Federal Court hands down the first decision on promotor penalties – a win for the taxpayer

In Commissioner of Taxation of the Commonwealth of Australia v Ludekens [2013] FCA 142 the Federal Court dismissed the Commissioner’s claim that the respondents were subject to penalties as “promoters” of a tax exploitation scheme pursuant to Division 290 of the Taxation Administration Act 1953 (Cth). This is the first case where the Federal Court has heard an application by the Commissioner for the imposition of penalties under the “promoter penalty regime”. This decision is relevant to GST, because the regime extends to schemes involving GST.

In a blow to the Commissioner, the Federal Court found that while there was a “tax exploitation scheme”, the respondents were not a “promoter” of the scheme within the elements of the definition. This was because not all of the conduct of the respondents necessary to satisfy the definition occurred within the last four years.  Further, the Commissioner failed to establish that the respondent received (either directly or indirectly) consideration in respect of the marketing or encouragement of the scheme.

This is an important decision with significant implications on the scope and application of the “promoter penalty regime”.  The judgment is extensive, running to over 300 paragraphs. My analysis of the decision will follow soon.

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