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The Full Court of the Federal Court (Allsop CJ, Gilmour and Gordon JJ) has partially upheld the Commissioner's appeal from the decision of Middleton J in FCT v Ludekens [2013] FCA 142.

In that decision, Middleton J dismissed the Commissioner's application for civil penalties to be imposed, pursuant to Div 290 of Schedule 1 to the Taxation Administration Act 1953 ("TAA"), on  2 persons alleged by him to be scheme promoters.

The alleged promoters (Ludekens and Van de Steeg) acquired fully financed woodlots in the Gunns Plantations Limited Woodlot Project 2006 (the 2006 Gunns Woodlot Project), which was the subject of a favourable ATO Product Ruling (PR 2006/8), and then subsequently offered them to other investors in a manner that did not attract the protection of PR 2006/8 (referred to as the "Secondary Investment").

The Full Court held that both Ludekens and Van de Steeg were promoters of a tax exploitation scheme in contravention of s 290-50(1). Specifically, they marketed the relevant scheme (or otherwise encouraged its growth or interest in it) and thus satisfied the first limb of the definition of "promoter" in s 290-60. Secondly, they received consideration in respect of that marketing or encouragement, including in the form of commission from Gunns and GST refunds. Thirdly, the relevant scheme was a "tax exploitation scheme" as defined in s 290-65, because it was reasonable to conclude that an entity that entered into the scheme did so for the sole or dominant purpose of an entity getting a scheme benefit (as defined in s 995(1) of ITAA 1997 and s 284-150(1) of Schedule 1 to the TAA) from the scheme.

In relation to the proper construction of the term "scheme benefit", the Full Court disagreed with Middleton J that it required an "alternative postulate", namely, what would have been the relevant tax liability if the scheme had not been entered into or carried out. The Full Court said at paras 227 and 231:

"The essential starting point in appreciating the proper operation of ss 290-65 and 284-150 is the statutory task in s 290-65. Section 290-65(1) is concerned with purpose: that is the purpose with which an entity entered into or carried out the scheme (if the scheme has been implemented), or the purpose with which an entity would have entered into or carried out the scheme (if the scheme has not been implemented). The correct framework of analysis is whether, at the time of the conduct in s 290-50(1) (being the marketing or otherwise encouraging the growth of the scheme or interest in it), 'it is reasonable to conclude' that the entity entered into or carried out the scheme (or would have) with the purpose of it, or another entity, getting a scheme benefit from the scheme...

In the context of assessing (through the framework of what is reasonable to conclude) the purpose of an entity, the focus is upon what the entity was proposing to do and why. The focus is not upon any hypothesised events, circumstances or decision requiring you to remove from the proposed future what was done, and positing what might have been done."

In contrast, the Commissioner's appeal against the finding of Middleton J that neither Ludekens nor Van de Steeg contravened s 290-50(2) - relating to implementation of a scheme in a way materially different from that described in a product ruling - was dismissed.

The matter, insofar as it involved the penalty to be imposed for a contravention of s 290-50(1), was remitted for hearing by a judge of the Court.

FCT v Ludekens [2013] FCAFC 100 (Full Federal Court; Allsop CJ, Gilmour and Gordon JJ; 29 August 2013).


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