The Full Federal Court has unanimously allowed the Commissioner’s appeal and held that 2 persons were “scheme promoters” in terms of Div 290 of the TAA and therefore were liable for civil penalties.
The matter involved 2 men who were marketers (and investors) in a managed investment scheme for which Product Ruling PR 2006/8 (the “2006 Gunns Woodlot Project”) had been issued. The Commissioner sought to impose civil penalties on them pursuant to Div 290 for the promotion of tax avoidance and exploitation schemes. The Commissioner argued that the individuals were “promoters” of the scheme who received relevant “consideration in respect of that marketing or encouragement of the scheme”.
At first instance, in FCT v Ludekens & Anor [2013] FCA 142, the Federal Court found the 2 men were not “promoters” or “marketers” of the managed investment scheme as required by the legislation, but were merely involved in “developing and implementing” the scheme in the circumstances. It also found that the Commissioner could not claim that the individuals entered into the plan with “the sole or dominant purpose of getting scheme benefits” because the concept of “scheme benefit” was similar to that of “tax benefit” in s 177C of the ITAA 1936, and the Commissioner had failed to raise any “alternative postulate”.
However, in unanimously allowing the Commissioner’s appeal, the Full Court found there was no basis for adopting an “alternative postulate” exercise in determining if a “scheme benefit” had arisen.
It also found that the dominant purpose of the men in entering the scheme was to obtain for themselves and prospective borrowers “scheme benefits” by way of a tax advantages [that were not reasonably available] in the form of the GST refunds and the tax refunds, (as well as a commission).
Moreover, it held that the primary judge’s construction of “promoter” was too narrow in the context of the deterrence objective of the provision, the history of the development of the legislation and the meaning of the word “market” which it said was not limited to making offers to participate.
The Full Court also found that the men had received consideration “in respect” of the marketing or encouragement of the scheme (which included the commission from Gunns and the GST refunds in respect of the acquisition of the woodlots).
However, the Full Court did not find that the scheme had been “implemented otherwise than in accordance with PR 2006/8” – albeit finding that certain investors could not rely on it as they were not within the class of entities to whom the ruling applied. Finally, the Full Court remitted the question of penalty for re-hearing.
(FCT v Ludekens [2013] FCAFC 100, Full Federal Court, Allsop CJ, Gilmour and Gordon JJ, 29 August 2013.)
[LTN 168, 30/8/13]