety required to hold registration.[32]

Relationship with the TPB

  1. In general, a lack of cooperation with the TPB and failure to deal with the TPB appropriately may also reflect adversely on an agent’s fitness and propriety for registration. This is because it could demonstrate a lack of appreciation of the significance of completely and promptly responding to requests from regulatory authorities, and noting also that there is a legal obligation on registered agents in the Code to respond to requests and directions from the TPB in a timely, responsible and reasonable manner.[33]
  2. An agent may be found not fit and proper in circumstances where, for example, the agent repeatedly neglects or delays in responding to telephone calls, correspondence and directions to provide assistance or substantiation in relation to queries or fails to attend interviews when required.[34]
  3. A failure to advise the TPB of any change to contact details is a factor that may further indicate a lack of competence, good fame, integrity and character and therefore fitness, to perform the functions of a registered agent.[35]
  4. Furthermore, the making of false or misleading statements by an agent to the TPB (whether on an application form or otherwise in the course of providing information) could well be sufficient for a finding that the agent does not possess the competence, good fame, integrity and character, and therefore the fitness and propriety, for registration.[36]

Relationship with Commissioner

  1. Failure to deal with the Commissioner appropriately could also reflect adversely on an agent’s fitness and propriety as a registered tax or BAS agent as the agent is required to be of such competence, good fame, integrity and character that others may entrust their taxation affairs to that person’s care.[37]
  2. Failing to comply with the taxation laws, including failing to respond to formal notices and directions from the Commissioner, may reduce the confidence the TPB may have in the tax or BAS agent to provide tax agent services to clients in an honest, competent and accurate manner.[38]

Relationship with clients

  1. A failure by an agent to discharge their responsibilities on behalf of clients could reflect adversely on the agent’s fitness and propriety for registration where it amounts to unsatisfactory or unreasonable failure in the agent’s circumstances and all the surrounding circumstances of the case.
  2. Such a failure will generally be viewed more seriously than a failure by the agent to discharge their own tax responsibilities where it involves exploitation of the clients’ dependence and trust. The severity of such conduct is likely to be greater where the clients involved are in a position of particular vulnerability.[39]
  3. Specific examples of failure to properly maintain client relationships that may in the circumstances reflect adversely on fitness and propriety for registration include, but are not limited to:
  • failure to prepare or lodge client returns in a timely fashion
  • failure to respond to client telephone calls and correspondence
  • failure to otherwise make oneself available to attend to client matters or to notify clients of any change to contact details
  • failure to pass on correspondence from the Commissioner to clients
  • provision of misleading information to clients in relation to the filing of returns with the Commissioner
  • imposition of blame on clients or staff for delays caused by the agent in filing returns
  • provision of money to clients to influence them against complaining to any official body.[40]
  1. Importantly however, while the TPB may take into account complaints against an agent or individual in determining fitness and propriety for registration under the TASA ,[41] the absence of any complaints may not bear much relevance when considered in conjunction with other relevant facts and circumstances.[42]

Conduct of the applicant or agent in circumstances of misconduct or wrongdoing

  1. Applying the principles in the cases to the TASA, a tax or BAS agent who engages in misconduct or wrongdoing may still be considered fit and proper where the agent displays remorse, contrition and an awareness of the significance and consequences of the misconduct or wrongdoing, such that the TPB and the Commissioner can have confidence in the agent’s continued ability to honestly and competently discharge the functions of the profession.[43]
  2. Following from this, a tax or BAS agent’s level of frankness and cooperation with regulators including the TPB and with judicial decision makers when confronted with the agent’s misconduct or improper or unprofessional conduct (such as in tendering admissions to allegations) will be relevant to the view taken of the agent’s fitness and propriety for registration under the TASA.[44] On that basis, an agent’s refusal to accept responsibility for such conduct will bear on the issue of whether the agent is a fit and proper person to be registered.[45]
  3. For example, the provision of false or misleading evidence before bodies such as the TPB in the course of an investigation into a tax or BAS agent’s conduct of tax agent services is likely to reflect adversely on the agent’s fitness and propriety. This is because it raises doubts about the agent’s competence, good fame, integrity and character and weighs against perceptions of the agent’s ability to act in accordance with the agent’s professional obligations in the future.[46]
  4. By the same rationale, any delay or failure by a tax or BAS agent to comply with the taxation laws during the period of a stay granted by the Administrative Appeals Tribunal (Tribunal) or while the agent’s case is being considered by the Tribunal or Federal Court may indicate a lack of appreciation of the significance of any conduct issues and therefore call into question the agent’s fitness and propriety for registration.[47]
  5. Furthermore, in the context of a fraudulent misappropriation of client money, whether or not an agent has repaid the misappropriated amount may be relevant to the issue of the likelihood of such conduct recurring, and hence to the fitness and propriety of the agent generally.[48]

Previous conduct issues

  1. In determining whether an applicant or agent charged with previous misconduct or improper or unprofessional conduct that impacts adversely on their fitness and propriety should be registered under the TASA, the TPB will have regard to a range of issues such as public confidence and protection.[49]

Further considerations

Onus of proof

  1. The onus of proof in establishing fitness and propriety rests with the agent. It is up to the agent to establish, and the TPB must be reasonably satisfied, that on the balance of probabilities and having regard to the seriousness of the matters raised that the agent or relevant individual is a fit and proper person.[50]

Liability of directors, partners and directors of company partners

  1. If it is determined that a director in a company tax or BAS agent is not a fit and proper person, the company will no longer, while the director remains in that position, satisfy the registration criteria as each individual director of a company tax or BAS agent must be a fit and proper person.[51]
  2. If it is determined that an individual partner or a director of a company partner in a partnership tax or BAS agent is not a fit and proper person, the partnership, while the partner or director remains in place, will no longer satisfy the registration criteria as each individual partner or director of a company partner in a partnership tax or BAS agent must be a fit and proper person.[52]
  3. An individual director or partner is not liable for the specific conduct of an offending director or partner. However, if that person knows of the misconduct or improper or unprofessional conduct of the director or partner and fails to take any steps to address the issues caused by the director or partner, this failure may well be considered to reflect adversely on their own fitness and propriety.[53]

Mitigating conduct

  1. Generally, to the extent that sustained failure and delay in providing tax agent services would reflect on fitness and propriety, the agent may still be considered a fit and proper person if they undertake steps to address the difficulties such as communication with the Commissioner pertaining to the difficulties being experienced.[54]

Conduct not connected to registration as a tax or BAS agent

  1. Observations made about a tax or BAS agent’s conduct in the practice of another profession are relevant to whether the agent is fit and proper to obtain or maintain registration under the TASA.[55]
  2. An agent may fail to satisfy the fit and proper requirement on the basis of behaviour (for example, inappropriate behaviour towards current or former clients or staff) that constitute breaches of conventions such that it would be detrimental to any professional body to accommodate the agent as a member. This is so even if the agent’s professional integrity is not in question.[56]
  3. Consistent with the above, conduct need not occur directly in the course of professional practice to constitute misconduct or improper conduct for the purposes of assessing fitness and propriety for tax or BAS agent registration. Such conduct will impact adversely on fitness and propriety where it is “sufficiently closely connected with such practice,” undermines the reputation or standards of the profession or demonstrates the presence of qualities (such as dishonesty or deception) that are inconsistent with the standards and expectations to practise as a registered agent.[57]

Need more information?

For further information refer to Fit and proper.

Appendix 1 – Case examples

Su and Tax Agents’ Board of South Australia [1982] AATA 127

Summary

Fitness and propriety of registered tax agent considered in relation to

  • convictions and fines relating to considerable delays and failure to lodge personal income tax returns
  • failure to remit group tax instalments in his capacity as an employer
  • failure to furnish return of company of which he was director
  • failure to disclose convictions in annual notices to the board.

Keywords: fit and proper; cancellation of registration; convictions; personal income tax affairs; relationship with the Board and Commissioner.

Outline of relevant facts

This case concerned a decision by a state board to cancel the agent’s registration on the basis that the agent was not a fit and proper person. The agent conducted a large practice that, due to difficulties encountered, had to be scaled back. The applicant was convicted on two separate occasions of failing to lodge personal income tax returns and failing to remit withholding tax deductions collected from employees.

In addition to his convictions for failing to remit withholding tax, the agent was also late in remitting withholding tax on several occasions. In the annual returns lodged with the board, the agent failed to disclose the previous convictions. The agent was struck off the register of liquidators and fined in relation to his role in liquidating a private company. The board determined to cancel the agent’s registration on the basis of this conduct.

The Tribunal substituted its own decision to cancel for different reasons to those of the board.

Relevant principle/s established or confirmed by the case

  • While particular acts or omissions by a tax agent may not be enough, viewed separately, to warrant removal from the register, it is possible for multiple less serious matters, if sufficient in number, to provide a basis for a board to determine that a tax agent was not fit and proper.
  • In addition, the failure of a tax agent to comply with their own taxation obligations is relevant to fitness and propriety as it may result in adverse treatment of the clients of that agent and the Commissioner will have reduced confidence in the competence with which those returns were prepared.
  • Certain offences are so inconsistent with performing the role of a tax agent that conviction for these offences will render a person not fit and proper to be a registered tax agent. The Tribunal highlighted offences involving tax evasion to be an example of such an offence.
  • In relation to the failure to accurately complete the annual returns to the Board, someone incapable of accurately completing a simple yet important notice “is not a person of sufficient competence and integrity to hold the privilege of acting for clients in the preparation and lodgement of their income tax returns.”

Stasos v Tax Agents’ Board of New South Wales [1990] AATA 346

Summary

Fitness and propriety of registered tax agent considered in relation to:

  • evasion of tax through understatement of income derived from tax agent practice and failure to claim tax deductions for clients in respect of tax return preparation fees
  • relevance of vulnerability of clients who had relied on agent
  • whether agent had corrected behaviour through subsequent lapse of time.

Keywords: fit and proper; cancellation of registration; tax evasion; understatement of income; failure to claim deductions; relationship with the Commissioner; vulnerability and dependence of clients; lapse of time.

Outline of relevant facts

This case concerned a decision by a state board to cancel the agent’s registration on the basis that the agent was not a fit and proper person. The agent ran a tax agent practice, the clientele of which was largely migrant clients that mostly paid his professional fees in cash. The agent engaged in tax evasion through failing to disclose the income earned from his tax agent business to the Commissioner. This was partly achieved through failing to claim a deduction on behalf of his clients for professional fees paid to him for preparing their income tax returns. The agent originally denied the allegations to this effect put to him by taxation officers only to later confirm what they had told him was, in fact, true.

The Tribunal affirmed the board’s decision that the agent was not a fit and proper person on the basis that he had breached his responsibilities as a tax agent by failing to declare income and, more importantly, by failing to claim a deduction on behalf of clients to secure an advantage for himself. The Tribunal also determined that insufficient time had elapsed to determine whether the agent had truly corrected his behaviour. The agent appealed to the Federal Court.

The Federal Court found no error of law in the decision of the Tribunal and made further comment on this matter.

Relevant principle/s established or confirmed by the case

  • Failure to claim deductions on behalf of clients was a more serious breach of a tax agent’s responsibilities than failure to declare a tax agent’s own income.
  • The severity of this conduct is greater where the clients involved are in a position of particular vulnerability. In this particular case, the affected clients were largely migrant clients from different ethnic backgrounds that had placed trust in the tax agent to assist them in complying with their income tax obligations.
  • This type of misconduct or improper or unprofessional conduct is sufficient to support a finding that, at the time of such conduct, the person was not a fit and proper person to be a tax agent.
  • A person is not fit and proper, even if a period of time has elapsed between the conduct complained of and the hearing of a matter, if they fail to demonstrate contrition and an understanding of the misconduct or wrongdoing.
  • An agent must maintain relationships with the Board and the Commissioner such that these departments may have confidence in their ability to undertake their role truthfully, accurately and competently.

Jack v Tax Agents’ Board of New South Wales [1997] AATA 678

Summary

Fitness and propriety of applicant for tax agent registration considered in relation to:

  • threats of violence made to former employee and clients
  • preparation of income tax returns for a fee while unregistered.

Keywords: fit and proper; application for registration; threats to employee and clients; relationship with the Commissioner.

Outline of relevant facts

This case concerned a decision of a state board to refuse the applicant’s application for registration as a tax agent on the basis that the applicant was not a fit and proper person. The applicant ran a tax agent practice that was being investigated by the Commissioner. The Commissioner had also started investigating several of the applicant’s clients. The applicant had engaged a Mr Ross to act as a consultant during this period to assist with handling these matters. Mr Ross subsequently established his own practice and transferred several of the applicant’s clients to that practice.

The applicant initiated proceedings against Mr Ross for the loss of the clients. During this litigation, the applicant threatened Mr Ross about money he ‘owed’ the applicant for the loss of clients. Following this interaction, the applicant visited a former client seeking payment of an account for work performed. Mr Ross had also issued an account for payment to this client that was paid. The applicant and his associates proceeded to threaten the client in relation to the money ‘owed’ to the applicant.

The Tribunal affirmed the board’s decision to refuse the application for registration as a tax agent.

Relevant principle/s established or confirmed by the case

  • The onus of proof in establishing that the applicant is a fit and proper person rests with the applicant. It is up to the applicant to satisfy the Tribunal, on the balance of probabilities and having regard to the seriousness of the matter raised, that the applicant is a fit and proper person.
  • It is possible for a person to render themselves not fit and proper on the basis of certain behaviour that that is so in breach of conventions on particular occasions that it would be detrimental for any professional body to have that person as a member. This is so even if their professional integrity is not in question.
  • In this matter, the Tribunal considered the conduct described above was such that the applicant could not be considered a fit and proper person to be registered as a tax agent.
  • The inability of an agent to competently represent clients in dealings with the Commissioner and in any objections proceedings is sufficient to render a person not fit and proper to be registered as a tax agent.

Re Cowlishaw and Ors and Tax Agents’ Board of Queensland [1999] AATA 412

Summary

Fitness and propriety of registered tax agents considered in relation to:

  • the excessive claiming of deductions on behalf of clients
  • failure to respond to ATO telephone calls and correspondences
  • failure to act on substantiation requests by the ATO despite being granted extensions of time
  • failure to respond to board correspondence
  • failure to file clients’ income tax returns
  • failure to pass on ATO correspondences to clients
  • shifting of blame for delays by agents on to clients
  • staff and client complaints regarding failure to pass on refunds.

Keywords: fit and proper; excessive claiming of deductions; failure to respond to Board and ATO correspondences; relationship with the Board and Commissioner; failure and delay in filing clients’ income tax returns; misrepresentations to clients; failure to pass on ATO correspondences; failure to pass on tax refunds; shifting of blame onto clients and staff.

Outline of relevant facts

This case concerned a decision of a state board to suspend the registration of the tax agents on the basis that they were not fit and proper persons to be registered. The Commissioner had commenced investigating the returns lodged by the tax agents on the basis that deduction claims made in these returns were higher than would otherwise have been expected for that type of return. The Commissioner placed the tax agents on a tax agents’ program and required them to provide substantiation of a specific number of claims for deductions. The tax agents failed to cooperate with the Commissioner through repeatedly failing to respond to telephone calls, correspondence and directions to provide substantiation of claims for deductions in client returns.

In addition, the tax agents had failed to file client returns, failed to respond to client correspondence, had lied to clients about the status of their returns, failed to pass on correspondence from the Commissioner to their clients and failed to respond to correspondence from the board. One of the tax agents had given money to his clients to “keep his clients quiet, to stop them from complaining to any official body.” The tax agents also attempted to blame clients and staff for the delay in filing their returns and responding to Commissioner requests for information.

The Tribunal varied the board’s decision to extend the suspension periods applied to the tax agents.

Relevant principle/s established or confirmed by the case

  • A lack of cooperation with the Commissioner’s officers and failure to treat the board with proper respect is a serious breach of the proper conduct of a tax agent business.
  • The following conduct issues may be considered such that an agent engaged in this conduct will not be a fit and proper person to prepare income tax returns or transact business on behalf of taxpayers in income tax matters
    • failing to file tax returns within a reasonable time or in some cases at all
    • failing to respond to telephone calls and correspondence
    • failing to pass on correspondence from the Commissioner to clients
    • misleading clients by informing them that returns had been filed with the Commissioner when they had not
    • blaming clients for delays
    • blaming staff for delays
    • providing money to clients to keep them quiet and to stop them from complaining to any official body. 
  • While an individual director or partner is not liable for the specific conduct of an offending director or partner, if that person knows of the misconduct or improper conduct or wrongdoing of the director or partner and fails to take any steps to address the issues caused by the other director or partner, then the Board will consider that this failure will reflect adversely on the fitness and propriety of the other directors or partners.

Re Carbery and Associates Pty Ltd and Tax Agents Board of Queensland [2001] AATA 107

Summary

Fitness and propriety of applicant for tax agent re-registration considered in relation to:

  • convictions for failure to lodge personal income tax returns
  • failure to respond to board correspondence
  • failure to advise clients of new contact details
  • failure to disclose conviction on re-registration application
  • client complaints
  • relevance of personal circumstances.

Keywords: fit and proper; application for re-registration; personal income tax affairs; failure to respond to Board correspondences; relationship with the Board and Commissioner; failure to advise of contact details; client complaints; personal issues.

Outline of relevant facts

The case concerned a decision of a state board to refuse an application for re-registration on the basis that the nominee of the applicant was not a fit and proper person and that the executive officer was not of good fame, integrity and character. The board’s decision was based on convictions for failing to lodge income tax returns, false statements made to the board, failure to respond to board correspondence, failure to file client returns and the number of client complaints concerning the applicant.

Medical evidence indicated that the failure to respond and other relevant conduct could be partly explained by medical conditions of the applicant, particularly depression.

At the hearing, the applicant produced certain evidence purporting to show that returns had been lodged with the Commissioner. The veracity of this evidence was highly suspect and was inconsistent with previous statements made by the applicant.

The Tribunal affirmed the board’s decision to refuse the application for re-registration.

Relevant principle/s established or confirmed by the case

  • The matters that may be considered in determining fitness and propriety include those matters set out in section 251BC. Generally, that section sets out a range of factors that disqualify a person from satisfying the fit and proper requirement under the ITAA 1936, which include that they are not of good fame, integrity and character or have been convicted of a serious taxation offence during the previous 5 years. However, this section does not limit the range of other factors that may be considered by a decision-maker in determining whether an agent or other individual is a fit and proper person.
  • The failure to comply with the basic requirements of the Commissioner in the conduct of an agent’s personal taxation affairs is a “gross dereliction of a fundamental duty” made more serious by the fact that the agent is themselves responsible for the management of their client’s compliance with these requirements.
  • Making false or misleading statements to the board, failing to provide written explanations on request from the board and tendering false evidence before the Tribunal are matters that raise serious doubts about the honesty or integrity of an agent.
  • The role of a tax agent in preparing income tax returns across a wide range of business, professions, occupations and income sources is not to be taken lightly. It is a task that requires such attributes as competence, good fame, integrity and character in dealing with the Commissioner, the relevant board and clients.
  • Unless a person can be considered competent in all these attributes, then the person will not be considered a fit and proper person to prepare income tax returns and to transact business on behalf of taxpayers in income tax matters.
  • While special circumstances are relevant in determining an application for re-registration, the key principle behind imposing a sanction is the protection of the public rather than the punishment of the practitioner. Considerations of personal circumstances cannot override this primary consideration.

Jones and Tax Agents' Board of New South Wales [2002] AATA 1246

Summary

Fitness and propriety of applicant for tax agent re-registration considered in relation to:

  • convictions for fraudulent misappropriation of client money and obtaining benefit by deception
  • public protection rationale of legislation
  • failure to repay all of misappropriated amount
  • whether agent had corrected behaviour through subsequent lapse of time.

Keywords: fit and proper; application for re-registration; fraudulent misappropriation of client money; obtaining benefit by deception; public protection rationale; repayment of misappropriation; lapse of time.

Outline of relevant facts

In Jones, the Tribunal considered the content of the fit and proper registration requirement in the context of a review of a decision by a state board to refuse an application for re-registration following an earlier cancellation of the registration.

The board had earlier cancelled the applicant’s registration on the basis of a number of matters relating to the applicant’s fitness and propriety for registration. These included complaints from clients and the Commissioner regarding delays in payment of refunds, the unauthorised negotiation of refund cheques, difficulties experienced in contacting the applicant during business hours, the depositing of cheques payable to the Commissioner into his trust account, delays in lodgement of returns and failure to attend Commissioner interviews when required.

Subsequently, the applicant was convicted and sentenced to imprisonment for the misappropriation of approximately $100,000 of client moneys.

The Tribunal affirmed the board’s decision to refuse re-registration.

Relevant principle/s established or confirmed by the case

  • It will be more difficult for an applicant to satisfy the requirements underlying fitness and propriety where they have committed misconduct or improper or unprofessional conduct extending over several years.
  • Factors considered relevant to the required standard of fitness, propriety and character differ depending on the nature of the relevant vocation.
  • Consistent with the above, convictions and conduct involving fraud and dishonesty reflect particularly adversely on the good fame, integrity and character of an applicant for registration in a profession that invariably involves the handling of client moneys.
  • In general, convictions involving dishonesty in the conduct of a tax agent business may bear greater weight in the determination of fitness and propriety for tax agent registration than other convictions.
  • The principal purpose underlying the provisions applying to tax agent registration is to protect the public and maintain public confidence in the profession, as opposed to the imposition of penalties or punishment to regulate misconduct or improper or unprofessional conduct.
  • A board’s consideration is not limited to the circumstances outlined in the legislation that expressly bar a finding of fitness and propriety (such as a conviction of a serious taxation offence during the previous five years), however such circumstances may provide guidance on the types of factors relevant to be considered. Consequently, a conviction that occurred more than five years prior to the application will be considered relevant if the nature of the conviction impacts on the applicant’s good fame, integrity and character or general fitness and propriety.
  • Whether or not an applicant has repaid a misappropriated amount may be relevant to the assessment of their fitness and propriety.
  • The greater the level of seriousness of a dereliction of duty by an applicant or agent, the lengthier the period of time that will be required to establish rehabilitation and an unlikelihood of recurrence of the conduct.

Budai and Tax Agents Board of New South Wales [2002] AATA 1154

Summary

Fitness and propriety of registered tax agent considered in relation to:

  • preparation of false income tax returns
  • admissions by agent to devising large scale fraudulent tax evasion scheme
  • remorse expressed by agent
  • public protection rationale of legislation
  • reliability of agent’s evidence and agent’s -frankness and directness when confronted with wrongdoing
  • whether agent had corrected behaviour through subsequent lapse of time.

Keywords: fit and proper; cancellation of registration; preparation of false income tax returns; admissions by agent; scale of misconduct or wrongdoing; remorse; public protection rationale; disclosure and frankness to regulatory bodies courts/tribunals; reliability of evidence; lapse of time.

Outline of relevant facts

This case involved an application to the Tribunal for review of a decision by a state board to cancel a tax agent's registration on the basis that he was not a fit and proper person to be registered under Part VIIA of the ITAA 1936.

The board based its finding on admissions made by the tax agent regarding the development of a fraudulent tax evasion scheme in relation to a group of investors/developers some 13 to 14 years prior to its decision and his response to a show cause letter issued by the board. The Tribunal set aside the cancellation and substituted a decision to suspend the registration of the tax agent.

Relevant principle/s established or confirmed by the case

  • A decision on whether a tax agent is fit and proper to maintain their registration is informed by a public protection rationale, rather than a purpose of exacting punishment for past misconduct or wrongdoing.
  • Depending on the facts and circumstances of the case, an agent charged with prior conduct that impacts adversely on their integrity may still satisfy a board that they are fit and proper to remain registered. This may follow where, for example, the tax agent displays remorse, is frank and cooperative with regulators and judicial decision makers when confronted with the misconduct or improper conduct and their misdeed/s were isolated and unlikely to recur in future.
  • Generally, the greater the period of time that has elapsed since the misconduct or improper conduct, the lesser the likelihood of recurrence.

Pappalardo v Tax Agents' Board of Victoria [2003] AATA 990

Summary

Fitness and propriety of registered tax agent considered in relation to:

  • failure to lodge personal income tax returns
  • failure to adequately respond to board correspondence
  • lack of contrition and agent’s submission of confused and misleading evidence to the Tribunal.

Keywords: fit and proper; cancellation of registration; personal income tax affairs; failure to respond to Board correspondences; relationship with the Board and Commissioner; lack of contrition; submission of confused and misleading evidence.

Outline of relevant facts

This case involved an application to the Tribunal for review of a decision by a state board to cancel the tax agent’s registration on the basis that he was not a fit and proper person to remain registered under Part VIIA of the ITAA 1936.

The board's finding on fitness and propriety was based on a number of matters, including his conviction of serious taxation offences for failing to lodge personal income tax returns for five consecutive years, his failure to respond (or adequately respond) to correspondences from the board and clients, his giving of confused and misleading evidence in relation to his non-lodgement of returns and his lack of contrition.

These matters were considered by the Tribunal to demonstrate a lack of competence, good fame, integrity and character and a failure to appreciate the obligations required to be adhered to maintain registration as a tax agent.

The Tribunal affirmed the decision of the board to cancel the applicant's registration.

Relevant principle/s established or confirmed by the case

  • The inability of a tax agent to manage their own tax affairs (such as timely and accurate lodgement of tax returns) indicates a lack of competence and/or disregard for the law and hence reflects adversely on their fitness and propriety to perform the functions of a tax agent.
  • A failure to comply with a timeframe specified in a final notice provides a strong indication that the tax agent is not a fit and proper person to be registered.
  • Inaccurate or misleading statements/submissions to a board or the Tribunal can in circumstances reflect an inability to clearly think about the relevant issues and consequently may be relevant to evaluating competence, good fame, integrity and character and fitness and propriety in general.
  • Failure to return board and client correspondences reflects adversely on fitness and propriety to be registered as it demonstrates a serious neglect of the business of a tax agent and a lack of appreciation of the significance of completely and promptly responding to requests from a regulatory authority.
  • The display of contrition or insight by a person into the implications of their misconduct or wrongdoing such that it can be established that there will be no recurrence of the conduct in future is relevant in determining whether they are fit and proper to exercise the functions of a tax agent.

Frost Taxation Pty Ltd and Tax Agents’ Board of South Australia [2005] AATA 393

Summary

Fitness and propriety of registered tax agent considered in relation to:

  • preparation of false accounts and giving of financial advice resulting in Supreme Court proceedings
  • false declarations as to non-existence of trust account, audit of trust account and reports on such audit
  • disciplinary proceedings before Society of Certified Practising Accountants
  • conduct in relation to bankruptcy issues
  • lack of contrition.

Keywords: fit and proper; cancellation of registration; false declarations; disciplinary proceedings, relationship with the Board; dishonesty; lack of contrition.

Outline of relevant facts

This case regarded a review of a decision of a state board to refuse the company applicant’s registration on the basis that its original nominee was not a fit and proper person, in particular, that he was not of good fame, integrity and character as required under the ITAA 1936.

The board’s finding in respect of the nominee related to a number of factual matters. These included evidence and findings made in Supreme Court proceedings regarding the nominee’s conduct in the manipulation of accounts and giving of financial advice in the course of his practice as an accountant, his consequential bankruptcy, the failure to keep proper records and making of false declarations in respect of his maintenance of a trust account and disciplinary proceedings before the Society of Certified Practising Accountants.

In relation to his bankruptcy, the board further considered the nominee’s delay in notifying the board of his status, his failure to notify the Trustee in bankruptcy of his ownership of a property, his personal use of rent moneys derived from the property and his application for and use of a credit card.

The Tribunal affirmed the board’s decision to refuse the application for registration on the basis of the conduct of the nominee.

Relevant principle/s established or confirmed by the case

  • It is not sufficient, when determining fitness and propriety with regard to past misconduct or wrongdoing, that the applicant merely express remorse and contrition. The applicant must establish that they appreciate the significance of the misconduct or wrongdoing and have rehabilitated themself such that they will not repeat it or further depart from the standards required of them in the future.
  • Misconduct or improper conduct that involves intent and dishonesty provides strong grounds for a finding that the applicant is not of good fame, integrity and character for the purposes of tax agent registration.

Toohey and Tax Agents’ Board [2009] AATA 603

Summary

Fitness and propriety of applicant for tax agent re-registration considered in relation to:

  • failure to lodge personal tax returns
  • failure to respond to board requests to lodge outstanding returns
  • applicant’s conduct of case before the Tribunal
  • public protection rationale of legislation
  • personal circumstances (e.g. depression, financial and marital difficulties).

Keywords: fit and proper; personal income tax affairs; failure to respond to Board correspondences; relationship with the Board and Commissioner; conduct of case before the Tribunal; public protection rationale; personal issues.

Outline of relevant facts

Toohey involved an application to review a decision by a state board to refuse the applicant’s re-registration on the basis that he was not a fit and proper person to be registered as a tax agent. The finding on fitness and propriety was generally based on his failure to lodge personal tax returns and returns for three family entities for which he was responsible within the required timeframe for a period of years spanning 1992 to 2006. The lapses in lodgements generally ranged from three weeks to approximately 11 years.

The board considered the circumstances submitted by the applicant (which included severe depression and stress, financial problems and marriage difficulties) and found that these did not amount to special circumstances such that would require them to disregard the applicant’s non-lodgement of returns in assessing fitness and propriety.

The Tribunal affirmed the board’s decision to refuse re-registration. Following subsequent appeals by the applicant to the Federal Court, the court found no error of law in the decision of the Tribunal and made further comment on the matter.

Relevant principle/s established or confirmed by the case

  • A failure to lodge income tax returns on time constitutes a significant factor when evaluating an applicant’s fitness and propriety to be registered in view of a clear public interest in tax agents upholding the standards applicable to the preparation and lodgement of returns.
  • Communications between the applicant and the Commissioner may afford a relevant consideration in determining whether the applicant is fit and proper for registration.
  • An applicant who experiences difficulties in complying with timeframes for preparation and lodgement of returns may still be considered fit and proper where they undertake steps to address the difficulties, such as by engaging another tax agent for assistance.
  • Delay or failure to lodge tax returns during the period of a stay granted by the Tribunal or whilst the applicant’s case is being considered by the Tribunal or Federal Court is indicative of a lack of appreciation by the applicant of the significance of their omissions and therefore calls into question their fitness and propriety for registration.
  • The giving of priority to clients’ income tax matters does not to any degree absolve a tax agent from their obligations in respect of their personal tax affairs. Conversely, such a justification manifests personal disorganisation and/or a disregard for the regulatory and legal framework within which tax agents operate.
  • In determining an applicant’s fitness and propriety for registration, adverse personal circumstances must not be considered in isolation from the public interest in ensuring proper and competent provision of taxation services.
  • The conduct of an applicant in preparing their case before the Tribunal may be relevant to the issue of fitness and propriety.

Sargent and Tax Agents’ Board of Victoria [2009] AATA 219

Summary

Fitness and propriety of registered tax agent considered in relation to:

  • conviction and imprisonment for matters unrelated to registration as a tax agent
  • public protection rationale of legislation
  • standards and reputation of profession
  • agent’s insight into significance of misconduct or wrongdoing.

Keywords: fit and proper; cancellation of registration; misconduct or wrongdoing arising outside of professional practice; public protection rationale; standards and reputation of profession; insight into significance of conduct.

Outline of relevant facts

Sargent involved an application for review of a decision of a state board to cancel a tax agent’s registration. In reaching its decision, the board considered the issues of fitness and propriety (with regard to the applicant’s good fame, integrity and character) and misconduct as grounds for cancellation under Part VIIA of the ITAA 1936.

The cancellation decision was based on the conviction of the tax agent on a number of criminal charges involving stalking and child pornography, for which the applicant was sentenced to a term of imprisonment and ordered to pay a fine, in addition to complying with further orders. At the date of the Tribunal hearing, the tax agent had paid the fine and completed the term, along with a majority of the orders.

The Tribunal affirmed the board’s decision to cancel the tax agent’s registration.

Relevant principle/s established or confirmed by the case

  • When assessing fitness and propriety in the context of a decision to suspend or cancel a tax agent’s registration, the primary purpose is to protect the public from future misconduct or improper conduct, rather than to punish or exact retribution from the tax agent.
  • In considering whether a person is fit and proper, a board may have regard to conduct not directly connected with their practice as a tax agent.
  • Akin to the legal profession, public interest and trust are integral to the functioning of the tax agent profession.
  • Where fitness and propriety or misconduct or improper conduct is in issue, the board must weigh the public interest in the tax agent continuing in practice against the public interest in protecting clients from repetition of the relevant conduct.
  • A consideration relevant to the balancing exercise is whether the tax agent displays insight and remorse into the significance of their conduct.
  • However, a tax agent who displays insight and remorse and is deemed unlikely by the board to repeat their prior behaviour may still fail to satisfy the ‘fit and proper’ requirement for registration. Such a result may follow where, for example, an offence committed is particularly serious, the behaviour has brought the tax agent profession into disrepute and the tax agent has only begun to address their obligations in respect of maintaining the reputation and standards of the profession.

Kerin and Tax Agents’ Board of South Australia [2009] AATA 974

Summary

Fitness and propriety of applicant for tax agent re-registration considered in relation to:

  • complaints and proceedings relating to convictions for matters unrelated to registration as a tax agent
  • complaints laid against applicant in capacity as a legal practitioner
  • standards of other professions
  • whether applicant had corrected behaviour through subsequent lapse of time.

Keywords: fit and proper; misconduct or wrongdoing arising outside of professional practice; disciplinary proceedings; public protection rationale; standards and reputation of profession; standards of other professions; dishonesty; lapse of time.

Outline of relevant facts

This case involved an application to the Tribunal for review of a decision by a state board to refuse the applicant’s re-registration on the basis that he was not a fit and proper person to remain registered, in particular, that he was not of good fame, integrity and character under Part VIIA of the ITAA 1936.

The board’s finding related to complaints and proceedings instituted against or involving the applicant during the period of his tax agent registration. These matters included convictions for knowingly making a false statement to a Customs officer, importing prohibited firearm parts and for importing Tier 2 goods without approval. The matters further included:

  • a complaint laid against the applicant by the Legal Practitioners Complaints Committee involving findings of unprofessional conduct in relation to the convictions
  • appeals by the Legal Practitioners Conduct Board and the applicant regarding a fine imposed for unprofessional conduct in connection with the conduct of a mortgage practice
  • applications by the Law Society of South Australia and the Legal Practitioners Conduct Board to have the applicant removed from the roll of legal practitioners.

The Tribunal affirmed the board’s decision to refuse re-registration.

Relevant principle/s established or confirmed by the case

  • Whilst a lack of good fame, integrity and character disqualifies an applicant from satisfying the fit and proper requirement, the range of circumstances by which a Board can determine fitness and propriety in a given case is not limited to considerations of that nature.
  • The content of the fit and proper requirement may vary slightly with regard to the vocation of the person. However, the factors relevant to fitness and propriety are not restricted to the provisions of the relevant Act and encompass all considerations that properly relate to the requirements of the vocation.
  • Conduct need not occur directly in the course of professional practice to constitute professional misconduct. Such conduct will amount to professional misconduct where it is “so connected to such practice” or demonstrates the presence of qualities (such as dishonesty or deception) that are inconsistent with fitness and propriety to practise as a registered tax agent.
  • To be considered fit and proper for tax agent registration, the applicant must establish that past adverse conduct was merely temporary or isolated and unlikely to recur in the future.
  • The absence of any complaints from the Commissioner may not bear much relevance to the determination of fitness and propriety when considered in conjunction with other relevant facts and circumstances.
  • Whilst there may be slight variances in the fitness and propriety requirements as between various professions, the standards applicable are largely uniform across all professions. Accordingly, observations made about the applicant’s conduct in the practice of another profession are equally relevant to whether they are fit and proper to obtain/maintain tax agent registration.
 

[1] Section 60-95 of the TASA.

[2] Section 30-15 of the TASA.

[3] Section 30-20 of the TASA.

[4] Division 50 of the TASA.

[5] Subdivision 50-C of the TASA.

[6] Section 70-5 of the TASA.

[7] Section 40-5 of the TASA.

[8] Any reference in this explanatory paper to an agent may also be taken, where applicable, as a reference to an applicant for registration as an agent.

[9] Re Comino and Tax Agents Board of New South Wales [2009] AATA 766.

[10] Re Sargent and Tax Agents’ Board of Victoria [2009] AATA 219.

[11] Re Carbery and Associates Pty Ltd and Tax Agents Board of Queensland [2001] AATA 107 Re Jones and Tax Agents’ Board of New South Wales [2002] AATA 1246; Re Budai and Tax Agents’ Board of New South Wales [2002] AATA 1154; Re Sargent and Tax Agents Board of Victoria [2009] AATA 219.

[12] Re Su and Tax Agents’ Board of South Australia [1982] AATA 127; Re Carbery and Associates Pty Ltd and Tax Agents’ Board of Queensland [2001] AATA 107; Re McKay and Tax Agents’ Board of Tasmania [1994] AATA 113.

[13] Re Scott and Tax Agents’ Board of Queensland [2001} AATA 435.

[14] Re Budai and Tax Agents’ Board of New South Wales [2002] AATA 1154; Re Kerin and Tax Agents’ Board of South Australia [2009] AATA 974; Toohey v Tax Agents’ Board of Victoria (No 2) [2008] FCA 1796.

[15] Subsection 251BC(3) of the ITAA 1936.

[16] Re Sargent and Tax Agents’ Board of Victoria [2009] AATA 219.

[17] Re Toohey and Tax Agents’ Board of Victoria [2009] AATA 142.

[18] Re Carbery and Tax Agents’ Board of Queensland [2001] AATA 107; Re Kerin and Tax Agents’ Board of South Australia [2009] AATA 974.

[19] ‘Tax agent service’ is defined under section 90-5 of the TASA and includes a ‘BAS service’.

[20] Re Su and Tax Agents’ Board of South Australia [1982] AATA 127; Re Carbery and Associates Pty Ltd and Tax Agents’ Board of Queensland [2001] AATA 107; Re McKay and Tax Agents’ Board of Tasmania [1994] AATA 113. The relevance of assessing competence, honesty and integrity as it relates to fitness and propriety in the role of tax agents or BAS agents also accords with the view taken by Australian Prudential Regulation Authority (APRA) on the requirement for the responsible persons in regulated institutions to be fit and proper for that role and how to assess this fitness and propriety. See Prudential Standard APS 520 Fit and Proper July 2008 at [18].

[21] Re Su and Tax Agents’ Board of South Australia [1982] AATA 127; Re Terrence Richard Denton and Tax Agents’ Board, South Australia [1983] AATA 21.

[22] Re Fitzgibbon and Tax Agents’ Board of Queensland [1993] AATA 474.

[23] As above; Frost Taxation Pty Ltd and Tax Agents’ Board of South Australia [2005] AATA 393.

[24] As above.

[25] Re Jones and Tax Agents’ Board of New South Wales [2002] AATA 1246; Frost Taxation Pty Ltd and Tax Agents’ Board of South Australia [2005] AATA 393.

[26] Su v Tax Agents’ Board of South Australia [1982] AATA 127.

[27] Re Jones and Tax Agents’ Board of New South Wales [2002] AATA 1246.

[28] Re Carbery and Associates Pty Ltd and Tax Agents’ Board of Queensland [2001] AATA 107.

[29] Su v Tax Agents’ Board of South Australia [1982] AATA 127; Pappalardo v Tax Agents’ Board of Victoria [2003] AATA 990.

[30] As above; Stasos v Tax Agents Board of New South Wales [1990] AATA 346.

[31] As above; Re Comino and Tax Agents’ Board of New South Wales [2009] AATA 766.

[32] Stasos v Tax Agents’ Board of New South Wales [1990] AATA 346.

[33] Pappalardo v Tax Agents’ Board of Victoria [2003] AATA 990; 2003 ATC 2207; Re Ray and Tax Agents’ Board of Queensland [2005] AATA 657.

[34] Re Cowlishaw and Ors and Tax Agents’ Board of Queensland [1999] AATA 412; Re Carbery and Associates Pty Ltd and Tax Agents’ Board of Queensland [2001] AATA 107; Jones and Tax Agents’ Board of New South Wales [2002] AATA 1246; Pappalardo v Tax Agents’ Board of Victoria [2003] AATA 990; 2003 ATC 2207; Frost Taxation Pty Ltd and Tax Agents’ Board of South Australia [2005] AATA 393.

[35] Re Carbery and Associates Pty Ltd and Tax Agents’ Board of Queensland [2001] AATA 107.

[36] Su and Tax Agents’ Board of South Australia [1982] AATA 127; Re Fitzgibbon and Tax Agents’ Board of Queensland [1993] AATA 474; Re Carbery and Associates Pty Ltd and Tax Agents’ Board of Queensland [2001] AATA 107; Re Bouffiere and Tax Agents Board of New South Wales [2007] AATA 1978.

[37] Su and Tax Agents’ Board of South Australia [1982] AATA 127.

[38] Stasos v Tax Agents’ Board of New South Wales [1990] AATA 346.

[39] As above.

[40] Re an Applicant and Secretary, Tax Agents’ Board of Victoria [1987] AATA 117;Re Cowlishaw and Ors and Tax Agents’ Board of Queensland [1999] AATA 412; Pappalardo v Tax Agents’ Board of Victoria [2003] AATA 990; 2003 ATC 2207 and Re Carbery and Associates Pty Ltd and Tax Agents’ Board of Queensland [2001] AATA 107.

[41] For example, see Jones and Tax Agents’ Board of New South Wales [2002] AATA 1246.

[42] Kerin and Tax Agents’ Board of South Australia [2009] AATA 974.

[43] Stasos v Tax Agents’ Board of New South Wales [1990] AATA 346; Frost Taxation Pty Ltd and Tax Agents’ Board of South Australia [2005] AATA 393.

[44] Budai and Tax Agents Board of New South Wales [2002] AATA 1154.

[45] Re Carbery and Associates Pty Ltd and Tax Agents’ Board of Queensland [2001] AATA 107; Pappalardo v Tax Agents’ Board of Victoria [2003] AATA 990; 2003 ATC 2207.

[46] Re Carbery and Associates Pty Ltd and Tax Agents’ Board of Queensland [2001] AATA 107; Pappalardo v Tax Agents’ Board of Victoria [2003] AATA 990; 2003 ATC 2207.

[47] Toohey and Tax Agents’ Board [2009] AATA 142.

[48] Jones and Tax Agents’ Board of New South Wales [2002] AATA 1246.

[49] Budai and Tax Agents Board of New South Wales [2002] AATA 1154; Jones and Tax Agents’ Board of New South Wales [2002] AATA 1246; Sargent and Tax Agents’ Board of Victoria [2009] AATA 219.

[50] Jack v Tax Agents’ Board of New South Wales [1997] AATA 678; Briginshaw v Briginshaw (1938) 60 CLR 336.

[51] Subsection 20-5(3) of the TASA. 

[52] Subsection 20-5(2) of the TASA.

[53] Re Cowlishaw and Ors and Tax Agents Board of Queensland [1999] AATA 412.

[54] Toohey and Tax Agents’ Board [2009] AATA 142.

[55] Kerin and Tax Agents’ Board of South Australia [2009] AATA 974; Also see Frost Taxation Pty Ltd and Tax Agents’ Board of South Australia [2005] AATA 393.

[56] Jack v Tax Agents’ Board of New South Wales [1997] AATA 678.

[57]Kerin and Tax Agents’ Board of South Australia [2009] AATA 974; Also see Sargent and Tax Agents’ Board of Victoria [2009] AATA 219.