Shaw and Commissioner of Taxation [2015] AATA 288 (1 May 2015)

Last Updated: 1 May 2015

[2015] AATA 288

Division / Taxation Appeals Division
File Number / 2014/0696
Re / Stuart Shaw
APPLICANT
And / Commissioner of Taxation
RESPONDENT

DECISION

Tribunal / Ms A F Cunningham, Senior Member
Date / 1 May 2015
Place / Hobart

The decision under review is affirmed.

......

Ms A F Cunningham, Senior Member

CATCHWORDS

SUPERANNUATION - self managed superannuation fund - disqualification from acting as trustee for conviction of offences involving dishonesty - application for waiver - whether "highly unlikely" to be a prudential risk to a superannuation entity - high threshold test not satisfied - decision under review affirmed.

LEGISLATION

Superannuation Industry (Supervision) Act 1993

Superannuation Industry (Supervision) Legislation Amendment Act 1995

CASES

The Taxpayer v Commissioner of Taxation (2002) AATA 1233

VX96A and Insurance and Superannuation Commissioner (1996) 23 AAR 427

SECONDARY MATERIALS

Explanatory Memorandum to the Temporary Modification Declaration No 14

REASONS FOR DECISION

Ms A F Cunningham, Senior Member

  1. The applicant, Stuart Shaw seeks the review of a decision of the Commissioner of Taxation made on 14 November 2013 confirming an earlier decision not to waive his disqualified status pursuant to section 126D of the Superannuation Industry (Supervision) Act 1993 (SIS Act).
  1. Mr Shaw and his wife were the trustees of the S and J Superannuation Fund (The Fund), a self-managed superannuation fund (SMSF) which was established in 2002. On 1 June 2012 Mr Shaw was convicted in the Supreme Court of Tasmania of five counts of conspiracy, contrary to section 297(1)(d) of the Criminal Code Act 1924 (Tasmania). As a result of these convictions for dishonest conduct, Mr Shaw became a disqualified person pursuant to section 120(1)(a)(i) of the SIS Act.
  1. Mr Shaw subsequently made an application for waiver of his disqualified status pursuant to section 126B of the SIS Act. This provision provides that if the regulator is satisfied that the applicant is highly unlikely to contravene the SIS Act and do anything that would result in a self -managed superannuation fund not complying with the SIS Act, he must make a declaration waiving the applicant’s status as a disqualified person. The issue for the Tribunal to determine is whether the Commissioner should have exercised his discretion to waive the applicant’s status as a disqualified person.
  1. Both parties were represented by legal counsel at the hearing. Mr Shaw gave oral evidence and was cross-examined. The T documents were tendered pursuant to the provisions of section 37 of the Administrative Appeals Tribunal Act 1975. Two volumes containing statements of findings, material questions of fact, evidence, reasons for decision and relevant documents were also tendered. Following the conclusion of the hearing, the Tribunal invited further submissions regarding the audit requirements of a self- managed superannuation fund and an agreed statement of facts.

BACKGROUND FACTS TO THE CONVICTIONS

  1. In October 2003 Mr Shaw was injured in a car accident caused by the negligent driving of another party. As a result of his physical injuries he suffered from depression. Mr Shaw ceased operating his building business in 2007 on account of his physical injuries arising from the accident and after completing a photography diploma, worked as a photographer for a period of time. Due to financial difficulties he ceased this work and in June 2008 commenced working as a contractor for GHD. He was positioned on a large construction project known as the Tamar Valley Power Station which required him to drive along the East Tamar Highway each day. The highway was undergoing major upgrade works which resulted in lengthy delays getting to and from work. It was Mr Shaw’s evidence that he was required to work long hours and travel considerable distances to and from work. Work commenced each morning with a coordination meeting at 6 a.m. and Mr Shaw would often work until 5 p.m. for six and sometimes seven days per week. This work pattern was very disruptive to his family life and he became highly stressed. Mr Shaw was the sole civil site supervisor for the project and said that he confronted hostility in the work environment on a daily basis.
  1. On 6 August 2008 due to the accumulation of excessive demerit points arising from six speeding offences over the previous two years, Mr Shaw elected to be of good behaviour for the following 12 month period to avoid facing suspension of his driver’s licence. The effect of the undertaking was that if Mr Shaw committed an offence for which two or more demerit points were recorded during the following 12 month period, his licence would be suspended for a period of six months. Just five days before giving the undertaking however, a car driven by Mr Shaw was detected travelling at an excessive speed on the East Tamar Highway. In August 2008 Mr Shaw entered into a conspiracy whereby he falsely declared that his wife was driving the vehicle at the relevant time. An infringement notice was subsequently issued to Mr Shaw’s wife which she accepted with the demerit points and fine being awarded against her.
  1. On 29 September 2008, only twelve days after he made this false statutory declaration, Mr Shaw again drove his car at an excessive speed on the East Tamar Highway. He then entered into a second conspiracy similar to the first, except that it was with his sister. On 17 November 2008 he made a false statutory declaration stating that she was the driver and as a result a traffic infringement notice was issued to her.
  1. Mr Smith’s subsequent speeding offences are detailed in Chief Justice Crawford’s comments on passing sentence. They occurred on 15 December 2008 and again on 18 December 2008 and on 21 January 2009. The crimes came to the attention of the police as a result of Mr Shaw being blackmailed. He sought advice from a police officer and from an ex-police officer and following such advice, decided to go to the police. After making full admissions he was later charged with offences to which he pleaded not guilty and was committed for trial. The six people he involved in his conspiracies were also charged and they also pleaded not guilty when committed for trial. His Honour commented that Mr Shaw’s record reveals at least thirty speeding offences prior to the conspiracies and another three since. He has no record other than these many speeding offences.
  1. In passing sentence, His Honour noted that Mr Shaw was working long hours in a difficult job and had suffered from depression for some time. He referred to the specialist reports which were tendered in evidence some of which address Mr Shaw’s mental state at the time. A recent report suggests that at the time of the crimes, Mr Shaw was having significant psychological difficulties which may have impacted on his ability to make calm and rational decisions which His Honour accepted. Nevertheless His Honour observed that Mr Shaw was capable of holding a responsible job which no doubt called for many rational decisions which he was able to make successfully. His Honour accepted that Mr Shaw had displayed very poor judgement with regard to his speeding offences but that his psychological problems and pressures may have played some role in his offending. In his favour His Honour noted that Mr Shaw eventually demonstrated remorse and fully confessed to his crimes. He went on to state however:

“Cases like this usually result in a conviction for the crime which is called perverting justice. They regularly come before the Court. This is a very bad example of it because of the number of times he offended, the making of false statutory declarations, his soliciting of six other people to offend for him and the payment to one of them on two occasions.” His counsel urged that he not be made to serve imprisonment. I regard this as such a bad case that a failure to imprison would be unduly merciful and would send a very poor message to others contemplating similar conduct. I repeat what has been said before in other cases, that crimes such as these strike at the well-being of our society at an absolutely fundamental level.”

EVIDENCE

  1. It was Mr Shaw’s evidence that he has struggled with his mental health since the motor vehicle accident and in particular around the time when he committed the offences. Since serving his sentence in 2012 he has proactively tried to overcome his battles with depression and feels that he is in a much better mental state now than at the time of the offences. He has also learned how to cope with stress and anxiety and where possible, endeavours to avoid stressful situations.
  1. The assets of The Fund currently comprise cash in a bank account. On 4 September 2008 the respondent commenced an audit of The Fund. During this audit, it was established that the trustees of The Fund had contravened various provisions of the SIS Act including leasing fund property to relatives of the members commencing the 2003–2004 income year; loaning money to members commencing the 2005–2006 income year; trustees of the fund acquiring and maintaining in-house assets of greater than 5% of The Fund’s total assets (reaching over 80% as at 30 June 2008) commencing the 2003–2004 income year. The trustees of The Fund reported in-house assets exceeding 5% of The Fund’s total assets for the 2005–2006 and later income years. During the audit the trustees contended that the contraventions had occurred because of bad advice from The Fund’s auditor for the 2001–2002 to 2004–2005 income years. Further, a failure of their later adviser to assist the trustees in rectifying the contraventions and tardiness on the part of a third adviser.
  1. The respondent accepted an undertaking from Mr Shaw to rectify the contributions by The Fund. By 20 November 2009 the respondent was satisfied that rectification had occurred and no other action was taken against The Fund or the trustees. The rectification involved Mr Shaw purchasing the residential property from The Fund and satisfying a $20,000 outstanding loan between Shaw Enterprises Partnership and The Fund.
  1. The respondent contends and it is not disputed that in five out of the last seven years The Fund has lodged the required return after the lodgement end date (although one return was lodged only one day after the lodgement due date). Mr Shaw has also been responsible for the late lodgement of personal taxation returns and that of other entities with which he is associated. Mr Shaw states however, that he has never been penalised for a late lodgement of returns. The respondent contends that a strong indicator of whether the applicant is highly unlikely not to breach SIS Act requirements is an examination of his compliance history.
  1. Mr Shaw resigned as trustee of The Fund effective from 1 May 2013. The respondent contends however, that Mr Shaw failed to immediately cease acting as the trustee of The Fund following his disqualification. This was despite being advised by the respondent on several occasions dating from 23 July 2012 that he was required to resign immediately.

STATUTORY FRAMEWORK

  1. Mr Shaw automatically became a disqualified person under section 120 of the SIS Act as a result of his conviction for offences involving dishonest conduct. This meant that he could no longer act in certain capacities (including being a trustee) in relation to a superannuation entity. Because the offences in question did not involve “serious dishonest conduct” as defined by section 126B (2), Mr Shaw is entitled pursuant to section 126B, to ask the respondent for a declaration under section 126D waiving his status as a disqualified person within the meaning of the SIS Act.
  1. The relevant considerations for the Commissioner are set out in section 126D (1A) which provides:

“(1A) If, having regard to any of the following:

(a) the offence to which the application relates;

(b) the time that has passed since the applicant committed the offence;

(c) the applicant’s age when the applicant committed the offence;

(d) the orders made by the court in relation to the offence;

(e) any other relevant matter.

The Regulator is satisfied that the applicant is highly unlikely to:

(f) contravene this Act; and

(g) do anything that would result in a self- managed superannuation fund not complying with this Act;”

  1. In considering this provision in the Taxpayer v Commissioner of Taxation(2002) AATA 1233 Member BJ McCabe said at paragraph 9:

“The test focuses on prudential concerns. The subsection requires the Commissioner to determine whether the applicant can be trusted to observe the requirements imposed by the law if he is allowed to remain in a position of responsibility.”

  1. The Tribunal must consider whether Mr Shaw is “highly unlikely” to firstly, contravene the SIS Act; and secondly, do anything that would result in any self-managed superannuation fund contravening the SIS Act. In making this assessment the Tribunal must have regard to the factors listed in subsection (1A), each of which is separately considered as follows.

THE OFFENCE TO WHICH THE APPLICATION RELATES

  1. The offences committed by Mr Shaw were five counts of conspiracy relating to statutory declarations for motor vehicle offences pursuant to section 297(1)(d) of the Criminal Code 1924 (Tas). It is Mr Shaw’s contention that the nature of the offences committed were not in connection with, or relevant to, his duties as trustee.
  1. The Commissioner in his decision considered that the offences involved a major element of dishonesty over an extended period of time, involving five separate occasions. He noted that the applicant had involved other persons in the commission of the offences which required planning and coordination. The Commissioner commented that the situation was not a one-off but involved premeditated action, noting that conspiracy is a serious crime which in the applicant’s case resulted in a sentence of imprisonment. The Commissioner referred to the governing rules for superannuation entities set out in sub-section 52(2) of the SIS Act which require a trustee to act honestly in all matters concerning the entity.
  1. It is submitted on behalf of Mr Shaw that subsection 52(2) is not a relevant consideration because Mr Shaw’s dishonest conduct had no connection with his role as a trustee. It is contended that the effect of the Commissioner’s submission would undermine Parliament’s intention that persons automatically disqualified should be able to have their disqualification waived, based on a consideration of the circumstances in section 126D.
  1. It is contended that the Commissioner’s reasoning incorrectly considers the seriousness of a contravention which is a consideration regarding disqualification under the provisions of 126A of the SIS Act. It is accepted that every dishonest conduct offence is serious as recognised in the Act, because it results in automatic disqualification under section 120(1)(a)(i). The seriousness of the contravention is not a consideration under section 126D because the word “seriousness” is not included in this provision. The focus of section 126D is whether a prudential risk is posed to a superannuation fund having regard to the totality of the evidence and the particular circumstances of each case.
  1. Reference is made to the Tribunal’s decision in the VX96A and Insurance andSuperannuation Commissioner(1996) 23 AAR 427 where it said at page 435:

“The general nature of the offence has to be judged against whether the applicant is highly unlikely to pose a “prudential risk to superannuation entities”. The term “prudential” is not defined in the SIS legislation. It should be attributed its ordinary meaning, which in The Shorter Oxford Dictionary includes:

“1. Of, of the nature of, or involving prudence, characterised by forethought and deliberation.”

The Macquarie Dictionary refers to “prudential” as “...pertaining to, or characterised by prudence” and defines “prudence” as:

“1. cautious practical wisdom; good judgment; discretion;

2. The quality or fact of being prudent;

3. regard for one’s own interests;

4. provident care in management; economy or frugality.”

Thus, in the context of a s 126 C(5), the Tribunal must be satisfied on the totality of the evidence before it that the applicant is highly unlikely to pose any risk in the exercise, as an officer of a company which is to be a trustee, of his judgment, wisdom and provident care in the management of the superannuation entities under his control. In the later context, in the circumstances of this case, it is not so much the significance of the sums involved in the offences committed by the applicant but rather the issue of whether, given the fact that the offences were committed, people entrusting superannuation funds can be assured that it is highly unlikely that in the discretions exercised, the wisdom adopted, the judgment applied and the provident care extended in the management of the funds, the applicant’s actions would be highly unlikely to pose any risk. Against that background, the Tribunal will now consider the evidence.”

  1. The respondent disputes the applicant’s assertion that his dishonest conduct has no connection with his role as a trustee. The respondent contends that an offence of dishonesty or corruption is one that is contrary to the fiduciary standards expected and required of a trustee of a superannuation fund and is a serious offence. The respondent referred to the Chief Justice’s comments on passing sentence on the applicant where he said:

“This is a very bad example of it (the crime of conspiracy) because of the number of times he offended, the making of false statutory declarations, the soliciting of six other people to offend for him and the payment of one of them on two occasions.”

  1. The respondent submits that knowingly and systematically making false statutory declarations and instigating a conspiracy with others to pervert the course of justice is fundamentally contrary to the standards expected of a trustee, and weighs against the applicant being granted a waiver of his disqualified status.

THE TIME THAT HAS PASSED SINCE THE APPLICANT COMMITTED THE OFFENCE

  1. The offending took place almost six years ago. It is submitted by the respondent that the time elapsed since the last offence is too short to be recognised as a factor to influence a decision in the applicant’s favour. Reference is made to Member McCabe’s statement in The Taxpayer (supra) where he said at paragraph 17:

“The words of the subsection make it clear that an offence might be viewed in a more benign light if it occurred a long time ago, and the applicant has had an unblemished track record since.”