I. What was the conduct?
2 On a number of occasions between 13 August 2010 and 23 November 2010 Mr Kim was visited from time to time by unknown persons who asked him to prepare, in total, 79 income tax returns on the basis of information which they provided to him on behalf of identified taxpayers. The unidentified persons who consulted Mr Kim claimed to be acting on behalf of those genuine taxpayers. For the purpose of allowing him to prepare the returns these individuals provided Mr Kim with:
PAYG ('Pay as You Go') payment summaries; and
bank account details.
3 PAYG payment summaries are issued to employees for the purpose of preparing income tax returns. The information shown on these summaries includes the name of the employee, the employee's tax file number, an address, the amount of tax retained from the employee's salary in the relevant financial year and the employer's Australian Business Number. The summary is signed by an 'authorised' person and is dated.
4 Unfortunately for Mr Kim, the summaries which the unidentified individuals provided to him for the 79 income tax returns were false documents and had resulted from an exercise in identity theft. That is to say, the names of the individuals on whose purported behalf the returns were to be prepared belonged to real individuals and the tax file numbers shown for them were the tax file numbers for those individuals. Everything else about the summaries was, however, false. In effect, they recorded bogus amounts of income and tax retained. The amounts of tax recorded as having been retained were sufficiently high in comparison to the gross amount earned that they would guarantee the payment by the Australian Taxation Office ('ATO') of a refund.
5 Perhaps unsurprisingly in that circumstance, the bank account details which were provided to Mr Kim were also false. The identity scam involved was, therefore, straightforward: real identities and tax file numbers were used to submit false tax returns which would then result in the Commissioner of Taxation paying refunds into the bank account details provided, which accounts were maintained by the scammers.
6 The more identities the scammers could obtain refunds for the more lucrative the scam was.
7 It was for this reason, no doubt, that the scammers reckoned that it would be best to lodge a large number of returns through a tax agent. Mr Kim was selected by the scammers as the tool by which this fraud was to be perpetrated. Why he was chosen is not known. Indeed, who the scammers were is not known (I return to the significance of this fact later in these reasons).
8 What is known, however, is that they provided Mr Kim with documents and information about 79 individuals for whom returns were to be lodged and that Mr Kim duly lodged the returns. This did not occur all at once and was spread out over an approximately three month period from 13 August 2010 to 24 November 2010. This involved several visits to Mr Kim by the scammers.
9 There is no dispute that Mr Kim did not meet any of the 79 taxpayers on whose behalf he filed the returns. Further, the scammers did not provide him with any purported written authority from the 79 taxpayers.
10 Indeed, what actually happened between the scammers and Mr Kim is not known. The parties were able to conclude an agreed statement of facts but it only records that 'certain persons attended on the Respondent from time to time and asked him to prepare a large number of income tax returns'. Mr Kim swore two affidavits in the proceedings both of which were in evidence but neither of which tells one very much about what happened. I mention this because the Board submits that, even now, Mr Kim has chosen not to identify the scammers. I have found this a troubling aspect of the matter. It is quite possible that Mr Kim does not know who the scammers are or that the identities they provided to him were false or that their names would have proved no more than a dead end. In that regard, it seems unlikely that individuals perpetrating an identity fraud would use their own names.
11 The Board's submission that Mr Kim had not revealed the name of the scammers was made in writing on 31 October 2014. Mr Kim's responsive submissions were provided to the Court after this occurred so I am satisfied that he has had an opportunity to respond to the argument. It would have been possible for Mr Kim to have put on evidence that he did not know the identity of the scammers but he has not done so. Nor has he submitted that the Board's argument that he has not revealed the identity of the scammers is not correct. In those circumstances, I should accept the Board's submission. I conclude that, for whatever reason, Mr Kim has not revealed the identity of the scammers. This is a matter which is relevant to the extent of his co-operation with the Board.
12 On the other hand, there can be no escaping the implications of the fact that it is accepted by the Board that Mr Kim's conduct was reckless rather than dishonest. I have found the resolution of this aspect of the matter not without difficulty but ultimately I have come to a view that it is logically possible for Mr Kim to have been reckless in what he did rather than dishonest and yet at the same time to have failed to provide the details of the scammers and that this could happen without him being complicit in the scam. One circumstance in which this could occur is where Mr Kim was the victim of a scam perpetrated by people he already knew and whose identities, for whatever reason, he does not now wish to reveal. It is on this basis I propose to proceed.
13 Mr Kim caused the lodgement of the 79 returns through the ATO's electronic lodgement system. For each return Mr Kim completed a declaration that:
(i) the return had been prepared in accordance with information supplied by the taxpayer;
(ii) Mr Kim had received a declaration from the taxpayer stating that the information provided to him was true and correct; and
(iii) he was authorised by the taxpayer to lodge the return on their behalf.
14 It is not in dispute that on all 79 occasions this declaration by Mr Kim was false. The certification process, obviously enough, was a measure directed at ensuring that precisely what happened in this case did not happen. Mr Kim's willingness to make such a false declaration has resulted in substantial loss to the Commonwealth in fraudulently obtained refunds of $245,050.69. In fact, it could have been much worse. The ATO's internal procedures detected irregularities with 39 of the returns and prevented any refund from being paid. Had those 39 refunds not have been stopped another $200,901.88 would have been lost. Mr Kim submitted that account needed to be taken of the fact that the loss had been principally caused by the scammers. The significance of this submission was that his role in the loss needed to be seen as subsidiary. I am disinclined to give this much weight. Undoubtedly, the scammers are serious criminals and their conduct much worse than Mr Kim's. But the whole point of the declarations was to prevent the occurrence of exactly the crimes which were committed. In that context, it does not seem to matter very much that others had engaged in criminal conduct.
15 Mr Kim now admits that he has breached s 50-20 of the Tax Agent Services Act 2009 (Cth) ('the Act') which provides:
'50‑20 Making false or misleading statements
You contravene this section if:
(a) you are a *registered tax agent or BAS agent; and
(b) you:
(i) make a statement to the Commissioner; or
(ii) prepare a statement that you know, or ought reasonably to know, is likely to be made to the Commissioner by an entity; or
(iii) permit or direct an entity to do a thing mentioned in subparagraph (i) or (ii); and
(c) you know, or are reckless as to whether, the statement:
(i) is false, incorrect or misleading in a material particular; or
(ii) omits any matter or thing without which the statement is misleading in a material respect.
Civil penalty:
(a) for an individual - 250 penalty units; and
(b) for a body corporate - 1,250 penalty units.'
16 The Board alleges, and Mr Kim agrees, that he contravened this provision 79 times in relation to the matters he certified because he was reckless as to the truth of what he was certifying. The Board also alleges, and Mr Kim admits, that he was reckless as to the contents of the actual returns themselves, that is, the amounts of income returned and the size of the amounts of tax said to have been withheld. The basis for this admitted allegation was Mr Kim's failure to have any dealings with any of the taxpayers, the excessive size of some of the claims which would have been obvious on inspection and his failure to cross-check any of the information on-line with the ATO through the Tax Agent Portal. Had he done this the falsity of the payment summaries would have been revealed.
17 Section 50-20 is a civil penalty provision. This much is apparent from the fact that it prescribes a civil penalty and is contained in Part 5 which is entitled 'Civil Penalties'. For an individual such as Mr Kim, the penalty is 250 penalty units per contravention. At all relevant times, a penalty unit was set at $110. Since Mr Kim has admitted to 158 separate contraventions the maximum penalty which could be imposed is $4,345,000.
18 Before assessing what an appropriate penalty would be it is necessary to say something more of the circumstances of Mr Kim's contraventions. The first of these relates to his use of the ATO's portal. Throughout the period relevant to these proceedings the ATO operated and managed a web-based database account system named the Tax Agent Portal. This operated from the ATO's website and gave registered tax agents 24 hour on-line access to its information, functions and services. One service which the Portal is able to provide to registered tax agents is what is called a 'pre-filling report'. When such a report was sought by an agent in respect of a particular taxpayer it could provide information about that taxpayer which the ATO had already collected through other means for that particular year. Thus, to give an example, when an employer had deducted income tax by instalments from an employee's salary and paid this to the ATO under a PAYG return, and when that employee's TFN had been provided, then the ATO would have a record of the payment. In the present case this mattered because if Mr Kim had done a pre-filling report for each of the taxpayers it would have indicated to Mr Kim these matters:
(i) the taxpayer's personal details (name, sex, address, etc);
(ii) Australian residency status at the date of the report;
(iii) PAYG payment summary information from employers; and
(iv) the identity of any spouse at the end of preceding financial year and whether a spouse tax offset had been claimed in the previous financial year.
19 Matters (ii) and (iv) are relevant in this case because the 79 returns lodged by Mr Kim included a number of instances of irregular claiming of a spouse tax offset as well as returns filed for persons who had left Australia. In any event, the significance of (ii)-(iv) is essentially the same. If Mr Kim had consulted the Portal he would have seen that these 79 returns could not have been correct.
20 Why did Mr Kim not check the Portal? In his affidavit evidence he says that did not know about the existence of pre-filling reports until a later date when he was first interviewed by an officer of the ATO in relation to the contraventions on 29 March 2011.
21 The Board did not cross-examine Mr Kim to suggest that his evidence about this ought not be accepted. In that circumstance, I propose to proceed on the basis that, for whatever reason, Mr Kim was unaware of the availability of pre-filling reports. There was no material before me about:
whether tax agents are required to know about pre-filling reports;
what steps are taken to inform tax agents of pre-filling reports; or
the steps generally taken to advise the profession about the facilities available to it from the Tax Agent Portal.
22 Despite that, it may be accepted that as a registered taxation agent it was Mr Kim's business to know about the Tax Agent Portal. This is particularly so when pre-filling reports had been available since 30 June 2007.
23 The Board also contended that Mr Kim had made statements in the 79 returns which were incorrect and that he was reckless as to their truth (this was a different allegation to that concerning the false certification). About this there can be no doubt. That the returns contained false information is a necessary corollary of the scam which was being perpetrated by the rogues. Mr Kim did not himself know that the statements in the returns were false. Nevertheless, the Board contended, and Mr Kim agreed, that he had been reckless as to their truth. This recklessness was said by the Board to have three aspects to it:
(i) Mr Kim had failed to make contact with the taxpayers;
(ii) Mr Kim had failed to detect that several of the returns had included claims for amounts of income tax withheld that were much more than would be expected in the case of employees on the specified salary; and
(iii) Mr Kim had failed to avail himself of the resources available at the ATO's website such as pre-filling reports.
24 I accept the Board's contention that Mr Kim was reckless in the way he completed the returns. It was reckless to complete tax returns for people he had not met at the instigation of third parties who proffered no authority to act on behalf of the taxpayers. This was a foolish thing to do.
25 I accept also that it was reckless of Mr Kim not to have checked the Tax Agent Portal. Whilst I accept that he did not know about the Tax Agent Portal, this was quite unacceptable for a registered tax agent.
26 The Board's contention that Mr Kim was reckless because he did not notice that some of the amounts of income tax claimed to be withheld were disproportionate to the salaries earned is on the borderline. The Board's contention was that many of the returns which Mr Kim had filed returned incomes of between $30,000 to $34,000. I accept this submission. The amount of tax which is normally withheld by an employee on that kind of salary is between $3,484 and $4,212. For most of the returns the amount claimed for the tax instalment deductions was between $6,000 and $8,000.
27 The Board's point was that a registered tax agent would know that these amounts were too high and, therefore, that Mr Kim should have realised on first seeing the amounts claimed that something was amiss.
28 Mr Alexander of counsel, who appeared for Mr Kim, submitted that the Board's submission was not so straightforward as it appeared. Although what the Board said about income levels and the amount of tax retained was generally correct it did not follow that it was correct in every case and there could be perfectly legitimate reasons why an individual taxpayer might be claiming what appeared to be excessive amounts of withheld tax. For example, a particular employee might only have worked for part of the year or might not have quoted a tax file number.
29 Whilst I accept the point being made, I do not think it detracts from the Board's argument. Its point is partly based on the number of returns being filed which exhibited this feature. One or two returns having this feature could well be legitimate and a mere coincidence. Seventy nine such returns is, however, a different matter altogether.
30 By itself, I would still not conclude that this was sufficient to constitute recklessness. However, combined with Mr Kim's failure actually to meet any of the taxpayers it contributes to an overall conclusion of recklessness.
31 The finding I make therefore is that Mr Kim did make statements in the 79 returns which were false. Further, I find that he made them reckless as to their truth. He was reckless because he did not meet the taxpayers, because the amounts being claimed for tax withheld were, viewed globally, obviously too high and because he did not consult the Tax Agent Portal.
32 I therefore accept the Board's submission that Mr Kim has contravened s 50-20 158 times - one contravention for each of the 79 returns relating to his false certification and one contravention for each of the 79 returns relating to false information contained in the returns.