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On 11 April 2014 the High Court refused the taxpayers’ application for special leave to appeal from the decision of the Full Court of the Federal Court in FCT v Ludekens [2013] FCAFC 100.

The case concerned the Commissioner’s power under Div 290 of Sch 1 to the Taxation Administration Act 1953 (Cth) to impose civil penalties on promoters of tax exploitation schemes. As the Federal Court noted, this was the first time an appeal court had considered Div 290.

Under s 290-50(1) and (2), an entity that engages in conduct that results in that, or another, entity being a promoter of a tax exploitation scheme, or results in a scheme that has been promoted on the basis of conformity with a product ruling being implemented in a way that is materially different from that described in the product ruling, may be subject to a civil penalty.

The central issues in the appeal concerned the taxpayers’ actions in relation to two groups of investors they approached to invest in a woodlot project. The Commissioner contended that the taxpayers had contravened s 290-50(1) and (2) in their dealings with the investors. At first instance the court dismissed the proceedings. On appeal, however, the Full Court of the Federal Court allowed the Commissioner’s appeal, and held that each taxpayer contravened s 290-50(1), but did not contravene s 290-50(2). The Full Court determined that the relevant scheme was a tax exploitation scheme within the meaning of s 290-65 by characterising the dominant purpose of the scheme as deriving “scheme benefits” within the meaning of s 995-1 of the Income Tax Assessment Act 1997 (Cth) read with s 284-150(1) of Sch 1 of the TAA. The Commissioner’s application for a civil penalty was remitted for hearing by a judge of the Federal Court.

Ludekens v FCT [2014] HCATrans 86 (11 April 2014).

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