SCOTT v TAX AGENTS' BOARD OF QUEENSLAND

Members:
SA Forgie DP
IR Way M
JD Horrigan M

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2001] AATA 435

Decision date: 23 May 2001

SA Forgie (Deputy President), IR Way and JD Horrigan (Members)

On 6 August, 1999, the applicant, Mrs Clara Kee Lan Scott, applied for review of a decision of the Tax Agents' Board (Qld) (``the Board'') dated 17 June, 1999 to cancel her registration as a tax agent. The Board had made its decision pursuant to s. 251K(2) of the Income Tax Assessment Act 1936 (``the Act'').

2. At the hearing, Mrs Scott was represented by Mr Logan SC and the Board by Mr O'Brien of counsel. The documents lodged pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975 (``T documents'') were admitted in evidence together with various documents to which we will refer in the course of these reasons. Oral evidence was given by Mrs Scott in support of her case together with Mr Donald Sutherland Scott, Mr Allan Martin Scott and Mr Marcus Bromet. Called on behalf of the Board to give evidence were Mr Ian John Kennedy, Mr Cameron Gray Sorensen, Mr Rick Kingsley Knott, Mr David Joseph Massingham and Mrs Judith Anne Giesemann.

The issue

3. The issue in this case is whether Mrs Scott's registration as a tax agent should be cancelled or suspended. In the circumstances of this case, two steps must be taken in considering that issue. The first is whether Mrs Scott is a fit and proper person to prepare income tax returns and to transact business on behalf of taxpayers in income tax matters. The second step only becomes relevant if she is not. That second step is whether or not her registration should be cancelled or suspended.

Background

4. On the basis of Mrs Scott's evidence we find that she was born in Indonesia in 1938. She attended school in Penang until 1956 when she passed the University of Cambridge Overseas Certificate. After attending the University of Leeds, she obtained a Diploma in Education in 1960. From 1961 until 1963, Mrs Scott taught in Malaysia.

5. Mr and Mrs Scott married in 1963. From 1968 until 1975, Mrs Scott was employed as a clerk in Germany first by the Navy Army & Air Force Institute and then by the Department of Building and Works, British Army on the Rhine.

6. After moving to Australia Mrs Scott worked as a Projects Officer with the Australian Bureau of Statistics (``ABS'') during 1975 and 1976 before joining the Australian Taxation Office (``ATO'') as an assessor of income tax returns lodged by wage and salary earners. Later, she worked in the instalment section of the ATO where she chased up problems with cheques, credits and group certificates. While working at the ATO from 1976 until 1978, Mrs Scott also undertook part time study at the Canberra College of Advanced Education where she obtained a Bachelor of Arts in Accounting. She then became a member of the Australian Society of Accountants (``ASA'') in 1978 and a member of the Australian Society of Certified Practising Accountants in 1984 (``ASCPA''). Later, in May, 1995, she was admitted as a fellow of the ASCPA and remained a member at the date of the hearing.

7. In the meantime, Mrs Scott moved from the ATO to the ACT Regional Office of the Australian Audit Office (``AAO'') as an auditor. She held that position from 1978 until 1981 when she was promoted to Audit Manager in the same office. In that position, she supervised 20 subordinates at times but, generally, it was more in the order of 6 to 12. She also had responsibility for the development of recent graduates who were placed with her for a three month rotation. Mrs Scott continued as the Audit Manager until 1987 when she became an Assistant Director. Later she became the Divisional co-ordinator. As Divisional co-

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ordinator, she would talk to the Directors and seek their comments on drafts of such matters as auditing standards. She would also attend Parliamentary committees with an Assistant Auditor-General where she would observe or answer questions. Mrs Scott moved to the AAO's office in Brisbane but left after a disagreement with the Regional Manager.

8. During 1989 and 1990, Mrs Scott worked for the Income Tax Professionals (``ITP'') as a tax consultant. She then commenced in private practice as an accountant and tax agent. At the same time, she studied externally with the University of Central Queensland. Her registration as a tax agent was effected on 23 March, 1990.

9. On 1 January, 1992, Mrs Scott ceased to act as a sole practitioner and entered an unwritten partnership agreement with her husband and five sons.

10. On 21 May, 1995, Mr Marcus Bromet of Bromors Pty Ltd, Certified Practising Accountants, conducted a Quality Assurance Review of Mrs Scott's quality control system. That review was conducted for the purpose of the ASCPA's Quality Assurance Review Programme and was limited to a review of Mrs Scott's system of quality control based on information she provided and to a review of the application of quality control procedures in a selected sample of engagement files. Mr Bromet interviewed Mrs Scott together with her husband and son, Allan Scott. He also reviewed a number of her files, library and courses she had attended. Mr Bromet's procedures were intended to enable him to form an opinion as to whether Mrs Scott's quality control procedures provide reasonable assurance that she was conforming with professional standards and, in particular, with APS 4 Statement of Quality Control Standard. In a report dated 24 May, 1995, Mr Bromet expressed the opinion that Mrs Scott's system met the objectives of the quality control standards of the ASCPA and that the system was being complied with to provide her with reasonable assurance of conforming with professional standards in the conduct of her practice.

11. On 31 January, 1996, the ASCPA accredited Mrs Scott as a Reviewer for the Quality Assurance Review Programme. Between 1996 and 1999, she reviewed approximately ten other accountants as part of that programme.

12. On 10 June, 1996, Mrs Scott's husband, Mr Donald Scott, and her five sons, Andrew William Scott, Donald Ivor Scott, Christopher Scott, Mark Edward Scott and Allan Martin Scott, signed a partnership agreement (``partnership agreement''). On the same day, the partnership, which operated under the name of Scott Practice Services (``SPS''), and C Scott & Co entered a service agreement (``service agreement'').

13. On 27 January, 1999, the ATO lodged a formal complaint with the Board and based it on her conduct as a tax agent. That complaint led to the Board's issuing on 17 February, 1999 a ``show cause notice'' containing twelve allegations. Mrs Scott responded in letters dated 17 and 28 March, 1999 and provided substantial documentation. The Board required several witnesses to attend to give evidence regarding various aspects of Mrs Scott's practice and work. On 17 June, 1999, the Board resolved that it was satisfied that:

``(a) A number of income tax returns which had been prepared by or on behalf of the tax agent were false in a material particular, and that the tax agent had not established to the satisfaction of the Board that she had no knowledge of the falsity or that the falsity was not due to her inadvertence.

(b) The tax agent was not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters.''

(T documents, T2)

14. The Board cancelled Mrs Scott's registration as a tax agent under s. 251K(2) of the Act and notified her of that decision by a letter dated 2 July, 1999. Since her registration as a tax agent was cancelled, Mrs Scott has worked as an accountant for Peter Stokes & Co, Accountants, in Brisbane. Her husband and her son, Mr Allan Martin Scott, also work for that firm.

Legislative framework

The Board's powers to register tax agents and to suspend or cancel registration

15. Subject to certain exceptions that are not relevant in this case, only a registered tax agent may demand or receive any fee for preparing or lodging a return on behalf of a taxpayer, for giving advice and for certain other dealings associated with such a return (s. 251L(1)).

16. Division 3 of Part VIIA of the Act provides for the registration of tax agents.

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Applications are made to a Tax Agents' Board established in each State (ss. 251C and 251J(1)). Provided an applicant satisfies the Board that he, she or it meets the requirements set out in s. 251JA, the Board must register that applicant as a tax agent. In the case of a natural person, those requirements are that he or she:

``(i)... is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters; and

(ii)... is not an undischarged bankrupt.''

(s. 251JA(1)(a))

Once registered, the Board must re-register a person who continues to fulfil these requirements and who pays the fees and lodges an application within the specified time period (ss. 251JB and 251JC(1)(a)). Registration and re-registration as a tax agent continues for a period of three years unless terminated, cancelled or surrendered under the Act (s. 251JG(2)).

17. Section 251K is concerned with the circumstances in which a tax agent's registration may be, or is required to be, cancelled or suspended by the Board. In the case of a natural person, cancellation is mandatory where he or she becomes an undischarged bankrupt or permanently ceases to carry on business as a tax agent (s. 251K(3C)). In several other circumstances specified in the Act, the Board must suspend or cancel a tax agent's registration but, subject to s. 251K(3B), has a discretion as to the length of the period of suspension. Those circumstances arise where a registered tax agent has been convicted of certain offences against ss. 8P, 8T or 8U of the Taxation Administration Act 1953 (``TA Act'') or offences against ss. 6, 7, 7A or 86(1)(a) of the Crimes Act 1914 in so far as those offences relate to offences of the kind referred to in ss. 8P, 8T or 8U of the TA Act (s. 251K(1)).

18. In so far as they concern a natural person, the Act sets out other circumstances in which the Board may, in its discretion, cancel a tax agent's registration. Those circumstances occur upon its:

``... being satisfied that:

(a) any return which has been prepared by or on behalf of the tax agent is false in any material particular; unless the tax agent establishes to the satisfaction of the Board that he had no knowledge of the falsity or that the falsity was due to his inadvertence;

(b) the tax agent:

(i) has neglected the business of a principal; or

(ii) has been guilty of misconduct as a tax agent; or

(c) a registered nominee of the tax agent is not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters;

(d) if the tax agent is a natural person - the tax agent is not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters;

...''

(s. 251K(2))

19. If the Board considers that suspension of a tax agent's registration is appropriate under s. 251K(2) the length of the period of suspension is a matter for the Board's discretion (s. 251K(3)).

The obligations and duties of tax agents

20. Consistent with the Board's obligation to cancel his or her registration if he or she becomes an undischarged bankrupt or permanently ceases to carry on business as a tax agent, a tax agent who is a natural person must notify the Board if either of those events occurs (s. 251KG(a) and (b)).

21. If, through the negligence of a registered tax agent, a taxpayer becomes liable to pay a fine or other penalty or a general interest charge under the Act, the registered tax agent is liable to pay to the taxpayer the amount of that fine, penalty, additional tax or general interest charge. The taxpayer may sue the registered tax agent for that amount and may recover in a court of competent jurisdiction. (s. 251M(1))

22. In general terms, a registered tax agent may only permit certain persons to undertake work on his or her behalf and is required to ensure that those persons are supervised in a manner specified by the Act. In particular and in so far as a tax agent who is a natural person is concerned, s. 251N(1) provides that:

``A registered tax agent or a person not exempted under section 251L shall not allow

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any person, not being his employee, [or] a registered tax agent...

(a) to prepare on his behalf, either directly or indirectly, his own or any other income tax return or objection; or

(b) to conduct on his behalf, either directly or indirectly, any business of himself or any other person relating to any income tax return or income tax matter.''

Unless supervised by, and under the control of, either the tax agent or his or her registered nominee, a natural person who is a registered tax agent may not allow any person to prepare an income tax return or objection or to conduct his or her business relating to an income tax return or matter (s. 251N(2A)). In certain instances, a registered tax agent's employment of a legal representative is exempted from the restrictions imposed by s. 251 but those instances are not relevant in this case (see s. 251N(3)).

Division 4 of Part VIIA is concerned with the registration of nominees of registered tax agents. In the case of a registered tax agent who is a natural person, his or her employee may apply to be his or her nominee (s. 251KB(1)(b)). The Board is obliged to register that person as the nominee of the registered tax agent if it is satisfied that he or she is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters (251KC(1)). Circumstances in which registration of the registered nominee ceases include the nominee's ceasing to be the registered tax agent's employee, the registered tax agent's notifying the Board that he or she no longer wishes that person to be his or her nominee, the nominee's registration being cancelled and the registered tax agent's registration being terminated, cancelled, surrendered or otherwise ceasing to be in force (ss. 251KD(2)(a), (d), (e) and (g)).

The evidence

The conduct of the various audits

23. The evidence of Mr Kennedy, Mr Sorensen, Mr Knott and Mr Massingham all related to this aspect of the case. Mr Kennedy is a Schemes Officer in the Small Business Law Section of the ATO and he has over seventeen years' experience and has been involved in auditing for some fifteen years. Mr Sorensen's history with the ATO is briefly summarised in paragraph 74 below. Mr Knott is currently a GST Senior Technical Adviser in the ATO but was previously an Auditor in Individual Non- Business at the ATO. He has been an auditor since 1986. Mr Massingham is the Acting Manager of the Tax Agents' Investigation Unit. Although we have reviewed the evidence of the officers of the ATO, we do not intend to summarise the evidence given by these witnesses in the course of examination and cross-examination. That decision follows from the approach we have adopted in this case.

Mrs Scott's previous work in the preparation of taxation returns

Documentary evidence

24. A letter from Mr Richard Gardner of ITP to the Board stated that Mrs Scott had worked with him on a full-time basis at its Chermside office. For a short time, she had then worked at another of ITP's offices before managing the Brookside and Strathpine offices on a full-time basis. He wrote in a letter, the date of which is not clear:

``To date Mrs Scott would have prepared about 1000 returns and checked the same amount of returns. It is estimated that of the returns prepared and checked by Mrs Scott there were 2-3 hundred business/investments and partnership returns and 10-20 trust returns. Records of the specific types of returns prepared by each individual employee are not kept. I confirm that Mrs Scott has very capably prepared the abovementioned three types of returns without any supervision. She has proved she has a good grasp of tax legislation.

In the off season period Mrs Scott is engaged mainly in the preparation of business returns and in ensuring that the lodgement requirements of the office are met. Other responsibilities include lodging amendments, objections and variations of provisional tax for clients on a needs basis.

It is expected that, as part of her job, Mrs Scott would have carried out verbal discussions on tax matters and liaised with officers of the Australian Tax Office on behalf of ITP's clients.''

(Exhibit G)

Profile of practice

Mrs Scott

25. Between 1993 and 1995, there were three offices: Everton Park, Deception Bay and

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Kallangur. Mr Donald Scott was the manager of Everton Park and Mr Allan Scott the manager of Deception Bay. Mrs Scott said that the client profile differs between Deception Bay and Everton Park. At Deception Bay, her clients are mainly trades people using vans and utilities. Most claim travelling expenses. Her clients at Everton Park do not use cars or carry tools.

26. Mrs Scott said that she first started the Deception Bay office of C Scott & Co with her son, Mr Allan Scott. Then her husband joined her. She said that she sees clients at nights and at weekends at her home in Kallangur.

27. Mrs Scott said that her husband and her son, Mr Allan Scott, were based in their respective offices. She was not tied to one office or the other for specified periods.

Supervision of staff

Mrs Scott

28. Mrs Scott said that Mrs Giesemann was employed by her at all relevant times. Mrs Giesemann completed an Employment Declaration on 4 July, 1990 and noted her occupation as a tax consultant (Exhibit G, Exhibit CS1). The document asked the employee to complete part of the form requiring details of name, occupation, tax file number, the basis of employment and details of applicable rebates and whether he or she wished to claim a tax free threshold. The terms of her employment were, Mrs Scott said, that she would deduct her travelling expenses and fees and pay Mrs Scott an amount equivalent to approximately $15 for each return prepared on her behalf. Mrs Scott said that she included the fees collected by Mrs Giesemann on her behalf in the gross fees of the practice. Mrs Giesemann did not receive fees for the preparation of income tax returns. Mrs Scott also said that Mrs Giesemann sent the fees she collected to her less any deductions for expenses.

29. Mrs Scott said that she supervised and controlled Mrs Giesemann when she prepared income tax returns for her. Although Mrs Giesemann interviewed clients and prepared returns in Cloncurry, Mrs Scott said that she spoke to her about those returns on the telephone. She checked and reviewed all returns before signing them. Mrs Scott said that Mrs Giesemann left her employ in 1995 and before any audits were conducted on her practice by the ATO. She is not aware of the ATO's having made any adjustments to income tax returns prepared by Mrs Giesemann while in her employ.

30. Mrs Scott denied that Mrs Giesemann was not her employee in the 1994 taxation year. She said that she paid her. SPS paid her but it was running the business for her. SPS paid Mrs Giesemann's salary out of Mrs Scott's fees, she explained. Mrs Scott said in cross-examination that she understood that she was registered as Mrs Giesemann's employer. She did not issue a group certificate in the 1994 taxation year as she understood that Mrs Giesemann did not have any tax liability. Mrs Giesemann had a negatively geared rental property at the time. Mrs Scott believed that she did not need to issue a group certificate in those circumstances but should have issued a certificate under s. 31 of the Act.

31. Mrs Scott said that she regarded Mrs Giesemann as well as her husband and son, Mr Allan Scott, as employees. She supervised them and they were paid out of her fees. They received no income other than that which they received from her. When asked by Mr O'Brien whether the reality was that Mrs Giesemann, Mr Donald Scott and Mr Allan Scott were paid out of fees by SPS, Mrs Scott said that SPS did not earn money other than that from her fees. SPS collected fees for her and returned the fees. She did not regard her husband and son as her partners but regarded them as her employees because the fees are her fees. Mrs Scott rejected the proposition that they were the employees of SPS because SPS paid their salaries.

32. In relation to her husband and son, Allan, Mrs Scott said that she has always encouraged them to study, attend seminars and to develop themselves. She takes them to meetings with the ATO and to proceedings at the Tribunal. In addition, she got them to become Justices of the Peace (Qualified).

33. Mrs Scott said that she spot checks the work of her husband and son. She does that when she is asked to sign the returns and does so particularly if there are a lot of documents. If there are not a lot of documents, she does not check the returns unless there is something such as a group certificate or a claim for union fees missing. Later, Mrs Scott said that she did check the returns even if no receipts were attached. Apart from receipts for rental properties, her clients were not required to bring in receipts unless there was an audit. If her

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husband and son are not sure of what to do, they ask her for advice.

Mr Donald Scott

34. Mr Scott said that he completed a military book keeping course while he was enlisted in the British Army. He administered military transport pools. In 1972, he immigrated to Australia and worked with Mayne Nickless for the following five years as a Field Supervisor. In that position, he was responsible for budgeting Metropolitan Security Services. Between 1977 and 1984, Mr Scott said, he was involved in a number of small businesses selling a variety of goods and services. In 1984, he became the manager of an electrical retailing business in Canberra and remained there until 1988 when he began to sell real estate in Canberra. In 1989, he moved to Queensland with his wife and sons.

35. Mr Scott said that he started to help his wife in 1990. He is not a certified practising accountant and has never held himself out as such. His work for his wife began with his entering data from income tax returns into the computer. Then, in 1991, he started to prepare income tax returns under his wife's supervision and control. He has spent the next ten years in the preparation of income tax returns for wage and salary earners and small business and has done so under the supervision of his wife. Regarding his wife's supervision of his work, Mr Scott said that she checked and signed all returns he prepared and made corrections and amendments to some. She would ask questions about deductions and would do so particularly if the return were not straightforward. Mr Scott said that he never included anything of which he was unsure unless he had first checked with his wife. She sat in on interviews with clients and undertook discussions with officers of the ATO.

36. Mr Scott said that he worked in the Everton Park office of C Scott & Co from the time it opened in 1991. He estimated that, spread over the course of a week, his wife spent approximately two and a half days in that office and the same amount of time in the Deception Bay office. If she were in the Everton Park office, she would usually sit in on interviews. If she did not, she would be in the front office where she could hear the interview and would sometimes add a comment if she thought it necessary. Furthermore, if a matter were unusual or difficult, Mr Scott would ask her to sit in on an interview with a client. In cross- examination, Mr Scott said that he would run the office if his wife were not there. In the years 1996-1998 when the work related expense programme (``WRE'') was in operation, he said, his wife spent less time at Everton Park than before.

37. Mr Scott said that he has accompanied his wife on continuing education courses run by the ASCPA and by the ATO. He attends two or three courses run by each of those bodies each year. In addition, he attends seminars of one or two days in duration run by the National Tax and Accounting Association Limited (``NTAA''). Those seminars concern current accounting and taxation developments.

Mr Allan Scott

38. Mr Allan Scott is a son of Mrs Scott. He said that he is not a certified practising accounting and has never held himself out as such. In 1989, he undertook an accounting course at the North Point TAFE College. That course included taxation and accounting subjects. Due to work commitments, Mr Scott said, he did not complete the course. In 1989 and 1990, he also did a course with H & R Block but did not sit for the accreditation examinations as he did not want to work for that firm. Mr Scott said that he is a member of the NTAA. For the past four years, he has attended courses run by that association. Each course extends over two days and he attends two courses each year. In addition, he said, he attends taxation seminars conducted by the ATO once each year.

39. Mr Scott said that he has worked under the supervision of his mother and has gained experience in the preparation of income tax returns for wage and salary earners and small business. At all relevant times, he said, his mother has supervised and controlled him in the preparation of those returns. She checked and signed all returns he prepared and would send them back to him with comments regarding allowances and deductions or with corrections. In addition, she frequently sat in on interviews with clients and usually undertook discussions with officers of the ATO.

40. Mr Scott said that he began working in the Deception Bay office of C Scott & Co in 1991. His mother frequently attended that office and, over the course of a week, would spend approximately half of the week there. There were no fixed periods when she was in

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attendance but, when she was not there, she was readily contactable by telephone.

41. Mr Scott said that he would regularly discuss taxation returns with his mother after hours when he was living at home. When he left home, he would often drop the returns in to her at her home and discuss them with her. His mother checked all of the returns he had prepared and, particularly if the return were not simple or straightforward, would ask questions about the deductions. Mr Scott said that he never included anything in a return of which he was unsure unless he had first checked it with her.

Mrs Giesemann

42. Mrs Judith Giesemann is the Manager of Insurance with the Queensland Railway Institute. She said that she had met Mrs Scott in the late 1980s when they both worked for the same office of ITP and both were preparing income tax returns. Mrs Giesemann had worked there since 1982. Her work mainly concerned the returns of those with small businesses or rental properties as well as those of wage and salary earners. Mrs Giesemann said that she would have prepared 200 to 300 returns each year.

43. For approximately three years, she said, she worked for Mrs Scott. Her work for Mrs Scott commenced in 1987 when she worked full-time for approximately eight weeks in Mrs Scott's Deception Bay office. Mrs Giesemann then worked part-time at an hourly rate in 1988 and 1989. On average in those two years, Mrs Giesemann said, she worked for three hours each week. In the main, Mrs Giesemann said, her work concerned income tax returns for wage and salary earners. The work was similar to that which she had done at ITP.

44. Mrs Scott was present in the office for approximately 99% of the time. Mr Allan Scott worked in the same office each afternoon. At the time, Mrs Scott also had an office at her home at Kallangur.

45. Initially, Mrs Giesemann sat in with Mrs Scott while Mrs Scott interviewed clients. Mrs Giesemann then prepared the clients' income tax returns. She presented those income tax returns to Mrs Scott to enable her to spot check them. Mrs Giesemann was later left to work alone unless she asked for assistance. She was left to interview clients alone and Mrs Scott would only sit in with her if she asked for her assistance and attendance. In cross- examination, Mrs Giesemann said that Mrs Scott was always there for her and she could ask questions of her whenever she wanted. She had total supervision, she said, other than when she was interviewing clients. When asked to compare the supervision with that in her previous employment, Mrs Giesemann said that there was no comparison. Mrs Scott was always there for her to ask whereas previously there had been no one checking her work. Drawing on her previous experience with ITP and with Mrs Scott, Mrs Giesemann said that she did not have any apprehension about preparing income tax returns for small businesses or wage and salary earners.

46. Mrs Giesemann said that she moved with her husband to Cloncurry in 1989. For a couple of weeks in each tax season during 1989, 1990 and 1991, she would rent a small office in Cloncurry. The rental for the office was paid by Mrs Scott and a receipt issued to her. Mrs Giesemann could recall Mrs Scott's visiting the office in Cloncurry on two occasions but she never sat in on any interviews at Cloncurry.

47. At the Cloncurry office Mrs Giesemann would prepare income tax returns, ask the clients to sign the return and the declaration and then check the returns. If she was satisfied with the income tax returns, Mrs Giesemann said that she would post the income tax returns to Mrs Scott. She did not send Mrs Scott any receipts for deductions claimed in the income tax returns. Instead, she ticked a box on a form prepared by Mrs Scott. A ticked box meant that she had sighted such receipts. Where income tax returns concerned rental properties, Mrs Giesemann noted that on the checklist and sent Mrs Scott any relevant records. Mrs Giesemann said that she always asked clients for receipts. If they did not have them, she would ask them if it was wise to make the claim. That was a practice she invariably followed, she said.

48. If Mrs Scott thought that there was an error in an income tax return she had prepared, Mrs Scott would telephone her and go over it. Mrs Scott could not check it against supporting documents such as receipts but she could check it against the client interview sheet, Mrs Giesemann said.

49. In 1989, Mrs Giesemann said, she prepared approximately 25 to 30 income tax returns, a few more in 1990 and over 100 in 1991. She advised all clients that Mrs Scott was

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the tax agent. While she did not herself give any tax advice, she did give clients her opinions regarding tax deductions and zone rebates. If she needed any tax advice, she telephoned Mrs Scott. In cross-examination, Mrs Giesemann said that she invariably sent the income tax returns to Mrs Scott for checking together with the client interview sheet. If she had any questions, she could ask them of Mrs Scott on the telephone and Mrs Scott was readily available. Mrs Scott also telephoned her regularly.

50. Mrs Giesemann banked the fees paid for each income tax return into an account in Mrs Scott's name. Mrs Scott had given her a deposit book to enable her to do that. Stationery costs were deducted from the moneys banked in Mrs Scott's name. Mrs Scott was sent the deposit slip and receipts made out in the name of C Scott & Co. Mrs Giesemann was paid $22.00 for each return she prepared.

51. In cross-examination, Mrs Giesemann said that, in her years at Cloncurrry, she had never earned enough to take her over the tax threshold. She had a rental property and the deductions associated with that took her under the tax threshold and Mrs Scott was aware of that, she said.

52. Mrs Giesemann said that she and her husband moved back from Cloncurry in 1991. She worked in Mrs Scott's Double Bay office in 1991/92 and remained until the 1993/94 financial year.

Alleged breaches of s. 251L(1) by Scott Practice Services

Documentary evidence

53. The partnership agreement recited that Mr Scott and his sons had ``... carried on together the management and general support and promotion of the Business since 1 July 1992...'' and that they wished ``... to continue these activities and formalise their agreement in this Deed'' (T documents, page 16). It also recited that:

``B. The Partnership has entered into the Service Agreement with C. Scott & Co for the purposes of operating and managing the Business. The Partners shall comply with the directions of Clara Scott pursuant to the Service Agreement.

C. In order to achieve the commercial objectives of the Partnership the Senior Partner will have a management function and conduct the `day to day affairs' of the Partnership.

D. The Partnership will operate and manage the Business at the various Offices.

E....

F. It is intended that for all accounting purposes by and between the parties hereto the provisions of this Deed shall operate and have effect as on and from 1 July 1992.

G. In view of the circumstances set out in these recitals, the parties wish to create a valid agreement and thereby formally define their respective rights, interests, obligations and mutual purposes, aims and undertakings, each with the other.''

(T documents, page 16)

Mr Scott senior was designated as the Senior Partner and Office Manager, Mr Allan Scott was designated as Office Manager and the remaining brothers as Equity Partners (T documents, page 28).

54. The scope of the partnership includes the operation and management of the business in accordance with the directions from Mrs Scott and pursuant to the service agreement and any other activity decided upon by the partnership (T documents, page 18). The ``Business'' was defined to mean:

``the provision of accounting services and products through C. Scott & Co, the principal of which is Clara Scott, a registered tax agent''

(T documents, page 24)

The assets of the partnership are its beneficial interests in all leases of premises occupied by the partnership, the fees, the intellectual property, all furniture and fittings and all property (including intellectual property) acquired from time to time. Each of the partners contributed capital of $2,000 each (T documents, pages 18-19 and 27). The fees are:

``the annual fees generated by the Partnership in the conduct of the Business which shall include:

(a) fees received;

(b) fees billed but unpaid;

(c) work in progress.''

(T documents, page 24)

55. Salaries are paid to the Senior Partner (i.e. Mr Donald Scott, senior) and to ``... such other of the Partners as Decided from time to

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time...'' in an amount determined having regard to the accepted industry standards and the experience and physical contributions of the relevant partner towards running the business and the scope of the partnership (T documents, page 19). After payment of salaries, the net profit was divided equally among the six partners (T documents, pages 19 and 29).

56. The service agreement between SPS and C Scott & Co recited, in part:

``A. SPS has been involved in the management and general support and promotion of the Business from 1 July 1992 under the direction of the Principal.

B. SPS wishes to continue to provide the Services to C. Scott.

C. The parties wish to create a valid agreement and thereby formally define their respective rights, interests, obligations and mutual purposes, aims and undertakings each with the other.

D....''

(T documents, page 10)

57. Pursuant to the service agreement, SPS was required to:

``... perform the Services in respect of the Business which are assigned to SPS and as set forth in Schedule 1 hereto.''

(T documents, page 11)

The term ``Business'' was defined in the same terms in which it was defined in the partnership agreement.

58. The services set out in Schedule 1 are:

``• Carry out tax return preparation, bookkeeping and other duties under the direct supervision of the Principal [i.e. the principal of C Scott & Co who is currently Mrs Scott].

• Interview and advise clients under the supervision of the Principal.

• To collect all fees and charges in respect of the Business on behalf of C. Scott.

• The promotion of the Business within the acceptable guidelines as determined by the Principal.

• To enter into leasing arrangements for the provision of office space for the Business.

• The day to day financial management of the Business.

• Management of the security and confidentiality of the Business' clients as determined by the Tax Agents Board and the Society for Certified Practicing Accountants.''

(T documents, page 12)

59. The service agreement also set out the services to be performed by Mrs Scott in respect of the business ``... for the proper and effective administration of the Business'' (T documents, page 11):

``• Responsible for the direct supervision of all the activities of the Business including the checking and review of all work carried out by SPS in respect of the Business.

• Staff development and training for the Business.

• To be available at all times to the management and staff to answer queries.

• To keep abreast of all changes to tax legislation, new developments and statutory requirements.

• To carry out regular checks on the offices and staff at least weekly or more frequently if required.''

(T documents, page 13)

60. In respect of fees, the service agreement provided:

``All monies in respect of the Fees shall be retained by SPS PROVIDED ALWAYS that an amount which shall be agreed between the parties in writing in respect of the fees shall be paid to C. Scott which amount shall not, for the period of four years following the date of execution of this Deed, be less than $25,000.00 per annum.''

(T documents, page 11)

Mrs Scott

61. Mrs Scott said that she received advice from solicitors on the way in which she should structure the business. She relied on that advice and accepted it on the basis that the partnership agreement and service agreement would comply with the requirements of the Act.

62. Mrs Scott said that all fees paid to SPS for preparing income tax returns were held by SPS on her behalf pursuant to the service agreement. All receipts issued by SPS were issued in the name of C Scott & Co. Invoices were not issued. In cross-examination, Mrs Scott said that the professional fees of C Scott & Co were collected by SPS and were described in the books of SPS as professional fees. SPS showed those professional fees in its return less the amount paid to her, Mrs Scott said. She collected the fees and paid them to

ATC 2229

SPS for running the whole practice. In response to the suggestion that she had not shown her professional fees in her return, Mrs Scott replied that the $25,000 she received for each of three years was shown in her return. Those sums of $25,000 were part of her professional fees.

63. All moneys paid to SPS were service fees payable by her to it for services provided by it. That was in accordance with the service agreement. SPS charged her a service fee equivalent to the amount of fees received on her behalf less an amount of not less than $25,000. Fees she charged, Mrs Scott said, were deducted from income tax return refunds and paid directly to SPS. SPS then held the fees on her behalf. Mrs Scott did not authorise SPS to deduct the fee but each client signed an authority authorising SPS to deduct that fee from his or her refund and to pay it into SPS's account.

64. Mrs Scott said that the fees she charged for the preparation of income tax returns and other associated income tax matters have been included in her accounts and income tax returns. They were included in the section headed ``Business Income and Deductions'' in her income tax returns. She did not include all of the fees in that section as she is not a reporting entity and not bound by standards. Mrs Scott said that she may either put in all fees less expenses or put in her net expenses. There is no difference, she said, between gross fees less expenses and net fees. Although she agreed with Mr O'Brien's statement that the taxation return requires her to show her income and then to claim deductions, Mrs Scott said that it was ``not the be all and end all''. She had shown the net income and she agreed that she should have shown gross income. All that she had done was to cut out one step, Mrs Scott added. The fact that she had not shown gross income and deductions did not mean that she was incompetent, though, as she did not avoid showing her income. Later, she also explained that C Scott & Co was not bound by the accounting standards as it was a non-reporting entity.

65. In cross-examination, Mrs Scott said that she thought that the arrangement made between C Scott & Co and SPS accorded with the principles in
FC of T v. Phillips 78 ATC 4361; (1978) 20 ALR 607. SPS collected the fees and used most of them to run the practice.

66. Mrs Scott said that she thought that C Scott & Co had close to 1,000 clients at the end of 1993. She denied that, at a meeting of her creditors held on 22 November, 1993 under Part X of the Bankruptcy Act, she had said that she had 12 clients, four of whom were regulars (Exhibit 1, tab 2, page 21).

67. The extract from the transcript of the creditors' meeting reads:

``MR STEVENSEN: `Who is Scott Services?'

DEBTOR: `Scott Services is a Partnership of my sons and my husband. I also prepare Tax Returns for other people. On assignment my hourly rate is $35.00.'

MR STEVENSEN: `In relation in Scott Practices Partnership, do you have any interest?'

DEBTOR: `No interest at all.'

MR STEVENSEN: `Is Kwik Tax yours?'

DEBTOR: `Kwik Tax no longer trades and has not lodged a return since 1991. It has no bank account.'

MR STEVENSEN: `Have you been involved with C. Scott and Company? Is that you trading as C. Scott and company?'

DEBTOR: `Yes, C. Scott and company is not registered and I was trading basically as my own name. C. Scott and Company has 12 clients, 4 of whom are regulars. I earn approx. $5,000.00 per annum.'''

(Exhibit 1, tab 2, pages 21-22)

68. In response to Mr O'Brien's suggestion that it was a blatant lie to say that she had only 12 clients, Mrs Scott said that, at that time, her involvement had been with Kwik Tax and she had been told that she had money coming in. She said that she had been referring to her own clients. C Scott & Co had 12 clients and she was thinking of them. In response to Mr O'Brien's statement that this was not true and that the creditors' meeting was asking about assets and income to determine how she was to pay her debts, Mrs Scott said that, at that time, she was thinking of her own particular clients. The fees from her practice all went to SPS to run the practice. When asked if she did not mention that SPS had 1,000 clients because SPS was not the tax agent, Mrs Scott replied that she was speaking only of her responsibility. She

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denied that she lied if it suited her and lied if she saw an advantage to herself.

69. Mrs Scott disagreed with Mr O'Brien's proposition that she made claims for deductions believing that they had no foundation at all and hoping that the returns would not be audited.

Mr Donald Scott

70. Mr Scott said that the partnership agreement was signed in 1996 but that agreement only formalised the position that had prevailed since 1991. The position had not been formalised at an earlier time as there was no sense of urgency when it concerned only family members.

Mr Allan Scott

71. Regarding the formation of the partnership, Mr Scott gave similar evidence in his statement to that given by his father.

The WRE programme and various audits of clients

Documentary evidence

72. Mr Massingham provided a copy of a standard letter sent to taxpayers in relation to the 1998 tax year (Exhibit 20). It stated that it was part of the ATO's responsibility to ensure that taxpayers made correct claims in their income tax returns. As part of that process, it notified the taxpayer that it would check the claims made in relation to particular questions in his or her income tax return. In so far as claims for work expenses and car expenses were concerned, written evidence such as receipts, log book records and travel diaries had to be provided. Also required from each taxpayer was an ``Income Tax Deduction Substantiation Form'' for each category of expense claimed. If written evidence was not supplied, the expense would not be deductible, the letter concluded.

73. Notes attached to the letter explained the audit process and provided information about substantiation. A single page Income Tax Deduction Substantiation Form was included. Various questionnaires were provided by Mr Massingham and those appropriate to the circumstances of the taxpayer were included in the letter to that taxpayer. The Car Expenses Questionnaire was four pages in length and the Other Travel Expenses Questionnaire was three pages.

74. Mr Sorensen is a Technical Adviser in the ATO but, in July, 1998, was the Work- related Expenses Program Adviser and jointly responsible for the WRE programme. He made a statement in which he said that, initially, every tax agent who had more than one hundred clients who were claiming more than $300 in work related expenses was identified. Mrs Scott was one such person and there were large numbers across Australia. Mrs Scott, Mr Sorensen said, repeatedly failed the WRE programme in that she could not satisfy the ATO that her claims for clients with respect to work related expenses were accurate. In relation to audits of her clients, the ATO noted that she was not responding to audits in a timely or correct manner, she was not being professional with the ATO staff and there was a significant risk to revenue because of the high level of incorrect claims (Exhibit 7).

75. The ATO, Mr Sorensen noted, had developed a common approach across Australia as to what it would do if it was felt that a tax agent did not pass the programme. That common approach included there being a choice of possible courses that could be taken. For example, there could be further audits of the tax agent's clients or referral to the prosecution area of the ATO if fraud were possible. Where it was felt that matters raised by the WRE programme might impact on the tax agent's registration, a referral was made to the relevant Board. In relation to Mrs Scott, the third option was considered appropriate and a letter dated 27 January, 1999 was sent to the Board (T documents, pages 52-59).

Mrs Scott

76. Mrs Scott said that her life became a big horror story with the WRE programme. It started with the audits in 1996 when she was given a list of 31 names. She was required to obtain receipts from each of those persons and lodge the returns with the receipts. The ATO then looked at the claims for 1995 and for 1996 and, if there was a variation in the claims greater than 10%, it told them that they had failed the test. Where they had claimed less in 1996, it was assumed that they had been frightened, she added. There was an immediate problem for her, Mrs Scott said, as the list of 31 names included two contractors. One had been a wage and salary earner for four months and had then become a contractor. Another client had owned his own car in 1995 but, as he was given a company car in 1996, claimed almost nothing in 1996. Mrs Scott said that she talked

ATC 2231

to the ATO and told one of its officers that her variation had not been greater than 10% but in the order of 7.5% when the two contractors were taken out of her figures. She said that it was an incorrect manner in which to sample but the officer from the ATO told her that it could not be changed.

77. As she had failed the test, Mrs Scott said that she had to go through the same exercise the following year (1997) but this time in respect of 300 clients. She had to talk to each of the clients and explain what was required. On top of that, the income tax returns of 60 of her clients were to be audited. It turned out that an audit was conducted on more than 100. Mrs Scott said that she also had spouse rebate forms to fill in. In one week, she received 200 spouse rebate forms to complete with the details of each client's spouse and children. She said that she asked why the information was not requested on the income tax return. In addition to the schedules required for the WRE programme, the audits and the forms, her husband was asked by the Chermside office of the ATO to check the names and dates of birth of certain clients. When she complained about that, the request was withdrawn. Finally, Mrs Scott said, there were the audits of the returns of members of her family. All of these matters were in addition to her normal workload. They led to her employing two extra staff in 1998.

78. In relation to 47 of the decisions reached by the ATO regarding its 100 clients, Mrs Scott said that she lodged objections. Although she lodged the objections in September, 1997 and although the Taxpayers Charter states that objection decisions must be made in 55 days, Mrs Scott said, some of them took the ATO at least six months to make. They were not finalised until about June, 1998.

79. Mrs Scott said that she did not charge clients whose claims were disallowed because she was being reviewed. She lodged applications in the Tribunal on behalf of two of her clients and paid the lodgement fees herself.

80. In relation to queries received by Mr Peter Hale regarding deductions he had claimed in relation to work related expenses for the financial year ending 30 June, 1998, Mrs Scott said that she had prepared a letter on his behalf and on his instructions (T documents, page 230). It was dated 29 January, 1999 and dealt with a claim for travelling expenses from his home to a university where he lectured three hours each Monday. The claim related only to the period after he had resigned from his employment and had commenced to work for another organisation but was working at his home. Mrs Scott said that she also prepared a second letter for Mr Hale (Exhibit D). That is dated 14 May, 1999 and responded to an earlier letter from the ATO. It read in part:

``In the Tax Office letter of 17 February 1999, the case,
Lunney & Haley v FC of T (1958) 100 CLR 478 was quoted. The case is not relevant here because I was not travelling from home to work; I was travelling from my main job carried on at home to a second job carried out at Griffith University.

Case 26/97,
97 ATC 296 involving the airline pilot travelling from his farm to the airport is relevant. The pilot's claim was allowed by the Full Court of the Federal Court (
FC of T v. Payne (1999) FCA 320.''

(Exhibit D)

81. In relation to a claim by Mr Graham Heaslip regarding a Toyota Hilux, the ATO, in a letter dated 21 October, 1998, had asked him to provide written evidence for travel expenses of $4,638 claimed in his income tax return for the year ending 30 June, 1998. It also asked him to complete an Income Tax Deduction Substantiation Form for each category of expense (Exhibit 12).

82. In addition to that form, Mr Heaslip was asked to complete a questionnaire, which sought information about how his travel expenses related to his work. Mr Heaslip signed the form on 16 November, 1998 and provided various receipts. He provided details of his employment and duties in answer to the first two questions. The remainder of the form was crossed out and the letters ``N/A'' written across its face. Among the questions described as ``N/A'' were questions requesting details of any allowances or reimbursements, travel expenses and additional travel expenses. Also included was a question headed ``Vehicles other than cars''. It asked for the amount of the claim if Mr Heaslip had ``... made a claim for vehicles other than cars...'' and, if so, asked for the full details as to the connection between those vehicle expenses and the taxpayer's employment duties (Exhibit 12, page 4). If any expenses were incurred for private use, Mr Heaslip was asked for the basis upon which he had apportioned the vehicle expenses between

ATC 2232

private and business use. Attached were three receipts from Prolube for various services and repairs and one from Doug Gordon's Mac's Muffler for repairs. No information was provided on the Income Tax Deduction Substantiation Form and it had a line across its face.

83. Mrs Scott said that she photocopied the log book Mr Heaslip provided. Using green ink in the fashion of an auditor, she annotated what was wrong. She said that Mr Heaslip told her that he had kept the log book for his own personal reasons and that it was a bit of a nuisance to keep it for the whole year. As it was, he had incorrectly started before the financial year on 20 June, 1997. She said that she added up each page of the figures for the year and made corrections to Mr Heaslip's figures in green ink. Whereas his figure had been 3,700 kilometres travelled, hers had been 2,700. She also changed the percentage claimed as business kilometres from 70.7% to 67% (Exhibit 12).

84. The page of the log book for the period from 9 June, 1998 to 30 June, 1998 showed a figure of ``21530'' written in pink marker pen across its face (Exhibit 9). That page had been included among the photocopied pages sent to the ATO. Mrs Scott said that she had not written that figure. She decided that the figure would just confuse everybody and so she tore the page out of the log book and did so in front of the client. It was not in her mind to cover anything up and, in any event she said, the log book was not necessary to support the claim. It was not necessary as it was not a car as defined in the Act and she was using the log book as a basis for an estimate only. A claim based on cents per kilometre was commonsense, Mrs Scott said. It generally led to a lesser claim than one based on actual expenses. In this case, there were other receipts so why not accept it, she asked. The ATO had made her sound like a crook, she said, and the client had made that comment to her. There was nothing wrong in her having done that when the page was not needed.

85. In her letter dated 18 September, 1999 to the ATO, Mrs Scott explained further what had led her to remove the page from the log book:

``Mr Heaslip is a human being and all human beings without any exceptions make mistakes. Public servants as a rule do not have to keep logbooks so it is hard for them to understand that keeping a logbook is time consuming. Usually keeping a logbook involves sitting in the car and spending a few minutes doing some calculations. It is quite understandable that mistakes can be made. Making mistakes is not falsifying figures as implied in your letter. I tore off the last page of his 1998 logbook because there appeared to be a mistake and I expected anyone without any commonsense to jump to the conclusion that he made the figure up. When I noted that he recorded 200kms for a trip to Hervey Bay, it was clear to me that it could only be a mistake as from the rest of the logbook Hervey Bay was shown as more than 200 kms from Brisbane. I credited Mr Heaslip with enough intelligence to know that anyone else looking at his logbook would straightaway notice that he has recorded travelling to Hervey Bay at more than 200 kms elsewhere. Hervey Bay is some 2 hours away from Brisbane so a return trip would have to be about 400 kms. Without jumping to any conclusions, I sought an explanation from him at the time of my examination of his claims. He advised that he would have meant that he travelled to a meeting on Hervey Bay on that day and not necessary [ sic] to Hervey Bay. As the recordings on that page are superfluous and as the logbook is not an accountable document or a legal document, I tore the page out and told him to throw it away. He obviously kept it for his own personal use. When a person is on the road most of the time, his travelling for a day usually runs into 2-4 figures on the odometer. Unless he carries a calculator with him all the time, it is very easy to make mistakes when recording the distance travelled so any errors in his figures are not `demonstrably false' but `demonstrably' evidence that he is only human.''

(Exhibit 10)

86. With regard to motor vehicle expenses claimed in the 1998 tax year for Mr James Peter Robson, Mr Scott Francis, Mr Scott Christopher, Mr Reuben Miles, Mr Richard Nicholson, Mr Curtis Powell, Mr Warren Willis, Mr Bernd Hermann and Mr Dennis Cornwell, Mrs Scott said in her statement that all claims for their motor vehicle expenses had been made on the basis of information supplied by them. On the information they provided, all

ATC 2233

claims were reasonably able to be advanced as deductions.

87. With regard to the particular claim of Mr Cornwell, Mrs Scott said in her statement:

``(k) Dennis Cornwell was an employee of QBUILD. His vehicle in question at the time was a two tonne utility. That, according to my understanding, was not a `car' in accordance with Schedule 2A to the Income Tax Act 1936 and views taken in Miscellaneous Taxation Rulings MT 2024, and MT 2024A. The taxpayer recorded his travel from home to work and to various job sites carrying tools and equipment and tins of paint. He claimed part of his travelling from his employer, QBUILD. A log book was kept of all travelling except for the trips that were reimbursed. Initially, he claimed his vehicle expenses using the set rate per km. The ATO disallowed this because the vehicle was not a car. In my opinion, the intention of the legislation was to deny claims on actual expenses when a log book had not been kept.

(l) The taxpayer had kept a log book showing his work related travel, not knowing that the vehicle he was driving was not a `car' according to the ATO definition. In my opinion the Commissioner should have exercised his discretion and allowed the claim using the set rate per kilometre method, especially as it was clear that the claim would have been more had the actual cost method been used.

(m) The taxpayer calculated his claim using the actual cost method. As the kilometres reimbursed by his employer were not included in the log book, the total kilometres travelled in the year had to be accounted for by including the kilometres reimbursed by his employer and which were shown as allowances in his tax return. The Tax Officer reviewing the case excluded the kilometres reimbursed by the employer from the calculation.

(n) Dennis Cornwell's tax return was prepared on the basis of information provided to my practice before preparing the return. The claim for motor vehicle deductions was made on the basis of the 5000 kilometre method, however this claim was disallowed as the vehicle was not a `car', and we subsequently made a request for review to alter the basis to actual expenses....''

(Exhibit F, paragraph 31)

In cross-examination, Mrs Scott was asked where it was stated that the set rate per kilometre method could be adopted. She replied that it was a matter of commonsense and that the expense incurred was an allowable expense under s. 51 of the Act.

88. With regard to Mr Thompson's claim, Mrs Scott wrote in her statement:

``(a) Allan tells me, and I believe, that at his interview with Trevor Thompson, Trevor Thompson told him that he is a fisherman and travels by Ansett to Cooktown/Cairns from Brisbane about 2-3 times a year. During the interview with him, Trevor Thompson advised Allan that he receives 15% of the value of the `catch' and that out of this 15% is deducted his meals and incidentals on the boat, and that when the boat, Mr Thompson must disembark, to allow the boat to undergo repairs and maintenance.

(b) Mr Thompson stays in hotels or motels when the boat is in port. Mr Thompson's claims were dismissed without any inquiry from the auditor. Receipts supported accommodation expenses while in port. The claims were disallowed by David Massingham without any attempt to obtain or request any documentary evidence.''

(Exhibit F, paragraph 31)

89. A report presented to the Board stated that Mr Peter Pearce had claimed car expenses in the 1998 year. The log book method had been adopted and a business percentage of 85% had been applied against total car expenses of $8,146. This meant that $6,924 was claimed by that method. The total of $8,146 had been calculated by taking into account interest, depreciation, fuel, repairs, registration and insurance. The amount of interest claimed was $2,827. Mr Pearce stated that he had kept a log book in 1994/95, it was given to his accountant to prepare his income tax return and that he could not find it. His travel had not varied since that year (T documents, page 759).

90. According to the report, Mrs Scott later advised that the claim for interest had been increased to $4,163.67 and stated that the AGC component of this was $2,776.56. Conversely, AGC had advised the ATO that the total interest expenses for the 1998 year were $370.77. Mr

ATC 2234

Pearce also had two other loans from ANZ. Mrs Scott advised that one of the ANZ loans accounted for interest of $1,163.52. ANZ had advised that the total interest expenses were in fact $302.28 over the term of the loan. The loan had commenced on 28 October, 1997 and finished on 13 February, 1998 (T documents, pages 759-760).

91. In cross-examination, Mrs Scott said that she had done the calculations as would be expected i.e. if the contract states that the interest is $7,000 for a 16 month period, she divided it by 16 and multiplied it by 12 to get the interest over a year.

92. The claim made by Mr Francis Scott for car expenses was made on the basis that he had to transport tools to and from his workplace as the employer would not take responsibility for tools left on the premises and its insurance policy did not extend to employee's tools. In addition, no secure storage was provided at the place of employment and Mr Scott was not permitted to carry bulky tools on public transport. The claim was disallowed on the basis that the tools were not bulky and that the decision to take them home was a matter of personal choice. A locker large enough to hold the tools was supplied by the employer, the premises were fully patrolled and there are two shifts at the factory (T documents, pages 854-855).

93. Mrs Scott responded in her statement:

``Since the lodgment of the returns and the disallowance of the claims, I have made further investigations of the circumstances. I have spoken to Ian McLean, the current supervisor where Scott Francis used to work. I requested him to look through Scott Francis' toolbox to determine whether what Scott Francis carries in it is necessary for his job. I was informed by Ian McLean, who has taken over from Scott Francis' supervisor, and believe, that the premises are not alarmed and that no locker is supplied. Both the current supervisor and Scott Francis have told me that the premises were not alarmed and that no locker was supplied. However, the ATO officer claims that when he contacted the workplace he was told that the premises were alarmed and that there was a locker.''

(Exhibit F, paragraph 31(e))

94. A table compiled by Mr Massingham showed the current status of the audits of twenty of Mrs Scott's clients. Of those, reviews had been requested in relation to four decisions and objections lodged in relation to four. The results of the requests for review and of the objections were that two of the twenty were allowed in full (Warren Willis and Bernd Herrmann), two were partially allowed (Dennis Cornwell (on review and on objection) and Kerri-Ann Kelsey), one was under further investigation (Curtis Powell) and two audit decisions had been upheld (Stamatoula Noutsatos and Scott Francis) (Exhibit 18). Thirteen of Mrs Scott's taxpayers lodged neither a request for a review or an objection following the disallowance of their claims by the ATO.

Mr Donald Scott

95. Mr Scott said that the number of files audited by the ATO had proved to be a great distraction for a practice the size of C Scott & Co. The WRE programme implemented by the ATO required them to fill out extra forms. In the second year, it was even more devastating as the programme applied to every client. He would be dealing with a client and then have to deal with a query from the ATO. The load was intolerable. The third year was the same.

96. In cross-examination, Mr Scott disagreed with Mr O'Brien's suggestion that the WRE schedule could be completed in five to ten minutes. He said that it could take longer and it all depended upon the extent of the claim for deductions for work related expenses. It can take as long as fifteen to thirty minutes.

Mr Allan Scott

97. In relation to the claim by Mr Trevor Thompson, Mr Scott said that Mr Thompson had told him at the interview that he was a fisherman who travelled from Brisbane to Cooktown and Cairns two or three times each year. He was paid an amount that equated with 15% of the value of the catch less the cost of his meals and incidentals on the boat.

98. When Mr Bernd Herrmann's claim for a deduction in connection with his toolbox was disallowed, Mr Scott said that he suggested to him that he talk to the ATO. Subsequently, Mr Hermann told him that he had visited the ATO and that Mr Rick Knott, an officer of the ATO, picked up his tool box and told him that he could pick it up with one finger.

ATC 2235

Matters associated with the audits of the Scott family and associated entities

99. At the commencement of the hearing, objections were under consideration by the ATO in respect of the years 1994 and 1995 with regard to Mrs Scott, Mr Donald Scott and Mr Andrew Scott. In relation to Mr Donald Scott, they were also outstanding in respect of the years 1993 and 1996. The returns for Mr Donald Scott had been lodged on 30 August, 2000 and in respect of Mr Andrew Scott on 26 May, 2000. Mrs Scott lodged returns during the course of the hearing and we refer to that below.

Mrs Scott

100. When asked in cross-examination as to why, at that stage of the hearing, she had not lodged her income tax returns since 1997, Mrs Scott said that she had already explained that at the start. She had been inundated with all the extra work imposed upon her by the ATO. She had no time to sleep and her family was suffering. Although she had sold her practice over a year before the hearing, she still had to see solicitors, deal with objections for clients from the 1997-98 year and for the family as well as do some work for Peter Stokes. She felt that she had to deal with the objections as a whole lot of claims had been disallowed because of her and not because they were not allowable. She had in fact completed her own 1997 income tax return some time ago but it had escaped her mind. It had just been lodged at the time of the hearing. She had also completed her 1998 income tax return. By the end of the hearing, she had lodged her taxation returns for all outstanding years.

101. Mrs Scott agreed with Mr O'Brien that, as she had not lodged any income tax returns for three years, she had not paid any tax in that time. When asked whether she thought that was acceptable as a tax agent dealing with the ATO, Mrs Scott replied that she missed filling in her return because she had so many things on her mind. She had been inundated and had not had time to stop and think or to look after herself. Mrs Scott said that she had also been concerned about the ASCPA as she had not followed their procedures either. That is what the quality assurance review is all about and for that reason she had got rid of her practice.

102. In cross-examination, Mrs Scott agreed with Mr O'Brien that a loan had been taken out by herself and her husband from the CPS Credit Union (``CPS''). It was used for the renovation of a rental property. CPS approached her, Mrs Scott said, for repayment and threatened her with bankruptcy if she did not repay it. She repaid the amount still outstanding after her husband's trustee in bankruptcy had paid part of it. She agreed that she had claimed payment of the whole amount in her 1993 income tax return. When asked how it could be a claimed as a deduction in any circumstances, Mrs Scott replied that the amount possibly included quite a bit of interest. As CPS was trying to bankrupt her, she was trying to protect the income she received from fees as a tax agent and as a chartered accountant. She agreed with the proposition that a tax agent could borrow $100,000 to purchase a home, fail to make the repayments, repay the loan when bankruptcy was threatened and claim the whole payment as a deduction and in so doing avoid bankruptcy and remain a tax agent. Mrs Scott said that she would ``... see it that way''. Her reason was that she paid the money to protect her earnings.

103. This was not a view, she acknowledged, shared by other tax agents. Mrs Scott said that it was her opinion but she has not advised her clients that they can claim in these circumstances. She claimed because she considered it an allowable claim. At this stage, she could not point to cases or law supporting her opinion. In response to Mr O'Brien's statement that she had nearly four years to find something and had found nothing, she said that, if it comes to an argument, she ``... would look something up''. She has not come up with anything to date as she has not been looking. There are cases for and against her position and she believes her case to be different. She would do the research when it became necessary to do it and she was not prepared for questions on it at the hearing. She had had other things to do as there had been a lot of other things to do. At the time she made the claim, she believed it to be allowable. Mrs Scott said that she found that there was a case about a doctor who claimed the expenses of fighting his de-registration. If his expenses were allowable, then why could she not claim the payment of a loan to prevent her from becoming bankrupt.

104. Regarding Mrs Scott's claim for expenses in relation to vehicle registration number 717OZK (``the Commodore''), she agreed that she claimed 12% of the cost price of the motor vehicle for the year ending 30 June,

ATC 2236

1993 (Exhibit 1, tab 2, page 130). Mrs Scott had stated that the vehicle was purchased or leased on 1 January, 1993 and it was owned or leased from that time until 30 June, 1993. When asked for information to support her claim, Mrs Scott provided Mr Kennedy with a receipt for payment of $3,800 for a Commodore Sedan, a certificate of road worthiness, two invoices for services to the vehicle addressed to Mr Andrew Scott and a further invoice addressed to Mrs Scott (Exhibit 1, tab 2, pages 177-181). The receipt, which is dated 10 January, 1993, bears a notation that the sum has been paid by the partnership and debited to Mr Donald Scott's salary account. One invoice noting that it applies to the Commodore bears a notation that it has been credited to the loan account of Mr Donald Scott (Exhibit 1, tab 2, page 179). One of the remaining invoices notes that it has been paid by the partnership. Both of the remaining invoices bear the notation ``VEHICLE REGO NO.?'' (Exhibit 1, tab 2, pages 177 and 178).

105. When these matters were drawn to Mrs Scott's attention, she replied that they all had ``bombs''. They change cars from one to another. If you pass clothes or a shirt to a son, do you give him a letter stating that you have done it, she asked. When asked if she owned or leased a vehicle in 1993, she said that, if she claimed it, she would have. At one time or another, she has owned all of the vehicles used in the family. The Commodore, for example, had been purchased by her husband and then passed on to her before being passed to her son in Sydney. She could work it out, she said. The motor vehicle registry had not been notified each time a member of the family passed a car to another member and a car could pass through three or four hands in any one year. A certificate of registration does not prove ownership and nor does an invoice for repairs to a vehicle.

106. Mr Kennedy had prepared a schedule of vehicles claimed in the income tax returns for Mr and Mrs Scott, Mr Donald Scott, Mr Andrew Scott and Mr Allan Scott in relation to the financial years ending 30 June, 1993, 1994 and 1995 (Exhibit 6). That schedule shows that the Commodore was claimed in 1993 by both Mrs Scott and by Mr Andrew Scott, who claimed a change of ownership during the year. When asked whether there was a change of ownership during the year, Mrs Scott said that there had not been a change through registration or documentation but that the Commodore had been passed on to her son, Andrew ``as a family thing''. She did not pass on ownership in so many words. Instead, she said that when she finishes with it, he then drives the vehicle for a period. She might pass it on because she has another car or one of her sons has purchased another car. In 1995, the Commodore was claimed by both Mrs Scott and Mr Andrew Scott. Mrs Scott said that her son had passed the vehicle back to her in 1995. In that year, three of them had owned the Commodore: herself and two of her sons (Andrew Scott and Christopher Scott). In addition, Mrs Scott said, the Commodore also went to Sydney for a period to be used by her son, Donald.

107. Mrs Scott said that a similar thing had happened with the Galant, registration number 790-BAP (``the Galant''). In 1993, both she and her son, Allan, had owned that vehicle. The schedule shows that both claimed it in that year (Exhibit 6). Some time during the year, she gave it to Allan but there was no documentation. She could not recall the conversation that took place at the time. Mrs Scott thought that Allan took over the payments on the vehicle at some time. The vehicle returned to her in 1994. The schedule shows that she claimed it in 1994 (Exhibit 6).

108. A contract signed on 31 May, 1993 by Mr Andrew Scott states that he is the vendor of the Galant and the purchaser of a new vehicle (Exhibit 1, page 225). When told that she had produced that contract to establish her ownership, Mrs Scott said that she found it a bit strange. They had given the Galant to Andrew to trade in when he bought a new car. She agreed with Mr O'Brien that this was another transfer of ownership.

109. Mrs Scott said that she recalled transferring the ownership of a Cortina registration number RHD-754 (``the Cortina'') to her son, Andrew. She could not recall the conversation in which she had done that but she must have told him that he could take it or he asked for it. Mrs Scott claimed a deduction in relation to the Cortina for both her and her son, Andrew, in the 1994 tax year. A certificate of roadworthiness states that the Cortina was inspected for Andrew Scott on 19 April, 1993 (Exhibit 1, page 184). Mrs Scott said that Andrew's name appeared a lot at the time as he could borrow money. Anyone could register a

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vehicle and it did not prove ownership. If she claimed that she owned it she owned it.

110. Mrs Scott agreed that she claimed four vehicles in her 1995 return: the Commodore, a Magna registration number 329-PVO (``the Magna''), a Suzuki registration number 949-AES (``the Suzuki'') and a Falcon registration number 330-ACR (``the Falcon''). If she claimed them, she said, she would have believed that she owned them. The Commodore was also claimed in that year by Andrew and Allan and the Magna by Allan Scott. The Magna had been claimed by Andrew Scott in the previous year, 1994, and by Allan Scott in 1993. The Falcon had been claimed by Mrs Scott, Donald Scott and Christopher Scott in 1994 (Exhibit 6).

111. In response to Mr O'Brien, Mrs Scott denied that she just claimed in respect of any vehicles she liked. She said that she was possibly able to prove it if she looked for the documents. The payments possibly came out of credit cards. She agreed that she had claimed the four vehicles in 1995 in respect of 5,000 kilometres each. She said that she could have claimed more but just claimed the minimum. She rejected the suggestion that she claimed the vehicles within the family up to the 5,000 kilometre limit as she saw fit irrespective of whether she claimed ownership.

112. Mrs Scott agreed that SPS had, in its 1993 income tax return, claimed legal expenses as a deduction. Those legal fees which were summarised by Mr Kennedy (T documents, page 124), had been to do with her. When asked whether they were to do with a deed of assignment she made under Part X of the Bankruptcy Act 1966 on 29 October, 1993 (Exhibit 1, tab 2, pages 96-97), Mrs Scott replied that she did not know precisely what the legal expenses were. They were possibly the same as those they had talked about earlier in the day. She was asked whether she had claimed those legal expenses in SPS's return on the basis that, if they were not paid, she would become bankrupt and SPS would lose its source of income. Mrs Scott replied that she supposed so. If she were pressed on the issue of the legal fees, she guessed the answer would be the same. Mrs Scott said that it was arguable that SPS would protect her so that it could continue to be paid an income.

113. Were the matter to come to the Tribunal, she would do the research. She believed she was correct in claiming the legal fees but would need to do the research. Mrs Scott said that she had done some reading at the time she lodged the claim. She found the doctor's case. There was a solicitor in Canberra who said ``no problems; you just claim it''. Mrs Scott said that she guessed that he said it because she believed it. She denied that her claim was so devoid of a reasonable basis that either she had made a false claim or she had no understanding of the law.

114. Later, Mrs Scott said that she would need to check that the legal expenses were paid by SPS. If they had been claimed, then they were a gift by her husband to her. Although paid by SPS, those expenses were paid out of his salary. There could have been a mistake. She could not recall what she had said to Mr Kennedy and did not know if she had given him the reason based on her Part X arrangement. She could not argue with Mr O'Brien on this matter as she could not remember. Mrs Scott then agreed with Mr O'Brien that a gift could not be claimed as a deduction. If the legal expenses were claimed, it was a mistake.

115. A sum of $5,505 was paid by SPS to Mr Parnis and subsequently claimed as a deduction. Mrs Scott agreed with Mr O'Brien that this was so. Mr Parnis had issued proceedings against her in relation to a franchise agreement he and she had entered. Mrs Scott agreed to grant him a franchise of her business Kwik Tax, which offered taxation services. Mr Parnis alleged that certain representations made to him by Mrs Scott were untrue and the matter was settled out of court in March, 1995. Mrs Scott was required to pay Mr Parnis a sum of money. In cross- examination, Mrs Scott said that she thought that SPS had paid the money and claimed it as a deduction. It was claimed on the same basis as the other payments.

116. Mrs Scott's attention was drawn to s. 51 of the Act. In summary, s. 51(1) provides, in so far as this case is concerned, that certain losses and outgoings may be deducted to the extent that they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on business for the purpose of gaining or producing an income. Section 51(4) of the Act qualifies s. 51(1) by providing:

``A deduction is not allowable under subsection (1) in respect of:

(a) an amount, however described, payable, or expressed to be payable, by

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way of penalty under a law of the Commonwealth, a State, a Territory or a foreign country; or

(b) an amount ordered by a court, upon the conviction of a person for an offence against a law of the Commonwealth, a State, a Territory or a foreign country, to be paid by the person.''

117. SPS had claimed deductions in relation to three ``sundry expenses''. One was described as ``ATO ON ACCT [client]'', another as ``D/ BAY - PENALTIES'' and another as ``PENALTY ATO'' (Exhibit 2, page 32). Mrs Scott said that she did not pay these amounts because she had committed any offence. She had paid the amounts because their imposition might have been caused by her and it saved the clients bother as well as saving her from having an argument with the clients. SPS had not committed an offence, Mrs Scott said, but they had caused the clients to lose money. Therefore, they should pay it rather than argue with the clients about liability. When asked whether she had done any research on the case law, she said that this had been her understanding when she read the Australian Tax Practice.

118. Mrs Scott explained this further in her statement:

``... Mr Kennedy, Mr Sikkema and the other ATO officer... stated that the legislation did not allow the taxpayers to claim fines as fines were due to a breach of the Act. I carefully explained to them that there was no dispute about that but in this case the business did not breach the Act. The business did not pay the penalties because it breached the Act itself, it was the taxpayer who breached the Act.

62. The payments were made for commercial expediency. For example, C Van Der Smissen when queried about interest income at his interview claimed that he did receive interest but he could not remember how much. He said he would bring the information in. He brought the bank statement in some days later. As this was done during the busy tax season and he walked in without an appointment at a time when another client was being interviewed, the statement was accepted but it appeared that it was inadvertently filed without the amendment to the return being made. A year later he received notice of his undeclared interest income from the ATO. He brought this notice to us and we paid it. I do know and have spoken to other accountants and tax agents who have done something similar ie it is not uncommon for accountants and tax agents to have to incur such costs, it is part of their business. In my opinion, the cost to the accountant is a cost of running the business not a cost of breaching the Act. From my readings of the Australian Tax Practice (see page 422 in the 1999 version), it is stated that such costs are deductible. In my opinion, such amounts paid by the accountants are costs of running the business.''

(Exhibit F)

119. In the 1995 tax year, SPS claimed a deduction in relation to the amounts it had paid as repairs to a pergola at the home at Kallangur in which Mrs Scott resided with her husband and son, Andrew Scott. Those amounts, totalling $1,333, were part of a larger sum of $3,788.96. SPS had claimed those amounts as deductions as salary paid to Mr Donald Scott. At the same time, Mr Donald Scott returned those amounts as income. The house where the pergola is located is owned by Mr Andrew Scott and rented to Mr and Mrs Scott and SPS. It had been estimated that 20% of the house was used by Mr Andrew Scott for private purposes, 45% by Mr and Mrs Scott as tenants and, for its business purposes, 35% by SPS. This was described in the Audit of Scott Family Entities dated 5 May, 1999 (``Family Audit'') and included in the T documents. The report continued:

``The property is owned by AWS [Andrew William Scott] and the costs are incurred by him. In any case that the nexus between the outgoing by the partnership and the derivation of partnership income is too remote for the deduction to be allowable. Further, the outgoing has a capital nature. The itemised list above indicates major capital expenditure, likely to be improvements rather than a mere repair of an existing structure.''

(T documents, page 707)

The report went on to summarise Taxation Ruling TR 93/30 regarding home office expenses. It concluded that, in the case of the pergola, it would not be a place of business even if clients consulted the partners under it.

120. In her statement, Mrs Scott said:

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``Andrew Scott was alleged to have claimed the building of a pagoda when the receipt clearly stated the rebuilding of a pergola. It was implied that the pagoda was built because the house was rented to Andrew Scott's parents. Pieces of timber were actually falling off the old pergola.''

(Exhibit F, paragraph 69)

121. In cross-examination, Mrs Scott said that she could not recall having told Mr Kennedy that she took clients out to the pergola and could not imagine that she would have done so. The claim would more appropriately have been made in the income tax return of her son, Mr Andrew Scott, she said. He owns the house. Mrs Scott said that they had repaired the pergola and that it had been disallowed on Andrew's return. It was a repair of a pergola, she said. They did not erect it.

122. In the year ending 30 June, 1995, SPS claimed the sum of $350 as the cost of a dinner at the Governor's Room in Sydney. It was paid for on Mr Mark Scott's credit card. Mr and Mrs Scott and one or more of their sons took two other sons to dinner in return for their having provided them with free accommodation while in Sydney. Mrs Scott said that her sons had not asked for payment and that normally they would stay in a motel. She said that she could not see anything wrong with claiming the amount of the dinner as a deduction. The dinner was an occasion for a meeting as well as paying him for his hospitality over five nights.

123. In a letter dated 29 August, 1997, Mr Kennedy sent to the Board a report setting out what he described as a large number of discrepancies in Mrs Scott's income tax returns and those of associated entities (T documents, pages 93-197). At one point in that report, Mr Kennedy wrote that some of the more blatant deductions included ``claiming the personal expenses of family members e.g. motor vehicle expenses, house insurance'' (T documents, page 96). In Mrs Scott's response to the Board dated 17 March, 1999 (T documents, pages 199-339), Mrs Scott said that ``These were claimed because they were paid for by the business'' (T documents, page 217). In cross- examination, Mrs Scott said that she had not been sure what Mr Kennedy was getting at in his comment. If her house is partly used for business, part of the insurance premium is claimable. She denied that she had claimed any private expenses and said that she only claimed allowable expenses.

124. Mrs Scott agreed with Mr O'Brien that, due to carry forward losses, her husband had paid either no tax, or very little tax, during the 1993, 1994 and 1995 tax years. In the Family Audit, Mr Kennedy had noted that the first year in which Mr Donald Scott incurred a loss was 1985. Losses were incurred in the following years until and including 1990. In 1991, he had a small income of $5,884 and, although it fluctuated at times, increased to $51,687 in 1996.

125. Mr Kennedy wrote:

``Ignoring for the time being the restrictions contained in the bankruptcy provisions, taxpayer's calculation of the carry-forward losses are incorrect. Sub-section 80(2) provides a restriction as to the period of time for the recoupment of non-primary production losses. Any losses that remain after this time period (seven years), lapse. This restriction was changed with the introduction of section 79E. That section provides that for the income tax year commencing on 1 July 1989, the restriction contained in Sub-section 80(2) was no longer applicable i.e. there is no longer any time limit for the recoupment of non- primary production losses. However, for losses incurred prior to 30.6.89, the seven year restriction applies even after 1.7.89.''

(T documents, page 710)

It followed, Mr Kennedy said, that the loss of $12,646 in 1985 had to be recouped by 1992 or any balance outstanding would lapse. He found that $5,585 lapsed at the end of 1992 and could not be carried forward with the other losses.

126. Regarding the effect of Mr Scott's bankruptcy, Mr Kennedy wrote:

``Sub-section 80(4) [with respect to pre-1989 years of income] and sub-section 79E(8) [with respect to post-1989 years of income] operate such that losses incurred by a taxpayer prior to the date of bankruptcy cannot be used as offsets to the taxpayer's taxable income subsequent to the date of bankruptcy. However, where a taxpayer makes voluntary payments of debts (and those debts contributed to the ascertainment of the losses) subsequent to becoming bankrupt, a taxpayer is allowed a deduction for those payments {(up to a maximum of

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seven years after the date of bankruptcy) [ sub-section 80(4A)] or (indefinitely) [sub- section 79E(9)]}.

Whilst a first and final dividend was paid in respect of debts owing to creditors on 7.5.92, it is submitted that it cannot be said that this payment is a voluntary payment by taxpayer insofar as it was paid under the administration of the Official Receiver in Bankruptcy. Secondly, the debts for which the payment was made are not in respect of amounts, which contributed to the tax losses.

No voluntary payments have been made by taxpayer. In tape-recorded interviews with taxpayer at which his tax agent was present, the tax agent, CKLS [Mrs Scott], has stated that voluntary payments have been made. DSS [Mr Scott] has stated that the greater majority of the losses are in connection with interest and that interest was paid prior to the date of bankruptcy.''

(T documents, page 711)

127. Section 80(4) provides that:

``Notwithstanding any other provision of this section, where, prior to the year of income, a taxpayer has become a bankrupt, or, not having become a bankrupt, has been released from any debts by the operation of an Act relating to bankruptcy, no loss incurred by him prior to the date on which he became a bankrupt or the date on which he was so released, as the case may be, shall be an allowable deduction.''

Section 79E(4) is in similar terms in relation to the years of income commencing on or after 1 July, 1989.

128. When the difficulties raised by ss. 79E and 80 were put to her in cross- examination, Mrs Scott said that, if nothing else, it was a matter of natural justice. Her husband had owned ten or twelve rental properties. He borrowed to purchase those properties and, on some, paid interest only. The properties were all sold and the lenders paid in full before her husband's bankruptcy. He went into bankruptcy over a small amount. As far as she was concerned, all the interest that had been allowable deductions in previous years could be carried forward. She thought her position was consistent with the law set out in the Australian Tax Practice. The deduction should be allowed because of natural justice. A debt of $126,000 was incurred because of the interest payments on the loans. Her husband met all of his obligations and yet all of his debts were wiped out on his bankruptcy which came about because of a minor matter. Mrs Scott did not see s. 80(4) of the Act as preventing, in a clear cut manner, the deduction sought by her husband.

129. Mrs Scott agreed with Mr O'Brien that Mr Donald Scott was paid $60,000 each year for three years by SPS. Having regard to the carry forward losses he claimed, the net effect was to extinguish any taxable income he had. Mrs Scott asked Mr O'Brien whether her husband was supposed not to claim the losses because otherwise the losses would absorb his salary. If that were so, a person could never have carry forward losses for he or she would be seen as trying to avoid the payment of taxation. Mrs Scott repeated that she could not see what difference it made whether a bankrupt person paid his or her debts before or after his or her bankruptcy. They were paid and, in her mind, it all amounted to the same thing. On natural justice grounds, the carry forward losses should be allowed. Neither ss. 80(4) or 79E(4) applies to Mr Donald Scott's circumstances.

130. She agreed with Mr O'Brien that she should not have carried forward losses past seven years and explained that she had not gone back to check whether they had expired or not. Mrs Scott explained that she had not realised that it might have expired and it was not foremost in her mind that the losses might have expired.

Mr Bromet

131. Mr Bromet was asked whether a payment of $100,000 could be claimed as a deduction when it was made to repay a loan of that amount to purchase a residential property and was made to prevent the lender's taking bankruptcy proceedings against the payer. He replied that it could not for it was a payment of capital. It was a fundamental thing a tax agent would know. He has had ``heaps of occasions'' when clients have wanted a claim to be made in similar circumstances but he tells them that he is not doing it in their returns. If they want to go ahead, they can go to another accountant.

132. In cross-examination, Mr Bromet was given the same scenario with the added factor that bankruptcy would end the taxpayer's ability to earn his or her livelihood or that it was paid by a person other than the potential bankrupt. He said that he would telephone the

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ATO first and present a hypothetical situation. Then he would talk to a friend in one of the national accounting firms. That friend would say, ``yes, no or maybe''. If the answer were ``maybe'', he would pay $2,500 for advice. If it were a longstanding client, however, he would not have let the situation get to the stage of bankruptcy. Bankruptcy does not happen overnight. As the facts were presented, however, he saw the repayment as one of capital.

The quality assurance review of C Scott & Co's quality control system

Mrs Scott

133. Mrs Scott said that her practice was in the second group to be reviewed. The ASCPA intended that all practices would be reviewed in a five year period. The Society had sent her a list of reviewers and she had selected Mr Bromet. She had never met him before the review took place and that was consistent with the notion of an independent review. It was usual to be reviewed by someone who had a similar practice to the person being reviewed but a person from a multi-person practice could review a single practitioner.

134. Mrs Scott herself became a Quality Assurance Reviewer for the ASCPA. She has conducted approximately 10 reviews in that capacity. Every two years, the ASCPA required her to attend courses. In addition, it provided her with a manual and with questionnaires. Each report she prepares is considered by a committee in Melbourne. She does not refer to the practice's name and does not keep any papers once the committee tells her that her report has been accepted.

Mr Bromet

135. As well as being a registered tax agent, Mr Bromet is a certified practising accountant and governing director of Bromors Pty Ltd, Certified Practising Accountants in Brisbane and Warwick. He graduated in 1976 and was admitted as a member of the ASCPA on 10 July, 1977. In 1984, he was admitted as a fellow of that society. His practice as an accountant began in 1977 while he was still a member of the Australian Army. He had been a tax agent throughout his 20 years in the Army. In the past, he has practised on both a part-time and a full-time basis but Mr Bromet now practises as an accountant and tax agent on a full-time basis. In the 1970s, his practice was mainly concerned with wage and salary earners and very small business. His practice has been growing in the last five years but is still primarily concerned with wage and salary earners and small, developing and growing businesses.

136. Mr Bromet said that he has experience with what Mr Logan described as ``para accountants'' i.e. those with no professional accounting qualifications but who are not untutored in accounting practices. He said that they were a ``godsend'' and he often puts recently graduated accountants under the supervision of such people and also asks them to interview clients with regard to their income tax returns. Initially, he sits with new staff when they interview clients to satisfy himself that they know how to do it. When he is satisfied, he leaves them to do it.

137. Mr Bromet uses checklists in his practice. They are used so that anyone in the office can pick up a file and know the point reached with the file. The checklists change and sometimes do so two or three times a year. That happens as the checklist is reviewed and as Mr Bromet sees what others are doing when he conducts his reviews.

138. Mr Bromet said that he had been appointed as a Quality Assurance Reviewer for the ASCPA. That Association had commenced a quality assurance programme in the mid 1990s as it had been concerned with standards exhibited by accountants and tax agents throughout the country. For the first five years, the programme was educational. Reporting was then instituted and there were three types of report: accept; accept with an assurance by the person being reviewed that he or she would comply with certain requirements; and a fail with a follow up report. Other professional associations followed the ASCPA's lead in this area. Tax agents who are not members of any professional association are monitored by the Board, Mr Bromet said. Mr Bromet said that an accountant pays to be reviewed and pays $1,000 per day. If an accountant is not successful on the first review, he or she must pay the fee again.

139. Mr Bromet said that he wants a better and more profitable practice with fewer risks out of the review process. That is why he prefers peer review to any other form of review. Often revenue gatherers have no qualifications or qualifications in only a very small area. Consequently, their ability to answer questions

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is greatly diminished while they expect the ability of tax agents to answer questions to be greatly heightened.

140. Mr Bromet said that the checklists used by reviewers with the ASCPA are comprehensive and have been designed to accord with the Society's standards. The checklists are approximately 33 pages in length and there are ten or eleven questions on each page. They have been developed in consultation with the Board which has been involved in the programme from the start and which accepts the ASCPA's reviews. As to the number of files he would review in a practice, Mr Bromet said that it would be determined by the size and scope of the practice and where the risk to the revenue lies. He said that the risks in a practice do not lie so much in individual claims but in audits, companies and partnerships. On average, he would review 60 to 70 files. He would spend half the time going through the files and then spend the rest of his time going through the questions on the checklists in light of what he had seen on the files.

141. In May, 1995, Mr Bromet said, he conducted a quality assurance review of the quality control system of C Scott & Co in accordance with the then provisions of the APS Statement of Quality Control Standard. At that stage, the review was educational. Mrs Scott's review was not his first review but would have been in his first 15 or 20. He first interviewed Mrs Scott, whom he had not previously met, in her office. She explained to him the profile of her practice and he then reviewed files that she had chosen. Those files included financial reporting, taxation, corporate secretarial and audit files. Mr Bromet explained that, in the next phase of the programme that was not educational, Mrs Scott would not be permitted to choose her own files. In the educational phase of the programme, there was no need for her to show him problem files.

142. As to the control and supervision of her staff (i.e. her husband and son, Allan) Mr Bromet concluded from his observations of her and her practice that she was ``100% involved in management and running of practice in both offices'' (Exhibit H, paragraph 6). Mrs Scott sat in on interviews with clients, he said, and then gave the work to her husband and son to complete. From his observations of the files, Mr Bromet concluded that Mrs Scott reviewed the files and corrected and changed the work (including work on taxation returns) they completed. He believed that she adequately supervised and controlled her husband and son, in the preparation of taxation returns.

143. Mr Bromet said that, after he prepared his report, he submitted his working papers to the ASCPA together with his recommendation. His work is then graded and his recommendation is either rubber stamped or he is asked to attend to other matters. He continues to undertake reviews for the ASCPA.

Accepting the client's instructions

Mrs Scott

144. Mrs Scott said that she takes her clients at their word and she has no reason to disbelieve them. At times, her clients do not bring all of their receipts with them. It is not her role to check all receipts and it is stated quite clearly by the ASCPA that it is not a tax agent's role to audit clients.

145. The range of fees Mrs Scott charged wage and salary earners in 1998 varied from about $55 up to $120. For that she spends approximately 30 minutes with the client and then another half an hour to an hour in front of the computer.

Mr Bromet

146. Mr Bromet said in his statement that, when preparing income tax returns, an accountant should take his or her client's statements as being accurate unless there is some reason to doubt their accuracy. If there is something incongruous in a client's statements, an accountant should obtain further instructions.

147. In giving oral evidence, Mr Bromet said that long standing clients of his were used to producing their receipts to him. New clients had to be educated. A few years ago, the ATO conducted the WRE programme and requested receipts for some claims. His clients would tell him that they did not need receipts if their claims for deduction were less than $300 but he told them that they did if they were audited.

148. If he received an income tax return from another accountant, Mr Bromet said, he would not be looking for receipts and would be comfortable with a note that the claim was as vouched for. It all depended, however, upon whether he knew the accountant or the client. If there is an audit, there will be a need to go behind the cheque butt to the invoice for the expense but, in day to day practice, there is no

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time to go beyond the cheque butt. It is important to set a standard in the practice that lets people know that they are fairly safe if they are looked at by the ATO. Some tax agents are looked at by the ATO and the chances of being audited are higher if a client goes to them. Mr Bromet said that he had experienced a few audits but the ATO has left his firm alone. The impact of an audit, he added, is that it ``absolutely kills you''.

149. If a claim were made for a deduction in relation to a vehicle that was not a ``car'' as defined in the Act, Mr Bromet said, he would want to take from the expenses for the vehicle the percentage representing the private use of that vehicle. He would look to the ATO for some guidance. If there were no receipts, he would ask his client how he knows that he has used it for business. He would want to see proof in the form of invoices and odometer readings. Mr Bromet did not see any difficulty in using a cents per kilometre method for formulating the claim. It is a basis for a conservative claim. The size of the claim determines the amount of time put into the claim. The client comes first and then the ATO but it must also be remembered that there is a business to run.

Mr Donald Scott

150. Mr Scott said that, unless the clients brought the substantiating documentation with them to the interview, he would only check the receipts if there were an audit. If they came without the receipts, he would tell them that they might have to be prepared later if there were an audit.

Putting forward an arguable proposition

Mr Bromet

151. Mr Bromet said in his statement that, when preparing income tax returns, he believed that it is an accountant's duty to put forward a proposition that is arguable. To fail to do so, he believed, could amount to negligence by the accountant.

Relationship with the ATO

Documentary evidence

152. A twenty one page document set out extracts from correspondence written by Mrs Scott to the ATO (Exhibit 19). Those extracts were headed ``Examples of Derogatory Comments''. We have read the document but will not attempt to summarise its contents.

Mrs Scott

153. In her statement, Mrs Scott said of her dealings with the ATO:

``75. I did not have alleged `clashes' with the Society of CPAs, the Official Trustee or the Ombudsman. In the report to the Tax Agent's Board it was alleged that I called Neil Jewel, who reviewed the family audits a `liar'. I never called Mr Jewel a liar. Furthermore, in a subsequent telephone conversation with him he agreed that I did not call him a liar.

76. Throughout the interviews, Mr Sikkema thanked both my husband and myself for our co-operation yet in the report to the Tax Agents' Board it was stated that we were uncooperative and presumably hindered the audit. The Tax Officers were treated in a cordial and professional manner when they came to my office. Full hospitality was extended to all the officers that visited my practice.''

(Exhibit F)

154. In cross-examination, Mrs Scott said that she wrote to senior officers in the ATO but they would not help. All that she received were more and more audits. She complained to the Ombudsman but no-one wanted to help. The ATO, on the other hand, could do what it liked. It could be derogatory. She said that she was under pressure and could be a bit terse and a ``bit overboard''. If Mr O'Brien were to put himself in her place, she said, he would have done more. Others call the ATO worse things than she does and she could have brought cuttings to show that. She agreed that she uses harsh language but, she asked, what else would she use when she is accused of lying and she is not in the habit of lying.

155. If she were uncertain what to do in a particular matter, Mrs Scott said, she would telephone another accountant, refer to books or possibly telephone the NTAA or the ASCPA. She would only do that on something that was unusual or where there was no procedure. She would telephone about 10, 15 or 20 times in a year. When it was noted that she had not mentioned the ATO, she said that she might telephone to check up but that, for technical advice, she would go to an accountant and not to the ATO.

156. Mrs Scott said that she gets on quite well with some officers of the ATO. On reflection, she thought that the relationship with

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the ATO could be improved if she were to discuss things with its officers and if she were not to ``go off the deep end''. All the pressure has been a little bit overpowering.

157. Mrs Scott said that Voice is a publication of NTAA and is available all over Australia. The editorial in the July, 1998 edition of Voice read:

``Are some tax officers getting out of hand?

I would have to say that, by and large, most tax officers, particularly auditors, do their job in a workman-like and even handed manner. Of course, we live in an imperfect world and I guess you all know where I'm heading.

Yep, some tax officers aren't perfect. If the files that continue to come across my desk are any guide there are quite a number of Rambos out there who think that they are on a one man mission to clean up tax agents. Or to be more accurate, to clean up those tax agents who do not meet the obviously lofty standards that these auditors have set.

But I'm making too light of a very serious problem. I currently have three files on my desk in relation to auditors who have decided that it is their job to intimidate and coerce our members. One of those members contacted us and after discussions with the NTAA and our lawyers, took a very strong stance against a Hitleresque bureaucrat. That member has been rewarded with the Tax Office agreeing to have their auditor pull his head in.

Our lawyers have now been given a brief to investigate the widest possible action that can be taken personally against these school yard bullies. If you experience unnecessary and intimidatory tactics, please contact me, Tony Jones, and the NTAA will do whatever we can to assist. I repeat, these are not the norm. But these types of tax officers cannot and will not be tolerated.''

(Exhibit I)

158. In the August, 1997 edition of Voice, the editor had summed up what had happened in the month:

``... You could say it's been a busy month. First, we resigned from all Tax Office forums when Carmody took it into his head to bag tax agents.

Dear Mr Carmody,

We refer to your comments... which stated:

`Far too many Australians have their tax returns done by tax agents and accountants unnecessarily. I am concerned that two thirds or more of taxpayers feel the need to go to a tax agent to complete their tax returns.'

To this point your comments are... `anti agent'... compelling the NTAA to immediately resign from all ATO Tax Practitioner Forums.

Editor: Of course we also wrote to Treasurer Costello to bring him up to speed. And then, we issued a press release on the results of the NTAA referendum on Tax Agents' Standards.

PRESS RELEASE

Referendum a vote against Commissioner's regime

Accountants have returned a vote of no confidence in the Commissioner of Taxation, Mr Michael Carmody, and his proposed Standards on tax agents, which, if implemented would double the cost of preparing tax returns and seriously delay taxpayer refunds.

...''

(Exhibit C)

Mr Bromet

159. Mr Bromet said that, while an accountant has to have a professional relationship, there would not be an accountant who has not experienced some frustration with the ATO. There has been an amount of change and an extraordinary amount of communication between the ATO and tax agents. Generally, he said, the ATO is very good about answering questions. It may not always agree with the accountant but, to be fair, those in the ATO have a ``rotten job''. At times, he has taken action such as sending back to the ATO boxes of mail regarding business activity statements that it had addressed to him rather than to his clients. That was despite the ATO's having required his clients to give their addresses in their applications. He also contacted the ATO and the Minister. Mr Bromet said that he immediately received correspondence from a First Assistant Commissioner stating that it was not aware of the problem and then advising that it had been solved.

ATC 2245

160. When asked by Mr O'Brien whether calling ATO officers liars, incompetent and dimwitted in correspondence was professional, Mr Bromet replied that, were his livelihood to be at risk, he could be driven to it. He would not say that he would not say that he was ``bloody sick of dealing with the ATO's maladministration''. He regularly uses the word ``maladministration'' and regularly writes to the ATO about it. He would say the word ``liar'' to a person's face and has done. When he cannot get through to the ATO, he will say to the client that the only tax officer left is the local member. If he gets to the stage where he cannot make sense out of the ATO, he writes to the Prime Minister and gets a response from a First Assistant Secretary in the ATO. Perhaps Mrs Scott did not realise that she could do that, he added.

Mr Knott

161. In his statement, Mr Knott said that he had recommended that communications with Mrs Scott and persons associated with her be made only in writing. He stated that he did that because those people had a tendency to misquote what was said to them by officers of the ATO either face to face or over the telephone and to abuse its officers. An additional reason for his doing so was that the situation was becoming quite stressful to himself and to other co-employees. Mrs Scott distorted many things and it ``...became easier and safer to deal in writing only.'' (Exhibit 13, paragraph 6). Mr Sorensen wrote a letter on 16 December, 1998 to advise Mrs Scott that communications would only be in writing (Exhibit 7, Exhibit CS2).

Consideration

162. The issue in this case is whether Mrs Scott's registration as a tax agent should be cancelled or suspended. In considering which course we should adopt, we must bear in mind that the cancellation or suspension of the right or entitlement of a person to practise a particular profession or calling is not to be regarded as a penalty upon that person. Rather, a decision to cancel or suspend such a right or entitlement should only be made if it is necessary to do so in order to protect the public. Such decisions have been considered in the context of a variety of professions. In relation to a dealers representative under the Corporations Law (``the Law''), the Full Court of the Federal Court said in
Australian Securities Commission v Kippe & Anor (1996) 67 FCR 499 (Von Doussa, Cooper and Tamberlin JJ) in relation to a banning order made under s. 829 of the Law:

``The immediate and direct legal effect intended by a banning order is not to impose a penalty or punishment on the person concerned, but to be preventive in that it removes a perceived threat to the public interest and to public confidence in the securities and futures industry by removing that person from participation therein.''

(page 508)

163. The principles enunciated by the Federal Court have been applied to the consideration of a banning order against a dealers representative. This was the approach two of us adopted in
Re Wolstencroft and Companies Auditors and Liquidators Disciplinary Board (1998) 54 ALD 773 (Deputy President Forgie and Mr Way, Member) where we said:

``It follows from the view taken by the full court of the Federal Court in the Kippe case that our choice of one of those courses must be guided by what is in the public interest in two senses. First, there is a public interest in ensuring that the individual follows the appropriate course of action in the future. Second, there is the public interest in ensuring that the public can be secure, or as secure as is reasonably possible, in the knowledge that those who are entrusted with the auditing of accounts can be properly entrusted with that task. It is particularly important that auditors ensure that the financial information of whom they audit is presented fairly within an identified financial reporting framework. That is so because their reports are relied upon by those who are both related to and unrelated to the subject of the audit. Those people must have confidence that they can rely on the audited accounts.''

(page 786)

164. This approach is also consistent with the more recent judgement of the New South Wales Court of Appeal in
New South Wales Bar Association v Hamman [1999] NSWCA 404, (Unreported, Mason P, Priestley JA and Davies AJA, 29 October, 1999). The court considered disciplinary proceedings against a legal practitioner and said:

``... Disciplinary proceedings against a legal practitioner are concerned with the protection of the public (
Wentworth v New South Wales Bar Association (1992) 176 CLR 239

ATC 2246
at 250-251). The object is not to punish the practitioner but to protect the public and to maintain proper standards in the legal profession....''

(paragraph 21)

165. Authorities such as
New South Wales Bar Association v Evatt (1968) 117 CLR 177 (Barwick CJ, Kitto, Taylor, Menzies and Owen JJ) and
Hardcastle v Commissioner of Police (1984) 53 ALR 593 (Bowen CJ, Gallop and Lockhart JJ) acknowledge that, in achieving the objects of public protection and the maintenance of proper professional standards, an order made in disciplinary proceedings may involve great deprivation for the person who is the subject of that order. Despite that, the object of the order is not to punish or to extract retribution from the person.

166. Such considerations are equally applicable to our consideration of whether or not a tax agent's registration should be cancelled or suspended. He or she is a professional who enjoys certain rights and privileges and whose judgement and advice is relied upon by the members of the public who seek his or her services (
Re Su and the Tax Agents' Board of South Australia 82 ATC 4284 at 4291; (1982) 61 FLR 1 at 11 per Davis J;
Re Houvardos and The Tax Agents' Board of New South Wales 91 ATC 2032 at 2039-2040; (1991) 23 ALD 505 at 508 and
Re Stasos and the Tax Agents' Board of New South Wales (1990) 21 ATR 3673 at 3682.

167. As we said at the outset, the first issue that we must consider in the context of s. 251K(2) of the Act is whether Mrs Scott is a fit and proper person to prepare income tax returns and to transact business on behalf of taxpayers in income tax matters. To a certain extent, that may overlap with the second issue that we must consider. However, in view of the fact that s. 251K(2)(d) does not make it mandatory that the Board cancel or suspend a registration upon finding that a person is not a fit and proper person, the two issues are discrete. In this, s. 251K(2)(d) may be contrasted with s. 251K(3C)(a) which requires the Board to cancel registration where a tax agent becomes an undischarged bankrupt.

168. While s. 251K(2) does not elaborate upon what is meant by the expression ``fit and proper person'', s. 251BC does so in the context of the registration of a tax agent. As we said, s. 251JA(1)(a) provides that the Board shall register a natural person as a tax agent if that person is ``... a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters...''.

169. Section 251BC(1) then goes on to provide what is meant by the expression ``a fit and proper person'' in so far as it provides:

``(1) Without limiting the generality of an expression used in this Part, but subject to this section, a person is not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters, as at a particular time, if:

(a) the person is not a natural person;

(b) both of the following conditions are satisfied:

(i) the person was not registered as a tax agent, or as a nominee, for the purposes of this Part immediately before the commencement of section 39 of the Taxation Laws Amendment Act (No.2) 1988;

(ii) the person does not hold such qualifications (whether academic, by way of experience or otherwise) as are prescribed;

(c) the person has not attained the age of 18 years;

(d) the person is not of good fame, integrity and character;

(e) the person has been convicted of a serious taxation offence during the previous 5 years; or

(f) the person is under sentence of imprisonment for a serious taxation offence.''

170. Regulation 156 of the Income Tax Regulations (``the Regulations'') prescribes the qualifications for the purposes of s. 251BC(1)(b)(ii) of the Act. Various academic qualifications, together with qualifications by way of experience or otherwise, are prescribed in that regulation.

171. As s. 251BC(1) states, it is not intended to limit the generality of the meaning of the expression ``fit and proper person'' but it is indicative of factors that should be taken into account. Also relevant to consider is the work that is required of a tax agent and the privileges, obligations and responsibilities that the person has in that role. Among the privileges of a tax agent is the privilege that he or she may hold

ATC 2247

him or her self out to the general public as a person who is regarded as suitable to prepare income tax returns and to transact business on behalf of taxpayers in relation to tax matters. Another is that he or she may charge for the services he or she gives to the general public in these matters. Those privileges, however, come with responsibilities and obligations. These were summarised by Hill J in
Stasos v Tax Agents' Board 90 ATC 4950; (1990) 21 ALD 437:

``The conferral of this privilege upon registered tax agents carries with it a consequent set of obligations and responsibilities. A person is required, before being registered as a tax agent to demonstrate that he is a fit and proper person to prepare income tax returns and transact business on behalf of clients in tax matters and, inter alia, that as at the date of application he is of good fame, integrity and character. Accordingly it is necessary that he demonstrate that he has the necessary knowledge and experience to equip himself to perform these tasks (cf
The Tax Agents' Board Queensland v Seymour 90 ATC 4262;
Re Crowley and Tax Agents' Board (NSW) 90 ATC 2005; and
Re Culmer and Tax Agents' Board 90 ATC 2018).

Once registered, however, the tax agent must keep up to date with the massive changes to the income tax law, no easy task in the present time, so that he can properly advise and represent his clients. That is a responsibility which comes with the privileged position in which he is placed. Negligence in the performance of his duties will bring not only the normal consequences in damages in tort, but will render the agent liable to the client statutorily under sec 251M of the Act.

In addition to the tax agent dealing with his client, he will, almost invariably have dealings with officers of the Australian Taxation Office and perhaps the boards or tribunals to which I have already referred. Those dealings must be able to be carried on in an atmosphere of mutual trust. The Commissioner and his officers must be able to accept that, to the best of the ability of the tax agent, returns have been prepared which are true and accurate. This is particularly so now that the Commissioner has proceeded to a system of self-assessment, with inaccuracies only coming to light in case of random audit or, presumably, other information coming to the hands of the Commissioner.

The Commissioner and his officers must be able, also, to accept the word of a tax agent when acting for a taxpayer in negotiations, and a fortiori in matters proceeding in a board, the Administrative Appeals Tribunal or indeed a court it is imperative that the honesty and integrity of the tax agent not be called into doubt. So it is that it is a requirement, not only of initial registration, but of remaining on the register that a tax agent be a fit and proper person to perform the duties of a tax agent and bear the responsibilities that come with those duties.''

(ATC pages 4958-4959; ALD pages 443-444)

172. Turning to the facts of this case, we find ourselves in agreement with Mr Logan's opening submission that this is a disturbing, or perhaps we would say troubling, case. Communications have clearly broken down between Mrs Scott and officers of the ATO. We have chosen not to set out much of the material dealing with that breakdown because we do not find it helpful in reaching our conclusion. We do find, in view of Mr Bromet's evidence and the extracts from Voice, that, at least at times, a considerable degree of frustration is felt by accountants and taxpayers in their dealings with the ATO and its procedures. That accords also with Mrs Scott's evidence.

173. The manner in which that frustration is expressed is another thing. Mr Bromet, we find, chooses to express it by writing in strong language to senior officers of the ATO or to the Prime Minister or the Treasurer. He chooses language that is strong and critical of actions taken by the ATO but, on the examples we were given, is not unbridled in his choice of words and does not stray into language that is personally abusive of officers of the ATO. The language used by the NTAA in Voice is perhaps more colourful and more impassioned than that chosen by Mr Bromet but again does not stray into the personally abusive. Mrs Scott, we find, has also chosen impassioned language to express her frustrations with the ATO but, unlike Mr Bromet and the NTAA, does move from impassioned criticism of the office, its procedures and its approach to particular cases,

ATC 2248

to attacks of a personal nature on individual members of the ATO.

174. The language chosen by Mrs Scott must be considered in the context in which it was used. Mrs Scott herself has agreed that her language has not always been appropriate or well chosen. We are satisfied that she has used it during the course of the various questionnaires in the WRE programme and the numerous audits she has faced not only on her own behalf but on behalf of a not insignificant proportion of her clients. Were the events surrounding those questionnaires and audits such that they justified her choice of language? We will consider those events and her part in them and return to this matter later in these reasons.

175. We find that the events have extended over a considerable period of time and were still continuing at the date of the hearing. Mrs Scott has responded not only to the audits of her own income tax returns but to those directed to SPS and other members of her family. In addition, she has also taken responsibility for responding to those audits and, as part of the WRE programme, to those questionnaires directed to her clients. Mr Bromet's evidence was that an audit ``absolutely kills you'' and that accords with the tenor of Mrs Scott's evidence. In view of that, we find that the workload placed upon Mrs Scott was burdensome.

176. We also find, however, that some of the workload was effectively generated by Mrs Scott's own response to the questionnaires and audits. Putting to one side for the moment the audits in relation to her family, we find that Mrs Scott's reaction of questionnaires being sent to her clients to be one of disbelief if not righteous indignation. In essence, her view was that she believed that they had properly made their claims and that they had a proper basis for their claims. As she said herself, she takes her clients at their word. She does not ask them for receipts to support their claims.

177. A tax agent is not an officer of the ATO and nor has he or she been delegated as a tax collector on behalf of the Commissioner of Taxation (``Commissioner''). He or she is not required to audit a taxpayer's claim before finalising an income tax return on his or her behalf. It is, after all, the taxpayer who must sign that return as being true and correct and so it is the taxpayer who takes responsibility for the statements it contains (ss. 388-60 and 388-75 of the TA Act). Although not required to audit a claim, that does not remove all responsibility from a tax agent. Counterbalancing a tax agent's privilege (set out in s. 251L(1)) to be able to charge for the provision of the services to taxpayers must be an obligation that the tax agent will do so with his or her obligations at law and in equity.

178. In speaking of accountants and solicitors in
Bayer & Anor v Balkin & Anor 95 ATC 4609 but in words equally applicable to tax agents, Cohen J said of their duties:

``It may once have been considered that it was the duty of citizens and residents of a country to make their proper contribution to the revenue so as to enable the government to run the country for the benefit of its inhabitants. It now seems to be accepted, with the imposition of high rates of tax upon those who are most able to contribute to that revenue, that there is a duty on persons such as accountants and solicitors to advise their clients how they can avoid, as far as possible, making what the government regards as a proper contribution....''

(page 4617)

179. That is not to say that the advice must lead to the tax payer's adopting a course of action with which the Commissioner will agree or with which the courts or this Tribunal will ultimately agree. It need only be proper advice at the time it was given (
Doug Sim Enterprises Pty Ltd v Patrick Wan & Co 88 ATC 4078 at 4080 per Kelly SPJ with whom Connolly and Moynihan JJ agreed).

180. A tax agent's responsibilities are not defined simply by reference to the Act under which he or she is registered and with whose interpretation and application he or she is vitally concerned. They are defined also by the law of contract and the law of tort. It seems to us that the responsibilities of a tax agent are defined in the same manner as those of any person who follows a skilled calling. Windeyer J, with whom Dixon CJ and Owen J agree, spoke of such a person in
Voli v Inglewood Shire Council & Anor (1962-1963) 110 CLR 74 when considering the responsibilities of an architect. His Honour said:

``An architect undertaking any work in the way of his profession accepts the ordinary liabilities of any man who follows a skilled calling. He is bound to exercise due care, skill and diligence. He is not required to

ATC 2249
have an extraordinary degree of skill or the highest professional attainments. But he must bring to the task he undertakes the competence and skill that is usual among architects practising their profession. And he must use due care. If he fails in these matters and the person who employed him thereby suffers damage, he is liable to that person. This liability can be said to arise either from a breach of his contract or in tort.''

(page 84)

This passage was cited with approval by Deane J in
Hawkins v Clayton & Ors (1988) Aust Torts Reports ¶80-163; (1987-1988) 164 CLR 539 (Brennan, Deane and Gaudron; Mason CJ and Wilson J, dissenting).

181. Neither Windeyer J in Voli v Inglewood Shire Council in relation to an architect nor Deane, Brennan and Gaudron JJ in their judgements in Hawkins v Clayton in relation to solicitors circumscribed the responsibilities by reference to the fee charged. In their minority judgement, Mason CJ and Wilson J in Hawkins v Clayton did so in quoting the passage from
Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384:

``The extent of [a solicitor's duties to his client] depends upon the terms and limits of [the] retainer and any duty of care to be implied must be related to what he is instructed to do.

Now no doubt the duties owed by a solicitor to his client are high, in the sense that he holds himself out as practising a highly skilled and exacting profession, but I think that the court must beware of imposing upon solicitors - or upon professional men in other spheres - duties which go beyond the scope of what they are requested and undertake to do.''

(page 402-403 quoted at page 544)

182. This passage was considered by Kirby P, as he then was, in
Waimond Pty Ltd & Anor v Byrne (1989) 18 NSWLR 642 (Kirby P and Hope AJA, Mahoney JA dissenting). After noting that the Court of Appeal had accepted a similar proposition in
Hogan v Howard Finance Ltd (1987) ASC 57,531, his Honour continued:

``The attempt to limit a solicitor's duty strictly to the scope of his retainer is inconsistent with the holding of the High Court in Hawkins. It attempts to confine the duty of care to a contractual format. But as the majority established in that case, that duty lies also in tort. The consequences of tort liability may not be the same as of contractual liability. Although the contract of retainer will be an important indicium of the nature of the relationship which gives rise to the common law duty of care (as the minority held in Hawkins) it will not chart exclusively the perimeters of that duty. Deane J pointed out (at 579) that, depending upon the circumstances of the particular case, the duty may require the taking of positive steps `beyond the specifically agreed professional task or function', where these are necessary `to avoid a real and foreseeable risk of economic loss being sustained by the client'. This Court is bound to conform to the majority holding in Hawkins.''

(page 652)

183. It seems to us that the general principles expressed in these cases are equally applicable to the situation of a tax agent. It follows that responsibilities are not determined by the size of the fee or the identity or wealth of the client. In acting on a taxpayer's behalf, it is to be expected that a tax agent will give proper advice regarding the matters raised by the taxpayer and his or her circumstances. As we said earlier, though, that does not mean that the tax agent's responsibilities extend to ensuring that his or her advice, if followed, will lead to a successful claim.

184. A legal practitioner must maintain a high standard of conduct and that necessarily flows from the fact that he or she has an indispensable function in the administration of the law. This was held to be so in
Ziems v Prothonotary of the Supreme Court of New South Wales (1957) 97 CLR 279, (Fullagar, Kitto and Taylor; Dixon CJ and McTiernan J dissenting) at 286 per Dixon CJ and 298 per Kitto J in relation to a barrister but it is no less applicable to the conduct of a solicitor (
Re B [1981] 2 NSWLR 372 at 381-382 per Moffitt P). In so far as the courts are concerned, a legal practitioner who is a solicitor, is an officer of the court (
Fox v Bannister, King and Rigbeys [1988] QB 925 at 928. As part of their duties, legal practitioners must not improperly initiate or maintain court proceedings unreasonably where they have no, or substantially no, chance of success (
Edwards v Edwards [1958] P 235 at 248).

ATC 2250

185. Do duties of this nature apply equally to a tax agent? A tax agent is a creature of statute and does not have a history of the sort attaching to a barrister or solicitor. At the same time, the statute sets its own duties in that the person who is a tax agent must, among others, meet the criterion of being a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters. Taxpayers are themselves under obligations to furnish information and records as prescribed in the TA Act. They commit an offence should they recklessly or knowingly make a false or misleading statement or incorrectly keep records (TA Act, ss. 8N, 8P and 8Q).

186. In view of these matters, it seems to us that it would not be an action of a person who is a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters if a tax agent were to lodge a claim without forming a view as to whether it has a chance of success and if, having formed that view, there were no reasonable grounds for that view. Otherwise, if the tax agent made a claim that had no chance, or substantially no chance, of success, it could not be said that he or she acted reasonably. The tax agent's view may be formed in a variety of ways and what is sufficient to form it will depend upon the nature of the claim that is made. Mr Bromet has educated his clients. His clients know that he expects that they will have the receipts to support their claims. If they do not, they can go to another accountant.

187. Mrs Scott, on the other hand, takes a different approach. We find that she does not ask to see receipts unless a rental property is concerned. There is no evidence that she takes or has taken any steps to educate her clients as Mr Bromet has done. We do find that Mrs Scott has an intrinsic and unshakeable belief in what her clients tell her. While both Mr Bromet and Mrs Scott have a belief that the claim they are putting forward on a client's behalf has a reasonable basis, it may be arguable in an individual case that Mr Bromet's is more reasonably founded. Whether or not it is in an individual case, it must be said that, taking an overall view of their clients, Mr Bromet has, when compared with Mrs Scott, a reduced risk of acting for a client who is not able to establish the basis of his or her claim when called upon to do so by the ATO. Mrs Scott points to the fact that she can charge only relatively low fees for the preparation of the income tax returns of wage and salary earners but that does not lessen the risks of finding herself acting for a client who cannot establish a claim.

188. In the context of this case, we are concerned not so much with Mrs Scott's actions at the time she prepared the claim as with her actions when faced with the questionnaires. Having prepared the claims without seeking the receipts from her clients, she ``went in to bat'' for her clients on the basis of her belief but with little, if any, relevant information. Certainly, we find, she did ask them for documentary material but we find that she also seemed to regard the ATO's questioning of their claims as inappropriate. She displayed that attitude, for example, in relation to the car expenses she and her family claimed. Although not providing any proof of ownership of the cars for the periods claimed, she asked us to accept that, if she said she owned a car at a particular time, she must have owned it. In relation to Mr Francis and his claim for bulky tools, for example, she made assertions as to the bulk of his tools, storage facilities and the like at his place of work but did not provide any evidence to support her own statements. In relation to Mr Pearce, we find that she gave no documentary basis to support the interest claimed.

189. We find also that Mrs Scott chose to ignore the requests for information made by the ATO. The examples we have given in the previous paragraph illustrate this aspect. So too does the manner in which she dealt with the ATO's queries regarding Mr Heaslip's claim. We find that Mrs Scott was very vigorous in her defence of his claim and the manner in which it had been made and relied on the fact that it was not a car. At the same time, she overlooked the fact that the questionnaire sent to Mr Heaslip specifically asked for details of such vehicles and asked for all relevant details as to the connection between those vehicle expenses and the taxpayer's employment duties. Mrs Scott's lack of responsiveness to the questions asked by the ATO was also reflected in the manner in which she returned the income she received from fees. In setting out the amount she received as income, she chose, for example, not to show the amount she received as fees less the charges rendered by SPS for providing its services but to show the net figure of the amount paid to her by SPS. Her argument that

ATC 2251

the effect of showing the gross figure less the expenses was the same as showing the net amount was not to the point. Her answers were not responsive to the questions asked in the income tax return.

190. We find also that Mrs Scott has been vigorous in the pursuit of claims that the ATO has regarded as untenable. They include a claim that expenditure by SPS to cover legal expenses incurred by Mrs Scott in relation to a Part X arrangement entered in order to avoid her bankruptcy may be claimed on the basis it is protecting the generator of its income. They also a include a claim that work on the pergola at the home rented by Mr and Mrs Scott from Mr Andrew Scott is claimable as a home office, or at lease part of a home office, and a claim for the payment by SPS of amounts paid to clients on the basis that those clients had incurred fines or penalties as a consequence of Mrs Scott's work. Mr Logan submitted that those claims could be regarded as ``adventurous'' but Mrs Scott was not alone in conceiving claims that may be regarded as adventurous. It is not unknown for claims that were once regarded as adventurous to have subsequently found favour (
Frankcom v FC of T 82 ATC 4599; (1982) 65 FLR 25,
Handley v FC of T 81 ATC 4165; (1981) 148 CLR 182 and
Thomas v FC of T 72 ATC 4094; [1972-1973] ALR 368).

191. Adventurous or not, we do not consider that it is our role in the context of this case to pursue the issues and to come to a conclusion whether or not we consider the particular claims are tenable or untenable. What we do consider is our role is to consider whether they have been made after the tax agent has formed a view on reasonable grounds that the claim has a chance of success. On the basis of Mr Bromet's evidence, we are satisfied that this is a proper approach for a tax agent to take. If confronted with a claim that was ``out of the ordinary'' and of the sort we have described in the previous paragraph, we find that his reaction would be to seek a second opinion. If the opinion were that the claim had foundation, he would go further and seek written advice. On the basis of his evidence, we find that he would not simply pursue a claim of this type without seeking that opinion or at least undertaking some research.

192. Mrs Scott, we find, has taken a different approach at the hearing. Her response when asked for the foundation of the claims was to say that she would do the research if the matter came to the Tribunal. She also referred to a case in general terms but was not able to discuss it in any detail. Certainly, it would be expected that there would be more research done before a claim came to a hearing at the Tribunal but it would also be expected that some work would have been done at an earlier stage on the foundation of that claim. As we have said before, it is to be expected that a tax agent will have a reasonably founded view that the claim he or she is making in a taxpayer's income tax return has a chance of success. It is also reasonable that the ATO should be able to expect that there will be such a view. It may not agree with the foundation of the view but, as we have said before, that does not concern us in this context.

193. In this case, we find that Mrs Scott has not demonstrated that she has made the claims referred to with a belief that had a reasonable basis. It is not enough to say that she would prepare her research if the disputed claims came to the Tribunal. That basis, even if not thought through in every ramification, should have been presented to the ATO at the time it questioned the claims if not at the time of their lodgement. In relation to the hearing about her registration as a tax agent, we find that Mrs Scott has long been on notice that claims she has made either on her own behalf or on behalf of her family or clients were regarded as providing some of the basis for the cancellation of her registration. The T documents have set out the claims in detail as have the subsequent statements of ATO officers admitted in evidence in these proceedings. It could have reasonably been expected that she would have been in a position to put forward the foundation for her belief in the appropriateness of those claims at the hearing. Apart from relying on generalisations and imprecise references to the Australian Tax Practice she has chosen not to do so in most instances. In relation to the carry forward losses claimed by her husband, Mr Donald Scott, Mrs Scott resorted to concepts of natural justice but made no reference to the Act whose provisions, rather than natural justice, govern whether or not the losses may be carried forward.

194. In view of the findings we have made, we also find that Mrs Scott's work as a tax agent has been marked by lack of careful preparation and research. This lack of care was also apparent in relation to the responses she made about the answers she had given to the

ATC 2252

creditor's meeting on 22 November, 1993 regarding her clients at the time. Having been given the opportunity to consider whether she had 1,000 clients at the time and having confirmed that it was so, she then sought to explain her answer to the creditors' meeting that she had only 12. Her answer at the hearing that she had been referring only to the clients with C Scott & Co is unconvincing in the context when regard is had to the fact that she admitted she had 1,000 clients at the time and the proceedings were intended to determine her potential sources of income.

195. Mrs Scott's lack of preparation also became evident when faced with the questionnaires in the WRE programme and the audits. There is no question that the questionnaires and audits require detailed attention and generate an additional workload upon a tax agent. That workload can be burdensome but we are satisfied that, given proper attention, it should not have proved overwhelming as we find it did for Mrs Scott. It only became overwhelming because of the approach that we have found was adopted by Mrs Scott.

196. The fact that the workload proved overwhelming does not justify Mrs Scott's being late in the lodgement of her own income tax returns. She may have been overwhelmed by the workload in the years between 1996 when the audits began and the middle of 1999 when her registration was cancelled. We find that, at the commencement of the hearing, she had not lodged her own income tax returns since 1997. We find that, as a consequence, she was in breach of s. 161 of the Act. Even though the lateness of her returns was again a matter that was clearly to be raised in these proceedings, she did not file them.

197. That brings us to the preparation of the income tax returns prepared by Mr Donald Scott and Mr Allan Scott. We find on the basis of Mrs Scott's own evidence and that of Mr Donald Scott and Mr Allan Scott that they prepared income tax returns and that Mrs Scott claimed that she supervised them in the preparation of those returns. Putting to one side whether she did in fact supervise them in the preparation of those returns as required by s. 251N(2A), there is an initial question whether they were her employees within the meaning of s. 251N(1).

198. The word ``employee'' is to be given its ordinary meaning and not to be interpreted as extending to an independent contractor, Pincus J found in
The Tax Agents' Board of Queensland v Seymour 90 ATC 4262; (1990) 21 FCR 357 when he said:

``Reading sec 251N with the prohibition in sec 251L in mind, the intention is seen to be that the work of preparing returns and objections for fees is to be done only by registered tax agents, their partners and their employees. The expression `employee' in sec 251N(1) prima facie refers to a person working under a contract of service - ie an employee in the ordinary sense; see the Oxford English Dictionary (2nd ed) and as an example
Morren v Swinton and Pendlebury Borough Council (1965) 1 WLR 576; [1965] 2 All ER 349. That construction is reinforced, to some extent, by the terms of subsec (2) and (3) of sec 251N which, by referring to supervision and control, point to the conclusion that the person actually doing the work is an employee in the strict sense, not an independent contractor.''

(ATC page 4265; FCR page 360)

199. What is the ordinary sense in which the word ``employee'' is used? The word is defined in The Shorter Oxford English Dictionary (3rd edition with corrections, 1978) to mean, in so far as it is relevant:

``... One who is employed; esp. one employed for wages or a salary by a business house or by government...''

Among the meanings of the word ``employ'' is ``... to have or maintain in one's service''. The Macquarie Dictionary (1st edition, 1981) defines ``employee'' as:

``... a person working for another person or a business firm for pay....''

It defines the word ``employ'' to mean, in part, ``... to use the services of (a person); have or keep in one's service...''.

200. It was said in
Stevens v Bodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16; 63 ALR 513 by Deane J that the distinction between an employee and an independent contractor has become ``... an increasingly amorphous one as the single test of the presence or absence of control has been submerged in a circumfluence of competing criteria and indicia'' (page 49 and 536). Wilson and Dawson JJ in the same case set out some of the

ATC 2253

indicia of a contract of service (as would indicate an employee) and a contract for services (as would indicate an independent contractor):

``In many, if not most, cases it is still appropriate to apply the control test in the first instance because it remains the surest guide to whether a person is contracting independently or serving as an employee. That is not now a sufficient or even an appropriate test in its traditional form in all cases because in modern conditions a person may exercise personal skills so as to prevent control over the manner of doing his work and yet nevertheless be a servant:
Montreal v. Montreal Locomotive Works [1947] 1 D.L.R. 161, at p. 169. This has led to the observation that it is the right to control rather than its actual exercise which is the important thing (
Zuijs v. Wirth Bros. Pty. Ltd. (1955) 93 C.L.R. 561, at p. 571) but in some circumstances it may even be a mistake to treat as decisive a reservation of control over the manner in which work is performed for another. That was made clear in
Queensland Stations Pty. Ltd. v. FC of T (1945) 70 C.L.R. 539, at p. 552, a case involving a droving contract in which Dixon J. observed that the reservation of a right to direct or superintend the performance of the task cannot transform into a contract of service what in essence is an independent contract.

The other indicia of the nature of the relationship have been variously stated and have been added to from time to time. Those suggesting a contract of service rather than a contract for services include the right to have a particular person do the work, the right to suspend or dismiss the person engaged, the right to the exclusive services of the person engaged and the right to dictate the place of work, hours of work and the like. Those which indicate a contract for services include work involving a profession, trade or distinct calling on the part of the person engaged, the provision by him of his own place of work or of his own equipment, the creation by him of goodwill or saleable assets in the course of his work, the payment by him from his remuneration of business expenses of any significant proportion and the payment to him of remuneration without deduction for income tax. None of these leads to any necessary inference, however, and the actual terms and terminology of the contract will always be of considerable importance.

Having said that, we should point out that any attempt to list the relevant matters, however incompletely, may mislead because they can be no more than a guide to the existence of the relationship of master and servant. The ultimate question will always be whether a person is acting as the servant of another or on his own behalf and the answer to that question may be indicated in ways which are not always the same and which do not always have the same significance...''

(pages 36-37 and pages 526-527).

201. On the facts of this case, we find that Mr Donald Scott and Mr Allan Scott were two of the partners in SPS. Amounts described as ``salaries'' were paid to them by the partnership, SPS. Mrs Scott does not pay Mr Donald Scott and Mr Allan Scott any amounts that are earmarked as payment for services they have rendered individually. Rather, the payments are all made to SPS which, we find on the basis of the partnership agreement, receives all the fees of C Scott & Co together with the right to all fees billed but unpaid and of work in progress.

202. We also find that the partnership, SPS, entered the contract to provide services to Mrs Scott for the purpose of operating and managing the ``Business'' i.e. the provision of services and products through C Scott & Co. The services include the preparation of income tax returns. There was no contract between Mr Donald Scott and Mrs Scott and between Mr Allan Scott and Mrs Scott to provide their individual services. There was no contract that one or the other of those gentlemen would provide services; only that they would be provided by SPS.

203. In view of these matters, we have concluded that neither Mr Donald Scott nor Mr Allan Scott is an employee of Mrs Scott. In so far as she has permitted them to prepare income tax returns on her behalf, she has been in breach of s. 251N(1) for neither is a registered tax agent. The same conclusion must be reached in relation to SPS for it is not a registered tax agent. It is not an employee of Mrs Scott.

ATC 2254

204. The position in relation to Mrs Giesemann is less clear and we do not consider that we need to consider whether she is an ``employee'' in this case. We do, however, need to consider the issue of supervision of Mr Donald Scott, Mr Allan Scott and Mrs Giesemann in the context of s. 251N(2A). Mrs Scott has pointed to her availability to answer their queries on the telephone and, in the case of her husband and son, to sit in on difficult interviews. Due to distance, she was not available in that way to Mrs Giesemann. In relation to all of the income tax returns, she checked that the return had been completed and had looked to a checklist. She did not go further and undertake spot checks of particular income tax returns in order to check that the information they contained was correct and that any claims were justified by, for example, receipts. Her procedures did not enable her to do that for she did not require any written documentation such as receipts unless they related to rental properties. Consequently, we find that Mrs Scott has been in breach of s. 251N(2A) in that she did not supervise and control Mr Donald Scott, Mr Allan Scott and Mrs Giesemann in the preparation of income tax returns.

205. There have been a number of other matters raised by Mr O'Brien but we do not consider that we need to examine matters further. The findings we have made have led us to conclude that Mrs Scott is not a fit and proper person to prepare income tax returns and to transact business on behalf of taxpayers in income tax matters within the meaning of s. 251K(2)(d). While Mrs Scott has shown a loyalty to her clients and a belief in the claims made in their income tax returns, she has not shown an understanding of the requirements of the Act and, for the reasons we have given, has not prepared taxpayers' income tax returns or responded to the ATO's queries on those claims in an appropriate way. Her inappropriateness has not only been displayed by, for example, her lack of responsiveness to those queries but also by her choice of language that was excessively emotive even in view of the frustration she felt with the WRE programme and the audits. In relation to her own claims, she has not displayed a level of care and compliance with the Act that is to be expected of a registered tax agent. In the management of her business, she has failed to comply with the Act by not ensuring that income tax returns are prepared only by employees. Adapting the words of Gee J in
Perusco v FC of T (1981) 13 ATR 34 at 35 we are not satisfied that she is a person who has shown that she has applied herself with diligence and precision to her duties so that taxpayers, who seek her assistance, do not suffer from any fault or negligence on her part. We are not satisfied that she is a fit and proper person to be a registered tax agent.

206. That brings us to the second issue we must consider. Having made that finding, s. 251K(2) simply sets out courses of action that may be adopted. It is not expressed in mandatory terms and it is open to us to take no action at all even when we are satisfied, as we are, that Mrs Scott is not a fit and proper person to be a registered tax agent. Understandably, s. 251K(2) does not set out any criteria as to when one course should be adopted and not another. It cannot, for the infinite variety of ways in which a person may err and so fail in his or her duties is as boundless as the range of human activity itself. Simply to err does not of itself justify a person's being suspended. Suspension, or cancellation, is only a course that should be adopted if it is necessary for the public protection. Circumstances in which it would be necessary were identified by Kirby P in
Pillai v Messiter [No.2] (1989) 16 NSWLR 197:

``... The public needs to be protected from delinquents and wrong-doers within professions. It also needs to be protected from seriously incompetent professional people who are ignorant of basic rules or indifferent as to rudimentary professional requirements. Such people should be removed from the register or from the relevant roll of practitioners, at least until they can demonstrate that their disqualifying imperfections have been removed....''

(page 201)

207. Bearing these principles in mind, we are satisfied that cancellation of Mrs Scott's registration is necessary for the protection of the public. Although contrite at the hearing about the language that she had used to officers of the ATO, she did not display any insight during the course of the hearing to what we would regard as even more important difficulties with the manner in which she has acted on behalf of taxpayers and which we have set out above. Without that insight, we are not

ATC 2255

confident that she would be able to address those difficulties during a period of suspension and resume her career with an appropriate level of precision and diligence to carry out the responsibilities imposed upon her as a registered tax agent.

208. For the reasons we have given, we affirm the decision of the respondent dated 17 June, 1999.

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SCOTT v TAX AGENTS' BOARD OF QUEENSLAND

The Board's powers to register tax agents and to suspend or cancel registration

The obligations and duties of tax agents

The conduct of the various audits

Mrs Scott's previous work in the preparation of taxation returns

Profile of practice

Supervision of staff

Alleged breaches of s. 251L(1) by Scott Practice Services

The WRE programme and various audits of clients

Matters associated with the audits of the Scott family and associated entities

The quality assurance review of C Scott & Co's quality control system

Accepting the client's instructions

Putting forward an arguable proposition

Relationship with the ATO

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