THE ATO AND THE BOARD INVESTIGATE MR SU'S PRACTICE; HIS REGISTRATION IS TERMINATED AND A PENALTY IS IMPOSED

1. In September 2011 the ATO commenced an investigation in relation to tax returns lodged by Mr Su. In January 2013 the Board commenced its own investigation, focusing on whether Mr Su's conduct breached the Tax Agents Services Act 2009 (TAS Act).
2. In August 2013 the Board wrote to Mr Su to inform him that it had completed its investigation. It notified him that it had decided to terminate his registration as a tax agent; that it had determined that he would not be permitted to apply for registration as a tax agent for a period of three years; and that it would be applying to the Federal Court for payment of a pecuniary penalty in respect of various contraventions of the TAS Act.
3. The pecuniary penalty proceedings were heard by the Federal Court in June 2014. On 10 July 2014 Jagot J imposed a penalty of $70,000 on Mr Su for 50 contraventions of the TAS Act: Tax Practitioners Board v Su [2014] FCA 731.

1. The reasons given by the Board for terminating Mr Su's registration as a tax agent and imposing a non-application period of three years include that Mr Su breached various sections of the TAS Act and that the Board was not satisfied that Mr Su is a fit and proper person to be a tax agent.
2. Specifically, the Board considered that Mr Su had breached four provisions of the Code of Professional Conduct (the Code) set out in s 30-10 of the TAS Act, namely:
   • s 30-10(1) - that he failed to act honestly and with integrity;
   • s 30-10(7) - that he failed to provide his services competently;
   • s 30-10(9) - that he failed to take reasonable care in establishing his clients' true circumstances; and
   • s 30-10(12) - that he failed to advise clients of their rights and obligations under the relevant laws.
3. The Board also formed the view that Mr Su had breached s 50-20 of the TAS Act by making a false and misleading statement to the ATO.
4. The Board terminated Mr Su's registration under s 40-5 and rejected his application for renewal of his registration under s 20-25 of the TAS Act. Having terminated Mr Su's registration, the Board was empowered under s 40-25(1) to determine a period, of not more than 5 years, during which he was not permitted to apply for registration. Under this provision it determined a non-application period of three years.
5. Mr Su does not dispute the findings of the Board or its decision to terminate his registration as a tax agent. He only disputes the length of the non-application period on the basis that it is excessive.

WHY DOES MR SU SAY THAT THE NON-APPLICATION PERIOD IS EXCESSIVE?

1. Mr Su submits that the imposition of a non-application period of three years is disproportionate to his offending conduct. He says it is so great as to crush him, particularly given that he has already had a $70,000 pecuniary penalty imposed upon him by the Federal Court. He acknowledges that his conduct was reckless but notes that it took place over a short period of time in circumstances where the intermediaries were engaging in fraudulent conduct. Further, he feels that as he has received a pecuniary penalty and admitted his wrongdoing, any further penalty or punishment should be a modest one.
2. Mr Su notes that he has modified his work practices. He now ensures that he identifies all new clients by insisting that they attend his premises so he can meet them face-to-face. He requires them to produce at least one piece of photo identification such as a passport, drivers licence or government or student identification card. He requires, in addition to that, at least one other identification document such as a prior year notice of assessment from the ATO, a birth certificate, Medicare card or a recent bank statement. He says that he seeks information relating to their residency status for tax purposes and he also asks them for their tax file number so that he can access the ATO portal to verify the information he has been given. He is now confident that his revised work practices will either reduce or eliminate the likelihood of a recurrence of what happened in 2011.

1. We consider that there are four broad reasons why the Board's decision to impose a three-year non-application period is the appropriate decision.
2. The first is Mr Su's unsatisfactory understanding of the role of a tax agent.
3. In formulating his revised work practices, he has focused on the process of satisfying himself as to the identity of any new clients. However, he provides us with no acknowledgement of the importance of testing and confirming the financial information that his clients provide to him. What his behaviour in 2011 shows is that he was content, without meaningful enquiry, to lodge returns declaring modest salary or wage income, claiming disproportionately large tax instalments deducted, and resulting in relatively large tax refunds. Whatever enquiries he made of the intermediaries were hopelessly inadequate. He allowed himself to be used as a mere conduit for the provision of inaccurate information to the ATO.
4. The Board, the ATO and the public expect more than that from a tax agent. The self-assessment tax system requires accurate information to be provided to the ATO. It requires tax agents to do all they can to ensure that the information their clients provide is accurate. From time to time they need to ask their clients hard questions. They need to scrutinise the answers and form a professional judgement as to whether what they are being told is reliable. There is no room in the system for tax agents who do not understand these simple but fundamental propositions.
5. The second reason is the perceived shortcoming in Mr Su's integrity.
6. During the hearing Mr Su claimed, for the first time, that the intermediaries had provided him with information about a further 50 tax returns, in addition to the 164 that he had lodged. He said that he had asked for further information from Mr Rahman about these returns because by then his suspicions had been aroused. He said that Mr Rahman took the enquiries on board and indicated that he would provide the information Mr Su had requested. As it turned out, Mr Rahman did not respond to the enquiries. He and the other intermediaries appear to have vanished at that point.
7. Mr Su gave no satisfactory explanation for his not having volunteered this information before. Significantly, he said he had "deleted" the information he had been given about these additional 50 returns. It was unclear whether he meant that he had physically wiped the material from his computer system or that he had disposed of hard-copy material that Mr Rahman had given him. But there is no doubt that he had not previously brought these claims to the attention of the ATO or the Board.
8. This was vital information for both agencies. For the ATO it meant that other taxpayers were potentially having their affairs interfered with. And the Board may well have wanted to issue an alert to other tax agents to be on guard against this sort of behaviour. Mr Su now seeks to present his approach as a praiseworthy one, in that he prevented further rorting of the system. However, Mr Su told us that the reason for deleting the information was that he was reluctant to get involved in case the activities were fraudulent. In truth, his failure to notify the authorities suggests that he considered the protection of his own position to be more important than the protection of the integrity of the system.
9. We were also troubled by the evidence Mr Su gave about how he charged for the lodgement of the 164 tax returns. He had told the ATO compliance officer that his normal fee for a tax return was $60, but that he charged $120 to cover what was described as a "referral fee". We found that difficult to understand, and so we asked him to explain the arrangement. He said that in fact he did not always charge $120, but the broad thrust of the arrangement was that he provided an invoice to the intermediary for, say, $100 or $120. The intermediary would pay him $60 or $80 and Mr Su would accept that amount in full satisfaction of the debt. His understanding was that the intermediary would then provide the invoice to the client and receive the full amount.
10. Of course we now know there would have been no interaction between the intermediary and the "client", but Mr Su did not know that at the time. What should have occurred to him is that he was arming the intermediary with a document that would enable the "client" to be duped into thinking that he or she was being charged $120 for the lodgement of a tax return - a service that Mr Su was really only valuing at $60 or $80. Why he saw nothing wrong with that remains a mystery to us.
11. We were confused by some of his explanations to such an extent that it became necessary to ask whether he had issued recipient-created tax invoices relating to the transactions with the intermediaries. He initially answered that he had. When he was then asked if he knew what a recipient-created tax invoice was, he was unable to explain the concept. That brief exchange created some uncertainty as to whether the answers he provided in the hearing were always reliable, even if honestly given.
12. The third reason is that we have some concerns over Mr Su's competence as a tax agent.
13. He emphasises that the conduct of the intermediaries was fraudulent, and it was, but he fails to acknowledge that their enterprise succeeded only because his actions demonstrated either a lack of diligence or a lack of competence. The Board thought the latter, noting in its letter to Mr Su dated 5 August 2013 (T50) that the returns he had lodged included "excessive claims for work related expense deductions and there did not appear to be a nexus between some of the taxpayers' employment and the deductions claimed", and that "the nature of such claims demonstrated a lack of knowledge of basic work related expense deduction claims". Mr Su did not address these concerns either in his affidavit or in his oral submissions to the Tribunal.
14. The fourth reason is his lack of insight into the seriousness of the shortcomings in his behaviour.
15. He referred us to earlier decisions of the Tribunal, Re Li and Tax Practitioners Board [2014] AATA 299 and Re Tung and Tax Practitioners Board [2012] AATA 615, pointing out that those two practitioners "didn't stop like I did".
16. Mr Li (who had been targeted by the same group of rogues as Mr Su) lodged 454 tax returns, of which 60 were intercepted by the ATO for review and ultimately not processed. Other than the number of returns involved, Mr Su's circumstances are relevantly identical to those of Mr Li.
17. Mr Su's performance as a registered tax agent has been comprehensively unsatisfactory. It is unfortunate that he fails to acknowledge that. Mr Su says he has admitted his wrongdoing, and he has not disputed the events as found by the Board. However, Mr Su does not appear to understand the full extent of where, how and why his actions were below the standards expected of a tax agent. When asked what he would do differently he said he would check the identity of clients better. He made no reference to any other matters such as taking action to notify the ATO about the existence of the 50 additional returns not lodged prior to deleting the information, asking questions to ensure there was an adequate connection between expenses and employment, and improving his knowledge in areas such as work related expense deduction claims.
18. The primary purpose of not permitting a person to apply for registration for a period of time is to protect the public and the integrity of the tax system. Whilst Mr Su may see the period of three years as further punishment for his actions, that is not its purpose. It is to protect the public, and the taxation system, from further harm. Mr Su needs time to develop an improved level of integrity and competence, without which he will find it difficult to satisfy the Board that he should once again be registered as a tax agent. Given the extent to which he has fallen short of expected standards, a reasonably lengthy non-application period is warranted.

1. In the circumstances, we consider that Mr Su should not be permitted to apply for registration as a tax agent for a period of three years from 9 September 2013.
2. The Board's decision is affirmed.

I certify that the preceding 44 (forty -four) paragraphs are a true copy of the reasons for the decision herein of Deputy President S E Frost and Mr N Gaudion, Member.

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