Tax Practitioners Board v Ordiales

THE COURT DECLARES THAT:

1. On each occasion specified in Schedule A of the Amended Statement of Agreed Facts dated 31 October 2022 and filed in this proceeding, the respondent contravened section 50-5(1) of the Tax Agent Services Act 2009 (Cth) (Act) by preparing and lodging income tax returns for taxpayers, being the provision of a tax agent service, for a fee or other reward, whilst not a registered tax agent within the meaning of the Act.

THE COURT ORDERS THAT:

1. In respect of each of the 636 contravention, there be a penalty of $236 per contravention imposed, with a total penalty thereof $150,096 (pecuniary penalty).
2. The respondent pay the pecuniary penalty to the Commissioner of Taxation of the Commonwealth of Australia, on behalf of the Commonwealth of Australia.
3. Pursuant to section 70-5(1) of the Act, the respondent be permanently restrained from providing tax agent services (as defined in the Act) for a fee or other reward, whilst not a registered tax agent within the meaning of the Act. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

LOGAN J: 1 Ms Franibelle Saludo Ordiales (Ms Ordiales) is a migrant to Australia from the Philippines. She is an educated woman of obvious intelligence. She received a tertiary education at university in the Philippines. She came to Australia lawfully in 2004. Unfortunately, her marriage broke down after her arrival in Australia. She separated from her husband in 2006 in circumstances which, so she stated in evidence, occurred against a background of domestic violence. She was left as a sole parent without the benefit of paid child support to bring up three children. She is now in middle age with adult children. She works more than one job to support herself and also to continue supporting her children. It was so very evident in the course of the oral evidence which she gave that she sees that support as part of, if not central to, her life. 2 The occasion for Ms Ordiales coming before the court arises from her acknowledged contravention of the Tax Agent Services Act 2009 (Cth) (the Act). She admits to contravening s 50-5(1) of that Act. The essence of the contraventions arises from her facilitation of the lodgement of taxation returns and related preparation thereof for various clients in circumstances where she was not a registered tax agent. There are no less than 636 such occasions. The lodgement occurred via Ms Ordiales having prepared for a given client a taxation return, then assisting that client in the personal lodgement, via the Australian Government's "myGov" internet website portal, of their personal tax return. The circumstances and the numerous occasions relating to the contraventions are more particularly described in an agreed statement of facts which has been tendered by the Board and is admissible pursuant to s 191 of the Evidence Act 1995 (Cth). 3 Ms Ordiales received amounts in respect of the provision of this service. Those amounts are as detailed in a schedule to the agreed statement of facts. In themselves and viewed in isolation, the amounts received are relatively modest - $50 in some instances, $75 in another, $100 in another and so on. In total though, the amounts received come to $48,865. This amount was received in respect of services provided over a period somewhat in excess of three years - from 4 July 2018 to 6 September 2021. 4 Section 50-5(1)(a), (c) and (d) provides materially that a person contravenes that subsection if the person: (a) you provide a service that you know, or ought reasonably to know, is a * tax agent service; and (b) … (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; … 5 There are certain exclusions not material to the present case applicable to that general position. 6 In respect of an individual, a contravention of s 50-5(1) carries with it a maximum penalty for an individual of 250 penalty units. Regard to s 4AA of the Crimes Act 1914 (Cth), discloses that over the period in question, the amount of a penalty unit has varied from $210 to $222. 7 There is a history which is necessary to relate which anti-dates the period which falls for consideration in relation to the contraventions. That history commences with conduct of a similar kind engaged in by Ms Ordiales. This saw her contacted on 12 May 2010 by an officer of the Tax Practitioners Board (the Board) by telephone. During that conversation, that officer informed Ms Ordiales that the Board had received information from a number of individual tax payers indicating that each paid a fee to her for preparing and lodging income tax returns on their behalf with the Australian Taxation Office (ATO). The officer also informed Ms Ordiales that it is unlawful for a unregistered person - in other words, a person not registered as a tax agent - to provide such a service for a fee or other reward, and that such conduct might result in liability to a penalty. 8 In the course of that conversation, and as Ms Ordiales has admitted, she stated, amongst other things, that she had only prepared and lodged income tax returns for some 20 to 30 individuals who were personal family members or friends. She prepared and lodged such returns for individuals electronically on her laptop computer using her own internet access, and she had never requested or received payment or fees from any individuals for preparing or lodging tax returns, even though those individuals would insist on paying amounts to her for those services. She stated that when she prepared such a tax return for an individual client, she would rely on instructions from them on what amounts to claim and advised them that if the tax officer audited their return and found it to be incorrect, that it was the fault of the client and that she had no intention of preparing and lodging further income tax returns for tax payers in the future. 9 On or about that same date, Ms Ordiales sent a letter which is notably addressed to the ATO, but was nonetheless sent to the Board dated 12 May 2010 in which she stated she had knowledge of how to prepare and lodge an income tax return because she had completed a bachelors degree in commerce with a major in accounting overseas, and attended a tax preparation course conducted by H&R Block, that she did not lodge returns for any taxpayers, but provided services to them as favours after request and either did not receive payments or returned them, that before lodging the returns she informed the taxpayer she was not a registered tax agent, and that she had no intention of preparing or lodging returns for a taxpayer in the future. She enclosed with her letter a list of the names and addresses of 35 taxpayers for whom she had prepared and lodged returns. 10 Later that month, from 27 May 2010 or thereabouts, Ms Ordiales was informed by an officer of the Board during a discussion with her that the Board had received information from 28 individual taxpayers, each of whom had stated that they had paid a fee to her for preparing and lodging tax returns on their behalf with the tax office. During this discussion, the Board's officer reminded Ms Ordiales that it was unlawful for a person who was not registered as a tax agent to prepare and lodge returns for a fee. 11 It is evident enough from the facts, as recited, that the Board's attempt to bring home by administrative intervention the statutory prohibition found in the Act was not adhered to by Ms Ordiales. 12 For the purposes of s 50-5 and otherwise in the Act, a tax agent service is defined by s 90-1 and, in turn, s 90-5, and that provides: s 90-5 Meaning of tax agent service (1) A tax agent service is any service: (a) that relates to: (i) ascertaining liabilities, obligations or entitlements of an entity that arise, or could arise, under a *taxation law; or (ii) advising an entity about liabilities, obligations or entitlements of the entity or another entity that arise, or could arise, under a taxation law; or (iii) representing an entity in their dealings with the Commissioner; and (b) that is provided in circumstances where the entity can reasonably be expected to rely on the service for either or both of the following purposes: (i) to satisfy liabilities or obligations that arise, or could arise, under a taxation law; (ii) to claim entitlements that arise, or could arise, under a taxation law. (2) A service specified in the regulations for the purposes of this subsection is not a tax agent service. Note: For specification by class, see subsection 13(3) of the Legislation Act 2003. 13 The tax agent service here, on the evidence, is multifactorial in that it entails ascertaining of liabilities and entitlements under a taxation law, related advice and facilitation of lodgement. Ms Ordiales has not directly represented any of the clients in dealing with the Commissioner of Taxation, but she has facilitated those persons in their dealings via lodgement of tax returns with the Commissioner. She has admitted that she knew, on each occasion and so doing, that she was not registered. Further, on the admitted facts, I am well satisfied that the clients could at least reasonably be expected to rely on the service provided to satisfy liabilities or obligations under a taxation law or to claim entitlements under such a law or both. 14 It does not seem to me to take Ms Ordiales outside the ambit of the definition of "tax agent service" in the circumstances to which she has admitted that the physical lodgement of the return across the MyGov portal was undertaken by the client directly. The anterior services provided and the facilitation of the lodgement were in the circumstances admitted within the definition of tax agent service. 15 Ms Ordiales appeared on her own behalf at today's hearing. She had not, although directions made provisions for the same, provided any affidavit evidence in respect of her personal circumstances. It became very obvious in the course of the hearing that the interests of justice required her being given an opportunity to provide oral evidence on that subject. Upon her giving oral evidence, she gave particulars of her taxable income for the financial year ended 30 June 2022, her gross and net of tax fortnightly income and her savings, each as estimated by her and confirmed in writing in a document signed by her which became Exhibit 1 in the proceedings. She expressed, in the course of her evidence, a willingness to furnish documentary supporting evidence in respect of her estimates. In turn, I offered the Board the opportunity of an adjournment so as to permit the Board, if so disposed, to check the information provided and to obtain Ms Ordiales' the documentary evidence which she volunteered to give. As it transpired, the Board did not consider it necessary to avail itself of such an adjournment. 16 The details which Ms Ordiales provided were as follows. Her estimated taxable income for the last financial year was $53,000. Her estimated gross fortnightly income is between $1,900 and $2,000. Her estimated fortnightly income net of tax is $1,498. Her present savings are $300. She has no credit cards. She lives in shared rental accommodation. Her children now, as mentioned, are adults and do not live with her. She does, however, remain close to her children and supports them as best she can from the jobs which she works. 17 It is necessary to say "jobs" in the plural because she pursues more than one job. Having seen and heard Ms Ordiales, I suspect, strongly, that she is capable of higher-level employment if only she had the opportunity. There is not a hint at all in the evidence that any of her clients suffered adverse outcomes in their dealing with the ATO following lodgement of their tax returns as prepared and facilitated by Ms Ordiales. For all that, there are multiple contraventions over a prolonged period. Further, in themselves and as I have mentioned, although the amounts paid are modest indeed, in total, the sum received cannot be dismissed as trifling. 18 Ms Ordiales related in evidence that cultural considerations arising from the closeness of a Filipino-Australian expatriate community intruded into her coming to prepare for fellow members of that community and others by word of mouth that the returns in question. I have no doubt at all that that evidence was honestly given. Nor do I doubt the very real sense of obligation which can attend a well-educated member of that community in relationships with other members of that community who may not be either as well educated or have the length of association with Australia as does Ms Ordiales. I can also, and do, well understand how persons who have received the benefit of such a service might feel under a sense of obligation to provide some modest reward for the provision of that service. That is not to excuse the contravening conduct, only to understand a context in which it occurred. 19 It seems to me inherently likely that the circumstances in which Ms Ordiales found herself will not be unique. One of the great features of modern Australia is its diversity of population. Australia has been enriched by that diversity. 20 With that though comes many challenges of assimilation into a culture of British heritage and a British heritage legal system. It is only natural in such circumstances that communities from particular overseas backgrounds will draw together and seek to help one another and also look to those with the benefit of higher education and greater experience for assistance. 21 Yet another feature of this case is a sense, so very real on observing Ms Ordiales in evidence, of familial obligation as between a single mother and children, even in adulthood. 22 All of these considerations, personal and financial, are relevant in relation to the imposition of penalty, but they are far from determinative. 23 Whether any doubt on the subject of the object of a civil penalty regime, and one might respectfully doubt whether there was in principle any occasion for prior doubt, that doubt was resoundingly put to rest in a unanimous judgment of six members of the High Court in Australian Building and Construction Commissioner v Pattinson (2022) 96 ALJR 426 (Pattinson). As is made pellucid in the joint judgment in Pattinson, the principal, if not only, purpose of a civil penalty regime is to ensure by general deterrence conformity with the conduct ordained by Parliament under sanction of civil penalty imposition for contravention. 24 I was taken in submissions to a number of cases where the subject of the imposition of civil penalties in respect of contraventions of the Act had fallen for consideration in this Court. Those cases were, however, decided prior to Pattinson and they must therefore be viewed with a degree of caution. 25 Moreover, although I have, nonetheless, had regard to them, I remind myself that they were decided against different circumstances and the task, in any event, is not one of comparing and contrasting but, rather, determining the appropriate penalty in the circumstances of the present case, having regard to the maximum penalty for which Parliament has provided. 26 That maximum penalty in the circumstances of the present case is truly staggering. A process of mathematics whereby one multiplies even the earlier applicable penalty unit of $210 by 250, the prescribed number of penalty units for a transgression of s 50-5(1) of the Act, by 636, yields a sum of $33,390,000. 27 The Board did not submit that anything approaching such a penalty was apt. The Board submitted that an approach to penalisation might be to impose a penalty of $500 per contravention as a starting point, and then to discount that, having regard to course of conduct and totality principles as well as the degree of cooperation by Ms Ordiales with the Board. Such factors are relevant. 28 In the end, the case, as with any penalisation case, is one of what has been termed "instinctive synthesis." 29 As to individual financial circumstances, I was aptly taken by Ms Freeman of counsel on behalf of the Board, to an observation made by the Full Court in a civil penalty case arising under the then Trade Practices Act 1974 (Cth), namely Australian Competition and Consumer Commission v High Adventure Pty Limited [2006] ATPR 42-091 (High Adventure), at [11], where the Full Court stated: 11 The second observation is that by focusing on the detriment to the respondents the judge ignored both the seriousness of the contravention as well as the need to fix upon an appropriate penalty by reference to the need to deter future contraventions. As the cases to which the judge was referred show, the principal, if not the sole, purpose for the imposition of penalties for a contravention of the antitrust provisions in Part IV is deterrence, both specific and general. This rule is so well entrenched that citation of authority is unnecessary. Moreover, as deterrence (especially general deterrence) is the primary purpose lying behind the penalty regime, there inevitably will be cases where the penalty that must be imposed will be higher, perhaps even considerably higher, than the penalty that would otherwise be imposed on a particular offender if one were to have regard only to the circumstances of that offender. In some cases the penalty may be so high that the offender will become insolvent. That possibility must not prevent the Court from doing its duty for otherwise the important object of general deterrence will be undermined. I shall return to the subject of Ms Ordiales' circumstances and how they might be considered under our law, a little later in these reasons for judgment. 30 There is, on any view, a course of conduct disclosed or revealed by the agreed facts. The Act does not, as for example does the Fair Work Act 2009 (Cth), contain particular provision in relation to the interplay between a revealed course of conduct and penalisation. That does not mean that the imposition of civil penalty is unaffected by a revealed course of conduct. There is a common law sentencing principle which is applicable. Of course, as is made evident in Pattinson, one does not uncritically transpose principles from the criminal sentencing process into the imposition of civil penalty process, but the course of conduct principle is one for which that is authority as to its transposition. That is revealed by a summary offered by the Full Court in Australian Building and Construction Commissioner v Construction, Forestry, Maritime, Mining and Energy Union (The Nine Brisbane Sites Appeal) (2019) 269 FCR 262, at [124]. In that case, and by reference to Transport Workers' Union of Australia v Registered Organisations Commissioner (No 2) (2018) 363 ALR 464, at [84] - [91], the Full Court stated: 124 In Transport Workers' Union of Australia v Registered Organisations Commissioner (No 2) (2018) 267 FCR 40 at [84]-[91], the Full Court, referring to other judgments of the Full Court, considered the application of the course of conduct principle in the assessment of pecuniary penalties. The principles include the following: (1) The purpose of the common law course of conduct principle is to ensure that, having regard to the circumstances (factual and legal), a party is not penalised more than once for the same conduct. (2) That phrase should not simplistically be adopted to transfer multiple contraventions into one contravention, or, necessarily, to impose one penalty by reference to one maximum amount. (3) The principle cannot, of itself, operate as a de facto limit on the penalty to be imposed. (4) The application of the principle must be informed by the particular legislative provisions relevant to the proceedings. In particular, weight must be given to the fact that the legislature has deliberately and explicitly created separate contraventions for each relevant action. (5) The application and utility of the principle must be tailored to the circumstances. (6) A judge is not obliged to apply the principle if the resulting penalty fails to reflect the seriousness of contraventions. (7) The task is to evaluate the conduct and its course and assess what penalty is, or penalties are, appropriate for the contraventions. (8) It is necessary to examine all the conduct and enquire how its course and its explanation factually and legally informs the imposition of penalties, in order to avoid double punishment. [see Construction, Forestry, Maritime, Mining and Energy Union v Australian Building and Construction Commissioner (The Non-Indemnification Personal Payment Case) (2018) 264 FCR 155 at [31]; Australian Competition and Consumer Commission v Yazaki Corporation (2018) 262 FCR 243 at [231]-[236]; Construction, Forestry, Mining and Energy Union v Williams (2009) 191 IR 445; 262 ALR 417 at [16]-[19]; Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2017) 254 FCR 68 at [148].] 31 It is a moot point as to how one might characterise the course of conduct here. It was put to me on behalf of the Board that multiple lodgements on a given day might be regarded as one course of conduct, but individual contraventions on other days should not be assimilated. I am not persuaded that that is an apt characterisation. It seems to me, here, that there is an ongoing course of conduct over three years. 32 There is no doubt at all that the prior warning, appropriately given in the course of good public administration by the Board and its lack of assimilation by Ms Ordiales is an aggravating factor. Equally, Ms Ordiales' cooperation in the present proceedings has been fulsome and given early. It has resulted in an absence of any need further to disturb the lives and equanimity of the many clients by their being required to give evidence in a civil penalty proceeding. Indeed, even getting to the point of their being disposed to give evidence, may have presented challenges for the Board and those acting for the Board. All of this, plus in prospect a lengthy trial, has been obviated by Ms Ordiales' cooperation. I take this also into account. In terms of general deterrence, an approach must be to fix penalty at a level which makes it a form of economic suicide to engage in contravening conduct. 33 The conduct here, whilst obviously not impossible of detection, nonetheless would require a considerable investment of public resources in the Board, in the form of greater monitoring staff, readily to bring to light. Thus, the Australian taxpayer, through consolidated revenue investment in the Board's operations, relies on voluntary compliance to a great degree. That serves to underscore the emphatic need for general deterrence where cases of contravention come to the attention of the Court. 34 Having regard to the amounts received in individual cases, a penalty per contravention of $500 as promoted by the Board is, certainly, a reasonable starting point. It makes the level of penalty in each instance, relative to the amount received, a form of economic suicide. Extrapolated across the number of contraventions, that yields a total penalty sum somewhat in excess of $300,000. Impressionistically and applying the totality principle as well as taking into account credit which must be given for cooperation, that sum seems to me to be excessive. It also seems to me to be excessive by reference to the course of conduct that is a feature of the case. 35 In my view, applying all of those considerations in this instance, in terms of totality of outcome. I have in mind imposing a penalty per contravention of $236 such that the total penalty is $150,096. Individually, and in terms of aggregate outcome, these seem to me to yield a sum which, having regard to the conduct, still sends a message of general deterrence. Each individual penalty is far in excess of any individual sum received and the totality of penalty, relative to the total amount received, is far in excess of that. The level of penalisation indicates that to engage in the conduct, even for modest reward, is to engage in a form of economic suicide. The penalty overall is one which, in my view, serves the object of general deterrence as is applicable in the circumstances of the individual case. 36 I am so very aware that to impose a penalty of this amount is a particular hardship on Ms Ordiales. I doubt whether, with the best will in the world, it would be within her ability to repay the sum, absent some windfall gain within her lifetime, but I consider myself bound by the observations made by the Full Court in High Adventure to impose a penalty in those individual amounts and in that total amount. It is within the remit of his Excellency The Governor General, on advice from the Attorney General, to exercise, if so disposed, the Royal prerogative of mercy by way of remission in whole or in part of penalty. Ms Ordiales - and this is no criticism of her - is ignorant of the existence of such a feature in our law. 37 I consider it necessary, in the interests of justice, in this case to direct the Board to draw the Court's order and reasons for judgment and so such other materials as the Board may consider appropriate in respect of materials filed and relied upon sentencing to the attention of the Attorney General, for consideration as to whether the Attorney would be disposed to make a recommendation in respect of remission to the Governor General. I have never made such an order before. I do consider that it lies within the power of the Court under s 23 of the Federal Court of Australia Act 1976 (Cth) to make such an order. It became obvious in the course of this hearing that it was desirable that the subject at least be raised. It is not for the Court to deal with questions of remission, only to impose a sentence according to law in the circumstances of the case. I make it plain I have not taken into account in any way, shape or form remission in fixing what I regard as an apt penalty in respect of the conduct revealed by admission. 38 The Board has also sought a permanent injunction restraining Ms Ordiales from engaging in further such conduct. Given that informal administrative measures did not prove successful, I am well persuaded that the case is an apt one for the granting of the injunctive relief sought by the Board. The Court has power to impose an injunction where a contravention is revealed: see s 70-5 of the Act. I note that the Board, as a matter of deliberate and, with respect, humane value judgment, has decided not to seek an order for costs. That policy position may well be relevant in relation to any remission and the evident motivation for it may well be relevant in relation to other exercises of what one might term "executive clemency". 39 I have in the course of the hearing made it plain to Ms Ordiales that the consequence of a transgression of an injunction without reasonable excuse may well be imprisonment. She indicated that she understood this. Further, she supported the granting of an injunction. 40 For these reasons, there will in respect of each of the 636 contraventions be a penalty of $236, with a total penalty thereof to be paid by Ms Ordiales of $150,096. The case is one where there is a strong public interest in the granting of the declaratory relief sought as to the contraventions. I, therefore, make a declaration in terms of the draft. I impose the penalties indicated, and I grant the injunction in terms of the draft. 41 I add, that I did raise the subject of whether there was any point in granting payment by instalments. Ms Ordiales stated as well one might, that even a modest instalment programme over a number of years would be difficult, if not impossible for her to meet. Neither she, nor the Board pressed for order for any payment by instalments. I do not consider it appropriate to make such an order. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Logan.