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  • Promoter penalty law

    Promoter penalty laws operate to deter the promotion of tax exploitation schemes. Prior to the introduction of these laws, there were no civil or administrative penalties for the promotion of these schemes. This meant that promoters could obtain substantial profits from the sales of these schemes while investors could be subject to penalties under the tax laws.

    See also:


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

    For example, there are exceptions advisers who rely on the Commissioners advice, or who make reasonable mistakes, or are subject to events beyond reasonable control.

    But for advisers who are more closely involved in the design, marketing and implementation of schemes that claim to provide taxation benefits, you should consider the promoter penalty laws as part of your own due diligence and good governance.

    In introducing the promoter penalty legislation, the government addressed the imbalance of the taxpayer bearing the risk while the scheme promoters avoided penalties.

    The objective of the promoter penalty law is to deter tax avoidance and tax evasion schemes. An additional objective is to enhance the integrity of the product ruling system by deterring implementation of a scheme in a materially different manner to that described in its product ruling, where doing so may have potential tax consequences for investors.


    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 exploitation scheme.

    Prohibited conduct means conduct which results in:

    • an adviser or another entity being a promoter of a tax exploitation scheme
    • a scheme that has been promoted on the basis of conformity with a product ruling being implemented in a way that is materially different manner.

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

    • it would be reasonable to conclude that an entity that entered into or carried out the scheme has a sole or dominant purpose of that or another entity getting a scheme benefit it is not reasonably arguable that the scheme benefit sought is or would be available at law.

    An entity will be a promoter if:

    • it markets or encourages the growth of the scheme
    • the entity or its associate directly or indirectly receives consideration in respect of marketing or encouragement
    • it has a substantial role in that marketing or encouragement
    • can also apply to an entity that causes another entity to be a promoter.


    If an entity is found to be a promoter of a tax exploitation scheme remedies under the legislation enable the ATO to request the Federal Court of Australia (the Federal Court) to impose a civil penalty. The maximum penalty the Federal Court can impose is the greater of:

    • 5,000 penalty units (currently equal to $900,000) for an individual
    • 25,000 penalty units (currently equal to $4.5 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, the ATO 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)
    • offers of voluntary undertakings
    • issuing of warnings to lower risk entities or ‘cease, and desist’ letters to higher risk entities.

    The voluntary undertaking template provides guidance on what you may need to consider when preparing an undertaking for the Commissioner's consideration.

    Exclusions and exceptions

    People who advise on tax planning arrangements, even those who advise favourably on a scheme later found to be a tax exploitation scheme, are not at risk of civil penalty to the extent that they have merely provided independent, objective advice to clients.

    Exclusions and exceptions to the laws include:

    • employees or other entities that have only minor involvement are also excluded
    • conduct that occurred by mistake or accident
    • something outside an entity's control is excluded
    • a four year time limit may apply.

    Case outcomes – promoter penalty laws

    We have litigated three matters against scheme promoters and the Federal Court has imposed civil penalties against the promoters in the following three cases:

    The ATO is continuing to invest resources in investigating and litigating further potential cases.

    See also:

    • ATO Legal database – the practice statement which sets out the processes followed by the ATO when administering the promoter penalty laws.
    Last modified: 13 Sep 2016QC 50070