Commissioner of Taxation v Bogiatto

[2020] FCA 1139

FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v Bogiatto [2020] FCA 1139

File number:

NSD 1839 of 2018

Judge:

THAWLEY J

Date of judgment:

7 August 2020

Catchwords:

TAXATION – whether respondents engaged in conduct that resulted in them or another entity being a promoter of tax exploitation schemes in breach of s 290-50(1) of Sch 1 of the Taxation Administration Act 1953 (Cth) – where over 20 alleged tax exploitation schemes involving 14 taxpayers – where taxpayers made research and development claims under Div 355 of the Income Tax Assessment Act 1997 (Cth) – whether respondents were promoters within the meaning of s 290-60(1) of Sch1 – whether there were tax exploitation schemes within the meaning of s 290-65(1) of Sch 1 – whether respondents received scheme benefits within the meaning of s 284-150(1) of Sch 1 – meaning of tax evasion in s 290-55(6) of Sch 1 – contraventions of s 290-50(1) of Sch 1 established in respect of schemes involving 13 taxpayers – applications regarding some contraventions statute barred

Legislation:

Evidence Act 1995 (Cth) s 140

Income Tax Assessment Act 1936 (Cth) ss 222C, 226K, 262A, 318

Income Tax Assessment Act 1997 (Cth) ss 355-5, 355-25, 355-30, 355-35, 355-100, 355-705, 960-100, 995-1

Industry Research and Development Act 1986 (Cth) ss 27A, 27B, 27D, 27J, 28C

Judiciary Act 1903 (Cth) s 39B

Taxation Administration Act 1953 (Cth) s 3AA, Sch 1 ss 255-1, 284-15, 284-150, 290-5, 290-50, 290-55, 290-60, 290-65

Tax Laws Amendment (Improvements to Self Assessment) Act (No. 1) 2005 (Cth)

Federal Court Rules 2011 (Cth) rr 1.34, 10.42, 10.43, 10.44, 10.49

Tax Laws Amendment (2005 Measure No. 6) Bill 2005 (Cth)

Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth)

Cases cited:

Allen v Federal Commissioner of Taxation (2011) 195 FCR 416

Australian Competition and Consumer Commission v Maritime Union of Australia (2001) 114 FCR 472

Australian Competition and Consumer Commission v Yellow Page Marketing BV [2010] FCA 1218

Australian Securities and Investment Commission v Axis International Management Pty Ltd [2008] FCA 1605

Briginshaw v Briginshaw (1938) 60 CLR 336

Cameron Brae Pty Ltd v Federal Commissioner of Taxation (2007) 161 FCR 468

Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389

Commissioner of Taxation v Arnold (No 2) (2015) 100 ATR 529

Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503

Commissioner of Taxation v Ludekens (2013) 92 ATR 301

Commissioner of Taxation v Ludekens (2013) 214 FCR 149

Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) (1949) 79 CLR 296

El-Kazzi v Kassoum [2009] NSWSC 99

Moreton Resources Ltd v Innovation and Science Australia (2019) 271 FCR 211

Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154

R v Meares (1997) 37 ATR 321

Re Ozone Manufacturing Pty Ltd and Federal Commissioner of Taxation (2013) 97 ATR 50

Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603

Walstern Pty Ltd v Commissioner of Taxation (2003) 138 FCR 1

Date of hearing:

25 March 2020

Date of last submissions:

6 April 2020

Registry:

New South Wales

Division:

General Division

National Practice Area:

Taxation

Category:

Catchwords

Number of paragraphs:

717

Counsel for the Applicant:

Mr D McLure SC with Mr G O’Mahoney

Solicitor for the Applicant:

MinterEllison

Counsel for the Respondents:

Respondents did not appear

Table of Corrections
28 August 2020	In paragraph 568(1)(c), “and Lambdachase Advisors” has been deleted after “Ryusei”.

ORDERS

NSD 1839 of 2018

BETWEEN:

COMMISSIONER OF TAXATION

Applicant

AND:

PAUL ENZO BOGIATTO

First Respondent

RYUSEI PTY LTD ABN 13 111 442 847

Second Respondent

LAMBDACHASE ADVISORS PTY LTD ABN 89 167 596 536 (and another named in the Schedule)

Third Respondent

JUDGE:	THAWLEY J
DATE OF ORDER:	7 AUgust 2020

THE COURT ORDERS THAT:

1.The applicant file within 14 days short minutes of order giving effect to these reasons for judgment.

2.The proceeding be listed for a case management hearing at 9 am on 27 August 2020.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THAWLEY J:

A  OVERVIEW	[1]
B  FACTUAL BACKGROUND	[10]
C  STATUTORY FRAMEWORK – PROMOTER PENALTY PROVISIONS	[17]
C.1  The prohibition	[17]
C.2  Promoter	[26]
C.2.1  Section 290-60(1)(a)	[27]
C.2.2  Section 290-60(1)(b)	[33]
C.2.2.1  Consideration in respect of marketing or encouragement of growth	[33]
C.2.2.2  The meaning of “associate”	[36]
C.2.2.3  Consideration	[39]
C.2.3  Section 290-60(1)(c)	[49]
C.3  Tax exploitation scheme	[53]
C.3.1  First condition: dominant purpose	[56]
C.3.2  Second condition: whether scheme benefit is reasonably arguable	[58]
C.4  Can receipt of consideration be conduct within s 290-50(1)?	[69]
C.5  Limitation period of 4 years	[73]
C.5.1      Receipt of consideration	[75]
C.5.2      Meaning of tax evasion	[79]
C.6  Onus and standard of proof	[83]
D  STATUTORY FRAMEWORK – RESEARCH AND DEVELOPMENT	[85]
E  THE OBLIGATION TO KEEP RECORDS	[97]
F  THE SCHEMES	[103]
F.1  Mediaconnect Australia Pty Ltd	[103]
F.1.1 Section 290-50(1) conduct of an entity which resulted in that entity or another entity being a promoter	[105]
F.1.2  Promoter	[106]
F.1.2.1  Section 290-60(1)(a): marketing and encouragement	[106]
F.1.2.2  Section 290-60(1)(b): consideration	[134]
F.1.2.3  Section 290-60(1)(c): substantial role	[138]
F.1.3  Tax exploitation scheme	[140]
F.1.4  Scheme benefit	[157]
F.2  Harris Movement Engineering (HME) Pty Ltd	[158]
F.2.1 Section 290-50(1) conduct of an entity which resulted in that entity or another entity being a promoter	[159]
F.2.2  Promoter	[160]
F.2.2.1  Section 290-60(1)(a): marketing or encouragement	[160]
F.2.2.2  Section 290-60(1)(b): consideration	[187]
F.2.2.3  Section 290-60(1)(c): substantial role	[193]
F.2.3  Tax exploitation scheme	[194]
F.2.4  Scheme benefit	[218]
F.3  Moorilla Estate Pty Ltd	[219]
F.3.1 Section 290-50(1) conduct of an entity which resulted in that entity or another entity being a promoter	[222]
F.3.2  Promoter	[223]
F.3.2.1  Section 290-60(1)(a): marketing or encouragement	[223]
F.3.2.2  Section 290-60(1)(b): consideration	[247]
F.3.2.3  Section 290-60(1)(c): substantial role	[250]
F.3.3  Tax exploitation scheme	[252]
F.3.4  Scheme benefit	[262]
F.4  BBS Flooring Products Pty Ltd	[264]
F.4.1 Section 290-50(1) conduct of an entity which resulted in that entity or another entity being a promoter	[266]
F.4.2  Promoter	[267]
F.4.2.1  Section 290-60(1)(a): marketing or encouragement	[267]
F.4.2.2  Section 290-60(1)(b): consideration	[285]
F.4.2.3  Section 290-60(1)(c): substantial role	[288]
F.4.3  Tax exploitation scheme	[289]
F.4.4  Scheme benefit	[296]
F.5  Derisole Pty Limited	[298]
F.5.1 Section 290-50(1) conduct of an entity which resulted in that entity or another entity being a promoter	[301]
F.5.2  Promoter	[302]
F.5.2.1  Section 290-60(1)(a): marketing or encouragement	[302]
F.5.2.2  Section 290-60(1)(b): consideration	[310]
F.5.2.3  Section 290-60(1)(c): substantial role	[317]
F.5.3  Tax exploitation scheme	[318]
F.5.4  Scheme benefit	[327]
F.6  Indux Air Systems Pty Ltd	[328]
F.6.1 Section 290-50(1) conduct of an entity which resulted in that entity or another entity being a promoter	[331]
F.6.2  Promoter	[332]
F.6.2.1  Section 290-60(1)(a): marketing or encouragement	[332]
F.6.2.2  Section 290-60(1)(b): consideration	[370]
F.6.2.3  Section 290-60(1)(c): substantial role	[373]
F.6.3  Tax exploitation scheme	[374]
F.6.4  Scheme benefit	[381]
F.7  Light This Light That Pty Ltd	[382]
F.7.1 Section 290-50(1) conduct of an entity which resulted in that entity or another entity being a promoter	[384]
F.7.2  Promoter	[385]
F.7.2.1  Section 290-60(1)(a): marketing or encouragement	[385]
F.7.2.2  Section 290-60(1)(b): consideration	[397]
F.7.2.3  Section 290-60(1)(c): substantial role	[400]
F.7.3  Tax exploitation scheme	[401]
F.7.4  Scheme benefit	[409]
F.8  Tempcon Pty Ltd	[411]
F.8.1 Section 290-50(1) conduct of an entity which resulted in that entity or another entity being a promoter	[418]
F.8.2  Promoter	[419]
F.8.2.1  Section 290-60(1)(a): marketing or encouragement	[419]
F.8.2.2  Section 290-60(1)(b): consideration	[435]
F.8.2.3  Section 290-60(1)(c): substantial role	[439]
F.8.3  Tax exploitation scheme	[441]
F.8.4  Scheme benefit	[445]
F.9  Woods Furniture Pty Ltd	[446]
F.9.1 Section 290-50(1) conduct of an entity which resulted in that entity or another entity being a promoter	[448]
F.9.2  Promoter	[449]
F.9.2.1  Section 290-60(1)(a): marketing or encouragement	[449]
F.9.2.2  Section 290-60(1)(b): consideration	[480]
F.9.2.3  Section 290-60(1)(c): substantial role	[482]
F.9.3  Tax exploitation scheme	[483]
F.9.4  Scheme benefit	[491]
F.10  Australian Steel Pty Ltd	[492]
F.10.1 Section 290-50(1) conduct of an entity which resulted in that entity or another entity being a promoter	[494]
F.10.2  Promoter	[495]
F.10.2.1  Section 290-60(1)(a): marketing or encouragement	[495]
F.10.2.2  Section 290-60(1)(b): consideration	[516]
F.10.2.3  Section 290-60(1)(c): substantial role	[519]
F.10.3  Tax exploitation scheme	[520]
F.10.4  Scheme benefit	[528]
F.11  Cargroomers Queensland Pty Ltd	[530]
F.11.1 Section 290-50(1) conduct of an entity which resulted in that entity or another entity being a promoter	[532]
F.11.2  Promoter	[533]
F.11.2.1  Section 290-60(1)(a): marketing or encouragement	[533]
F.11.2.2  Section 290-60(1)(b): consideration	[557]
F.11.2.3  Section 290-60(1)(c): substantial role	[560]
F.11.3  Tax exploitation scheme	[561]
F.11.4  Scheme benefit	[565]
F.12  Design Landscapes Pty Ltd	[566]
F.12.1 Section 290-50(1) conduct of an entity which resulted in that entity or another entity being a promoter	[568]
F.12.2  Promoter	[569]
F.12.2.1  Section 290-60(1)(a): marketing or encouragement	[569]
F.12.2.2  Section 290-60(1)(b): consideration	[599]
F.12.2.3  Section 290-60(1)(c): substantial role	[606]
F.12.3  Tax exploitation scheme	[607]
F.12.4  Scheme benefit	[621]
F.13  Sky High Hoists Rigging and Electrical Pty Ltd	[623]
F.13.1 Section 290-50(1) conduct of an entity which resulted in that entity or another entity being a promoter	[625]
F.13.2  Promoter	[626]
F.13.2.1  Section 290-60(1)(a): marketing or encouragement	[626]
F.13.2.2  Section 290-60(1)(b): consideration	[652]
F.13.2.3  Section 290-60(1)(c): substantial role	[656]
F.13.3  Tax exploitation scheme	[657]
F.13.4  Scheme benefit	[666]
F.14  Visionpak Pty Ltd	[667]
F.14.1 Section 290-50(1) conduct of an entity which resulted in that entity or another entity being a promoter	[671]
F.14.2  Promoter	[672]
F.14.2.1  Section 290-60(1)(a): marketing or encouragement	[672]
F.14.2.2  Section 290-60(1)(b): consideration	[693]
F.14.2.3  Section 290-60(1)(c): substantial role	[700]
F.14.3  Tax exploitation scheme	[701]
F.14.4  Scheme benefit	[708]
G  EVASION	[709]
H  WHETHER UNIMPLEMENTED SCHEMES STATUTE BARRED	[712]
I  CONCLUSION	[717]

A  OVERVIEW

1. The Commissioner of Taxation alleges that Mr Paul Enzo Bogiatto, Ryusei Pty Ltd, Lambdachase Advisors Pty Ltd and Lambdachase Services Pty Ltd contravened s 290‑50(1) of Sch 1 to the Taxation Administration Act 1953 (Cth) (TAA 1953) by engaging in conduct that resulted in them or another entity being a promoter of tax exploitation schemes. 

2. The alleged tax exploitation schemes each involved claims under Div 355 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) in respect of purported research and development (R&D) activities (R&D claims).  The Commissioner alleges that it was not reasonably arguable that the scheme benefits resulting from the R&D claims were available at law.  The allegations relate to over twenty schemes involving fourteen taxpayers in the 2012, 2013 and 2014 financial years. 

3. On 8 November 2018, orders were made under rr 10.43 and 10.44 of the Federal Court Rules 2011 (Cth) granting the applicant leave to serve various documents, including the originating application and statement of claim in proceeding numbered NSD 1839 of 2018 (then relating only to Mediaconnect Australia Pty Ltd) on Mr Bogiatto in a foreign country. The Court was satisfied it had jurisdiction in the proceeding, including under s 290-50(3) of Sch 1 to the TAA 1953 and s 39B(1A)(c) of the Judiciary Act 1903 (Cth). The proceeding was of a kind mentioned in Item 12 of the Table in r 10.42 of the Rules and the Commissioner had established a sufficient prima facie case of contravention of s 290-50(1) of Sch 1 to satisfy the requirement of r 10.43(4)(c): Australian Competition and Consumer Commission v Yellow Page Marketing BV [2010] FCA 1218 at [25] (Gordon J); Australian Securities and Investment Commission v Axis International Management Pty Ltd [2008] FCA 1605 at [14] (Gilmour J).

4. Orders were also made on 8 November 2018 for substituted service and under r 1.34 of the Rules dispensing with certain requirements, including the implicit requirement under r 10.49 that an attempt first be made for service on Mr Bogiatto in a foreign country. The reason for dispensing with these requirements was that the evidence established that Mr Bogiatto was outside of Australia but that he had travelled to and could have been in any one of a number of countries. No sensible attempt at service could have been made and it would have bordered on the absurd in the circumstances to require an attempt first to be made.

5. Substantively identical orders were made on the same date in proceeding NSD 1959 of 2018, relating to Harris Movement Engineering (HME) Pty Ltd. 

6. After that time, further proceedings were commenced by the applicant against the respondents: NSD 2153 of 2018 (relating to Moorilla Estate Pty Ltd); NSD 2258 of 2018 (relating to BBS Flooring Products Pty Ltd); and NSD 129 of 2019 (relating to Derisole Pty Limited, Indux Air Systems Pty Ltd, Light This Light That Pty Ltd (LTLT), Tempcon Pty Ltd, Woods Furniture Pty Ltd, Australian Steel Pty Ltd, Cargroomers Queensland Pty Ltd, Design Landscapes Pty Ltd, Sky High Hoists Rigging and Electrical Pty Ltd and Visionpak Pty Ltd). 

7. On 27 September 2019, orders were made which included granting leave to amend the originating application and statement of claim in proceeding numbered NSD 1839 of 2018.  As a matter of substance, these orders effected a consolidation of all of the proceedings into one.  Although arguably unnecessary, orders were also made on 27 September 2019 for substituted service of the amended pleadings on Mr Bogiatto.  The evidence at the time revealed that Mr Bogiatto had returned to Australia on 2 September 2019, using a New Zealand passport in another person’s name.  He attempted to leave Australia on 20 September 2019 but was prevented from doing so upon activation of a departure prohibition order.  His whereabouts in Australia were unknown, but the evidence revealed a number of methods of service likely to bring the amended pleadings to Mr Bogiatto’s attention.

8. None of the respondents appeared in the proceedings.  

9. For the reasons set out below, the Court is satisfied that the Commissioner has established various contraventions on the part of Mr Bogiatto, Ryusei, Lambdachase Advisors and Lambdachase Services with respect to tax exploitation schemes concerning thirteen of the fourteen taxpayers.  Applications concerning some of the contraventions are statute barred.

   B  FACTUAL BACKGROUND

10. Mr Bogiatto was a director and shareholder of Ryusei and Lambdachase Advisors.  Ryusei was incorporated in New South Wales on 19 October 2004.  Lambdachase Advisors was incorporated in New South Wales on 17 January 2014.  Ryusei traded as Lambda Chase Chartered Accountants and, on occasion, as “Hill & Bogiatto” or “Hill + Bogiatto”.  Lambdachase Advisors also used the name “Lambda Chase Chartered Accountants” in some of its communications.

11. Mr Bogiatto was also the sole director, secretary and shareholder of Lambdachase Services which was incorporated in New South Wales on 18 April 2013.  

12. Mr Bogiatto was the officer or employee with final responsibility for, and control over the work undertaken by, Ryusei, Lambdachase Advisors and Lambdachase Services. 

13. The conduct in relation to each of the alleged tax exploitation schemes is addressed in detail in Section F below.  However, it is convenient to summarise now that it generally involved Mr Bogiatto or entities he controlled engaging in the following conduct:

    (1)The taxpayer would be contacted by telephone, either by Mr Bogiatto directly or by another person, for the purpose of arranging a meeting with Mr Bogiatto.

    (2)Mr Bogiatto would attend the prospective client’s premises, promoting himself as an R&D specialist, with considerable experience and expertise in assisting taxpayers with making R&D claims.  Mr Bogiatto would discuss the possibility of the prospective client benefiting from R&D incentives, ask some questions about the operations of the business, advise that the taxpayer had a strong case for obtaining R&D incentives, and represent that he could assist.

    (3)Mr Bogiatto would send a letter of engagement, headed “Terms of Engagement”, to the prospective client.  The “Terms of Engagement” provided for a fee calculated as a percentage of any R&D tax offset that the client might obtain, typically 30%.

    (4)Mr Bogiatto would then ask the client to send information about the operations and finances of the business, which he would use to prepare an “R&D Tax Incentive Application” for submitting to AusIndustry for registration of the entity’s R&D activities.

    (5)Once registration with AusIndustry was confirmed, Mr Bogiatto would inform the client of this outcome, and prepare an “R&D Tax Incentive Schedule” containing figures that Mr Bogiatto instructed or advised the client to incorporate in its tax return or, if the client had already lodged a tax return for a given year, an amended tax return.

    (6)By one of his companies, Mr Bogiatto would then send an invoice to the client, and pursue payment.

14. During this process, if a client questioned Mr Bogiatto’s calculations or asked for an explanation as to how the figures produced by Mr Bogiatto were derived, Mr Bogiatto would typically respond by asserting that he would not disclose his methodology because it was his intellectual property, asserting that he was the expert, and stating that the client should not question him.  On occasion, he would provide some reason to reassure the client that the figures had a sound basis. 

15. The Commissioner has not established that the scheme relating to LTLT was a tax exploitation scheme.  Where the tax exploitation schemes were implemented, the claims were grossly exaggerated or wholly unavailable.  As explained in Section G below, each of the relevant implemented tax exploitation schemes involved tax evasion.  The tax exploitation schemes with respect to two taxpayers (Cargroomers and Sky High) were not fully implemented and the relevant scheme benefits were not obtained because the R&D claims were not ultimately made.  As explained at [81] and Section H below, these schemes did not involve “tax evasion” because no tax was evaded and no scheme benefit was obtained.  Some of the contraventions relevant to these taxpayers are statute barred.

1. Before turning to the various tax exploitation schemes in more detail, it is necessary to understand the relevant statutory framework.

   C  STATUTORY FRAMEWORK – PROMOTER PENALTY PROVISIONS

   C.1  The prohibition

2. Section 290-50 of Sch 1 to the TAA 1953 includes:

   290-50 Civil penalties

   Promoter of tax exploitation scheme

   (1)An entity must not engage in conduct that results in that or another entity being a *promoter of a *tax exploitation scheme.

   …

   Civil penalty

   (3)If the Federal Court of Australia is satisfied, on application by the Commissioner, that an entity has contravened subsection (1) or (2), the Court may order the entity to pay a civil penalty to the Commonwealth.

3. The meaning of “entity” is to be found in s 960-100 of the ITAA 1997 – see: s 3AA(2) of the TAA 1953. Each respondent is an entity.

4. Subsections 290-50(4) and (5) address the “amount of penalty” and the “principles relating to penalties”.  Penalties are to be the subject of a further hearing. 

5. In order to determine whether the Commissioner has proved that an entity against whom the penalty is sought “engage[d] in conduct that results in that or another entity being a promoter of a tax exploitation scheme” in breach of s 290-50(1), it is necessary to direct attention to at least three critical matters.

6. First, there must be an entity which satisfies the definition of “promoter” in s 290-60(1). This in turn requires three matters to be satisfied.

   (1)the entity must have:

   (a)marketed the scheme; or

   (b)encouraged the growth of the scheme; or

   (c)encouraged interest in the scheme: s 290-60(1)(a).

   (2)consideration must be received (directly or indirectly) by the entity referred to in s 290-60(1) or an associate of that entity: s 290-60(1)(b). The consideration must be “in respect of [the] marketing or encouragement”: s 290-60(1)(b).

   (3)it must be reasonable to conclude that the entity referred to in s 290-60(1) has had a “substantial role” in respect of the marketing or encouragement relied upon as satisfying s 290-60(1)(a): s 290-60(1)(c).

7. Secondly, there must be a “scheme” which was a “tax exploitation scheme” within the meaning of s 290-65(1) at the time of the conduct asserted to contravene s 290-50(1).

8. The meaning of “tax exploitation scheme” varies depending on whether or not the scheme has been implemented.  In each case, there are two conditions which must be satisfied. 

   (1)The first condition is about the dominant purpose of an entity entering into the scheme:

   (a)if the scheme has been implemented: it must be reasonable to conclude that an entity that (alone or with others) entered into or carried out the scheme did so with the sole or dominant purpose of that entity or another entity getting a “scheme benefit” from the scheme: s 290-65(1)(a)(i);

   (b)if the scheme has not been implemented: it must be reasonable to conclude that, if an entity (alone or with others) had entered into or carried out the scheme, it would have done so with the sole or dominant purpose of that entity or another entity getting a “scheme benefit” from the scheme: s 290-65(1)(a)(ii).

   (2)The second condition is that:

   (a)if the scheme has been implemented: it is not reasonably arguable that the “scheme benefit” is available at law: s 290-65(1)(b)(i);

   (b)if the scheme has not been implemented: it is not reasonably arguable that the “scheme benefit” would be available at law if the scheme were implemented: s 290-65(1)(b)(ii).

9. Thirdly, it is necessary to identify the “scheme benefit” which the taxpayer got if the scheme was implemented or, if the scheme was not implemented, which the taxpayer would have got.  An entity gets a “scheme benefit” if:

   (1)a tax-related liability of the entity is, or could reasonably be expected to be, less than it would be apart from the scheme or a part of it: s 284-150(1)(a); or

   (2)an amount that the Commissioner must pay or credit to the entity under a taxation law is, or could be expected to be, greater than it would be apart from the scheme or a part of it: s 284-150(1)(b).

10. Each of these matters is examined in more detail below.

    C.2  Promoter

11. The conduct proscribed by s 290-50(1) is conduct that results in that entity, or another entity, being a “promoter of a tax exploitation scheme”. Section 290-60 must be read as a whole. It contains, in subs (1), three positive requirements which must be satisfied for an entity to be a “promoter”. Subsection (2) contains a statutory qualification relevant to the three positive requirements in subs (1). Subsection (3) provides a statutory qualification to the third positive requirement in subs (1), namely the requirement in s 290-60(1)(c):

    290-60 Meaning of promoter

    (1)       An entity is a promoter of a *tax exploitation scheme if:

    (a)the entity markets the scheme or otherwise encourages the growth of the scheme or interest in it; and

    (b)the entity or an *associate of the entity receives (directly or indirectly) consideration in respect of that marketing or encouragement; and

    (c)having regard to all relevant matters, it is reasonable to conclude that the entity has had a substantial role in respect of that marketing or encouragement.

    (2)However, an entity is not a promoter of a *tax exploitation scheme merely because the entity provides advice about the *scheme.

    (3)An employee is not to be taken to have had a substantial role in respect of that marketing or encouragement merely because the employee distributes information or material prepared by another entity.

    C.2.1  Section 290-60(1)(a)

12. The Full Court in Commissioner of Taxation v Ludekens (2013) 214 FCR 149 at [248]-[258] considered the phrase “markets the scheme or otherwise encourages the growth of the scheme or interest in it”, emphasising the width of the words at [250] and [257]. The Full Court recognised that the statutory language was directed to marketing and encouragement and that development of a scheme and its implementation are different.  Nevertheless, after reviewing the legislative history, the Full Court noted at [256] to [257] that development and implementation might be sufficiently connected with other activity such that it answered the description of marketing or encouraging the growth in the scheme:

    [256]… To a point, it can be accepted that activity or conduct that might be described as implementation of the scheme that was of a day-to-day administrative kind that may not have any element of, or connection with, communication with prospective entrants or with the publicising of the advantages of the scheme might have fallen into the wording of the 2005 Exposure Draft, but would not fall within the words of s 290-60(1). That is not to say, however, that activity or conduct that in one sense might be seen as implementation might not have a sufficiently close connection with other activity that clearly answers the description of marketing, and encouraging the growth of, or interest in, the scheme as to be part of that conduct.

    [257]Whilst care needs to be taken with the use of dictionaries (see Sea Shepherd Australia Ltd v Federal Commissioner of Taxation (2013) 212 FCR 252 at [34]-[36]), “market” as a verb is not easily limited to making offers to participate. The Shorter Oxford English Dictionary (5th ed, Oxford University Press, 2002) includes in the definition of “market” (as a verb) the promotion or distributing for sale. The verb “to promote” is defined as including the furtherance of the growth, development, progress or establishment of (a thing); to encourage, help forward or support actively (a course or process); and to publicise (a product) or advertise so as to increase sales or public awareness. Once the potential width of such words is recognised, it is a mistake necessarily to exclude from them all conduct, which, looked at individually, answers the description of development or implementation. Such conduct may, in its proper context, form part of a body of conduct, which, examined as a whole, amounts to marketing, or encouraging the growth of or interest in, a scheme.

13. The statutory question is whether the entity “markets the scheme or otherwise encourages the growth of the scheme or interest in it”.  It does not matter that the activity relied upon as falling within the proscription, whether viewed in isolation or as part of a body of conduct, might also be described in some other way.  The fact that conduct might be more precisely described as “development” or “implementation” does not immunise that conduct from falling within the statutory proscription.

14. The applicant provided the following examples of conduct that has been held to assist in supporting a conclusion that an entity has marketed or encouraged the growth of a scheme or interest in it:

    (1)presenting seminars promoting the scheme: Commissioner of Taxation v Arnold (No 2) (2015) 100 ATR 529 at [79(1)-(3)];

    (2)distributing information or marketing brochures or lending one’s name and logo to such brochures which promote or encourage interest in the scheme: Arnold at [79(5)], [81(1) and (2)], [83(3)];

    (3)maintaining a website that includes statements marketing or encouraging interest in the scheme: Arnold at [81(3)], [83(4)];

    (4)initiating contact with the participant, such as by telephone, to arrange a meeting: Ludekens at [86], [262];

    (5)following up people to encourage them to participate in the scheme, such as by sending an email providing information about the scheme: Arnold at [79(4)]; Ludekens at [89], [262];

    (6)meeting with the prospective participant, offering them to participate in the scheme, explaining to them how the scheme works, explaining the benefit of the scheme, providing them with information about the scheme, and providing assurances as to how the scheme works: Ludekens at [88], [91], [95]-[99], [262], [268], [269];

    (7)preparing a “template” (such as an email) to be sent to participants or prospective participants explaining the scheme: Ludekens at [80], [262], [273];

    (8)taking any steps (such as the preparation of documentation) that are necessary for the implementation of the scheme: Ludekens at [268], [269], [274]-[276];

    (9)forwarding to the participant documentation regarding the scheme and asking the participant to sign and return documentation: Ludekens at [92], [93], [268];

    (10)forwarding to the participant documentation regarding the scheme and asking the participant to forward it on to the participant’s accountant to be used in the preparation of a tax return: Ludekens at [93], [101], [102], [177], [268], [269];

    (11)encouraging and procuring participants to sign documents in order to increase the financial dimensions of the scheme: Ludekens at [284];

    (12)explaining to the participant that even if they had already lodged their income tax return they are able to lodge an amendment in order to obtain the benefit of the scheme: Ludekens at [130], [145], [275], [276]; and

    (13)supplying an element of the structure of the scheme: Arnold at [141].

15. The Commissioner pointed out that each of these examples concerned conduct that had occurred before the scheme benefit had been obtained.  The Commissioner submitted that this does not necessarily mean that conduct which occurs after the scheme benefit has been obtained cannot constitute marketing or encouragement.  In support of that submission, the Commissioner referred to Ludekens at [268].

16. In principle, steps taken after a scheme benefit has been obtained might fall within the statutory proscription.  It all depends on the facts.  For example, steps taken to assist taxpayers after a scheme benefit has been obtained from a mass marketed scheme, might encourage the growth of the scheme.  That is because it might be shown, for example, that other taxpayers were encouraged to participate in the scheme, given – for example – the apparently successful outcome for those who had already participated and the later assistance provided by the promoters to those earlier participants. 

17. The position is not so clear with respect to a one-off tax exploitation scheme directed to one taxpayer.  In the case of one-off schemes, it might be more difficult to conclude that conduct after the tax benefit has been obtained “markets the scheme or otherwise encourages the growth of the scheme or interest in it”. 

    C.2.2  Section 290-60(1)(b)

    C.2.2.1  Consideration in respect of marketing or encouragement of growth

18. To be a “promoter” within the prohibition in s 290-50(1), the entity or an “associate” must receive (directly or indirectly) consideration in respect of the marketing or encouragement: s 290-60(1)(b). The Exposure Draft of the Tax Laws Amendment (2005 Measure No. 6) Bill 2005 (Cth) (2005 Exposure Draft) used the phrase “consideration in respect of the scheme”, but this was ultimately changed to “consideration in respect of that marketing or encouragement”.  After noting this change, the Full Court stated in Ludekens at [286]:

    …That change, however, does not warrant the restriction of the necessary relationship between the consideration and the marketing or encouragement to be effectively “for” and not “in respect of”. A narrowing of language did occur. The relationship was no longer between the scheme and the consideration, but the marketing or encouragement that did take place and the consideration. The latter had to be in respect of the former.

19. The Full Court concluded, contrary to the conclusion of the trial judge, that the receipt by the alleged promoter of commissions, referable to the number of woodlots purchased by the taxpayer who had been procured by the promoter to participate in the scheme, was consideration “in respect of” marketing and encouragement: Ludekens at [288].

20. The phrase “in respect of” is broad.  How broad depends on the particular statutory context: Australian Competition and Consumer Commission v Maritime Union of Australia (2001) 114 FCR 472 per Hill J at [68]. Division 290 of Sch 1 of the TAA 1953 was enacted to deter the promotion of tax avoidance and evasion schemes: s 290-5. This context supports a broad understanding of the phrase.

    C.2.2.2  The meaning of “associate”

21. Section 290-60(1)(b) provides that, for an entity to be a “promoter” of a tax exploitation scheme, the “entity or an associate” must receive consideration in respect of the marketing or encouragement.

22. The definition of “associate” is contained in s 318 of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936): s 995-1(1) of the ITAA 1997; s 3AA(2) of the TAA 1953. Subsection 318(1) defines who is an “associate” of a natural person. Subsection 318(2) defines who is an “associate” of a company.

23. The respondents were each “associates” of the other within the meaning of s 318(1) and (2) of the ITAA 1936.

    C.2.2.3  Consideration

24. As noted in further detail below, there were instances where one or other of the respondents received a promise to pay through acceptance by a taxpayer of “Terms of Engagement” put forward by one of the respondents and instances where one or other of the respondents also received a payment pursuant to the “Terms of Engagement”. 

25. The receipt of a payment is clearly the receipt of consideration within the meaning of s 290-60(1)(b): Commissioner of Taxation v Ludekens (2013) 92 ATR 301 (Ludekens No 1).  In Ludekens No 1 at [221], Middleton J concluded that a promise to pay is also capable of constituting consideration within the meaning of s 290-60(1)(b) depending on the particular circumstances. His Honour stated:

    … it should be recalled that I have already accepted that “consideration” in this sense is not confined merely to monetary benefits. Accordingly, I am prepared to accept that a promise to pay may, in the right circumstances, constitute “consideration” for the purpose of s 290-60.

26. This conclusion was obiter dictum because the point had first been raised by the Commissioner in closing submissions and his Honour did not grant the Commissioner leave to rely on it. His Honour’s reasoning for concluding that a promise to pay might constitute consideration for the purpose of s 290-60 was set out at [39]-[46]:

    [39]In his final submissions, the Commissioner alleged that 3 types of consideration have been received by the respondents that satisfy s 290-60(1)(b). These are:

    (a)the payment of commission by Gunns Ltd (the parent company of the Gunns group of companies, hereafter referred to as “Gunns” unless the context otherwise requires);

    (b)the GST refunds received; and

    (c)the promises by investors to pay their tax refunds to the respondents.

    [40]In respect of this third category, the Commissioner submitted that “consideration” as it appears in s 290-60(1)(b) may encompass the receipt of non-monetary benefits (such as a promise to perform acts or pay an amount).

    [41]The principal point advanced by counsel for Dr Ludekens in response was that, in this case, the Commissioner has not demonstrated the appropriate connection between the consideration allegedly received by the respondents on the one hand, and the marketing or encouragement “in respect of” which that consideration must have been received, on the other. The ability of the Commissioner to rely upon the third category of consideration was also challenged, on the basis of the Commissioner’s failure to raise this category of consideration prior to including it in his final submissions at the conclusion of the hearing. That issue is determined later in these reasons for judgment. At this point, it is appropriate to make some general comments about the proper interpretation of the term “consideration” as it is used in s 290-60.

    [42]In Brooks v FCT (2000) 100 FCR 117; 44 ATR 352; 2000 ATC 4362; 173 ALR 235, the full court of the Federal Court of Australia noted – in the context of considering s 160ZZC(12) of the ITAA 1936 – that (at FCR 128-129 [36]; ATR 362 [36]; ATC 4371 [36]; ALR 246 [36]):

    The word “consideration” is a technical term in the law of contract. However, like many technical words in a statute, it may be used in either a technical or non-technical sense. The meaning will depend upon the context: compare FCT v Scully (2000) 201 CLR 148 at 164-165 [22]; 43 ATR 718 at 725 [22]; 74 ALJR 504 at 509-510 [22]; 2000 ATC 4111 at 4118 [22]; 169 ALR 459 at 466-467 [22]. In Scully it was held that the expression “consideration … for or in respect of” indicated that the use of the word “consideration” was not used in a technical sense. Rather than the technical meaning of a promise given or an act done in exchange for an act or promise by another party, it had, in the context there under consideration (the context was the taxation of eligible termination payments), the meaning of “recompense.” In the context of stamp duty the word has been held to mean that which moves the conveyance which is liable to duty: Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143 at 152 per Dixon CJ.

    [43]For the purpose of Div 290 of the TAA, it is clear that profits received in respect of the marketing or encouragement of a scheme carried out by an alleged promoter constitute “consideration” for the purpose of s 290-60(1)(b). Relevantly, the explanatory memorandum states (at paras 3.44-3.45):

    Scheme promoters generally undertake promotional activities to earn higher financial rewards than would be available for providing independent and objective tax advice. Those scheme profits constitute consideration received from the marketing or encouragement of a tax exploitation scheme and help to establish that an entity is a promoter.

    Salary, wages and other professional fees that reflect the time and expertise spent advising clients about a scheme are unlikely to constitute consideration in the context of the promoter definition because the consideration must be linked to the promotional activity. However, to avoid creating an incentive for promoters to attempt to characterise scheme profits as something else (such as professional fees for advice), no specific types of remuneration are excluded. (Emphasis added.)

    [44]The explanatory memorandum states at paras 3.27-3.28 that the concept of “consideration” as it is used in s 290-60(1)(b) is “narrower” than when used in s 290-50(4) and (5) (which relate to the penalties to be imposed on entities found guilty of contravening s 290-50(1) or s 290-50(2)). The explanatory memorandum states:

    Consideration in this context [subss 290-50(4) and (5)] refers to the total payment or financial reward derived from a scheme. Direct consideration encompasses, amongst other things, any fee, payment for services rendered, money, property, benefit, reward, compensation or recompense received or receivable that is directly related to the scheme. Indirect consideration includes in-kind payments, payments to third party associates and other payments that are indirectly related to the scheme promotion, even if they are described as something else.

    It is important to note that the type of consideration to be taken into account for calculation of the maximum penalty is not constrained by the narrower consideration (related to marketing or encouragement) that is used to determine whether an entity is a promoter (see paragraph 290-60(1)(b) of this Bill). (Emphasis added.)

    [45]However, I understand this commentary to relate to the difference between consideration that is received “in respect of” a scheme in general, and consideration that is specifically received in respect of marketing or encouragement of a scheme. I do not understand it to be suggesting that the essential nature of the consideration that is the subject of s 290-60 is in some way different to that invoked by s 290-50(4) and (5).

    [46]Further, there is nothing in the context of s 290-60 or in its legislative history which suggests that “consideration” should be given an unduly strict interpretation, such that non-monetary benefits are automatically excluded. This is not a case like FCT v Scully (2000) 201 CLR 148; 43 ATR 718; 74 ALJR 504; 2000 ATC 4111; 169 ALR 459, where the High Court held that there was no need for a particular reference to “consideration” in the ITAA 1936 to be read as capturing non-monetary benefits, as this was expressly provided for by neighbouring provisions of that Act (at CLR 166; ATR 726; ALJR 510-511; ATC 4118; ALR 243-244). I accept the submissions of the Commissioner that had the legislature intended to strictly confine the application of s 290-60 to monetary benefits, it could have employed a more definite term to achieve such an end (such as “payment” or “amount”). To this end, it is relevant (although by no means conclusive) that other sections of the TAA feature specific language designed to refer specifically to pecuniary amounts (see, for example, the definition of “tax-related liability” in s 255-1 as “a pecuniary liability to the Commonwealth”; and the reference in s 260-5 to a third party owing “money”). Finally, I consider that a broad reading of “consideration” in this context best achieves the object of the Division, namely, to deter the promotion of tax exploitation schemes.

1. On appeal, the Full Court did not consider the issue of whether a promise to pay would constitute consideration within the meaning of s 290-60(1)(b), concluding that Middleton J had not been shown to have erred in refusing to permit the Commissioner to rely upon the argument: Ludekens at [291].

2. In the present proceedings, the Commissioner submitted that two matters additional to those referred to by Middleton J in Ludekens No 1 at [46] supported a broad construction of “consideration” when used in s 290-60(1)(b):

   (1)First, it was submitted that the proscription against the promotion of tax exploitation schemes extended to schemes which have not been, and may never be, implemented.  If consideration were narrowly construed as requiring receipt of a monetary benefit, unimplemented schemes where no payments had been made to those marketing or encouraging growth or interest in the scheme would be excluded from the reach of the provisions.

   (2)Secondly, it was submitted that, if consideration were narrowly construed as requiring the receipt of a monetary benefit, it would be open for the promoter of a scheme to structure the arrangements with the participants so as to frustrate the operation of the provisions, for example, by procuring a promise for payment, with such payment only to occur after the expiry of the four year limitation period.

3. I accept the first submission as a reason, additional to those given by Middleton J in Ludekens No 1, why “consideration” should be broadly understood. 

4. I do not accept the second submission, at least as it relates to consideration shown to be “in respect of [the relevant] marketing or encouragement”.  Assuming the receipt of payment over four years after marketing conduct had last occurred was “in respect of [the relevant] marketing or encouragement”, the receipt of payment can be conduct that results in the entity or another entity being a promoter such that the limitation period would not have expired.  The reasons for this are explained in Section C.4 and Section C.5.1 below. 

5. The word “consideration” in s 290-60(1)(b) is not to be understood in the technical sense as meaning consideration for the purposes of the law of contract – see: Ludekens No 1 at [42]. However, that which would constitute consideration for the purposes of the law of contract would generally, if not always, constitute “consideration” within the meaning of s 290-60(1)(b). Some of the Commissioner’s submissions in these proceedings involved an implicit assumption that a promise to pay is not contractual consideration. But a promise to pay often is consideration under the law of contract. If A promises to pay B an amount of money on delivery of goods in 30 days time, the promise to pay is the consideration which gives rise to a binding contract. The later payment, upon delivery, is the purchaser’s performance of the contractually binding promise to pay. If, after the contract has been performed, one was asked what the consideration was, the amount paid might commonly be stated to have been the consideration. But that statement should not mask the reality that the consideration received, which gave rise to a binding contract, was the promise to pay.

6. The present statutory context is such that the word “consideration” in s 290-60(1)(b) is apt to cover a contractually binding promise to pay fees in relation to services to be provided and a later payment of those fees. The relevant entities in the present proceedings which received a promise to pay fees “receive[d] (directly or indirectly) consideration” within the meaning of s 290-60(1)(b) as did the entities which received payments.

7. Non-monetary benefits which are not consideration for the purposes of the law of contract might also fall within the meaning of “consideration” in s 290-60(1)(b) and the receipt of such non-monetary benefits might be the direct or indirect receipt of consideration, depending on the precise facts. That is not an issue which arises in this case.

   C.2.3  Section 290-60(1)(c)

8. Section 290-60(1)(c) requires that, for an entity to be a promoter, it must be “reasonable to conclude that the entity has had a substantial role in respect of” the relevant marketing or encouragement; it is not sufficient to demonstrate that an entity had a substantial role in respect of the scheme in general.

9. The explanatory memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth) stated at [3.46] to [3.48] (emphasis in original):

   What is a substantial role?

   3.46     Numerous entities may participate in the promotion of a tax exploitation scheme. However, not all of these will be liable to a penalty, because only promoters who receive financial rewards from promotional activity and who also have a substantial role will satisfy the criteria for being a promoter under the civil penalty provisions.

   3.47     Whether a particular promoter has a substantial (considerable or large) role will turn on the facts of the case, having regard to all matters the Federal Court thinks relevant. [Schedule 3, item 1, paragraph 290-60(1)(c)]

   3.48     The matters that are relevant in this context are determined by the subject matter, scope and purpose of the provisions. They would include, for example, the degree of involvement of the relevant entity in the activities whereby the scheme was marketed or encouraged, the significance of that entity’s role compared to the role played by others in those activities (ie, someone who plays a key role in devising the scheme and giving instructions to others in the course of its establishment and implementation will have a more significant role than someone who merely acts in accordance with those instructions), the nature and level of the consideration received by the entity in respect of the scheme, and the degree of the entity’s participation in the management of the marketing or encouraging of the scheme.

10. This may be compared to the explanatory material which accompanied the earlier 2005 Exposure Draft of Div 290 which stated at [23] and [24]:

    23.      For any tax exploitation scheme there may be numerous individuals who market the scheme, however, there would only be one or a few individuals who would be considered promoters for the purposes of the civil penalty provisions. The promoters who are at risk under the civil penalty regime are those who undertake, for consideration, a substantial promotional role in the overall marketing and advancement of a tax exploitation scheme. This would be a question of fact and would be determined having regard to all relevant facts including (but not limited to) the:

    •degree of the promoter’s involvement in implementing, advancing, actively marketing or encouraging the growth of or interest in the scheme

    •level of consideration received by the individual, directly or indirectly, from the scheme and

    •individual’s participation in the scheme management (including factors such as identification of the individual in the scheme’s marketing material).

    24.      A promoter must have a substantial role in promoting the scheme to be at risk of civil penalty. That is, the promoter’s role would need to be integral to the operation and growth of the scheme, such that without them, the scheme would not have been established and widely promoted. [schedule #, item #, paragraph 290-60(1)(c)]

11. It is the words of the section to which attention must be directed, not the terms of the explanatory memorandum, less still the explanatory material accompanying an earlier exposure draft: Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503 at [39]. To return to the terms of s 290-60(1)(c), it must be reasonable to conclude that the entity had a substantial role in respect of the marketing or encouragement relied upon in respect of the contended breach of s 290-50(1). A role can be substantial even if the entity’s role was not “integral to the operation and growth of the scheme, such that without them, the scheme would not have been established and widely promoted” – cf: [24] of the quote set out immediately above. On the other hand, a conclusion that the entity’s role was integral in the manner just described would necessarily establish that the role was substantial.

    C.3  Tax exploitation scheme

12. As mentioned at [23] above, there are two conditions which must be satisfied for a scheme to be a “tax exploitation scheme”. The first is para (a) of s 290-65(1) and the second is in para (b):

    290-65 Meaning of tax exploitation scheme

    (1)A *scheme is a tax exploitation scheme if, at the time of the conduct mentioned in subsection 290-50(1):

    (a)       one of these conditions is satisfied:

    (i)if the scheme has been implemented—it is reasonable to conclude that an entity that (alone or with others) entered into or carried out the scheme did so with the sole or dominant purpose of that entity or another entity getting a *scheme benefit from the scheme;

    (ii)if the scheme has not been implemented—it is reasonable to conclude that, if an entity (alone or with others) had entered into or carried out the scheme, it would have done so with the sole or dominant purpose of that entity or another entity getting a scheme benefit from the scheme; and

    (b)       one of these conditions is satisfied:

    (i)if the scheme has been implemented—it is not *reasonably arguable that the scheme benefit is available at law;

    (ii)if the scheme has not been implemented—it is not reasonably arguable that the scheme benefit would be available at law if the scheme were implemented.

    Note:The condition in paragraph (b) would not be satisfied if the implementation of the scheme for all participants were in accordance with binding advice given by or on behalf of the Commissioner of Taxation (for example, if that implementation were in accordance with a public ruling under this Act, or all participants had private rulings under this Act and that implementation were in accordance with those rulings).

13. “Scheme” is defined in s 995(1) of the ITAA 1997 to mean:

    (a)any *arrangement; or

    (b)any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.

14. There is no requirement under s 290-50(1) that the applicant prove that the entity knew that the scheme, the promotion of which resulted from the respondent’s conduct, had the characteristics of a tax exploitation scheme: Arnold at [23].

    C.3.1  First condition: dominant purpose

15. The Full Court in Ludekens at [227]-[228] held that the “correct framework of analysis” is to ask, with reference to the time of the conduct said to contravene s 290-50(1), being any time at which there was marketing or encouragement (emphasis in original):

    …whether it is reasonable to conclude that the entity entered into or carried out the scheme (or would have) with the sole or dominant purpose of it, or another entity:

    (a)getting a lesser tax-related liability or a tax-related liability that could reasonably be expected to be less; or

    (b)getting a greater amount than the Commissioner must pay or credit to the entity under a taxation law, or an amount that the Commissioner must pay or credit to the entity under a taxation law that could be reasonably expected to be more, than would be apart from the scheme or a part of the scheme.

16. The focus is upon what the entity was proposing to do and why, not upon any hypothesised events, circumstances or decision. Section 284-150(1) of Sch 1 does not require the Commissioner to plead or prove any alternative postulate: Ludekens at [229].

    C.3.2  Second condition: whether scheme benefit is reasonably arguable

17. The term “reasonably arguable”, which appears in s 290-65(1)(b) and (2) of Sch 1, is defined in s 284-15 of Sch 1 (see s 995-1 of the ITAA 1997) as follows:

    (1)A matter is reasonably arguable if it would be concluded in the circumstances, having regard to relevant authorities, that what is argued for is about as likely to be correct as incorrect, or is more likely to be correct than incorrect.

    Note: For the effect of transfer pricing documentation on when a matter is reasonably arguable, see Subdivision 284‑E.

    (2)To the extent that a matter involves an assumption about the way in which the Commissioner will exercise a discretion, the matter is only reasonably arguable if, had the Commissioner exercised the discretion in the way assumed, a court would be about as likely as not to decide that the exercise of the discretion was in accordance with law.

18. It is necessary also to apply s 290-65(2) which provides:

    (2)In deciding whether it is *reasonably arguable that a *scheme benefit would be available at law, take into account any thing that the Commissioner can do under a *taxation law.

    Example:The Commissioner may cancel a tax benefit obtained by a taxpayer in connection with a scheme under section 177F of the Income Tax Assessment Act 1936.

19. “Scheme benefit” is defined in s 995-1(1) of the ITAA 1997 by reference to s 284-150(1) of Sch 1 to the TAA 1953 which provides:

    (1)An entity gets a scheme benefit from a *scheme if:

    (a)a *tax-related liability of the entity for an accounting period is, or could reasonably be expected to be, less than it would be apart from the scheme or a part of the scheme; or

    (b)an amount that the Commissioner must pay or credit to the entity under a *taxation law for an accounting period is, or could reasonably be expected to be, more than it would be apart from the scheme or a part of the scheme.

20. “Tax-related liability” is defined in s 255-1 in Sch 1 of the TAA 1953 to mean:

    255-1 Meaning of tax-related liability

    (1)A tax-related liability is a pecuniary liability to the Commonwealth arising directly under a *taxation law (including a liability the amount of which is not yet due and payable).

    Note 1:   See section 250-10 for an index of tax-related liabilities.

    Note 2:   A taxation law, or a provision of it, may be excluded from being applied to this Part. See section 265-65.

    (2)A civil penalty under Division 290 of this Schedule or Part 5 of the Tax Agent Services Act 2009 is not a tax-related liability.

21. Whether it is reasonably arguable that a scheme benefit was available at law is to be determined at the time of the relevant conduct: s 290-65(1).

22. It is perhaps unnecessary to go beyond the words of the definition of “reasonably arguable” to understand what the concept means.  Nevertheless, two observations may be useful. 

23. First, the word “about” was inserted in s 284-15(1) and 284-15(2) by Act No 75 of 2005, the Tax Laws Amendment (Improvements to Self Assessment) Act (No. 1) 2005 (Cth), effective 29 June 2005. Accordingly, the matter must be “about as likely” to be correct as incorrect, not “as likely” to be correct as incorrect. The reasons for this change are explained in the Explanatory Memorandum, Tax Laws Amendment (Improvements to Self Assessment) Bill (No. 1) 2005 (Cth) at paras 3.12 and 3.13.

24. Secondly, in Cameron Brae Pty Ltd v Federal Commissioner of Taxation (2007) 161 FCR 468 at [70], Stone and Allsop JJ concluded that a payment was clearly of a capital nature but that the “question [was] open to debate in the sense of being arguable”. The definition of the term “reasonably arguable” applicable in Cameron Brae was s 222C of the ITAA 1936. Section 222C turned on whether “it would be concluded that what is argued for is about as likely as not correct”.

25. In Allen v Federal Commissioner of Taxation (2011) 195 FCR 416, the Full Court of this Court said at [75]:

    … The approach taken by Stone and [Allsop] JJ in Cameron Brae, with which we respectfully agree, is somewhat less strict than that suggested by Hill J in Walstern. On the approach in Cameron Brae, while a Court may come to a clear view on a question of statutory construction adverse to a taxpayer, that view is not decisive against the conclusion that the taxpayer’s position was reasonably arguable.

26. The definition of the term “reasonably arguable” applicable in Allen was s 284-15(1) of Sch 1 to the TAA 1953. The terms of the section at the time relevant to those proceedings included whether “what is argued for is as likely to be correct as incorrect, or is more likely to be correct as incorrect”, not “about as likely”.

27. The reference to Walstern (said in Allen to be more strict than the test in Cameron Brae) is a reference to what Hill J had said in Walstern Pty Ltd v Commissioner of Taxation (2003) 138 FCR 1 at [108] in relation to former s 226K of the ITAA 1936:

    1.The test to be applied is objective, not subjective. This is clear from the use of the words “it would be concluded” in para (1)(b) of the section;

    2.The decision-maker considering the penalty must first determine what the argument is which supports the taxpayer’s claim;

    3.That person will already have formed the view that the claim is wrong, otherwise the issue of penalty could not have arisen. Hence the decision-maker at this point will need to compare the taxpayer’s argument with the argument which is considered to be the correct argument;

    4.The decision maker must then determine whether the taxpayer’s argument, although considered wrong, is about as likely as not correct, when regard is had to “the authorities”;

    5.It is not necessary that the decision-maker form the view that the taxpayer’s argument in an objective sense is more likely to be right than wrong. That this is so follows from the fact that tax has already been short paid, that is to say the premise against which the question is raised for decision is that the taxpayer’s argument has already been found to be wrong. Nor can it be necessary that the decision-maker form the view that it is just as likely that the taxpayer’s argument is correct as the argument which the decision-maker considers to be the correct argument for the decision-maker has already formed the view that the taxpayer’s argument is wrong. The standard is not as high as that. The word “about” indicates the need for balancing the two arguments, with the consequence that there must be room for it to be argued which of the two positions is correct so that on balance the taxpayer’s argument can objectively be said to be one that while wrong could be argued on rational grounds to be right;

    6.An argument could not be as likely as not correct if there is a failure on the part of the taxpayer to take reasonable care. Hence the argument must clearly be one where, in making it, the taxpayer has exercised reasonable care. However, mere reasonable care will not be enough for the argument of the taxpayer must be such as, objectively, to be “about as likely as not correct” when regard is to be had to the material constituting “the authorities”; and

    7.Subject to what has been said the view advanced by the taxpayer must be one where objectively it would be concluded that having regard to the material included within the definition of “authority” a reasoned argument can be made which argument when contrasted with the argument which is accepted as correct is about as likely as not correct. That is to say the two arguments, namely, that which is advanced by the taxpayer and that which reflects the correct view will be finely balanced. The case must thus be one where reasonable minds could differ as to which view, that of the taxpayer or that ultimately adopted by the Commissioner was correct. There must, in other words, be room for a real and rational difference of opinion between the two views such that while the taxpayer’s view is ultimately seen to be wrong it is nevertheless “about” as likely to be correct as the correct view. A question of judgment is involved.

    C.4  Can receipt of consideration be conduct within s 290-50(1)?

28. The prohibition in s 290-50(1) is that “[a]n entity must not engage in conduct that results in that or another entity being a promoter of a tax exploitation scheme”. The better interpretation of s 290-50(1) is that the receipt of consideration within the meaning of s 290-60(1)(b), may be “conduct that results in that or another entity being a promoter of a tax exploitation scheme”. That interpretation promotes the statutory objects and the contrary interpretation is antithetical to them. If the receipt of consideration is not within the meaning of engaging in conduct in s 290-50(1), a number of odd results would follow. It is sufficient to mention two:

    (1)First, if entity A engaged in substantial marketing and encouragement up until 30 June 2000 and not thereafter, but did not receive any consideration until 29 June 2004 (assume it received no promise to pay), the Commissioner would (absent evasion) only have one day in which to commence proceedings. That is because entity A would not be a promoter within the meaning of s 290-60(1) until it received consideration on 29 June 2004, but it last engaged in conduct that resulted in it being a promoter on 30 June 2000 (unless receipt of consideration is engaging in conduct). If entity A received consideration more than four years after 30 June 2004, the Commissioner could not commence proceedings.

    (2)Secondly, if entity A engaged in substantial marketing and encouragement but ensured that all consideration was received by its associate, entity B (which engaged in no marketing or encouragement), and the receipt of consideration by B was not engaging in “conduct that results in that or another entity being a promoter of a tax exploitation scheme”, then the Commissioner would be confined to pursuing penalties from an entity which did not receive any consideration (and might be impecunious) and would not be able to recover under the promoter penalty regime from the associate which benefitted from the marketing or encouragement.

1. The second example is of practical significance in the present case. As discussed below, Lambdachase Services was not shown to have engaged in any marketing or encouragement, substantial or otherwise. Accordingly, s 290-60(1)(a) and (c) was not satisfied in relation to Lambdachase Services. However, in respect of some of the schemes, Lambdachase Services received payments in relation to the marketing and encouragement of the other respondents, each of which was an associate of Lambdachase Services. If the receipt of consideration by Lambdachase Services was not engaging in “conduct that results in that or another entity [the other respondents] being a promoter of a tax exploitation scheme”, then Lambdachase Services would not have breached the prohibition in s 290-50(1).

2. The Commissioner submitted that Lambdachase Services’ receipt of consideration constituted a substantial role in promoting the relevant schemes within the meaning of s 290-60(1)(a) and (c). It was on that basis that the Commissioner submitted Lambdachase Services contravened s 290-50(1). I reject that submission. The receipt of consideration was in no way marketing or encouragement. Nevertheless, I conclude that Lambdachase Services contravened s 290-50(1), notwithstanding it had no role in marketing or encouraging, because its receipt of consideration resulted in other entities being promoters of tax exploitation schemes.

3. The better interpretation of s 290-50(1) is that an associate, whose only involvement is to receive consideration, can be a “[a]n entity [which has engaged] in conduct that results in … another entity being a promoter of a tax exploitation scheme”. The associate’s receipt of consideration is necessary, in the second example in [69] above, for the marketing entity to be a promoter within the meaning of s 290-60.

   C.5  Limitation period of 4 years

4. Section 290-55(4) of Sch 1 provides a time limit for bringing an application under s 290-50 in relation to an entity’s involvement in a tax exploitation scheme. Section 290-55(4) and (6) provide:

   290-55 Exceptions

   …

   Time limitation

   (4)The Commissioner must not make an application under section 290-50 in relation to an entity’s involvement in a *tax exploitation scheme more than 4 years after the entity last engaged in conduct that resulted in the entity or another entity being a *promoter of the tax exploitation scheme.

   …

   (6)However, the limitation in subsection (4) or (5) does not apply to a *scheme involving tax evasion.

5. There are two matters which it is relevant to address about this provision in relation to the present proceedings. First, the question arises whether the receipt of consideration can be engaging in conduct that resulted in the entity or another entity being a promoter under s 290-55(4). Secondly, it is necessary to make some observations about the meaning of “tax evasion”.

   C.5.1   Receipt of consideration

6. The time at which the four-year period commences is when the entity “last engaged in conduct that resulted in the entity or another entity being a promoter of the tax exploitation scheme”: s 290-55(4).

7. The relevant conduct is that which is identified by s 290-60(1). There are two matters which s 290-60(1) requires, relevant for present purposes, in order for an entity to be a “promoter”:

   (1)First, s 290-60(1)(a), read with (1)(c), requires a substantial role in marketing or encouraging the tax exploitation scheme.

   (2)Secondly, s 290-60(1)(b) requires consideration being received by the entity or an associate of the entity.

   Absent both of these requirements being satisfied, an entity cannot be a promoter and the prohibition in s 290-50(1) cannot have been contravened.

8. As discussed in Section C.4 above, the receipt of consideration within the meaning of s 290-60(1)(b), may be “conduct that results in that or another entity being a promoter of a tax exploitation scheme”. Section 290-55(4) adopts the same language as the prohibition in s 290-50(1) and must mean the same thing.

9. Accordingly, and recognising that the analysis depends on the application of the provisions to the precise factual circumstances of each case, the receipt of consideration can, if it is the last piece of conduct in point of time resulting in an entity being a promoter, signify the commencement of the limitation period for one or other of the relevant entity or the associate (and their respective positions with respect to the commencement of the limitation period might be different). 

   C.5.2   Meaning of tax evasion

10. The phrase “tax evasion”, used in s 290-55(6), is not defined. The phrase has long been used in tax legislation and its meaning is clear enough. In Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) (1949) 79 CLR 296 at 313, Dixon J stated:

    I think it is unwise to attempt to define the word “evasion”. The context of s 210(2) [now s 170(1) of the ITAA 1936] shows that it means more than avoid and also more than a mere withholding of information or the furnishing of misleading information. It is probably safe to say that some blameworthy act or omission on the part of the taxpayer or those for whom he is responsible is contemplated. An intention to withhold information lest the Commissioner should consider the taxpayer liable to a greater extent than the taxpayer is prepared to concede, is conduct which if the result is to avoid tax would justify finding evasion.

    In the present case the Board concluded that the appellant intentionally omitted the income from the return and that there was no credible explanation before them why he did so. They thought that the conduct of the taxpayer answered the description of an avoidance of tax by evasion.

11. In R v Meares (1997) 37 ATR 321 at 323, Gleeson CJ (with whom Sully and Bruce JJ agreed) stated:

    Although on occasion, it suits people for argumentative purposes, to blur the difference, or pretend that there is no difference, between tax avoidance and tax evasion, the difference between the two is simple and clear. Tax avoidance involves using, or attempting to use, lawful means to reduce tax obligations. Tax evasion involves using unlawful means to escape payment of tax. Tax avoidance is lawful and tax evasion is unlawful. Although some people may feel entitled to disregard that difference, no lawyer can treat it as unimportant or irrelevant. It is sometimes said that the difference is difficult to recognise in practice. I would suggest that in most cases there is a simple test that can be applied. If the parties to a scheme believe that its possibility of success is entirely dependent upon the authorities never finding out the true facts, it is likely to be a scheme of tax evasion, not tax avoidance.

12. It is also necessary to observe, because of the present context, that “tax evasion” as used in the relevant tax legislation has been understood as involving some tax in fact having been evaded or at least some beneficial tax outcome being obtained. It has not been understood as referring to blameworthy acts or omissions which have not been pursued to the point of tax being avoided or a beneficial tax outcome being obtained. An entity can contravene the prohibition in s 290-50(1) even where the relevant tax exploitation scheme was not fully implemented such that no scheme benefit was obtained. In the present case, two tax exploitation schemes were not fully implemented, such that the relevant taxpayers did not obtain any tax offset. The relevant schemes concerning those two taxpayers are not schemes “involving tax evasion” because no tax was in fact evaded and no scheme benefit was ultimately sought or obtained. It is difficult to see any meaningful operation of s 290-55(6) in relation to schemes which are not implemented to a point that the scheme benefit is in fact obtained. If the legislature had intended “tax evasion” to mean something different to what it means elsewhere in the relevant tax legislation, it would have adopted different terminology. For example, the legislature could have switched off the time limitation in s 290-55(4) by stating in s 290-55(6) that s 290-55(4) did not apply to “schemes involving evasion” or to schemes involving certain specified conduct.

13. As mentioned earlier, s 290-5(a) states that one object of Div 290 is “to deter the promotion of tax avoidance schemes and tax evasion schemes”. It is only with respect to those schemes which involve tax evasion that the limitation period does not apply.

    C.6  Onus and standard of proof

14. Section 290-50(1) is a civil penalty provision. The Commissioner bears the onus of proof. In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities: s 140(1) of the Evidence Act 1995 (Cth). Section 140(2) of the Evidence Act then provides:

    Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account:

    (a) the nature of the cause of action or defence; and

    (b) the nature of the subject-matter of the proceeding; and

    (c) the gravity of the matters alleged.

15. Section 140(2) applies according to its terms. Nevertheless, it is appropriate to observe that s 140(2)(c) reflects the common law position that the more serious the allegation, the less likely it might be expected, all other things being equal, that a respondent would have committed the relevant act: Briginshaw v Briginshaw (1938) 60 CLR 336.

    D  STATUTORY FRAMEWORK – RESEARCH AND DEVELOPMENT

16. Division 355 of the ITAA 1997 entitles an eligible entity to a tax offset for eligible R&D expenditure.  The object of Div 355 is set out in s 355-5:

    355-5   Object

    (1)The object of this Division is to encourage industry to conduct research and development activities that might otherwise not be conducted because of an uncertain return from the activities, in cases where the knowledge gained is likely to benefit the wider Australian economy.

    (2)This object is to be achieved by providing a tax incentive for industry to conduct, in a scientific way, experimental activities for the purpose of generating new knowledge or information in either a general or applied form (including new knowledge in the form of new or improved materials, products, devices, processes or services).

17. To be entitled to the tax offset, the entity needs to be eligible for one or more “notional” deductions identified in Div 355: s 355-100.  The entity must be an R&D entity: s 355-100.  Relevantly for present purposes, the definition of an R&D entity includes body corporates incorporated under an Australian law: s 355-35.  The entity must be registered for R&D activities under Part III of the Industry Research and Development Act 1986 (Cth) (IRD Act).  Only R&D entities can register for R&D activities and claim the R&D tax offset.

18. R&D activities include both “core R&D activities” and “supporting R&D activities”.  Section 355-25 of the ITAA 1997 defines “core R&D activities”: 

    355-25 Core R&D activities

    (1)      Core R&D activities are experimental activities:

    (a)whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:

    (i)is based on principles of established science; and

    (ii)proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and

    (b)that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).

    (2)      However, none of the following activities are core R&D activities:

    (a)market research, market testing or market development, or sales promotion (including consumer surveys);

    (b)prospecting, exploring or drilling for minerals or *petroleum for the purposes of one or more of the following:

    (i)        discovering deposits;

    (ii)       determining more precisely the location of deposits;

    (iii)      determining the size or quality of deposits;

    (c)management studies or efficiency surveys;

    (d)research in social sciences, arts or humanities;

    (e)commercial, legal and administrative aspects of patenting, licensing or other activities;

    (f)activities associated with complying with statutory requirements or standards, including one or more of the following:

    (i)maintaining national standards;

    (ii)calibrating secondary standards;

    (iii)routine testing and analysis of materials, components, products, processes, soils, atmospheres and other things;

    (g)any activity related to the reproduction of a commercial product or process:

    (i)by a physical examination of an existing system; or

    (ii)from plans, blueprints, detailed specifications or publically available information;

    (h)developing, modifying or customising computer software for the dominant purpose of use by any of the following entities for their internal administration (including the internal administration of their business functions):

    (i)the entity (the developer) for which the software is developed, modified or customised;

    (ii)an entity *connected with the developer;

    (iii)an *affiliate of the developer, or an entity of which the developer is an affiliate.

19. In Moreton Resources Ltd v Innovation and Science Australia (2019) 271 FCR 211 at [148], the Full Court (Davies, Moshinsky and Steward JJ) said:

    In our respectful opinion, the words “experimental activities” in the opening line of s 355-25(1) have very little, if any, work to do beyond reflecting the type of activities described in paras (a) and (b) of the subsection.  Paragraphs (a) and (b) contain a detailed description of activities.  Activities must meet the descriptions in both paragraphs to satisfy the defined expression “core R&D activities”.  The word “experiment” is used in para (a): this paragraph refers to an outcome that can only be determined by applying a systematic progression of work that, among other things, “proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions”.  Given the detail and content of the description in paras (a) and (b), it is difficult to envisage activities that would meet the description in paras (a) and (b) but would not be considered “experimental activities”.  This is not to say that the word “experimental” in the opening line of the subsection is wholly superfluous.  It is, at least, descriptive of the types of activities that are described in paras (a) and (b).

20. Section 355-30 defines “supporting R&D activities”:

    355-30 Supporting R&D activities

    (1)Supporting R&D activities are activities directly related to *core R&D activities.

    (2)      However, if an activity:

    (a)       is an activity referred to in subsection 355-25(2); or

    (b)       produces goods or services; or

    (c)       is directly related to producing goods or services;

    the activity is a supporting R&D activity only if it is undertaken for the dominant purpose of supporting *core R&D activities.

21. The tax offset is a 43.5% refundable tax offset if the R&D entity’s aggregated turnover is less than $20 million: s 355-100(1).  A non-refundable 38.5% tax offset applies for all other R&D entities.  Unused non-refundable offset amounts may be carried forward to future income years.  Originally, the rates were 45% and 40% respectively, however this changed for income years starting on or after 1 July 2016.

22. There are two principal kinds of notional deductions.  An R&D entity can notionally deduct:

    (1)its expenditure on registered R&D activities where certain conditions are met: s 355-100(1)(a) and Subdiv 355-D; and

    (2)the decline in value of a tangible depreciating asset used for R&D activities: s 355-100(1)(b) and Subdiv 355-E.

23. R&D entities claim the offset by a two-stage process that broadly involves:

    (1)Registering – R&D entities register R&D activities with AusIndustry. An R&D entity is not eligible to claim the R&D offset unless its R&D activities are registered for the relevant income year. It must lodge its application for registration with AusIndustry within 10 months of the end of its income year: s 27D(c)(i) of the IRD Act; and

    (2)Claiming – R&D entities claim the tax offset in their income tax returns.  The tax return must be accompanied by the Australian Taxation Office’s “R&D Tax Incentive Schedule” detailing the R&D expenditure incurred.

24. The R&D program is based on self-assessment.  Registration of an entity’s R&D activities does not, by itself, determine that the activities described in the registration are eligible “core R&D activities” or “supporting R&D activities”.  Rather, each entity is required to self-assess against the legislated eligibility requirements and is responsible for making sure it meets those requirements.

25. The Board may make “findings” when considering an entity’s application for the purposes of s 27A(1): s 27B. The Board may also make findings about an entity’s registration under s 27A: s 27J. Whether the findings are made when considering an entity’s application or after registration, the findings can include “that all or part of a registered activity was a core R&D activity conducted during the registration year” and “that all or part of a registered activity was a supporting R&D activity conducted during the registration year”: s 27J(1)(a) and (c).

26. A certificate given to the Commissioner under the IRD Act that sets out the Board’s “findings” is binding on the Commissioner for the purposes of assessments of the R&D entity for the relevant income year: s 355-705(1) of the ITAA 1997. The present proceeding was conducted on the implicit basis that no relevant certificate existed in relation to any of the alleged tax exploitation schemes the subject of the proceedings.

27. The processing of tax returns, and of the claims for the tax offset incorporated within those returns, also occurs within a self-assessment system.

    E  THE OBLIGATION TO KEEP RECORDS

28. The Commissioner observed that a person making a claim for a tax offset is required to keep adequate records in accordance with s 262A(1) of the ITAA 1936. That section provides:

    262A  Keeping of records

    (1)Subject to this section, a person carrying on a business must keep records that record and explain all transactions and other acts engaged in by the person that are relevant for any purpose of this Act.

29. The Commissioner then referred to Re Ozone Manufacturing Pty Ltd and Federal Commissioner of Taxation (2013) 97 ATR 50 at [135], in which Dunne SM stated:

    It is clear that eligible companies intending to claim the R&D tax offset must maintain adequate contemporaneous records which substantiate the carrying on of claimed R&D activities and the incurring of expenditure in relation to those activities. Moreover, as the R&D tax offset claim involves an election or choice, the records must include sufficient particulars which show the basis on which the election or choice has been made. As substantiation of expenditure is involved, the records should show what time has been spent on the R&D activities in respect of which the tax offset is claimed. It follows that the applicant’s ordinary business records should be sufficient for a relevant independent third party (such as the tribunal) to be able to readily verify the amount of the expenditure on R&D activities and the relationship of the expenditure to those activities. The applicant should also maintain records or documentation to support the apportionment of expenditure between R&D activities and other business activities, such as time sheets or time cards, which are capable of reasonably straight-forward analysis.

30. The Commissioner submitted:

    The records that must be kept to record and explain claims for R&D tax offsets should reflect the nature of R&D activities. As a generalisation, it is reasonable to expect that substantial records will be generated by any genuine experimental activity, whose outcome cannot be known or determined in advance on the basis of current knowledge, but can only be determined by applying a systematic progression of work that is (i) based on principles of established science; and (ii) proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and which is conducted for the purpose of generating new knowledge. If there are not records showing how the new knowledge was generated, it is unlikely that there was a systematic progression of work involving experiment, observation and evaluation.

1. In or around May or June 2015, Sky High removed Mr Bogiatto’s ATO Portal access for Sky High.  Sky High did not claim R&D expenditure in the income tax returns for the 2012 or 2013 financial years.

   F.13.2.2  Section 290-60(1)(b): consideration

2. The “Terms of Engagement” between Ryusei and Sky High have been referred to earlier. Sky High accepted those terms by continuing to instruct Mr Bogiatto. 

3. On 12 July 2013, Ryusei issued an invoice to Sky High dated 4 July 2013 for preparation and submission of the 2012 application in the amount of $24,014.10. The invoice indicated that payment was to be made to Ryusei.  Payment was never made.  No invoice was received in respect of the 2013 application.

4. Consideration in the form of a promise to pay was received by Ryusei “in respect of [the] marketing or encouragement” of:

   (1)Mr Bogiatto and Ryusei in relation to the 2012 tax exploitation scheme; and

   (2)Mr Bogiatto, Ryusei and Lambdachase Advisors in relation to the 2013 tax exploitation scheme: s 290-60(1)(b).

5. Ryusei marketed and encouraged interest in the 2012 and 2013 tax exploitation schemes. Ryusei was an associate of Mr Bogiatto. Relevantly for the 2013 financial year tax exploitation scheme, Ryusei was an associate of Lambdachase Advisors. Accordingly, I am satisfied that s 290-60(1)(b) is satisfied in relation to each of Mr Bogiatto, Ryusei and Lambdachase Advisors in respect of the relevant years.

   F.13.2.3  Section 290-60(1)(c): substantial role

6. I am satisfied that:

   (1)in relation to the 2012 tax exploitation scheme, Mr Bogiatto and Ryusei; and

   (2)in relation to the 2013 tax exploitation scheme, Mr Bogiatto, Ryusei and Lambdachase Advisors, 

   had a “substantial role” in respect of the marketing or encouragement relied upon as satisfying s 290-60(1)(a): s 290-60(1)(c). The roles each had are set out above. None of the roles could be said to be a role which was not of substance.

   F.13.3  Tax exploitation scheme

7. I am satisfied on the basis of the matters set out above and below, that there were “schemes” in relation to the 2012 and 2013 financial years which were “tax exploitation schemes” within the meaning of s 290-65(1) at the time of the conduct asserted to contravene s 290-50(1).

8. The “schemes” at least included advising Sky High that it was eligible for an R&D tax offset under Div 355, collecting information for the purposes of preparing applications for registration for the R&D tax incentive by AusIndustry, lodging the R&D Tax Incentive Applications, and encouraging the taxpayer to lodge income tax returns reflecting that R&D activities had been carried out.

9. The “tax exploitation schemes” were ones which were not implemented.  As discussed above, there are two conditions which must be satisfied for a “scheme” to be a “tax exploitation scheme”.  As to the first condition, it is reasonable to conclude that, if:

   (1)in relation to the 2012 tax exploitation scheme, Mr Bogiatto, Ryusei and Sky High; and

   (2)in relation to the 2013 tax exploitation scheme, Mr Bogiatto, Ryusei, Lambdachase Advisors and Sky High,

   alone or together had entered into or carried out the scheme, they would have done so with the sole or dominant purpose of Sky High getting a “scheme benefit” from the scheme: s 290-65(1)(a)(ii).

10. As for the second condition, for the reasons given below, it was not reasonably arguable that any scheme benefit would have been available at law: s 290-65(1)(b).

11. The Commissioner’s first argument as to why it was not reasonably arguable that any of the scheme benefit would have been available at law was that the amount which would have been claimed as R&D expenditure would not have been incurred on R&D activities because the projects in which Sky High was involved were “all about replicating products that had been in the market for decades”.  The Commissioner relied on Mr Hunt’s evidence that:

    (1)Sky High imports hoists from China and does no more than modify them to comply with Australian standards;

    (2)the hoist is “effectively … a copy of other products that are already out there in the market for 30 years”;

    (3)“We’re not particularly new and innovative”; and

    (4)Sky High “was never engaging in R&D activities”.

12. On the basis of Mr Hunt’s evidence, I accept that it would not have been reasonably arguable that Sky High was engaged in R&D activities.

13. The Commissioner’s second argument was that Sky High did not have adequate or contemporaneous records to substantiate that the total claimed R&D expenditure was incurred on R&D activities registered with AusIndustry for the relevant financial years.  I accept that the evidence established that inadequate records existed to establish what expenditure was incurred on R&D, if any.  For reasons expressed earlier, I do not accept that this – of itself – leads to the necessary conclusion that it was not reasonably arguable that R&D activities occurred or that expenditure was incurred.

14. The Commissioner’s third argument was that the recorded claims for R&D expenditure in the draft R&D schedule exceeded any reasonably arguable view of the amount the taxpayer expended on R&D activities.  It follows from accepting the first argument that I also accept this argument.

15. I accept that it was not reasonably arguable that any R&D tax offset would have been available if the scheme had been implemented. 

    F.13.4  Scheme benefit

16. If the scheme had been implemented, an amount that the Commissioner had to pay or credit to Sky High under a taxation law would have been, or could be expected to be, greater than it would have been apart from the scheme or a part of it and Sky High would have got a scheme benefit: s 284-150(1)(b).

    F.14  Visionpak Pty Ltd

17. Visionpak was the taxpayer participant in three alleged tax exploitation schemes in the 2012, 2013 and 2014 financial years.  Evidence in relation to these schemes was provided by affidavits from Mr Domenic Cicciarelli and Mr Harry Scapetis.

18. Mr Cicciarelli was the sole director of Visionpak, having occupied that position since 2001.  Visionpak went into liquidation on 15 March 2017.  It was involved in the manufacturing, through thermoforming technology, of plastic containers for food products.  

19. Mr Cicciarelli had limited understanding of accounting and business administration matters and, accordingly, appointed, and relied upon, managers and internal advisors to assist him with such matters.

20. Mr Scapetis is a certified practising accountant.  Through a company, he provided assistance to Visionpak following commencement of a review by the ATO of Visionpak’s R&D tax incentive claims.

    F.14.1 Section 290-50(1) conduct of an entity which resulted in that entity or another entity being a promoter

21. For the reasons given below, for the purposes of s 290-50(1), I accept that:

    (1)in relation to the 2012 tax exploitation scheme:

    (a)Mr Bogiatto engaged in conduct which resulted in him and Ryusei being promoters of a tax exploitation scheme within the meaning of s 290-60; and

    (b)Ryusei engaged in conduct which resulted in it being a promoter of a tax exploitation scheme within the meaning of s 290-60.

    (2)in relation to the 2013 and 2014 tax exploitation schemes:

    (a)Mr Bogiatto engaged in conduct which resulted in him, Ryusei and Lambdachase Advisors being promoters of tax exploitation schemes within the meaning of s 290-60;

    (b)Ryusei engaged in conduct which resulted in it being a promoter of tax exploitation schemes within the meaning of s 290-60; and

    (c)Lambdachase Advisors engaged in conduct which resulted in it being a promoter of tax exploitation schemes within the meaning of s 290-60;

    (d)Lambdachase Services engaged in conduct which resulted in Mr Bogiatto, Ryusei and Lambdachase Advisors each being a promoter of a tax exploitation scheme, by receiving consideration which resulted in those entities being promoters. 

    F.14.2  Promoter

    F.14.2.1  Section 290-60(1)(a): marketing or encouragement

22. On the basis of the facts outlined above and below, I am satisfied:

    (1)in relation to the 2012 tax exploitation scheme, that Mr Bogiatto and Ryusei; and

    (2)in relation to the 2013 and 2014 tax exploitation schemes, that Mr Bogiatto, Ryusei and Lambdachase Advisors,

    marketed, and encouraged interest in, the relevant schemes within the meaning of s 290-60(1)(a). Some of the facts set out in this section are relevant to issues beyond marketing and encouragement but are set out here for convenience.

23. Visionpak’s general manager in March 2013 was Mr Gareth Lorigan.  At or about that time, Mr Bogiatto contacted the Visionpak office and a meeting was arranged to take place that month between Mr Bogiatto, Mr Lorigan and Mr Cicciarelli.  Mr Cicciarelli gave the following account of the meeting and his decision to retain Mr Bogiatto:

    Mr Bogiatto:     I am a registered tax agent, a qualified auditor and a member of the Institute of Chartered Accountants. My firm is called Lambda Chase Chartered Accountants … my office is in Sydney and I have about eight accountants working for me. I specialise in preparing applications for research and development tax concessions and I have a lot of companies that I look after in Melbourne. Tell me about the R&D work you do.

    Mr Lorigan:There are a few activities that we do that relate to creating new packaging for our clients and also the methods to create an efficient tool. For example, we have been doing a lot of work with biscuit trays and also meat trays with a folding lid.

    Me:Yes, we have two or three guys working on the folding lid for the meat trays. We are spending a lot of money on developing new methods and tooling is very expensive. I have heard of R&D but what is it all about?

    Mr Bogiatto:     It is about developing products and methods that are new or different, like your meat trays you are telling me about. If you buy something off the shelf, well that’s not R&D because you have not spent the time and effort developing it. Why don’t we go for a walk to see the work you are doing?

    Gareth and I then took Mr Bogiatto on a tour of the factory I showed him Visionpak’s manufacturing process and the areas in which new tooling and new meat trays were being developed. Following our walkaround, Mr Bogiatto, Mr Lorigan and I had a further discussion during which we said words to the following effect:

    Mr Bogiatto:     I can help you with making an R&D claim for the work that you are doing here.

    Me: What are your fees? We don’t have a lot of available cash to pay advisors.

    Mr Bogiatto:     There is no upfront payment required. I’ll do the work for you and if you get the R&D tax benefit, my fee will be 30% or [sic] that.

    Me: Ok, we can explore the possibilities on the basis that there is no upfront cost to Visionpak.

    Mr Bogiatto:      What’s your turnover?

    Mr Lorigan: About six million a year.

    Mr Bogiatto:      I will need a copy of the financials.

    Me: Gareth will get those to you.

    At the time of this interaction with Mr Bogiatto, Visionpak needed funds to sustain its continuing product development as well as help with cash flow that had been affected by expenditure on past product development. I was attracted to the idea of Visionpak receiving a legitimate source of funds from the R&D incentive scheme. I decided to use Mr Bogiatto on this front because he had impressed me as a well-qualified expert in the March 2013 meeting referred to above.

24. On 19 March 2013, Mr Bogiatto provided to Mr Cicciarelli an introductory letter and an engagement letter, both addressed to “Domenic Cicciarelli and Gareth Lorigan” of Visionpak.  The opening two paragraphs of the introductory letter read:

    The firm would like to thank you for meeting with us to discuss your company’s Research & Development activities. I hope we have given you a chance to reflect on the process of the R&D Incentive claim. Given your description of your company’s product development and processes we believe it would be in your company’s financial interest to strongly consider taking advantage of the R&D Incentives available to you.

    As you know the R&D Incentives is complex and meeting requirements to maximise claims can be involved, time consuming and costly.  Lambda Chase professionals are experts with experience and capability in executing your R&D Incentives claim which will provide maximum financial benefits for the relevant financial year and beyond.  We believe in making the R&D Claim as smooth as possible and taking as little as possible of you or your staff’s time whilst ensuring your submission is well structured and robust.

25. The engagement letter was headed “Terms of Engagement”, was signed by Mr Bogiatto, and was on a “LambdaChase” letterhead, as described at [112] above. Mr Bogiatto’s name appeared on the standard letterhead, together with Ryusei’s ABN. The fee identified in the engagement letter and the introductory letter was 30% of the net R&D tax offset granted by the ATO.

26. The 2012 financial year: Mr Cicciarelli had no involvement in the provision of information to Mr Bogiatto for the purposes of the application being made to AusIndustry.  He stated that he “left the task of dealing with [Mr Bogiatto] on most matters to do with his proposed R&D tax incentive work to others – principally Mr Lorigan and Ms Yvonne Bosch … who was the company’s accounts manager and an accountant”.  Mr Cicciarelli was not requested to approve the application to AusIndustry or the submission of the amended income tax return to the ATO.

27. After his engagement, Mr Bogiatto submitted Visionpak’s R&D Tax Incentive Application to AusIndustry.  The application identified Mr Bogiatto as the “nominated contact person”, stating he was an accountant with “Lambdachase” and providing Ryusei’s ABN. 

28. Mr Cicciarelli stated that the application was submitted without reference to Mr Cicciarelli and that he first learned about the contents of the application in the course of dealing with the ATO in relation to a risk review which commenced in 2015.

29. AusIndustry registered Visionpak for the 2012 year.  Mr Steve Di Petta, Visionpak’s accountant, had already prepared and lodged an income tax return for the 2012 year.  Mr Bogiatto prepared an R&D Tax Incentive Schedule which was provided to Mr Di Petta who, in turn, prepared and lodged an amended 2012 income tax return including the 2012 R&D claim.

30. As a result of the lodgement of the amended income tax return for 2012, the Commissioner allowed Visionpak an R&D tax offset of $673,202.25 against the taxpayer’s gross tax of $449,148.60 and credited to the taxpayer $246,642.65.

31. The 2013 financial year: As with the 2012 financial year, Mr Cicciarelli had no involvement in the provision of information to Mr Bogiatto for the purposes of the application to AusIndustry.  Equally, he was not apparently involved in approving the application to AusIndustry or submitting the amended income tax return to the ATO.

32. Mr Bogiatto lodged Visionpak’s 2013 R&D Tax Incentive Application with AusIndustry and AusIndustry registered Visionpak for R&D activities in the 2013 financial year.

33. The 2013 application nominated Mr Bogiatto of “Lambdachase Advisors” as the “nominated contact person”.  Under the heading “Tax Agent or R&D Consultant Services”, the application also stated that Visionpak had relied on advice from a tax agent or R&D consultant and identified the person from whom Visionpak had received such advice as Mr Bogiatto of “Lambdachase Advisor”.  The ABN of Lambdachase Advisors was supplied in relation to the “nominated contact person” and the “Tax Agent or R&D Consultant Services”.

34. Mr Bogiatto prepared an R&D Tax Incentive Schedule which he provided to Mr Di Petta for inclusion in an amended 2013 income tax return.  Mr Di Petta included the R&D figures in an amended 2013 income tax return and it was lodged.

35. As a result of the lodgement of the amended income tax return for 2013, the Commissioner allowed Visionpak an R&D tax offset of $649,024.20 against the taxpayer’s gross tax of $420,006.00 and credited to the taxpayer $261,608.20.

36. The 2014 financial year: By late 2014, Mr Cicciarelli had engaged Mr Bogiatto not only to provide R&D services but also as Visionpak’s tax agent and to prepare its financial statements. Mr Cicciarelli gave the following account of a discussion leading to that engagement:

    Mr Bogiatto:     Mr Di Petta had not made all possible claims on previous tax returns regarding depreciation charges and other costs. It’s not just the R&D, I can make adjustments to previous returns for you and lodge the 2014 income tax return.

    Me:Sometimes he talks at 100 miles an hour so I don’t know if he has dealt with all of these matters.

    Mr Bogiatto:     I already know about your business and I’ll do a better job than he does so why don’t you appoint me to take over so you will have one accountant with the whole financial picture?

    Me: Ok, that makes sense.

37. As with the 2012 and 2013 financial years, Mr Cicciarelli had no involvement in providing information to Mr Bogiatto for the purposes of the application to AusIndustry.  Equally, he was not apparently involved in approving the lodging of the application with AusIndustry or submitting the income tax return to the ATO.

38. On 24 December 2014, Mr Bogiatto submitted Visionpak’s 2014 R&D Tax Incentive Application to AusIndustry.  Visionpak’s overall R&D project expenditure was said to be $9,356,550.

39. The application nominated Mr Bogiatto of “Lambdachase Advisors Pty Ltd” as the “nominated contact person”.  Under the heading “Tax Agent or R&D Consultant Services”, the application also stated that Visionpak had relied on advice from a tax agent or R&D consultant and identified the person from whom Visionpak had received such advice as Mr Bogiatto of “Lambdachase Advisors Pty Ltd”.  The ABN of Lambdachase Advisors was supplied in relation to the “nominated contact person” and the “Tax Agent or R&D Consultant Services”.

40. AusIndustry registered Visionpak for the 2014 year.

41. On 3 February 2015, Mr Bogiatto lodged Visionpak’s tax return for the 2014 financial year.  As a result of the lodgement of the income tax return for 2014, the Commissioner allowed the taxpayer an R&D tax offset of $4,210,447.50 and credited to the taxpayer $4,187,322.30.

42. Mr Cicciarelli gave the following account of what then occurred:

    Sometime shortly afterwards Ms Bosch informed me that an amount of $4,187,322.30 had been credited by the ATO to Visionpak’s trading account. Upon becoming aware of the large sum I immediately called Mr Bogiatto and we had a discussion that involved us exchanging words to the following effect:

    Me: We have just received more than 4 million dollars into Visionpak’s bank account from the ATO. Is this legitimate?

    Mr Bogiatto:      Yes, I have adjusted a number of errors on past three years’ tax returns to do with depreciation of machinery and have also lodged the R&D claim.

    Me: It’s such a large amount of money, are you sure it’s right?

    Mr Bogiatto:      Do you think the tax man will give you money if I wasn’t right? Of course it’s right and make sure you pay my invoice.

    Me: Would you please send through copies of all of the financial statement that you have been preparing for Visionpak?

    Mr Bogiatto:      Sure, ok. I’ll get it to you.

    F.14.2.2  Section 290-60(1)(b): consideration

43. The engagement letter of 19 March 2013 has been referred to earlier.  It was accepted resulting in a contract between Ryusei and Visionpak.

44. In July 2013, a tax invoice dated 4 July 2013 on a “LambdaChase” letterhead, requiring payment to Ryusei and showing Ryusei’s ABN was sent to Visionpak.  The invoice was said to be for fees in relation to the “[p]reparation and submission [of] 2012 Research & Development Tax Concession Claim to AusIndustry”.  The invoice was in the sum of $67,320 plus GST.  The invoice was paid in full in July or August 2013.

45. After lodgement of the 2013 amended income tax return, a tax invoice dated 27 June 2014 on a “LambdaChase” letterhead, requiring payment to Lambdachase Services and showing its ABN, was sent to Visionpak.  The invoice was in the sum of $64,902.30 plus GST.  It was paid in full.

1. After lodgement of the 2014 income tax return, a tax invoice on a “LambdaChase” letterhead, requiring payment to Lambdachase Services and showing its ABN, was sent to Visionpak.  The invoice was incorrectly addressed to “Bropak Pty Ltd” and incorrectly dated 20 June 2014. The invoice was in the sum of $1,256,190 plus GST.  The invoice was paid in full on or around 27 February 2015.

2. Consideration in the form of a promise to pay was received by Ryusei “in respect of [the] marketing or encouragement” of:

   (1)Mr Bogiatto and Ryusei in relation to the 2012 tax exploitation scheme; and

   (2)Mr Bogiatto, Ryusei and Lambdachase Advisors in relation to the 2013 and 2014 tax exploitation schemes: s 290-60(1)(b).

3. Consideration, in the form of payment, was received:

   (1)by Ryusei in relation to the 2012 tax exploitation scheme; and

   (2)by Lambdachase Services in relation to the 2013 and 2014 tax exploitation schemes: s 290-60(1)(b).

4. Ryusei was an associate of Mr Bogiatto and Lambdachase Advisors. Lambdachase Services was an associate of Mr Bogiatto, Ryusei and Lambdachase Advisors. Accordingly, I am satisfied that s 290-60(1)(b) is satisfied.

   F.14.2.3  Section 290-60(1)(c): substantial role

5. I am satisfied that:

   (1)in relation to the 2012 tax exploitation scheme, Mr Bogiatto and Ryusei; and

   (2)in relation to the 2013 and 2014 tax exploitation schemes, Mr Bogiatto, Ryusei and Lambdachase Advisors, 

   had a “substantial role” in respect of the marketing or encouragement relied upon as satisfying s 290-60(1)(a): s 290-60(1)(c). The roles each had are set out above. None of the roles could be said to be a role which was not of substance.

   F.14.3  Tax exploitation scheme

6. I am satisfied on the basis of the matters set out above and below, that there were “schemes” in each of the 2012, 2013 and 2014 financial years which were “tax exploitation schemes” within the meaning of s 290-65(1) at the time of the conduct asserted to contravene s 290-50(1).

7. The “schemes” at least included advising Visionpak that it was eligible for an R&D tax offset under Div 355, collecting information for the purposes of preparing an application for registration for the R&D tax incentive by AusIndustry and for the purpose of preparing R&D Tax Incentive Schedules for inclusion in Visionpak’s tax returns, lodging the R&D Tax Incentive Applications, advising the taxpayer to lodge amended income tax returns for the 2012 and 2013 years and lodging the 2014 income tax return.

8. The “tax exploitation schemes” were ones which were implemented.  As discussed above, there are two conditions which must be satisfied for a “scheme” to be a “tax exploitation scheme”.  As to the first condition, it is reasonable to conclude:

   (1)in relation to the 2012 tax exploitation scheme, that Mr Bogiatto, Ryusei and Visionpak; and

   (2)in relation to the 2013 and 2014 tax exploitation schemes, that Mr Bogiatto, Ryusei, Lambdachase Advisors and Visionpak

   alone or together entered into or carried out the schemes with the sole or dominant purpose of Visionpak getting a “scheme benefit” from the scheme: s 290-65(1)(a)(i).

9. As for the second condition, for the reasons given below, it was not reasonably arguable that the whole of the scheme benefit was available at law: s 290-65(1)(b). However, the Commissioner has not discharged his onus of establishing that it was not reasonably arguable that Visionpak was entitled to any of the scheme benefit.

10. The Commissioner’s primary argument in relation to this issue was, again, that the “taxpayer did not have adequate or contemporaneous records to substantiate that the total claimed R&D expenditure was incurred on R&D activities that had been registered with AusIndustry for the financial year”.  The Commissioner did not establish that, as a matter of fact, inadequate records were kept.  Accordingly, this argument cannot be made out.  In any event, I would have rejected it for reasons identified earlier.

11. The Commissioner’s second argument was that the amount of R&D expenditure claimed by the taxpayer exceeded any reasonably arguable view of the amount it expended on R&D activities.  The Commissioner made the following submissions in this respect:

    (1)In the 2012 AusIndustry application, Visionpak’s R&D expenditure was recorded as $14,960,045.  Mr Cicciarelli regarded this sum as “grossly exaggerated and incorrect” and “simply not possible” given that the company’s turnover in the 2012 financial year was approximately $6,000,000. On receipt of external advice, Visionpak’s R&D expenditure in the 2012 financial year was reduced to $1,099,685.

    (2)In the 2013 AusIndustry application, Visionpak’s R&D expenditure was recorded as $1,442,276.  On receipt of external advice, Visionpak’s R&D expenditure in the 2013 financial year was reduced to $952,897.

    (3)In the 2014 AusIndustry application, Visionpak’s aggregate turnover was said to be $14,616,172.  In fact, Visionpak’s aggregate turnover was $5,617,97.  Secondly, the 2014 AusIndustry application records that nine Visionpak employees were engaged in R&D work.  Mr Cicciarelli stated that “no more than three Visionpak employees were engaged in R&D activities that year”.  Thirdly, the 2014 AusIndustry application stated that R&D expenditure was $9,356,550. There was no reasonable basis for arriving at an R&D expenditure figure where such a figure considerably exceeded the entity’s turnover, and where the sum was subsequently calculated on the basis of external advice to be $1,331,568.

12. I accept that it was not reasonably arguable that the whole of the scheme benefit was available at law.  I conclude that it was reasonably arguable that the amounts identified immediately above on the basis of external advice were available at law.

    F.14.4  Scheme benefit

13. There was a scheme benefit because an amount that the Commissioner had to pay or credit to Visionpak under a taxation law was, or could be expected to be, greater than it would have been apart from the scheme or a part of it: s 284-150(1)(b).

    G  EVASION

14. Having regard to the totality of the evidence in the proceedings, I am satisfied in relation to each of the implemented schemes (being the schemes which resulted in scheme benefits actually being received by the relevant taxpayer), apart from LTLT, that Mr Bogiatto knew that the claims were not reasonably arguable (where that conclusion applies) or that the extent of the claims being made was not reasonably arguable (where that conclusion applies).  The implemented tax exploitation schemes, apart from LTLT, were each ones where the participants getting away with it depended on the ATO “never finding out the true facts”: R v Meares (1997) 37 ATR 321 at 323.

15. Except with respect to LTLT, I am comfortably satisfied that Mr Bogiatto knew that the claims arising in relation to the implemented schemes he was marketing and encouraging were unavailable or exaggerated.  With the exception of LTLT, Mr Bogiatto deliberately put forward claims which he knew were wholly or partly unjustifiable and engaged in evasion. 

16. Because Mr Bogiatto was the directing mind of Ryusei, Lambdachase Advisors and Lambdachase Services, I am satisfied that they too engaged in evasion in relation to each of the implemented schemes in which they were involved, apart from LTLT.

    H  WHETHER UNIMPLEMENTED SCHEMES STATUTE BARRED

17. As mentioned earlier, the schemes with respect to Cargroomers and Sky High were not fully implemented in that the R&D claims were never made.  It follows that the relevant taxpayers obtained no scheme benefit and that the schemes were not ones “involving tax evasion” – see Section C.5.2 above.  The schemes would have involved tax evasion if they had been implemented, but they were not.

18. The Commissioner submitted in relation to Cargroomers that the last relevant conduct occurred on 23 October 2014. The proceeding relevant to Cargroomers was commenced on 1 February 2019 (not 4 February 2019 as submitted), outside of the four year time limit set by s 290-55(4). The Commissioner submitted that the time limit did not apply because the scheme was one “involving tax evasion” within the meaning of s 290-55(6). The Commissioner’s submissions centred on the fact that the contemplated R&D claim in the unimplemented scheme was obviously not available. I accept that any benefit which would have been obtained if the scheme had been implemented would have been obviously unavailable and that, if implemented, the scheme would have involved tax evasion. However, the scheme was not implemented, no tax was evaded and no beneficial tax outcome was secured. The scheme was not one “involving tax evasion” within the meaning of s 290-55(6).

19. In relation to Sky High, the Commissioner submitted that the last conduct engaged in by the respondents that resulted in the respondents being a promoter occurred on 2 March 2015.  The relevant conduct was the sending of an email by Mr Bogiatto as managing partner of Ryusei requesting bank statements.  It was submitted, and I accept, that the bank statements were requested with a view to Mr Bogiatto finalising tax returns for the 2012 and 2013 years.  Whilst no returns reflecting R&D claims for the 2012 and 2013 year were ever lodged, this conduct was part of encouraging the 2012 and 2013 schemes, albeit neither was ever fully implemented. 

20. The proceeding relevant to Sky High was commenced on 1 February 2019 (not 4 February 2019 as submitted), which was within the four year time limit set by s 290-55(4) so far as it concerns the involvement of Mr Bogiatto and Ryusei in relation to 2012 and 2013.

21. The Commissioner did not point to any conduct or “involvement” (see s 290-55(4)) on the part of Lambdachase Advisors, within four years of commencement of the relevant proceeding, which resulted in it or another entity being a promoter. Accordingly, in so far as the proceeding concerned Lambdachase Advisors’ involvement in the 2013 tax exploitation scheme, the proceeding is statute barred. As mentioned earlier, that scheme was not one involving evasion.

    I  CONCLUSION

22. The Commissioner is directed to bring in short minutes of order to give effect to these reasons.

I certify that the preceding seven hundred and seventeen (717) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Thawley.

Associate:

Dated:       7 August 2020

SCHEDULE OF PARTIES

NSD 1839 of 2018
Respondents
Fourth Respondent:	LAMBDACHASE SERVICES PTY LTD ABN 83 163 367 477