Earlier this year, the Tax Practitioners Board moved to terminate the tax agent registration of Sydney firm Taxation Guru and Gambhir Watts, the sole director and controlling mind of Taxation Guru.
The TPB had found that the company had claimed work-related expense deductions on behalf of clients that did not have a sufficient nexus or could not be substantiated, and that Mr Watts had ceased to be a fit and proper person given that he was personally accountable for the conduct.
In total, the income tax returns of four clients of Mr Watts and five clients of Taxation Guru were found to be lodged incorrectly.
However, Mr Watts, a fellow of CPA Australia, and a Chartered Tax Adviser, sought a stay of the termination decision, contending that it was only a small number of clients out of his 560 clients that had displayed “irregularities”, and that some of his clients had “lied” to him regarding the expenses they had claimed as deductions in their income tax return.
He also argued that an ATO officer had conducted “reckless audits” because he wanted to “teach the director a lesson” after a heated argument with Mr Watts.
However, AAT member Dominique Grigg rejected the stay application, pointing out that Mr Watts had continued to act for clients in lodging objections to amended assessments despite claiming that they had misled him.
Ms Grigg also noted that Mr Watts had prepared the income tax return of his daughter, claiming more than $20,000 in work-related travel expenses, clothing and self-education, despite eventually admitting in a separate hearing that they had never been incurred.
“Despite the findings of the ATO and the tribunal in the decisions referred to above, Mr Watts still maintains (in his written submissions) that the audits undertaken by the ATO were ‘reckless’,” Ms Grigg said.
“The tribunal is very concerned about this submission as it indicates Mr Watts still fails to understand that the expenses claimed by his clients were unsubstantiated and therefore not maintainable. Clearly, given the decisions ultimately made by the tribunal, it was Mr Watts’ conduct that was reckless, not the ATO’s.
“Mr Watts does not appear to have shown any remorse, contrition and an awareness of the significance and consequences of the misconduct or wrongdoing… such that the TPB and the commissioner can have confidence in the practitioner’s continued ability to honestly and competently discharge the functions of the profession.”
The tribunal acknowledged that there would be some inconvenience to Taxation Guru and Mr Watts’ current clients having to find an alternative tax agent, and hinder the company’s plan to form a franchise network, but said it was not a “unique circumstance” to someone losing their registration.
TPB chair Ian Klug said that although the final reviews of the board’s decisions are still pending, the AAT’s interlocutory decision sends a clear and positive message.
“The primary objective of the TPB is to protect consumers of tax services, and practitioners claiming unlawful deductions put their clients at risk,” Mr Klug said.
“Equally, we remind the public that they remain legally responsible for the information in their tax return, even if it is lodged by a tax agent.”
Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.