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The Federal Court (Middleton J) has dismissed the Commissioner's application for civil penalties to be imposed, pursuant to Div 290 of the Taxation Administration Act 1953, 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 in the Court's decision as the "Secondary Investment").

First, the Court found on the facts that both Ludekens and Van de Steeg 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.

However, the Court held that, with one exception, neither of them received (either directly or indirectly) consideration in respect of that marketing or encouragement (the second limb of the definition of 'promoter').

Specifically, the Court rejected the Commissioner's submissions that either commissions received from Gunns in respect of the acquisition of the woodlots or the GST refunds received from the ATO in respect of the acquisition of the woodlots or both were relevant consideration. The Commissioner was refused leave to argue, belatedly, that a third source of funds, namely tax refunds that Secondary Investment investors promised to pay to the alleged promoters, was relevant consideration received by Ludekens.

This meant that the case against Ludekens failed.

However, the Court held that the Commissioner could rely on a tax refund received by one of the Secondary Investment investors (Mr Crowe) that was paid to an associate of Van de Steeg. The Court further held that this was relevant consideration, such that the second limb of the definition of 'promoter' was satisfied in respect of Van de Steeg.

The Court also held that the third limb of the definition of 'promoter' was satisfied in respect of Van de Steeg, in that it was reasonable to conclude that Van de Steeg had a substantial role in respect of the marketing of the relevant scheme carried out in respect of Mr Crowe.

The next issue to decide, therefore, was whether any of the acts undertaken by the alleged promoters was a 'tax exploitation scheme'. A tax exploitation scheme is defined as a scheme carried out with the sole or dominant purpose of an entity getting a 'scheme benefit', that is, paying less tax or getting a greater refund than would have been the case but for the scheme.

The Court held that, on the facts, the Commissioner had not demonstrated the existence of the scheme benefits alleged by him for this purpose. Further, the Court held that it was not the sole or dominant purpose of the alleged promoters that the Secondary Investment investors obtain the alleged scheme benefits. Rather, their most influential or prevailing purpose was to make a profit.

Finally, the Court rejected the Commissioner's argument that one or both of the alleged promoters engaged in conduct that resulted in the 2006 Gunns Woodlot Project (being a scheme that has been promoted on the basis of conformity with a product ruling, namely, PR 2006/8) being implemented in a way that is materially different from that described in PR 2006/8 - see s 290-50(2). The fact that the Secondary Investment investors did not fall within PR 2006/8 did not mean that the 2006 Gunns Woodlot Project was not implemented in accordance with PR 2006/8. Further, the Secondary Investment never had a Product Ruling, and could never fall within the scope of s 290-50(2).

The Commissioner's case was dismissed: Commissioner of Taxation of the Commonwealth of Australia v Ludekens [2013] FCA 142 (Federal Court, Middleton J, 4 March 2013).


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