The Federal Court has dismissed an applicant’s appeal against a decision to deny his tax agent registration renewal application on the basis that he was not a fit and proper person.

The Applicant/Appellant/Former Tax Agent had been involved in legal action, in which equitable fraud was found to have occurred. The facts are recited at paras [2] – [11] of the Court’s reasons, the key parts of which can be summarised as follows.

  • The appellant Tax Agent: Mr Ham had acted for a long standing client and family friend: Mr Holzapfel (his Client). He sold a shelf company to his Client, to act as trustee of the Client’s Family Trust (but Mr Ham remained the director of the Shelf Company/Trustee.
  • The Shelf Company acquired a crown lease, as trust of this Trust and other companies of his Client’s used the land.
  • After many steps, Mr Ham arranged for the Shelf Company to acquire the freehold from the Crown and then got that same shelf company to be trustee of a unit trust, for Mr Ham and his business partner (or their respective entities).
  • The Shelf Company later sold the formerly Crown land for $4.9m and disbursed the entirety of the proceeds to the Ham and Business Partner interests and gave none of it his Client’s Family Trust.
  • Once his Client understood what had happened, they changed the trustee of his Family Trust and the New Trustee brought an action in the Queensland Supreme Court for equitable compensation. Mr Ham contested this and lost.

In the Qld Supreme Court, Her Honour wholly rejected Mr Ham’s evidence, going so far as to say [para 16 of the Federal Court’s reasons]:

(g) “… Mr Ham, as the controlling mind of [the Shelf Company], was consciously acting dishonestly in paying away the proceeds of sale. He had actual knowledge that the proceeds lawfully belonged to the beneficiaries of the [his Client’s Family Trust] (knowing full well the terms of the agreement with [his Client] were that the freehold was to be acquired for the [his Client’s Family Trust]), that [his Client] had not consented to [the Shelf Company] distributing the proceeds to any other party, and that he was acting contrary to the express trust constituted by the agreement in so doing.”

Even if this brief summary, the dishonesty is evident.

As a result he was subsequently excluded from membership of Chartered Accountants Australia and New Zealand (CAANZ) on the basis that he was not a ‘fit and proper person’.

The Tax Practitioners Board (TPB) refused Mr Ham’s application for renewal of his registration, as a tax agent, on the basis that they were not satisfied that the applicant was a fit and proper person, as required by s20-5 of the Tax Agent Services Act 2009 (TASA).

This decision was affirmed by the AAT: Ham and Tax Practitioners Board [2017] AATA 1642, where among many pointed comments, the Tribunal Member said:

140.  To summarise, I am not satisfied that Mr Ham is a fit and proper person. His conduct, over an extended period of time, was inconsistent with the qualities of moral soundness, uprightness and honesty, that one would expect of a tax agent. Such conduct was, and is, incompatible with the “atmosphere of mutual trust” which underpins the relationships which tax agents have with their clients, the ATO and the Board.

141.   Although the offending conduct happened some years ago, it was particularly serious, striking at the very heart of longstanding client and fiduciary relationships, not to mention friendship. While the conduct was concerned with dealings with the same property over an extended period of time, it is an oversimplification to describe the offending conduct as an isolated instance of lapse or error of judgment. Mr Ham had ample opportunity over the years to redress the wrongdoing. Far from doing that, he continued on his course of conduct and perpetuated the situation.

142.   Confronted with Supreme Court litigation and then action by the CAANZ and the Board, Mr Ham remained defiant. There was no contrition or remorse, or any sign of introspection or insight as to his offending conduct until the hearing in this proceeding approached. By then, the statement of contrition and insight he gave was not only late but wanting. It failed to show genuine remorse and a true insight into his wrongdoing. Given that the conduct goes to the fundamental questions of character and trustworthiness, I believe that the risk of recurrence remains.

The Former Tax Agent appealed, arguing:

  • that his conduct, that gave rise to the legal action, was not misconduct as a tax agent.
  • Further, the conduct did not breach s20-45 of TASA, which lists certain events that may affect continued registration.
  • This meant, he said, that he had not breached the ‘fit and proper person’ criteria (in s20-15) and should have been re-registered.
  • And, in assessing whether his registration should have been renewed, the Board should have taken into account that the finding against him was only ‘equitable fraud’ (not common law / actual fraud).

The Court was unmoved by these pleas – in the face of actual dishonesty to a long standing client, and friend, with no hint of remorse, having contested his Client’s actions.

The Court held that the AAT could take the conduct into account, even though none of it constituted an event specified in s 20-45.

  • It held that the AAT must have regard to the matters in s20-45, but the section is not exhaustive of the meaning of ‘fit and proper person’.
  • Given the breadth of meaning of the term (and the related requirement of “good fame, integrity and character” in s20-15), the Court said it was open to the AAT to take account of the relevant conduct in the way it did and to reach the conclusion it did.

(Ham v Tax Practitioners Board [2018] FCA 1652; Federal Court; Logan J, 2 November 2018.)

[LTN 216, 8/11/18; Tax Month – November 2018]

FJM 27.11.18


CPD questions (answers available)

  1. Was Mr Ham appealing the AAT’s decision, which in turn, upheld the Tax Practitioners Board’s decision not to reregister Mr Ham as a Tax Agent, on the basis that it was not satisfied that Mr Ham was a ‘fit and proper person’ within the meaning of TASA?
  2. Was the underlying conduct, which had this effect on Mr Ham’s registration, diverting $4.9m of land sale proceeds away from his Client’s Family Trust?
  3. Did Mr Ham contest his client’s action for equitable compensation in the Queensland Supreme Court?
  4. Did he win?
  5. Did that Qld Court accept Mr Ham’s evidence?
  6. Did the Qld Court say that Mr Ham was ‘consciously acting dishonestly’?
  7. Did the AAT say that Mr Ham’s conduct was: ‘incompatible with the “atmosphere of mutual trust” which underpins the relationships which tax agents have with their clients‘?
  8. In the face of this, did Mr Ham persuade the Federal Court that he was a ‘fit and proper person’ and should have been  reregistered?

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