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  • Promoter penalty laws

    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.

    We actively monitor adviser behaviour and take 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 exploitation scheme.

    Prohibited conduct means conduct that results in:

    • any entity being a promoter of a tax exploitation 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 exploitation scheme if:

    • at the time of promotion, it has the sole or dominant purpose of an entity gaining a scheme benefit; and
    • the scheme benefit would not be legally available otherwise.

    An entity will be a promoter if:

    • it markets or encourages growth of the scheme, including schemes promoted but not implemented
    • it directly or indirectly receives a benefit in respect of marketing or encouragement
    • it causes another entity to be a promoter.

    Exclusions and exceptions

    Exclusions and exceptions to the promoter penalty laws include:

    • employees or other entities that have only minor involvement
    • conduct that occurred by reasonable mistake or accident
    • something outside an entity's control and the entity took reasonable precautions
    • a four-year time limit applies unless there is tax evasion.

    See also:

    • The practice statement which sets out the processes we follow when administering the promoter penalty laws: PS LA 2021/1 Application of the promoter penalty laws (Division 290 of Schedule 1 to the Taxation Administration Act 1953)

    Managing promoter penalty risks and corrective action

    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 for an individual
    • 25,000 penalty units for a body corporate
    • twice the consideration received or receivable, directly or indirectly, by the entity or its associates in respect of the scheme.

    See also:

    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 legally binding advice (public, private or oral 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 or civil penalty.

    Guidance on offering an enforceable voluntary undertaking

    The facts and circumstances of any prohibited conduct will determine the most appropriate response for us. Offering us an enforceable voluntary undertaking may, in appropriate circumstances, be relevant to a decision about whether proceedings should be initiated in the Federal Court or to certain decisions made by the Federal Court in respect of such proceedings.

    When we accept an enforceable voluntary undertaking offer, it does not mean that we cannot make an application to the Federal Court for a civil penalty and/or an injunction against the entity responsible for the prohibited conduct. For example, even though we may have accepted an enforceable voluntary undertaking, we may form the view that the appropriate way to bring the conduct, or threat of future conduct, to an end is by applying to the Federal Court for an injunction.

    We are unlikely to accept a document that does not include meaningful undertakings relating to the cessation of marketing or encouragement of the growth of a scheme or schemes and to actions designed to prevent future involvement in tax exploitation schemes.

    We cannot be bound either to take action or to refrain from action in an enforceable voluntary undertakings document.

    Case studies

    See also:

    Court cases

    The outcome of Federal Court cases concerning the promoter penalty laws:

    Decision impact statements

    The following Decision impact statements outline the ATO's views on the applications of the relevant court decisions.

    Last modified: 18 Aug 2021QC 50070