Scheme promoters fined $1.5 million for tax fraud

Scheme promoters fined $1.5 million for tax fraud

Scheme promoters fined $1.5 million for tax fraud


In a judgment handed down today, the Federal Court of Australia imposed an Australian record civil penalty of $1.5 million. The targets of the penalty were Mr Stephen Arnold, Leaf Capital Pty Ltd and Donors Without Boarders Limited, who were promoters of an AIDS pharmaceuticals scheme. The Court found that the promoters had attempted to generate tax deductions that their clients were not entitled to.

Tim Dyce, Deputy Commissioner of Taxation, stated that the scheme, which was passed off as philanthropic, was based on one that had previously been unsuccessful in Canada. The arrangement involved the purchase and donation of pharmaceuticals used to treat AIDS to various charitable organisations in Africa. “As we discovered, the purchasers only paid 7.5 per cent of the grossly inflated price of the drugs, yet claimed tax deductions of 100 per cent”, the Deputy Commissioner said.

Justice Edmonds of the Federal Court of Australia took note of at least five reasons why the scheme was unavailable under the taxation laws. In particular, his Honour held that the pharmaceuticals were not in fact delivered to the charities at the relevant time.

“When it comes to schemes, we have seen some unscrupulous promoters”, Mr Dyce said. “We’re here to protect investors from aggressive schemes and we will take decisive action against anyone who breaches the promoter penalty provisions”, he stated.

Mr Dyce claimed that the judgment sent a lucid message to scheme promoters that the Courts will impose significant penalties on promoters who actively attempt to exploit the tax system by improperly claiming deductions.

The observations of Justice Edmonds appear to affirm Mr Dyce’s view. His Honour held that “Specific deterrence is a significant factor where, as here, the contraventions involved deliberate wrongdoing, sustained denials of contraventions and lack of remorse”. “Potential promoters must be left in no doubt that acting on the commercial temptation to engage in the proscribed conduct in relation to tax exploitation schemes, so as to realise the significant potential rewards that can be available, will result in substantial penalties”. “The penalties need to be substantial enough to persuade potential promoters that it is not worth the risk of whether a tax exploitation scheme will escape the detection by the Commissioner.”

A taxpayer’s entitlement to deductions is one of the most frequent causes of taxation disputes. Many taxpayers are targeted by the ATO each year for claiming deductions to which they are not entitled. The ATO have vast information gathering, audit and amendment powers. Such powers include the ability to amend a taxpayer’s past assessment at any time where that taxpayer is found to have engaged in fraud or evasion leading to an avoidance of tax.

Fortunately, the team at Irish Bentley Lawyers are experienced in assisting taxpayers with resolving their disputes with the ATO. We can offer assistance at all stages of the process, including audit, objection, and reviews in the Administrative Appeals Tribunal and Federal Court of Australia.

Please note that the above does not constitute legal advice and Irish Bentley Lawyers make no representations or warranties as to the accuracy of any of the information contained herein. If you have an issue relating to taxation, then please do not hesitate to contact the team at Irish Bentley Lawyers – there is no substitute for proper legal advice based on your unique circumstances.

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