FEDERAL COURT OF AUSTRALIA

Tax Practitioners Board v Hinckfuss [2013] FCA 1168

REASONS FOR JUDGMENT

INTRODUCTION

1    Section 50-5(1) of the Tax Agents Services Act 2009 (Cth) (the “Act”) provides:

(1) You contravene this subsection if:

(a)    you provide a service that you know, or ought reasonably to know, is a tax agent service; and

(b)    the tax agent service is not a BAS service; and

(c)    you charge or receive a fee or other reward for providing the tax agent service; and

(d)    you are not a registered tax agent; and

(e)    if you provide the tax agent service as a legal service – either:

(i)    you are prohibited, under a State law or Territory law that regulates legal practice and the provision of legal services, from providing that tax agent service; or

(ii)    subject to subsection (3), the service consists of preparing, or lodging, a return or a statement in the nature of a return.

Civil penalty:

(a)    for an individual – 250 penalty units; and

(b)    for a body corporate – 1,250 penalty units.

Note: Subdivision 50-C of this Act and Subdivision 298-B of Schedule 1 to the Taxation Administration Act 1953 determine the procedure for obtaining a civil penalty order against you.

2    Section 50-10(1) provides:

(1)    You contravene this subsection if:

(a)    you advertise that you will provide a tax agent service; and

(b)    the tax agent service is not a BAS service; and

(c)    you are not a * registered tax agent; and

(d)    if the tax agent service would be provided as a legal service--either:

(i)    you are prohibited, under a * State law or * Territory law that regulates legal practice and the provision of legal services, from providing that tax agent service; or

(ii)    subject to subsection (3), the service would consist of preparing, or lodging, a return or a statement in the nature of a return; and

(e)    if the tax agent service would be provided on a voluntary basis--you would not provide the service under a scheme approved by the Commissioner by notice published in the Gazette .

Civil penalty:

(a)    for an individual--50 penalty units; and

(b)    for a body corporate--250 penalty units.

3    The applicant (the “Board”) alleges that the respondent (“Mr Hinckfuss”) has contravened ss 50-5(1) and 50-10(1). It seeks declaratory and injunctive relief, pecuniary penalties and costs. Mr Hinckfuss admits 25 contraventions of s 50-5(1), and two contraventions of s 50-10(1). The parties have filed an agreed statement of facts. On that basis Mr Hinckfuss has consented to the making of declarations and the grant of injunctions. I do not understand there to be any dispute concerning the Board’s application for costs. The only area of disagreement is as to the amount of any pecuniary penalty.

4    Mr Hinckfuss is about 45 years of age and holds degrees in Commerce and Economics in the University of Queensland. During the 1990s he was employed in accounting firms and qualified as a chartered accountant. Mr Hinckfuss’s account of his employment history between the 1990s and 2009 is vague. In 2009, he commenced as a “blue collar” worker at a business called “Kerry’s Ingredients”. The position was apparently that of process worker. He says that he took this position after he had failed to attract a suitable partner for a proposed business venture. He wanted to discover ways of helping fellow workers by providing them with taxation assistance. Eventually, he commenced to offer assistance in preparing and filing tax returns, including advice as to allowable deductions. Apart from his altruistic motives, he also hoped to earn income from this activity. His provision of such services constituted his contraventions of s 50-5. He circulated leaflets, advertising his services and also distributed his business card. In his leaflets Mr Hinckfuss (described as a “tax guru”) claimed that he could obtain deductions of up to $3000. His fellow employees at Kerry’s Ingredients were principally members of the Samoan community, as were the Church congregations to whom he also advertised his services. The distribution of these leaflets constitutes the contraventions of s 50-10(1).

5    Mr Hinckfuss accepts that his conduct was contrary to ss 50-5(1) and 50-10(1). He says that he considered that his academic qualifications and experience were sufficient to enable him to provide these services. He now accepts that he should have realized that his conduct was unlawful.

6    The relevant conduct occurred between July 2010 and August 2012. In 2010 Mr Hinckfuss learned that he could not lawfully prepare tax returns for other persons. He says that he immediately ceased preparing tax returns, but commenced to assist taxpayers to prepare requests for amendments to tax returns. He also became an agent for the preparation of Business Activity Statements and investigated the possibility of becoming a tax agent. He claims that he has not made any money personally from the business, and that he never intended to cheat or deceive anybody. All of the income which he has derived has gone towards repaying a loan made by him to a woman who is now his fiancé.

7    Mr Hinckfuss suffers from depression and anxiety and has done so for many years. There is medical support for this claim. He presently owes $140,000 which sum seems not to include the amount owed to his fiancé. He is in receipt of Newstart Allowance of $548.27 per fortnight, and pays rent in the amount of $135 per week, and child support in the amount of $40 a week. He and his ex-wife have two children. They reside with her. He has presented a number of character references, largely from people who have known him for many years, including his fiancé. In a case of this kind, such references are of little assistance.

8    There are circumstances of aggravation. In a number of cases Mr Hinckfuss opened bank accounts in the joint names of himself and a taxpayer to whom he had provided taxation assistance, so that any tax refund could be deposited in the relevant account, allowing him to withdraw his fee. A number of taxpayers were told to advise the Australian Taxation Office that he was a “contact point” but not to say that he was a “tax return person”. In connection with the Board’s investigation he told a person who was to give evidence that the person should say that he was a bookkeeper. He threatened another “client”, saying that he would sue her if she told other people not to use his services. He also asked a client “to tell everyone who wants their extra refunds to call and register” on a particular telephone number. He offered to discount her fees if she referred new clients to him. Some of his “clients” have suffered inconvenience and embarrassment. Some have suffered loss in that they have been subjected to re-assessment by the Commissioner of Taxation, resulting in obligations to pay additional tax and/or penalties. Some of the contraventions involved Mr Hinckfuss’s private company “Global Omni Pty Ltd”. The Board suggests that this is a circumstance of aggravation, although it has not chosen to charge the company with any contravention of the Act. The matter is, at best, of minimal significance.

9    As I have said, most of the contraventions of s 50-5 involved the provision of services to members of the Samoan community and/or Church groups dominated by members of that community. Mr Hinckfuss accepts that many of those persons were “unsophisticated in financial and taxation affairs”. He claims that he was trying to help them. The Board at least implies that he may have been exploiting them.

10    A further complication is Mr Hinckfuss’s contraventions of s 50-10. At first blush one might conclude that such conduct was at least as serious as the conduct proscribed by s 50-5, but the maximum penalty is one-fifth of that for a contravention of that section.

11    The relevant taxpayers and details of the alleged contraventions of s 50-5 appear in Schedules A and B to the statement of agreed facts. The basis upon which it is said that there are 25 contraventions is not entirely clear. There has been no real attempt to differentiate the individual contraventions. In principle, individual contraventions should attract individual penalties. However the parties suggest an overall penalty.

DECLARATIONS AND INJUNCTIVE RELIEF

12    The Board seeks declarations as to Mr Hinckfuss’s contraventions of the Act. It is appropriate that the Court recognize his misconduct in this way. The Board also seeks injunctive relief, requiring that Mr Hinckfuss advise any person who requests tax services that he is not a registered tax agent. Should such a person persist in requesting such services, Mr Hinckfuss is to provide him or her with a form on which the receipt of that advice is to be acknowledged by that person. He or she is also to state that he or she nonetheless requests that the relevant services be supplied. Mr Hinckfuss does not oppose the making of such injunctions.

13    I have, on other occasions, been reluctant to grant injunctive relief at the suit of regulatory authorities, generally because the proposed terms have been too vague to be capable of enforcement and, in some case far too wide. Often they have failed to reflect the terms of the legislation creating the relevant contravention. In other cases, it has seemed unlikely that any breach would be detected, so that there was a real risk that the Court’s order could be disregarded with impunity. Frequently, there has appeared to be little point in granting such relief, particularly having regard to the risk that community respect for the Court’s orders might be undermined. In the present case, the relief is limited and clear. There are reasonable prospects that any breach will be discovered during the tax return process. Such a regime may deter Mr Hinckfuss from further contraventions. I shall grant the injunctive relief sought.

14    I have two reservations about the proposed declaratory relief. First, I wonder whether it is necessary that the names of the clients be included in the order. They may prefer that their privacy be protected. Secondly, the declaration focusses on “occasions”, as do the Board’s submissions. I am unclear whether this is a reference to individual conversations, to dates or to tax returns for particular tax years. It would be better that the declaration identify particular actions occurring on specific dates.

PECUNIARY PENALTIES

15    The prescribed maximum penalties are 250 penalty units for each contravention of s 50-5, and 50 penalty units for each contravention of s 50-10. At the time of the contraventions, a penalty unit was $110. The respondent received $12,475.31 in fees in connection with the contraventions. The Board submits that the appropriate range for any penalty is between $55,000 and $80,000 and seeks a penalty “towards the upper end” of that range. Mr Hinckfuss submits that the appropriate range is between $40,000 and $50,000.

16    In Tax Practitioners Board v Hogan [2012] FCA 642, the parties agreed that a $30,000 penalty was appropriate. Ms Hogan admitted to 26 contraventions of s 50-5(1), committed over four months, from which she derived a benefit of $1,200. Penalties were imposed on some of the taxpayers as a result of Ms Hogan’s conduct. The amounts are not revealed in the reasons. Logan J concluded that Ms Hogan was “genuinely contrite”. She had co-operated with the Board. She had also tried to conceal her misconduct by asking others to mislead investigators. The 26 admitted contraventions were said to be “representative” of a larger number of similar contraventions, suggesting many more contraventions than are alleged against Mr Hinckfuss. Ms Hogan had not contravened s 50-10. Although she had received only about $1,320 in connection with the charged contraventions, she had received other amounts in connection with uncharged contraventions. There was no suggestion that she had targeted particular groups, but in the present case, that view of the facts has not been proven. On the known facts, I find it difficult to see any basis for a substantially higher penalty in this case, particularly in view of Mr Hinckfuss’s depressive condition.

17    In Tax Practitioners Board v Campbell [2012] FCA 1153 Mr Campbell had committed 18 contraventions of s 50-5(1) over 19 months. He derived a benefit of $6,385. Two taxpayers incurred penalties as a result of Mr Campbell’s conduct. The contraventions occurred after Mr Campbell had been informed of the provisions of s 50-5(1). Emmett J imposed a penalty of $4,000 for each of 13 contraventions involving the preparation of requests to amend returns, and $2,500 for each of five contraventions concerning the preparation of returns, the Board considering the latter contraventions to be less serious than the former. The total penalty imposed was therefore $64,500. Mr Campbell had not co-operated with the Board, and did not appear at the hearing. Obviously, he was not given any credit for co-operation or contrition.

18    In Tax Practitioners Board v Munro [2012] FCA 1338 Ms Munro had, over a period of 13 months committed 14 contraventions of s 50-5(1), deriving a benefit of $840. She provided a statement of agreed facts and consented to the making of orders to resolve the proceedings. It seems that Ms Munro had previously been dealt with for criminal offences involving receipt of fees for preparing tax returns whilst unregistered. However it is not clear whether these offences occurred before, or at or about the same time as the presently relevant contraventions. In any event, it seems that most, if not all of those contraventions occurred before 4 July 2011 when she was dealt with for the criminal offences. Two of Ms Munro’s clients incurred increased tax liability as a result of tax audits of returns filed by her. A penalty of $17,740 was imposed upon one client. The parties agreed that a penalty of $40,000 was appropriate. The Court imposed that penalty. Mr Hinckfuss has admitted a substantially larger number of contraventions, but so had Ms Hogan. I find it difficult to reconcile the decisions in Hogan and Munro.

19    In Tax Practitioners Board v Shanahan [2013] FCA 764, Rares J imposed a penalty of $30,000 for 47 contraventions of s 50-5(1) and two contraventions of s 50-5(2) (which concerns the provision of “BAS services” whilst not registered as a BAS agent). Mr Shanahan earned at least $6,269 for 36 of the contraventions. The parties were unable to agree on the amount received in connection with the remaining contraventions. Rares J accepted that Mr Shanahan was genuinely remorseful, and that there was little likelihood that he would re-offend. The parties had agreed on a penalty of $45,000, but his Honour convinced them that a lesser figure was appropriate. They eventually agreed upon the figure of $30,000.

20    Although Mr Shanahan had contravened the Act on many more occasions than had the offenders in Hogan, Campbell and Munro, he had previously been registered. His registration had been cancelled. There was no suggestion that anybody had suffered loss as a result of his conduct. He had co-operated with the Board.

21    Of the four decisions, I am inclined to dismiss that in Campbell. The absence of co-operation or contrition makes it significantly different from the present case. The decision should be treated as being at the upper end of any appropriate range where those circumstances are present. Whilst in Shanahan there were substantially more contraventions than in Hogan, Mr Shanahan had been registered and so may not have posed the same threat to the community as did Ms Hogan. Those two decisions may indicate the lower end of the range where there is co-operation and contrition. Ms Munro had also co-operated. Her Honour seems to have proceeded on the basis that the earlier convictions were related to conduct other than that constituting the relevant contraventions. However Ms Munro had been punished for those offences. It is not clear whether those offences would have been relevant in fixing the penalty for the s 50-5 contraventions. Assuming that the offences were not treated as circumstances of aggravation, the penalty seems to be significantly higher than those in Hogan and Shanahan.

22    In Shanahan, Rares J referred to earlier decisions of this Court and the Victorian Court of Appeal concerning the proper approach to the imposition of pecuniary penalties where a regulator and a contravener have reached agreement as to a penalty or appropriate range. The authorities do not, in any sense, suggest that the Court must adopt any such agreement and proceed accordingly. Consistency is an important characteristic of the judicial process. We use the appellate structure to achieve consistency. In any event, in the present case, there has been no agreement. The comparable cases to which I have referred do not support the range urged by the Board ($55,000 to $80,000). I am not sure that they fully support the range suggested by Mr Hinckfuss ($40,000 to $50,000).

23    In determining the appropriate penalties I take into account the nature and extent of the contraventions, the period over which the contraventions were committed, and the fact that Mr Hinckfuss accepted fees in connection with the contraventions. I note that Mr Hinckfuss has co-operated with the Board, although he initially sought to frustrate its investigation. In particular he has co-operated in these proceedings, thus substantially reducing the costs incurred. He is contrite. I also take into account Mr Hinckfuss’s background and antecedents, his capacity to pay any penalty, the need for general and specific deterrence, the object and purpose of the Act, especially ss 50-5(1) and 50-10(1) and the principle of totality.

24    Having regard to the considerations set out above, counsel for Mr Hinckfuss submits that the contravening conduct in this case was less serious than that in Campbell, and more closely comparable to Hogan. The Board submits that Campbell is the most analogous authority. The penalties imposed in Campbell would not be appropriate in this case. Quite apart from any other consideration, the respondent is entitled to a substantial rebate in recognition of his co-operation and apparent contrition. As to Hogan, although the number of contraventions is almost the same, the respondent’s conduct occurred over a longer period of time, and he derived a greater reward from it. There is also the question of the leaflets. On the other hand, his depression is of some relevance. When one considers the promise which he showed in his education, and the advantages which he apparently enjoyed, one wonders how he has ended up in this position. It seems likely that his health problem has been either the cause of, or a consequence of his business and professional failure. In either event, it has almost certainly contributed to the contraventions with which I am now concerned.

25    The respondent has only a limited capacity to pay any penalty. He appears to have been previously of good character. I accept that the present proceedings have had a salutary effect on him, such that there is a reduced need for specific deterrence. General deterrence must however be given appropriate weight. The purpose of the Act is to protect those who are unsophisticated in financial and tax matters. Such protection is more important than punishment for punishment’s sake. Leniency may sometimes be more likely to lead to reform than harshness, particularly where issues of mental health arise. Protection of the community is more likely to be achieved by self-motivated reform than by condign punishment.

26    I consider that Hogan and Shanahan offer an appropriate starting point. Mr Hinckfuss’s conduct may be somewhat more serious, but his mental health issues must also be taken into account. Were it not for the s 50-10 offences, a total penalty of $30,000 would be appropriate. The relatively low maximum sentence for the s 50-10 offences, makes it difficult greatly to increase the total penalty to reflect my views as to the seriousness of advertising. In the circumstances I impose a penalty of $1,200 in respect of each contravention of s 50-5 and a further penalty of $1,000 for each contravention of s 50-10, a total penalty of $32,000. I recognize that the total penalty is outside the ranges suggested by the parties. However consistency is important in matters of this kind.

27    The parties agree that Mr Hinckfuss should be permitted to pay any penalty in instalments. Accordingly, I order that the penalty be paid as follows:

    $5,000 on or before 30 June 2014;

    $10,000 on or before 30 June 2015;

    $10,000 on or before 30 June 2016; and

    $7,000 on or before 30 June 2017.

28    I grant the parties liberty to apply as they may be advised. I have it in mind that the Board may seek to enforce payment in the event of non-compliance. On the other hand Mr Hinckfuss may find it necessary to seek further indulgence concerning payment.

29    I order that the respondent pay the appellant’s costs of the proceedings, including reserved costs. Such costs are to be paid on or before 30 June 2014 or such later date as the parties may agree in writing.

30    The parties are to bring in the appropriate consent orders.

Associate:

Dated:    12 November 2013