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  • Promoter penalty law

    Promoter penalty laws are in place to deter the promotion of tax avoidance schemes.

    Advisers who are involved in the design, marketing and implementation of schemes that claim to provide taxation benefits should consider the promoter penalty laws.

    The promoter penalty laws are not intended to obstruct tax advisers and intermediaries from giving typical advice to their clients.

    There are exceptions for advisers who make reasonable mistakes, or are subject to events beyond reasonable control.

    The Commissioner actively monitors advisor behaviour and takes action against potential promoters through application of the promoter penalty laws.

    Understanding promoter penalty laws

    The key elements of the laws are that an entity must not engage in prohibited conduct, and that the entity is not a promoter of a tax avoidance scheme.

    Prohibited conduct means conduct that results in:

    • any entity being a promoter of a tax avoidance scheme
    • a scheme that has been implemented differently to the way it has been described in the product ruling.

    A scheme will be a tax avoidance scheme if at the time of promotion:

    • it has the sole or dominant purpose of an entity gaining a scheme benefit that would not be legally available otherwise.

    An entity will be a promoter if:

    • it markets or encourages the scheme
    • it directly or indirectly receive a benefit in respect of marketing or encouragement
    • it causes another entity to be a promoter.

    Penalties

    If an entity is found to be a promoter of a tax avoidance scheme, the legislation enables us to request the Federal Court of Australia to impose a civil penalty. The maximum penalty the Federal Court can impose is the greater of:

    • 5,000 penalty units (currently equal to $1,050,000) for an individual
    • 25,000 penalty units (currently equal to $5.25 million) for a body corporate
    • twice the consideration received or receivable, directly or indirectly, by the entity or its associates in respect of the scheme.

    Depending on the type or seriousness of the conduct, we could also consider:

    • voluntary self-correction for less significant non-compliance with these laws
    • applicants for rulings (including product rulings) providing additional promises or guarantees to mitigate taxation risks (including material differences in implementation of the relevant arrangement)
    • executing an enforceable voluntary undertaking
    • applying to the Federal Court to seek an injunction.

    The enforceable voluntary undertaking template (PDF 38KB)This link will download a file provides guidance on what you may need to consider when preparing an undertaking for the Commissioner of Taxation's consideration.

    Exclusions and exceptions

    Exclusions and exceptions to the laws include:

    • employees or other entities that have only minor involvement
    • conduct that occurred by mistake or accident
    • something outside an entity's control.

    A four-year time limit applies, unless there is tax evasion.

    See also:

    Last modified: 19 Nov 2019QC 50070