The Court held that the exclusion provided by s 177C(2)(a)(i) (ie "the non-inclusion of the amount in the assessable income of the taxpayer is attributable to the making of an agreement, choice, declaration, election etc) was not made out and each taxpayer obtained a tax benefit in connection with the scheme for the purposes of s 177C(1)(a) and s 177D, enlivening the power of the Commissioner to make a determination pursuant to s 177F(1)(a). In particular, the Court held that the Tribunal correctly determined that no nexus was made out between the choice or election made by each taxpayer and the non-inclusion of the relevant capital gain in the assessable income of the taxpayers.
However, the Court upheld the Commissioner's cross appeal on penalties. The AAT had held that as the taxpayers' had a reasonably arguable case, with the result that the 50% penalties imposed by the Commissioner should be reduced to 25%. The Court held that the taxpayers' argument in relation to the construction and application of s 177C(2)(a)(i) is not objectively about as likely as not correct, with the result that the Commissioner's decision on penalties was affirmed: Walters v FCT  FCA 1270 (Federal Court, Greenwood J, 20 August 2007).
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