In the first matter of its kind before the courts, the Commissioner has been unsuccessful in seeking to impose civil penalties on alleged scheme promoters under Div 290 of the TAA for the promotion of tax avoidance schemes.
The matter involved 2 men who were marketers (and investors) in a managed investment scheme for which Product Ruling PR 2006/8 (“2006 Gunns Woodlot Project”) had been issued. The Commissioner essentially argued that the men were “promoters” of the scheme who received relevant “consideration in respect of the marketing or encouragement of the scheme” under ss 290-50 and 290-60 of the TAA, and that the scheme had not been implemented according to the relevant Product Ruling.
However, the Federal Court dismissed the Commissioner’s action primarily on the basis of finding there was a clear difference between an active “promoter” or “marketer” of a scheme (even though those terms were not defined) and that in this case, the men were merely involved in “developing and implementing” the scheme in the circumstances, which did not amount to active promotion. This was so for a number of reasons, including the Court’s finding that the mere acquisition of woodlots and the preparation and delivery of key material to investors by the men (such as partnership financial documents and material required to submit their tax returns) did not of itself enliven the definition of “promoter” in s 290-60.
The Court also found that the men had not received “consideration” in respect of the promotion as the consideration the Commissioner relied on (namely, commissions and increased GST refunds) was a normal incident of the scheme and was not “related” to any promotion of the scheme.
The Court also found that the scheme had not been implemented contrary to the Product Ruling essentially as there was a difference between a scheme as described in the relevant Product Ruling, and its effect on participants in the scheme.
The Court also found that the 4-year time limit rules under the provisions worked against the Commissioner in various ways in the circumstances.
However, the Court did find that one of the men had promoted a “secondary investment” contrary to the provisions, but that as this investment never had an applicable Product Ruling, it did not fit within the scope of the provisions and that, in any event, to the extent the Court was required to make a “tax benefit” finding under the relevant provisions, it concluded that no “tax benefit” arose as the Commissioner had not made the case for an alternative postulate.
(FCT v Ludekens & Anor [2013] FCA 142, Federal Court, Middleton J, 4 March 2013.)
[LTN 44, 6/3/13]