Tax Practitioners Board v Van Stroe

THE COURT ORDERS THAT:

1. Pursuant to s 50-35(2) of the TAS Act, for the civil contraventions referred to in the Declaration, the respondent is to pay pecuniary penalties to the Commonwealth in the total sum of $230,000.
2. The respondent to pay the applicant's costs, including reserved costs, to be taxed on a party and party basis if not agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

BANKS-SMITH J: 1 In Tax Practitioners Board v Van Stroe [2022] FCA 482, I made a declaration to the effect that on 531 separate occasions Ms Van Stroe contravened s 50-5(1) of the Tax Agent Services Act 2009 (Cth) (TAS Act) by preparing and lodging income tax returns for taxpayers, being the provision of a tax agent service, for a fee or other reward, while not a registered tax agent. 2 I also granted an injunction permanently restraining Ms Van Stroe from providing tax agent services whilst not a registered tax agent within the meaning of the TAS Act. 3 The relief was granted after a liability hearing at which only the Tax Practitioners Board appeared. Despite being served with notice of the liability hearing, Ms Van Stroe did not appear and did not seek to file any evidence or submissions. I allowed the Board's application for default judgment. 4 The question of civil penalty was deferred to a separate penalty hearing. 5 Ms Van Stroe was notified of the date of the penalty hearing, but similarly did not appear and did not seek to file any evidence or submissions.

Facts 6 From at least 2017, the Board received a number of referrals about the conduct of Ms Van Stroe in relation to providing tax agent services for a fee, despite not being a registered tax agent. 7 On 8 March 2018 the Board issued a letter to Ms Van Stroe (then known as Ms Layola) informing her that the Board was concerned with her conduct as an unregistered tax agent. In the letter the Board notified her of the civil penalty provisions under s 50-5 of the TAS Act and that the Board would not hesitate to apply to the Court for the imposition of civil penalties if it received information in the future that she was continuing to provide tax agent services for a fee or other reward. 8 A schedule to the claim relied upon for the purpose of the first hearing set out particulars of each of 531 alleged contraventions of the TAS Act by Ms Van Stroe. It also provided details of each taxpayer who received services from Ms Van Stroe, the date and amount of payment to her, and the date the taxpayer's income tax return was lodged with the Australian Taxation Office (ATO). 9 A number of taxpayers provided affidavit evidence as to their dealings with Ms Van Stroe. I accept the Board's submission that those taxpayer affidavits evince a pattern of behaviour indicative of a deliberate attempt to engage in a profit-making scheme in circumstances where Ms Van Stroe was operating outside the regulatory framework for a number of years. Her usual practice was to meet with a taxpayer who had heard of her services through word of mouth and came to meet with her at a specified address. Ms Van Stroe would access their MyGov accounts with them, and then complete details for their tax return. She did not take steps to confirm that information included in the tax returns was supported or substantiated by reliable documentary evidence. She generally charged $180 for her services. The affidavits provide examples where false income tax deductions were not brought to the attention of the relevant taxpayer. Further, the evidence indicates that at least seven of the deponents of taxpayer affidavits were subject to an audit by the ATO, with an administrative penalty being imposed on six of those taxpayers. 10 The 531 contraventions the subject of the declaration all occurred after the Board sent the letter of 8 March 2018 to Ms Van Stroe. They occurred during the period 1 July 2020 to 16 August 2021. 11 The Board's investigation reveal that Ms Van Stroe earned some $99,590 from taxpayers in relation to the conduct. 12 As Ms Van Stroe did not participate in the proceeding, the Court has no relevant information from her as to the circumstances of the contraventions, her financial position or any otherwise mitigating factors.

Relevant statutory provisions - penalty 13 I set out in my earlier reasons the statutory regime in force, but will repeat here those provisions of particular relevance to the imposition of a penalty. 14 Section 50-5 of the TAS Act provides: Providing tax agent services if unregistered (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 or a *tax (financial) advice 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. … 15 Section 50-35(2) of the TAS Act provides: Federal Court may order you to pay a pecuniary penalty for contravening a civil penalty provision … Court may order you to pay pecuniary penalty (2) If the Federal Court is satisfied that you have contravened a civil penalty provision, the Federal Court may order you to pay to the Commonwealth, for each contravention, the pecuniary penalty that the Federal Court determines is appropriate (but not more than the maximum amount specified for the provision). 16 The maximum amount specified for a contravention of s 50-5(1), having regard to s 50-35(2), is 250 penalty units, which, having regard to the applicable penalty unit of $222 for the relevant period, equates to $55,500 for each contravention. There was sensibly no suggestion that a penalty of anywhere near that amount per contravention should be imposed. 17 Rather, the Board submitted that the cumulative appropriate penalty to be imposed on Ms Van Stroe is in the range of $350,000 to $400,000 to be separately apportioned to each individual contravention. This would notionally equate to some $660 to $750 per contravention.

Principles 18 The object of the TAS Act is to ensure that tax agent services are provided to the public in accordance with appropriate standards of professional and ethical conduct: s 2-5 of the TAS Act. As to s 50-5, as explained recently by Charlesworth J in Tax Practitioners Board v Williams [2023] FCA 63: [12] The importance of s 50-5 hardly needs stating. The prohibition against persons providing tax agent services for fee or reward without being registered as a tax agent is the lynch pin in the regime. It is the requirement to hold a license (in the form of registration) that subjects those who provide taxation services to standards of behaviour contained in the Code and enforceable by the Board. That requirement ensures that defined tax services are only provided by persons who are fit and proper to provide them. The conditions of fitness and propriety require not only that the registrant holds the necessary knowledge and qualifications, but also possesses personal characteristics that are not inimical to the statutory purpose. Conduct that contravenes s 50-5(1) is conduct that undermines the efficacy of the whole of the regime. 19 The power to impose a penalty is discretionary. The provision is in effect in the same terms as that conferred under s 546 of the Fair Work Act 2009 (Cth), the scope of which was addressed by the High Court in Australian Building and Construction Commissioner v Pattinson [2022] HCA 13; (2022) 274 CLR 450. 20 The purpose of a civil penalty is to protect the public interest by deterring future contraventions of the TAS Act by the contravener and by others: Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482 at [24]-[25]. 21 This includes both specific and general deterrence: Pattinson at [9]; Construction, Forestry, Maritime, Mining and Energy Union v Fair Work Ombudsman (The Botany Cranes Case) [2023] FCAFC 40; (2023) 297 FCR 438 at [207]; and Cruickshank v Australian Securities and Investments Commission [2022] FCAFC 128; (2022) 292 FCR 627 at [144]. The principles of retribution, denunciation and rehabilitation that govern criminal sentencing have no part to play in imposing civil penalties: Pattinson at [16]. 22 In Pattinson (at [18]) the High Court cited with approval French J's well-known list of factors set out in Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 said to be relevant to the imposition of civil penalties. These include matters concerning the character of the contravening conduct and the character of the contravenor. 23 The task of determining an appropriate penalty is sometimes said to involve an 'instinctive synthesis' involving the evaluation of a multitude of factors, rather than by starting with a fixed figure and making arithmetical adjustments attributable to each factor. The phrase has its roots in the criminal sentencing context, as explained in Markarian v The Queen [2005] HCA 25; (2005) 228 CLR 357 at [37], where the majority approved what was said in Wong v The Queen [2001] HCA 64; (2001) 207 CLR 584 at [74]-[76], and is applicable in the civil penalty context. See, for example: Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8; (2008) 165 FCR 560 at [27]; and Tax Practitioners Board v HP Kolya Pty Ltd [2015] FCA 472; (2015) 232 FCR 34 at [72]. 24 Other principles guide the Court in this approach. The penalty should be proportionate, in the sense of setting a reasonable balance between deterrence and oppressive severity: Pattinson at [41], approving Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181 at [152]. 25 There must be regard to totality in conducting a 'final check' of the penalties imposed to ensure that the penalty is just and appropriate: Australian Competition and Consumer Commission v Employsure Pty Ltd [2023] FCAFC 5 at [52]. 26 It must be recognised that the statutory maximum is but one yardstick to be considered with other relevant factors: Pattinson at [53]-[55]; The Botany Cranes Case at [207]; and Employsure at [44]-[45]. 27 The circumstances of both the contravention and the contravenor are relevant to the assessment. Any of those circumstances may have a bearing on the need for deterrence in the particular case. They may overlap, particularly in cases where the contravening conduct is accompanied by a deliberate or strategic state of mind. The seriousness of a contravention and the associated need for deterrence may be assessed not merely by reference to the nature of the physical acts constituting the contravention, but by circumstances such as the deliberation with which the respondent has contravened: Pattinson at [57]-[58]. 28 Penalties imposed in comparable cases may provide guidance on assessing the appropriateness of a penalty, as there should be consistency in the penalties imposed for similar contraventions. This may not necessarily be numerical consistency but rather consistency in the application of the relevant principles: Flight Centre Limited v Australian Competition and Consumer Commission (No 2) [2018] FCAFC 53; (2018) 260 FCR 68 at [63]; and Employsure at [58]. 29 Finally, for present purposes, the notion of a course of conduct, particularly where there is repetition of similar conduct, is also an important analytical tool. Ordinarily, separate contraventions arising from separate acts should attract separate penalties. However, where separate acts give rise to separate contraventions that are inextricably interrelated or of the same or similar character, they may be regarded as a 'course of conduct' for penalty purposes: Australian Competition and Consumer Commission v Yazaki Corporation [2018] FCAFC 73; (2018) 262 FCR 243 at [234]; and Pattinson at [45], [96]. This avoids double punishment for those parts of the legally distinct contraventions that involve overlap in wrongdoing: Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39 at [39], [41]; Australian Building and Construction Commissioner v Construction, Forestry, Maritime, Mining and Energy Union (The Nine Brisbane Sites Appeal) [2019] FCAFC 59; (2019) 269 FCR 262 at [124]; and Employsure at [51]. Whether the contraventions should be treated as a single course of conduct is fact specific, having regard to all of the circumstances of the case.

Board's submissions 30 Despite the fact that Ms Van Stroe's conduct comprised 531 episodes involving similar 'services' and similar fees over the course of approximately 13 months, the Board urged that the Court should not find that there was a single course of conduct. I do not accept that is the appropriate approach in this case, having regard to the factual and character similarities in the conduct, including the services provided and the fees, and taking into account the concentrated number of contraventions in the space of little more than a year. Rather, I will assess the penalty on the basis that the multiple contraventions together formed part of a course of conduct that continued over the relevant period. 31 I note that the Court has taken a similar approach with multiple similar contraventions of the TAS Act in recent penalty decisions, including Williams at [80] and Tax Practitioners Board v Ordiales [2022] FCA 1612 at [30]-[31]. I also acknowledge that a different approach has been taken in other cases: Tax Practitioners Board v Hacker (No 3) [2020] FCA 1814 at [76]-[80]. I prefer to follow the approach in Williams and Ordiales in the circumstances of this case, for the reasons expressed at [30] above. 32 The Board otherwise submitted that a strong deterrent component is required, because tax agents are entrusted to provide accurate and professional advice to taxpayers and are held to a high standard. It submitted that in the absence of a strong general deterrent, the purpose of the TAS Act and the integrity of the tax system would be undermined. It warned that unskilled people providing tax agent services are more likely to put the financial affairs of taxpayers in danger, particularly given the ease of providing tax agent services while unregistered and the profits that can be made from providing such services. 33 As to specific deterrence, the Board submitted that Ms Van Stroe's contraventions involved deliberate wrongdoing, numerous contraventions, and a lack of remorse. Ms Van Stroe has not cooperated throughout the proceeding, and this has absorbed Court resources and required the Board to invest significant time and money, which may have been minimised had their been a level of cooperation with respect to the proceeding. 34 The Board submitted that Ms Van Stroe's contraventions are on the serious end of the spectrum, because: they involve multiple deliberate attempts to engage in a profit-making scheme; Ms Van Stroe likely had knowledge of the requirement of registration; her improper tax claims led to the ATO conducting audits and penalising some of her clients; she has not provided any explanation for her contraventions or taken responsibility for them; and her conduct has potentially harmed taxpayers and resulted in detriment to the Commonwealth's tax revenue (through unsubstantiated tax deductions). 35 The applicant submits that the Court should also consider the respondent's profits ($99,590) from her contraventions and that, at the very least, the penalty should strip her of any financial gain from her contraventions. It submits that anything less would not have a deterrent effect.

Consideration 36 I accept that Ms Van Stroe's contraventions were serious. Of particular concern is the vulnerability of taxpayers to exploitation, in circumstances where they may have deliberately sought to obtain genuine advice as to their taxation obligations and have paid for that advice. The fact that ATO audits were carried out on some of the taxpayers who utilised Ms Van Stroe's services reflects the potential harm that may be caused by such conduct, and emphasises its seriousness. The licensing regime exists to regulate the standard of advice provided to taxpayers and the behaviour of advisers. Circumventing the license requirement undoubtedly undermines the purpose of the TAS Act. 37 In assessing the evidence presented on behalf of the Board, I have taken into account the fact that Ms Van Stroe has not participated in this proceeding. However, even taking into account the basic elements of the conduct - the number of contraventions over some 13 months and the profit made - it is readily apparent that Ms Van Stroe invested significant time in what was in effect a business of providing quick, unsubstantiated tax returns. This was not a case of casual advice given from time to time, or of 'helping out' a few people. It was a steady, deliberate and repetitive course of conduct. 38 In particular, I infer that Ms Van Stroe knew that she was operating in contravention of the TAS Act. I draw this inference on the basis of the communication from the Board of 8 March 2018, and because the conduct that founded the contraventions occurred after that date. 39 I have no information as to Ms Van Stroe's financial circumstances. That is a product of her decision to decline to provide any evidence or submissions to the Court. But it means I have no details about Ms Van Stroe that may have otherwise suggested any mitigating circumstances. I am cognisant of the significant burden a penalty of the amount I intend to impose may have on an individual. Whether it will do so in this case is unknown, but I have taken that possibility into account regardless. It is regrettable that Ms Van Stroe declined to address such matters with the Court. 40 The financial gain made by Ms Van Stroe was not insignificant. She continued to provide unlicensed services despite knowing she was contravening the TAS Act and despite being on notice of the risk of court proceedings being pursued. A level of specific deterrence is therefore required. A penalty that has the effect of permitting her to keep the benefits she has made from the contraventions would not be sufficient in the circumstances of this case. 41 There is also a strong need for general deterrence. I accept the Board's submission that in the absence of a strong general deterrent, the purpose of the TAS Act and the integrity of the tax system would be undermined. The penalty needs to be sufficient to dissuade others from seeking to provide such services for benefit and without complying with the regulatory regime, including the requirement of registration. 42 It then remains to determine an appropriate penalty. 43 In this case, having regard to the large number of contraventions, and the concept of the one course of conduct, care must be taken with setting an amount based on what might apply with respect to each contravention. For example, even assessing a penalty on the basis of $500 per contravention would lead to a penalty of $265,500, an amount I consider to be excessive, even taking into account the Board's assessment that the penalty should be in the range of $350,000 to $400,000. Other decisions have similarly noted such calculations, but the resulting range per contravention does little to assist. 44 In Williams, a fine of $80,000 was imposed with respect to 73 contraventions (about $1,095 per contravention). In Ordiales a fine of $150,096 was imposed in respect of 636 contraventions ($236 per contravention). In those examples the respondents had participated in the proceedings and had not made the level of profit made by Ms Van Stroe. I have also briefly reviewed the cases referred to by Rangiah J in Hacker at [81]. It was not suggested to me by the Board that any of those cases were relatively comparable, and in my view the range of penalties imposed highlights the different factual circumstances that applied in each case, and the limited assistance such a comparative task provides. 45 I have also considered the circumstances in Tax Practitioners Board v Caolboy [2020] FCA 1559, where a fine was imposed of $40,000 with respect to 519 contraventions. In that case, however, the respondent had cooperated and had provided evidence as to her ill-health, unemployment and other incapacities. The fine was imposed in the circumstances of a joint submission that a fine of $40,000 should be imposed. It is therefore not helpful in relation to this case. 46 As Ms Van Stroe generally charged the taxpayers a fee of $180, I consider that a starting point must be that any penalty must exceed that sum per contravention, and must exceed it in an amount sufficient to have specific and general deterrent value. At the same time, I consider as a matter of impression, and having regard to the totality of outcome, the range suggested by the Board (which, as I have noted, would accord to $660 to $750 per contravention) would be an excessive result. 47 I have had particular regard to the warning given to Ms Van Stroe. Her conduct in the face of the warning justifies the imposition of a penalty higher in the range than might otherwise be imposed. This was not inadvertent conduct. The figure of $99,950 received by her from taxpayers was equivalent to a steady income, again indicative of a deliberate operation, rather than a casual means of assisting others. It exceeds quite significantly the benefits apparently received by the contraveners in both Williams and Ordiales. 48 In the end, and having regard to principles of totality, it is my view that an appropriate fine is $230,000. That remains a significant sum for an individual. It also seems to me to be sufficient to provide a meaningful general deterrent, taking into account that Ms Van Stroe received some $99,590 by way of benefits from her conduct and the apparent ease with which she was able to provide her services for a fee. It should be apparent to others from the fine imposed that the benefit by way of a fee or payment is significantly outweighed by the fine imposed. 49 A figure of $230,000 equates to a sum per contravention of approximately $433, which to my mind is not insignificant. I refer to this figure of $433 only by way of a cross check of relativities. I do not suggest that it provides any kind of tariff per contravention that would be useful more generally. 50 The Board sought its costs. I consider it should be awarded its costs, including reserved costs, to be taxed on a party and party basis if not agreed. I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Banks-Smith.