Tax Practitioners Board v Hinckfuss

INTRODUCTION 1 Section 50-5(1) of the Tax Agents Services Act 2009 (Cth) (the "Act") provides: (1) You contravene this subsection if: (a) you provide a service that you know, or ought reasonably to know, is a tax agent service; and (b) the tax agent service is not a BAS service; and (c) you charge or receive a fee or other reward for providing the tax agent service; and (d) you are not a registered tax agent; and (e) if you provide the tax agent service as a legal service - either: (i) you are prohibited, under a State law or Territory law that regulates legal practice and the provision of legal services, from providing that tax agent service; or (ii) subject to subsection (3), the service consists of preparing, or lodging, a return or a statement in the nature of a return. Civil penalty: (a) for an individual - 250 penalty units; and (b) for a body corporate - 1,250 penalty units. Note: Subdivision 50-C of this Act and Subdivision 298-B of Schedule 1 to the Taxation Administration Act 1953 determine the procedure for obtaining a civil penalty order against you. 2 Section 50-10(1) provides: (1) You contravene this subsection if: (a) you advertise that you will provide a tax agent service; and (b) the tax agent service is not a BAS service; and (c) you are not a * registered tax agent; and (d) if the tax agent service would be provided as a legal service--either: (i) you are prohibited, under a * State law or * Territory law that regulates legal practice and the provision of legal services, from providing that tax agent service; or (ii) subject to subsection (3), the service would consist of preparing, or lodging, a return or a statement in the nature of a return; and (e) if the tax agent service would be provided on a voluntary basis--you would not provide the service under a scheme approved by the Commissioner by notice published in the Gazette . Civil penalty: (a) for an individual--50 penalty units; and (b) for a body corporate--250 penalty units. 3 The applicant (the "Board") alleges that the respondent ("Mr Hinckfuss") has contravened ss 50-5(1) and 50-10(1). It seeks declaratory and injunctive relief, pecuniary penalties and costs. Mr Hinckfuss admits 25 contraventions of s 50-5(1), and two contraventions of s 50-10(1). The parties have filed an agreed statement of facts. On that basis Mr Hinckfuss has consented to the making of declarations and the grant of injunctions. I do not understand there to be any dispute concerning the Board's application for costs. The only area of disagreement is as to the amount of any pecuniary penalty. 4 Mr Hinckfuss is about 45 years of age and holds degrees in Commerce and Economics in the University of Queensland. During the 1990s he was employed in accounting firms and qualified as a chartered accountant. Mr Hinckfuss's account of his employment history between the 1990s and 2009 is vague. In 2009, he commenced as a "blue collar" worker at a business called "Kerry's Ingredients". The position was apparently that of process worker. He says that he took this position after he had failed to attract a suitable partner for a proposed business venture. He wanted to discover ways of helping fellow workers by providing them with taxation assistance. Eventually, he commenced to offer assistance in preparing and filing tax returns, including advice as to allowable deductions. Apart from his altruistic motives, he also hoped to earn income from this activity. His provision of such services constituted his contraventions of s 50-5. He circulated leaflets, advertising his services and also distributed his business card. In his leaflets Mr Hinckfuss (described as a "tax guru") claimed that he could obtain deductions of up to $3000. His fellow employees at Kerry's Ingredients were principally members of the Samoan community, as were the Church congregations to whom he also advertised his services. The distribution of these leaflets constitutes the contraventions of s 50-10(1). 5 Mr Hinckfuss accepts that his conduct was contrary to ss 50-5(1) and 50-10(1). He says that he considered that his academic qualifications and experience were sufficient to enable him to provide these services. He now accepts that he should have realized that his conduct was unlawful. 6 The relevant conduct occurred between July 2010 and August 2012. In 2010 Mr Hinckfuss learned that he could not lawfully prepare tax returns for other persons. He says that he immediately ceased preparing tax returns, but commenced to assist taxpayers to prepare requests for amendments to tax returns. He also became an agent for the preparation of Business Activity Statements and investigated the possibility of becoming a tax agent. He claims that he has not made any money personally from the business, and that he never intended to cheat or deceive anybody. All of the income which he has derived has gone towards repaying a loan made by him to a woman who is now his fiancé. 7 Mr Hinckfuss suffers from depression and anxiety and has done so for many years. There is medical support for this claim. He presently owes $140,000 which sum seems not to include the amount owed to his fiancé. He is in receipt of Newstart Allowance of $548.27 per fortnight, and pays rent in the amount of $135 per week, and child support in the amount of $40 a week. He and his ex-wife have two children. They reside with her. He has presented a number of character references, largely from people who have known him for many years, including his fiancé. In a case of this kind, such references are of little assistance. 8 There are circumstances of aggravation. In a number of cases Mr Hinckfuss opened bank accounts in the joint names of himself and a taxpayer to whom he had provided taxation assistance, so that any tax refund could be deposited in the relevant account, allowing him to withdraw his fee. A number of taxpayers were told to advise the Australian Taxation Office that he was a "contact point" but not to say that he was a "tax return person". In connection with the Board's investigation he told a person who was to give evidence that the person should say that he was a bookkeeper. He threatened another "client", saying that he would sue her if she told other people not to use his services. He also asked a client "to tell everyone who wants their extra refunds to call and register" on a particular telephone number. He offered to discount her fees if she referred new clients to him. Some of his "clients" have suffered inconvenience and embarrassment. Some have suffered loss in that they have been subjected to re-assessment by the Commissioner of Taxation, resulting in obligations to pay additional tax and/or penalties. Some of the contraventions involved Mr Hinckfuss's private company "Global Omni Pty Ltd". The Board suggests that this is a circumstance of aggravation, although it has not chosen to charge the company with any contravention of the Act. The matter is, at best, of minimal significance. 9 As I have said, most of the contraventions of s 50-5 involved the provision of services to members of the Samoan community and/or Church groups dominated by members of that community. Mr Hinckfuss accepts that many of those persons were "unsophisticated in financial and taxation affairs". He claims that he was trying to help them. The Board at least implies that he may have been exploiting them. 10 A further complication is Mr Hinckfuss's contraventions of s 50-10. At first blush one might conclude that such conduct was at least as serious as the conduct proscribed by s 50-5, but the maximum penalty is one-fifth of that for a contravention of that section. 11 The relevant taxpayers and details of the alleged contraventions of s 50-5 appear in Schedules A and B to the statement of agreed facts. The basis upon which it is said that there are 25 contraventions is not entirely clear. There has been no real attempt to differentiate the individual contraventions. In principle, individual contraventions should attract individual penalties. However the parties suggest an overall penalty.