FEDERAL COURT OF AUSTRALIA Commissioner of Taxation of the Commonwealth of Australia v Ludekens [2013] FCA 142 Citation: Commissioner of Taxation of the Commonwealth of Australia v Ludekens [2013] FCA 142 Parties: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v ANDREW LUDEKENS and PETER VAN DE STEEG File number: VID 692 of 2011 Judge: MIDDLETON J Date of judgment: 4 March 2013 Corrigendum: 8 March 2013 Catchwords: TAXATION – Taxation Administration Act 1953 (Cth) – Division 290 – Civil penalty regime –Whether entity is a promoter of tax exploitation scheme – Whether entity has implemented a scheme otherwise than in accordance with its product ruling – Time limits on commencement of actions in respect of an entity's involvement in a tax exploitation scheme STATUTORY INTERPRETATION – Meaning of 'markets the scheme or otherwise encourages the growth of the scheme or interest in it' – Meaning of consideration received 'in respect of' marketing or encouragement Legislation: A New Tax System (Goods and Services Tax) Act 1999 (Cth) Acts Interpretation Act 1901 (Cth) Evidence Act 1995 (Cth) Income Tax Assessment Act 1936 (Cth) Income Tax Assessment Act 1997 (Cth) Taxation Administration Act 1953 (Cth) Cases cited: Australian Education Union v Department of Education and Children's Services (2012) 285 ALR 27 Brooks v Commissioner of Taxation (2002) 100 FCR 117 Certain Lloyd's Underwriters Subscribing to Contract No IH00AAQS v Cross (Matter No S417 / 2011) (2012) 293 ALR 412 Commissioner of Taxation v Hart (2004) 217 CLR 216 Commissioner of Taxation v McDonald (1987) 15 FCR 172 Commissioner of Taxation v Noza Holdings Pty Ltd (2012) 201 FCR 445 Commissioner of Taxation v Peabody (1994) 181 CLR 359 Commissioner of Taxation v Scully (2000) 201 CLR 148 Commissioner of Taxation v Sleight (2004) 136 FCR 211 Commissioner of Taxation v Spotless Services (1996) 186 CLR 404 Commissioner of Taxation v Star City Pty Ltd (2009) 175 FCR 39 Federal Commissioner of Taxation v Lenzo (2008) 167 FCR 255 Federal Commissioner of Taxation v Trail Bros Steel & Plastics Pty Ltd (2010) 186 FCR 410 Henderson v Pioneer Homes Pty Ltd (1980) 29 ALR 597 J & G Knowles and Associates Pty Ltd v Commissioner of Taxation (2000) 96 FCR 402 Nintendo Company Limited v Centronics Systems Pty Limited (1994) 181 CLR 134 Noza Holdings Pty Ltd v Commissioner of Taxation [2011] FCA 46 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 Secretary of the Department of Social Security v a'Beckett (1990) 26 FCR 349 Woodside Energy Ltd v Federal Commissioner of Taxation (2009) 174 FCR 91 Workers' Compensation Board (Q) v Technical Products Pty Ltd (1988) 165 CLR 642 Date of hearing: 13, 14, 15, 16, 17, 20, 21, 27, 28, 29 August 2012 and 10, 11 September 2012 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 307 Counsel for the Applicant: Ms H Symon SC with Mr P Sest SC and Mr S Ure Solicitor for the Applicant: Australian Government Solicitor Counsel for the First Respondent: Appeared in person from 13 to 29 August 2012 Counsel for the First Respondent: Mr A De Wijn from 10 to 11 September 2012 Solicitor for the First Respondent: Wantrup & Associates Counsel for the Second Respondent: Appeared in person FEDERAL COURT OF AUSTRALIA Commissioner of Taxation of the Commonwealth of Australia v Ludekens [2013] FCA 142 CORRIGENDUM 1. In paragraph 198, after the words "he should", the word "not" should be inserted. I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton. Associate: Dated: 8 March 2013 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 692 of 2011 BETWEEN: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Applicant AND: ANDREW LUDEKENS First Respondent PETER VAN DE STEEG Second Respondent JUDGE: MIDDLETON J DATE OF ORDER: 4 MARCH 2012 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The parties confer and thereafter bring minutes to the Court reflecting the outcome of this proceeding (including costs) by 4:00 pm on 18 March 2013. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 692 of 2011 BETWEEN: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Applicant AND: ANDREW LUDEKENS First Respondent PETER VAN DE STEEG Second Respondent JUDGE: MIDDLETON J DATE: 4 march 2013 PLACE: MELBOURNE REASONS FOR JUDGMENT INTRODUCTION 1 This case represents the first time that the Commissioner of Taxation has sought the imposition of civil penalties on alleged scheme promoters under Div 290 of the Taxation Administration Act 1953 (Cth) (the TAA). 2 This Division – entitled "Promotion and implementation of schemes" – was inserted into the TAA by the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth). The objects of this Division are to deter the promotion of tax avoidance schemes and tax evasion schemes, and to deter the implementation of schemes that have been promoted on the basis of conformity with a product ruling in a way that is materially different from that described in the product ruling (s 290-5). 3 Prior to the introduction of these provisions, there were no specific civil or administrative penalties attaching to the promotion of tax exploitation schemes. This meant that there was a significant asymmetry in risk exposure in respect of such schemes, as promoters were able to obtain substantial profits therefrom, whilst investors in the schemes were potentially subject to penalties under the TAA. The Regulation Impact Statement contained in the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth) states at [3.147] that the introduction of this civil penalty regime was expected to: enhance community confidence in the tax system and produce a more efficient market for investment products, including tax effective investments, by providing for promoters to be at risk of penalties when they expose taxpayers to scheme penalties. 4 It was further noted that this regime would not impose significant administrative or compliance costs on "legitimate business arrangements". It was not designed to catch people who – without more – merely provide advice about a scheme (such as accountants or legal practitioners). 5 The respondents to this proceeding – Dr Andrew Ludekens and Mr Peter Van de Steeg – are each alleged to have promoted and implemented a tax exploitation scheme in contravention of s 290-50 of the TAA. In brief, the Commissioner submitted that, in 2007, the respondents formulated a plan comprised of the following steps (Plan): (a) To acquire fully financed woodlots in the Gunns Plantations Limited Woodlot Project 2006 (the 2006 Gunns Woodlot Project). The 2006 Gunns Woodlot Project was a managed investment scheme in which investors were referred to as 'growers'. Gunns Plantations was the Responsible Entity for the project. Growers incurred fees by entry into agreements under which arrangements were made to establish and maintain trees on each woodlot (over which growers were granted "forestry rights"), and for the ultimate harvest and sale of such trees. The 2006 Gunns Woodlot Project was the subject of a product disclosure statement entitled "Woodlot Project Product Disclosure Statement" dated 14 March 2006 (2006 PDS), and a product ruling issued by the Commissioner, which was entitled "Income Tax: Gunns Plantations Limited Woodlot Project 2006 '2007 Growers'" (PR 2006/8). According to PR 2006/8, a grower who was accepted to participate in the 2006 Gunns Woodlot Project on or before 30 June 2007 was entitled to claim tax deductions for various revenue expenses on a per woodlot basis, having commenced the carrying on of a business of primary production by virtue of entering into various key project agreements. (b) To meet loan obligations in respect of the acquisition of these woodlots from profits obtained by investing (into a foreign exchange trading business) a fund comprised of the following: (i) commission received in respect of the acquisition of the woodlots; (ii) GST refunds to be obtained in respect of the acquisition of the woodlots; and (iii) funds obtained from offering the woodlots to subsequent investors. The Commissioner alleged that it was intended that subsequent investors would fund their acquisitions of these woodlots from tax savings obtained by claiming deductions for the financial year ending 30 June 2007 in respect of these acquisitions. This was referred to by the Commissioner as "the Secondary Investment". (c) To otherwise retain profits from investing the fund in the foreign exchange trading business. 6 It was alleged that the respondents carried the Plan into effect, and as a result, contravened one or both of s 290-50(1) and (2). Where more than one promoter of a scheme is identified for the purpose of bringing proceedings under Div 290 of the TAA, each promoter is potentially liable to pay a civil penalty. Accordingly, in this proceeding the Commissioner seeks orders for the payment of civil penalties by both of the respondents in respect of these contraventions of the TAA. 7 It is appropriate at this stage to make some remarks about the conduct of this proceeding up to and including the hearing in August and September 2012. The second respondent, Mr Van de Steeg, was unrepresented for the entire proceeding, including the hearing. The first respondent, Dr Ludekens, had a solicitor on the record for several months at the commencement of proceedings, and again at the conclusion of the hearing in September 2012 (at which point he was also represented by counsel for the purpose of final submissions). In accordance with their prerogative to do so, neither respondent gave evidence at the hearing. 8 One regrettable effect of the respondents being unrepresented for the majority of the hearing was that issues that were not ultimately relevant to the matters before this Court for determination were accorded far more attention (particularly during the examination of witnesses) than was strictly merited. However, matters such as this are to be expected to some extent in complex cases involving self-represented litigants. On this note, counsel for the Commissioner are to be commended for not adopting an overly technical approach to objections taken in respect of the respondents' conduct of their respective cases, and examination of witnesses. 9 Notwithstanding these matters, at no stage during the hearing did I determine that either respondent was incapable of adequately conducting his case. The Commissioner relied upon written submissions in opening his case against the respondents. In some respects the written submissions went further than the pleaded allegations against the respondents. In the course of the hearing, as the respondents were effectively unrepresented, I directed their attention to these written submissions and the evidence filed and served upon them by the Commissioner. This was done in an attempt to focus the respondents' attention on the factual matters in contention, and the exact allegations that they needed to defend. Therefore, the trial proceeded on this basis and not by sole reference to the pleadings as formulated by the Commissioner. This was ultimately a fair and appropriate way to proceed in the circumstances. However, as will shortly become apparent, some matters were raised for the first time in the Commissioner's final submissions, which were filed and served at the conclusion of the hearing (after the close of the Commissioner's case). THE RELEVANT LEGISLATION 10 The main civil penalty provision relied upon by the Commissioner in his case against the respondents is s 290-50, which provides as follows: 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. Implementing scheme otherwise than in accordance with ruling (2) An entity must not engage in conduct that results in a scheme that has been promoted on the basis of conformity with a product ruling being implemented in a way that is materially different from that described in the product ruling. Note: A scheme will not have been implemented in a way that is materially different from that described in a product ruling if the tax outcome for participants in the scheme is the same as that described in the ruling. 11 This section is contained in Subdiv 290-B ("Civil penalties") of the TAA, which is in turn contained within Div 290. As previously noted, there is not yet any case law on the interpretation and application of these provisions. Accordingly, it is appropriate to commence by setting out the relevant legislative provisions, and making some comments on the interpretation of the key concepts that were in dispute between the parties. 12 If, on application by the Commissioner under s 290-50, the Court is satisfied that an entity has contravened either of subss (1) or (2), it may order that entity to pay a civil penalty to the Commonwealth (s 290-50(3)). The maximum amount of this penalty is the greater of either 5,000 penalty units for an individual or 25,000 penalty units for a body corporate, or twice the consideration received or receivable (either directly or indirectly) by the entity and its associates in respect of the scheme. Subsections (5) and (6) of this section deal with the principles relevant to the determination of appropriate penalties and the recovery of such penalties respectively. It is not necessary to examine these provisions in any detail in these reasons for judgment, as the hearing in August and September 2012 dealt only with the question of liability – it was agreed that a further hearing on the quantum of penalty to be imposed (if any) would be held at a later date if the Court ultimately determined that the respondents were liable under s 290-50. For the reasons that follow, in this proceeding such further hearing is unnecessary. 13 In order to apply s 290-50(1) and (2), it is necessary to determine the meaning of the key terms used in Div 290 by reference to other provisions of the TAA and the Income Tax Assessment Act 1997 (Cth) (ITAA97). To this end, s 3AA(2) of the TAA provides that expressions used in Sched 1 of that Act have the same meaning as in the ITAA97. Further, it is acknowledged in the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth) that the terms and concepts used to define a 'tax exploitation scheme' in Div 290 are taken from the anti-avoidance provisions of the Income Tax Assessment Act 1936 (Cth) (ITAA36), the ITAA97, and the TAA (and that such concepts are "well established in case law and administrative practice"). Section 290-50(1) – "Entity" 14 Turning first to s 290-50(1), 'entity' – a concept which is also used in s 290-50(2) – is relevantly defined in s 960-100 of the ITAA97 as including the following: (a) an individual; (b) a body corporate; and (c) a partnership. 15 The note corresponding to s 960-100 states that: [t]he term entity is used in a number of different but related senses. It covers all kinds of legal person. It also covers groups of legal persons, and other things, that in practice are treated as having a separate identity in the same way as a legal person does. 16 'Partnership' is defined in s 995-1(1) of the ITAA97 as being: (a) an association of persons (other than a company or a limited partnership) carrying on business as partners or in receipt of ordinary income or statutory income jointly; or (b) a limited partnership. Section 290-50(1) – "Promoter of a tax exploitation scheme" 'Promoter' 17 'Promoter' is defined in s 290-60 of the TAA as follows: (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. 18 The concepts invoked by this definition that were in issue between the parties at the hearing are addressed in the following paragraphs. Section 290-60(1)(a) - The Entity Markets the Scheme or Otherwise Encourages the Growth of the Scheme or Interest in it 19 As will be considered in greater detail later in these reasons for judgment, one of the main issues in this proceeding was whether the conduct of the respondents constituted either 'marketing' or 'encouragement of the growth' of the alleged scheme (or interest in it) as required by s 290-60(1)(a). 20 Notably, counsel for Dr Ludekens submitted that much of the conduct relied upon by the Commissioner in respect of his client does not fall within either of these descriptions, and instead constitutes activities undertaken in developing and implementing the scheme. Counsel further submitted that in attempting to rely on this conduct for the purpose of satisfying the definition of 'promoter' in s 290-60, the Commissioner seeks to "impermissibly interpret the provision in a way that is contrary to the express object of the provision", as "[d]eveloping and implementing is not promoting". 21 Determining this issue requires the Court to first decide whether the phrase "markets the scheme or otherwise encourages the growth of the scheme or interest in it" as it appears in s 290-60 is capable of encompassing conduct of the sort alleged to be relied upon by the Commissioner in respect of the respondents – namely, development and implementation of the relevant scheme. 22 Such statutory interpretation is to be conducted in accordance with the principles set out in the Acts Interpretation Act 1901 (Cth). Section 15AA of that Act provides that the interpretation of the definition of 'promoter' contained in s 290-60 that would best achieve the purpose or object of the TAA (whether or not that purpose or object is expressly stated in that Act) is to be preferred. In carrying out this inquiry, s 15AB of the Acts Interpretation Act 1901 (Cth) provides that the Court is permitted to have reference to extrinsic material (such as explanatory materials) for either of the following purposes: (a) to confirm that the meaning of the provision is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act; or (b) to determine the meaning of the provision when: (i) the provision is ambiguous or obscure; or (ii) the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act leads to a result that is manifestly absurd or is unreasonable. 23 Of course, the starting point for this statutory interpretation inquiry is the ordinary and grammatical meaning of the words of the provision in question, having regard to their context and legislative purpose (Australian Education Union v Department of Education and Children's Services (2012) 285 ALR 27 at 34 [26]). In Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, McHugh, Gummow, Kirby and Hayne JJ noted that (at 384 [78]): the duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have. Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning of the provision. But not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning. In Statutory Interpretation, Mr Francis Bennion points out: "The distinction between literal and legal meaning lies at the heart of the problem of statutory interpretation. An enactment consists of a verbal formula. Unless defectively worded, this has a grammatical meaning in itself. The unwary reader of this formula (particularly if not a lawyer) may mistakenly conclude that the grammatical meaning is all that is of concern. If that were right, there would be little need for books on statutory interpretation. Indeed, so far as concerns law embodied in statute, there would scarcely be a need for law books of any kind. Unhappily this state of being able to rely on grammatical meaning does not prevail in the realm of statute law; nor is it likely to. In some cases the grammatical meaning, when applied to the facts of the instant case, is ambiguous. Furthermore there needs to be brought to the grammatical meaning of an enactment due consideration of the relevant matters drawn from the context (using that term in its widest sense). Consideration of the enactment in its context may raise factors that pull in different ways. For example the desirability of applying the clear literal meaning may conflict with the fact that this does not remedy the mischief that Parliament intended to deal with." (footnotes omitted) [Citations omitted] 24 The context and purpose of provisions in legislation was also emphasised in Certain Lloyd's Underwriters Subscribing to Contract No IH00AAQS v Cross (Matter No S417 / 2011) (2012) 293 ALR 412 by French CJ and Hayne J at 418 [24]: The context and purpose of a provision are important to its proper construction because, as the plurality said in Project Blue Sky, "[t]he primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute". [Emphasis added.] That is, statutory construction requires deciding what is the legal meaning of the relevant provision "by reference to the language of the instrument viewed as a whole", and "the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed". [Citations omitted] 25 Similar sentiments were expressed by Crennan and Bell JJ in that case at 431 [70]: While consideration of extrinsic materials should not displace the clear meaning of the text of a provision, the purpose of a provision may be elucidated by appropriate reference to them. It has often been said that the clear meaning of the text of a statute or a statutory provision is the surest guide to the meaning of "the intention of the legislature", an expression used metaphorically. Nevertheless, it is uncontroversial that in determining the meaning of the text of a statute or provision a court may take into account the general purpose and policy of a provision and, in particular, the mischief that it is intended to remedy. [Citations omitted] 26 Returning then to the legislation in question in this proceeding, 'promoter' is expressly defined in s 290-60 by reference to two types of conduct: marketing, and encouraging the growth of or interest in a scheme. These terms are not specifically defined in the legislation. 27 The ordinary meaning of 'marketing' in this context would seem to encompass the actual, active promotion or 'selling' of a scheme to the public or one or more investors. To 'encourage the growth' of a scheme, or interest in it, is a more general concept. Freed of its legislative context, this phrase might be given a very broad meaning – in theory, it could encompass anything done in relation to a scheme that ultimately results in its growth. However, as previously noted by reference to the authorities extracted above, when interpreting legislation, context is crucial. 28 Of this phrase, the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth) states (at [3.41]): While the general expression '…encouraging the growth of the scheme or interest in it…' would ordinarily include most forms of marketing, the specific reference to marketing highlights the most common case. The broader phrase makes it clear that the civil penalty regime is not restricted to schemes that are directly marketed in a conventional sense. 29 These comments suggest that this phrase was intended to encompass the promotion of schemes that are not marketed in a particular, 'conventional' way (for example, schemes that are marketed through conduct which might not amount to expressly making offers to investors to participate, but which otherwise encourages participation in a scheme). They do not suggest a clear legislative intention to specifically bring conduct comprising mere development or implementation of a scheme within the ambit of the definition of 'promoter' in s 290-60(1). 30 Such an interpretation gives effect to the express purpose of the legislation in question. Unlike Div 290, the TAA itself has no expressly stated overall purpose or object. The long title of the Act states that it is "[a]n Act to provide for the administration of certain Acts relating to Taxation, and for purposes connected therewith". The purpose of this Act, therefore, may be imputed to include that which attaches to taxation law more generally – namely, protection of the revenue. However, this is not particularly instructive for the purpose of interpreting s 290-60. Rather, illumination is provided by the stated objects of Div 290, which, it is to be recalled, is entitled "Promotion and implementation of schemes" (emphasis added). As previously noted, the objects of this Division are stated in s 290-5 to be to deter (a) the "promotion" of tax avoidance and tax evasion schemes, and (b) the "implementation" of schemes that have been promoted on the basis of conformity with a product ruling in a materially different way to that described in the ruling. The two subsections invoke different verbs. 'Promotion' is not specifically defined in the legislation – perhaps because it may be thought to be defined (admittedly somewhat circularly) by reference to the conduct that characterises an entity as a 'promoter' for the purpose of s 290-60, namely, marketing and encouraging the growth of or interest in a scheme. In any event, the fact that the legislature saw fit to legislate specifically in respect of 'promotion' in s 290-50(1), and in respect of 'implementation' in s 290-50(2), suggests that each subsection is intended to address a distinct type of mischief in respect of schemes. It further suggests that it is not appropriate to read the expression "encourages the growth of the scheme or interest in it" as it appears in s 290-50(1) so broadly that it encompasses the bare implementation or development of a scheme. 31 This interpretation is further supported by the relevant explanatory materials, to which recourse may properly be had for the purpose of this inquiry. For example, prior to being enacted in its present form, an Exposure Draft of Div 290 was the subject of both confidential and public consultation in 2005. The Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth) states that two of the most contentious issues during this consultation period were the definitions of 'promoter' and 'tax exploitation scheme' that govern the scope of s 290-50. 32 At the time of consultation, the Exposure Draft of Div 290 featured a definition of 'promoter' that differs in several important respects from that contained in Div 290 as presently enacted. The Exposure Draft version of s 290-60 provided that an individual is a promoter of a tax exploitation scheme if: (a) the individual promotes the scheme by implementing it, advancing it or encouraging its growth or interest in it; and (b) the individual or an associate of the individual receives (directly or indirectly) consideration in respect of the scheme; and (c) having regard to all relevant matters, including the extent of an individual's participation in the management of the scheme, it is reasonable to conclude that the individual has had a substantial role in promoting the scheme. [Emphasis added] 33 The Exposure Draft Explanatory Material that corresponded to this version of s 290-60 contained the following statements (at pp 6-7; emphasis in original): 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)] … 30. There may be more than one promoter of a scheme, for example where several promoters capitalise on a combined, complementary skill set in the overall implementation and advancement of the scheme. More than one promoter may be identified where the scheme is a joint venture or where a scheme 'changes hands' during its life. Where a tax exploitation scheme is established and promoted offshore, any Australian entity who plays a substantial role in promoting the scheme in Australia will be at risk. 34 Coupled with the wording of s 290-60 as it previously existed, these statements indicate that conduct comprising the implementation and development of a scheme was clearly within the ambit of s 290-60 at that time. These statements are not reproduced in the Explanatory Memorandum that accompanies Div 290 as presently enacted. As noted in that Explanatory Memorandum at [3.143], the definition of 'promoter' in s 290-60 was amended following the consultation period in 2005: To address concerns raised in consultation, the definitions were refined as follows: • design and implementation functions were taken out of the definition of 'promoter', leaving the more active promotional functions of marketing and encouragement; • for the purposes of determining if someone is a promoter, the consideration they receive has been confined to consideration in respect of promotion of the scheme; • the promoter must have a substantial promotional role and not just a substantial role in relation to a scheme; [and] • it must be reasonable to conclude at the time of promotion that participants in a scheme have a sole or dominant purpose of obtaining a tax (scheme) benefit for there to be a tax exploitation scheme… [Emphasis in bold-face type added; emphasis denoted by underlining in original] 35 The deliberate exclusion of design and implementation conduct from the definition of 'promoter' prior to it being enacted in its present form supports the conclusion previously reached in respect of the purpose and words of s 290-60 – namely, that without more, such conduct does not constitute marketing or encouragement of the growth of or interest in a scheme. Accordingly, I am satisfied that the phrase "markets the scheme or otherwise encourages the growth of the scheme or interest in it" in this section is to be read as being confined to active promotional functions in the manner just explored. Of course, conduct alleged to fall within the ambit of this definition must be assessed on a case-by-case basis. It may be that activities undertaken by an entity both market and implement a scheme simultaneously. But it is appropriate to confirm at this point that from a statutory interpretation perspective, this is not a limitless phrase that encompasses any type of conduct engaged in by an entity in respect of a scheme. 36 In so concluding, I am mindful of the cautions delivered by both this Court and the High Court that reference to extrinsic materials does not permit a Court to ignore the actual words of a statute, and that such materials do not serve as warrants for the redrafting of legislation nearer to what is assumed to have been the desire of the legislature (see eg Trevisan v Commissioner of Taxation (1991) 29 FCR 157 at 162). In Australian Education Union (2012) 285 ALR 27 at 35 [28], the High Court noted that "[i]n construing a statute it is not for a court to construct its own idea of a desirable policy, impute it to the legislature, and then characterise it as a statutory purpose". See also Certain Lloyd's Underwriters (2012) 293 ALR 412 at 419 [26]. However, this is not to deny that words of seemingly wide interpretation may be limited by the context in which they appear. To this end, I am satisfied that the conclusion reached in respect of the interpretation of the phrase "markets the scheme or otherwise encourages the growth of the scheme or interest in it" is grounded in the statutory context of s 290-60 (as informed by the legislative history of Div 290), and gives effect to the distinction drawn in the Division between the proscription of 'promotion' in s 290-50(1), and the proscription of 'implementation' (as a separate concept) in s 290-50(2). Section 290-60(1)(b) – The Entity (or an Associate of the Entity) Receives (Directly or Indirectly) Consideration in Respect of that Marketing or Encouragement 37 The definition of 'associate' is provided by s 318(1) of the ITAA36. That section relevantly provides that an 'associate' of a natural person includes: (a) a partner of the primary entity or a partnership in which the primary entity is a partner; and (b) a company where: (i) the company is sufficiently influenced by: (A) the primary entity; or (B) another entity that is an associate of the primary entity because of another paragraph of this subsection; or (C) another company that is an associate of the primary entity because of another application of this paragraph; or (D) 2 or more entities covered by the preceding sub-subparagraphs; or (ii) a majority voting interest in the company is held by: (A) the primary entity; or (B) the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and the preceding paragraphs of this subsection; or (C) the primary entity and the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and because of the preceding paragraphs of this subsection. 38 Much was made in the parties' submissions of the meaning of the term 'consideration' as it is used in s 290-60(1)(b), as distinct from its use in other parts of Div 290 and in law more generally. 39 In his final submissions, the Commissioner alleged that three 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 Limited (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 Commissioner of Taxation (2002) 100 FCR 117, the Full Court of the Federal Court of Australia noted – in the context of considering s 160ZZC(12) of the ITAA36 – that (at 128-129): [t]he 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: cf Commissioner of Taxation (Cth) v Scully (2000) 74 ALJR 504 at 509-510. 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 (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 [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 [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 (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 Commissioner of Taxation v Scully (2000) 201 CLR 148, where the High Court held that there was no need for a particular reference to 'consideration' in the ITAA36 to be read as capturing non-monetary benefits, as this was expressly provided for by neighbouring provisions of that Act (at 166). 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 eg 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. 47 The next issue is the connection required by s 290-60(1)(b) between the consideration received, and the marketing or encouragement of the growth of (or interest in) the scheme engaged in by the entity in question. 48 The Exposure Draft wording of s 290-60 simply required that an entity receive consideration "in respect of the scheme". As previously noted, one of the changes made to the definition of 'promoter' following the consultation period was to restrict consideration for the purpose of this definition to that received "in respect of promotion of the scheme" (Explanatory Memorandum at [3.143]; emphasis in original). 49 Accordingly, in its present form, s 290-60(1)(b) requires consideration to be received (either directly or indirectly) in respect of the marketing or encouragement referred to in s 290-60(1)(a). 50 The words "in respect of" have been the subject of considerable judicial interpretation in various contexts (see eg Scully (2000) 201 CLR 148 at 171; Henderson v Pioneer Homes Pty Ltd (1980) 29 ALR 597 at 611; and Nintendo Company Limited v Centronics Systems Pty Limited (1994) 181 CLR 134 at 145). It is well accepted that words such as these take their meaning from their context and the purpose or object of the legislation in which they appear (see eg Scully (2000) 201 CLR 148 at 171; Secretary of the Department of Social Security v a'Beckett (1990) 26 FCR 349 at 358; J & G Knowles and Associates Pty Ltd v Commissioner of Taxation (2000) 96 FCR 402 at 408; and Woodside Energy Ltd v Federal Commissioner of Taxation (2009) 174 FCR 91). 51 It is trite to state that the expression denotes some relationship or connection between two things or subject matters. But these words are not limitless. Not just any connection – no matter how tenuous – between two things or subject matters will suffice (unless, of course, the statutory context clearly dictates such a conclusion). In Workers' Compensation Board (Q) v Technical Products Pty Ltd (1988) 165 CLR 642, Deane, Dawson and Toohey JJ said (at 653-654; cited with approval by the High Court in Scully (2000) 201 CLR 148 at 171): Undoubtedly the words "in respect of" have a wide meaning, although it is going somewhat too far to say, as did Mann CJ in Trustees Executors & Agency Co. Ltd. v. Reilly [[1941] VLR 110 at p 111], that "they have the widest possible meaning of any expression intended to convey some connection or relation between the two subject matters to which the words refer". The phrase gathers meaning from the context in which it appears and it is that context which will determine the matters to which it extends. 52 It is difficult to precisely state a test to determine whether the requisite relationship or connection exists between consideration received and the marketing or encouragement engaged in by an alleged promoter for the purpose of s 290-60 (on the difficulty of formulating such tests, see J & G Knowles (2000) 96 FCR 402 at 409). 53 As previously noted, one of the purposes of Div 290 is to deter the promotion of tax exploitation schemes. The role played by s 290-60 within this Division is to effectively act as a 'gatekeeper' provision. By setting out the criteria by which a 'promoter' is defined, its purpose is to ensure that only those people who are fairly judged to be 'promoters' are subject to the civil penalty provisions of Div 290, which, if enlivened, may give rise to severe consequences. The explanatory materials extracted in these reasons for judgment indicate that this was a concern of the legislature during the drafting process, and apparently underpinned the deliberate restriction in scope of s 290-60 following the community consultation period. Buttressing this conclusion is s 290-60(2), which states that an entity is not a promoter of a tax exploitation scheme merely because they provide advice about a scheme. This sentiment is echoed in [3.49] and [3.50] of the Explanatory Memorandum, which emphasise this point and state that "[t]he civil penalty regime is not intended to inhibit the provision of independent and objective tax advice, including advice regarding tax planning". 54 In this context, "in respect of" narrows the scope of the section by requiring a material connection between the consideration received (which may be received either directly or indirectly) and the marketing and encouragement engaged in. Whether such a connection is made out in respect of a particular entity will require a case-by-case analysis. However, I am satisfied that requiring such a degree of connection between the two concepts best gives effect to the legislative purpose and in the context in which the relevant words appear in Div 290. 'Tax exploitation scheme' 55 Divining the meaning of the expression "tax exploitation scheme" as used in Div 290 is a multi-stage inquiry. First, the definition of 'scheme' is found in s 995-1(1) of the ITAA97, which defines it as any arrangement (which is itself defined in that section as any arrangement, agreement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable (or intended to be enforceable) by legal proceedings), or any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. 56 As acknowledged by the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth) at [3.62], this wording substantially mirrors the definition of 'scheme' contained in Pt IVA of the ITAA36 ("Schemes to reduce income tax"), which case law acknowledges is very broad: see eg Noza Holdings Pty Ltd v Commissioner of Taxation [2011] FCA 46 at [277] (this decision was appealed in Commissioner of Taxation v Noza Holdings Pty Ltd (2012) 201 FCR 445, but the primary judge's findings on Pt IVA were not the subject of appeal), citing Commissioner of Taxation v Star City Pty Ltd (2009) 175 FCR 39 at [202]–[217]; Commissioner of Taxation v Hart (2004) 217 CLR 216 at [9], [43], [85] and 260–1 [87]; Commissioner of Taxation v Spotless Services (1996) 186 CLR 404 at 425 and Commissioner of Taxation v Peabody (1994) 181 CLR 359 at 378. 57 Section 290-65 further provides that a scheme is a 'tax exploitation scheme' if, at the time of the conduct that is mentioned in s 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). (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. 58 Pursuant to s 284-150 of the TAA, an entity gets a 'scheme benefit' from a scheme if one of the following criteria is satisfied: (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. 59 "Tax-related liability" as referred to in s 284-150 is defined in s 255-1 of the TAA as 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). Section 250-10 sets out a list of tax-related liabilities (which includes income tax: s 250-10(2)). "Taxation law" is in turn defined in s 995-1(1) of the ITAA97 as: (a) an Act of which the Commissioner has the general administration (including a part of an Act to the extent to which the Commissioner has the general administration of the Act); or (b) legislative instruments made under such an Act (including such a part of an Act); or (c) the Tax Agent Services Act 2009 or regulations made under that Act. 60 As for the next element of the definition of 'tax exploitation scheme', according to s 284-15(1) it will be 'reasonably arguable' that a scheme benefit is available at law 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. Subsections (2) and (3) of that provision further provide that: (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. (3) Without limiting subsection (1), these authorities are relevant: (a) a taxation law; (b) material for the purposes of subsection 15AB(1) of the Acts Interpretation Act 1901; (c) a decision of a court (whether or not an Australian court), the AAT or a Board of Review; (d) a public ruling. 61 As noted at [3.65] of the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth): [a] promoter's liability to penalty is independent of any action that may be taken against scheme participants. The test of whether it is reasonably arguable that a scheme benefit is available at law is applied when the promoter's conduct takes place, and not with the benefit of hindsight once the review and appeal rights for scheme participants have been exhausted. Section 290-50(2) – "Implementing scheme otherwise than in accordance with ruling" 62 A number of the concepts invoked by s 290-50(2) – namely, 'entity' and 'scheme' – have already been considered in the context of s 290-50(1). However, a number of further definitions must also be considered for the purpose of interpreting and applying this subsection. 63 'Product ruling' means a public ruling under the TAA that states that it is a product ruling (s 995-1(1) of the ITAA97). Pursuant to s 358-5 of the TAA, a 'public ruling' is a published, written ruling made by the Commissioner on the way in which he considers a relevant provision applies (or would apply) to any of the entities listed in s 358-5(1) of the TAA, that also states that it is a public ruling. Section 290-55(4)-(6) – Time Limits 64 This brings us to the "exceptions" contained in s 290-55. Some of the exceptions set out therein pertain to circumstances in which the Court must not order an entity to pay a civil penalty. For the reasons previously explained, these exceptions are not relevant at this stage of the proceeding. However, some of the exceptions purport to prevent the Commissioner from bringing any application at all under s 290-50 against an entity in respect of its conduct. In particular, subss (4) and (5) impose the following time limitations: (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. (5) The Commissioner must not make an application under section 290-50 in relation to an entity's involvement in a scheme that has been promoted on the basis of conformity with a product ruling more than 4 years after the entity last engaged in conduct in relation to implementation of the scheme. 65 Subsection (6) states that these limitations do not apply to a scheme involving tax evasion. It was not suggested that the schemes that are the subject of this proceeding satisfy this criterion. 66 Of these subsections, the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth) states (at [3.11]) that an entity is not liable for a penalty if more than four years have elapsed since the entity last engaged in the relevant conduct. It further provides (at [3.35]) that: [t]he Commissioner must generally begin civil penalty proceedings within four years of the entity's involvement in the conduct proscribed in the penalty provisions. This time limit reflects the amendment period for taxpayers involved in tax avoidance schemes. [Schedule 3, item 1, subsections 290-55(4) and (5)] [Emphasis in original] 67 The Commissioner filed his application against the respondents in this matter on 27 June 2011. It was submitted by counsel for Dr Ludekens that by virtue of the operation of s 290-55(4) and (5), the Commissioner may now only rely on conduct occurring after 27 June 2007. However, I do not think that the operation of s 290-50(4) and (5) can be stated so simply. Rather, in this case, the Commissioner alleges a continuum of conduct engaged in by the respondents from early 2007 onwards. Conduct may be proscribed by s 290-50 even if the time for prosecuting such conduct has elapsed under s 290-55. Accordingly, as long as the Commissioner can show that the respondents engaged in conduct that contravenes s 290-50 after 27 June 2007 (being the date four years before this proceeding was issued against the respondents), then all related conduct that occurred prior to this date may also be relied upon. Conversely, if the Commissioner is unable to discharge this burden of proof, then he may not rely on conduct preceding 27 June 2007 in his case against the respondents. It is not simply a question of the Commissioner only being able to rely upon conduct occurring after 27 June 2007, with all related conduct occurring prior to that date being automatically discounted. 68 The implications of this conclusion are considered further below, in the context of an analysis of the facts sought to be relied upon by the Commissioner. Before engaging in this analysis, however, it is appropriate that I make mention of the witnesses who gave evidence in this proceeding. WITNESSES 69 As previously noted, the respondents each elected not to give evidence themselves at the hearing. Nor did either of them seek to call any evidence on their own behalf. 70 The witnesses who gave evidence on behalf of the Commissioner at the hearing were as follows: (a) Mrs Elizabeth Velardi, who affirmed an affidavit dated 5 December 2011. Between May 2006 and January 2010, Mrs Velardi worked as a personal assistant primarily for Mr Van de Steeg (but the evidence before me suggests that she also did work for Mr Van de Steeg's wife; Mr Van de Steeg's business partner, Mr Jonathan Ezzy; and – as is the subject of further comment below – Dr Ludekens). In this role, her general duties included being the first point of contact for many of Mr Van de Steeg's clients; collating and compiling materials for Mr Van de Steeg; sending out correspondence at Mr Van de Steeg's request; and maintaining an electronic calendar to keep track of his appointments. As the alleged scheme progressed, Mrs Velardi was instructed to assist Dr Ludekens, and undertook such tasks as preparing material on the instructions of, and for approval by, Mr Van de Steeg and/or Dr Ludekens; sending such material to clients; obtaining client and other signatures on relevant forms; and corresponding with the Australian Taxation Office (ATO). Mrs Velardi was cross-examined extensively by both respondents at the hearing. (b) Mr Andrew Crouch, who affirmed an amended affidavit dated 7 December 2011. Mr Crouch began working for Mr Van de Steeg as his personal accountant in December 2007. He ceased working for Mr Van de Steeg in January 2009. Mr Crouch was cross-examined by both respondents at the hearing. (c) Mr Domenico Velardi, who swore an affidavit dated 5 December 2011. Mr Velardi –a hairdresser by occupation – is the husband of Mrs Velardi. Over time, the Velardis made some investments with Mr Van de Steeg, but Mr Velardi's involvement in this proceeding principally related to the events that transpired on 30 June 2007 involving the applications for Gunns woodlots (described further below). Mr Velardi was cross-examined by both respondents at the hearing. (d) Mr Michael Martino, who swore an amended affidavit dated 2 December 2011. At the time of the hearing, Mr Martino was a maintenance supervisor with Ford Motor Company. He met Mr Van de Steeg in 2007, and made some investments with him. Mr Martino gave evidence that he expressed interest (but did not ultimately invest) in the Secondary Investment offered to him by Mr Van de Steeg in 2007. Mr Martino was cross-examined by Mr Van de Steeg at the hearing. (e) Mrs Jodie Smithson, who affirmed an amended affidavit dated 3 December 2011. Mrs Smithson and her husband, Andrew, became friends with Mr Van de Steeg and his wife in 2005. They invested in a foreign exchange trading business with Mr Van de Steeg in 2006. Mrs Smithson worked as a personal assistant to Mr Ezzy from August or September 2006 to late 2009. Mrs Smithson was cross-examined by both respondents at the hearing. (f) Mr Kirk Webster, who swore an affidavit dated 2 December 2011. Mr Webster is an accountant employed by Terrence Jasper and Associates Pty Ltd, a firm of accountants of which Mr Terry Jasper is the principal. Under Mr Jasper's supervision, Mr Webster performed accountancy work for Mr Martino. In this capacity, Mr Webster was consulted by Mr Martino about the Secondary Investment proposed by Mr Van de Steeg. Mr Webster was cross-examined by Mr Van de Steeg at the hearing. (g) Ms Jan Gibson (formerly Jan Taylor), who affirmed an affidavit dated 6 December 2011. Ms Gibson – an information technology project manager – invested some money in various ventures with Mr Van de Steeg. Ms Gibson gave evidence that she and her husband at the time expressed interest (but did not ultimately invest) in the Secondary Investment proposed by Mr Van de Steeg. Ms Gibson was cross-examined by Mr Van de Steeg at the hearing. (h) Ms Leanne Taylor, who affirmed an affidavit dated 1 December 2011. At the relevant time, Ms Taylor was a bookkeeper employed by Trew Results Pty Ltd (a firm of accountants and tax agents of which Mr Darren Trew was a director), and Mr Glenn Crowe was a client of this firm. Ms Taylor did not give evidence in person at the hearing. (i) Mr David Tregambe, who affirmed an affidavit dated 5 December 2011. At the time of affirming his affidavit, Mr Tregambe was a sales director, and had known Dr Ludekens socially for approximately seven or eight years. Mr Tregambe invested some money with Dr Ludekens during that time. Mr Tregambe gave evidence that he met with Dr Ludekens in the first half of 2007 to discuss "an investment in timber plantations". Despite agreeing to participate in the Secondary Investment it ultimately did not proceed, as the deductions claimed by Mr Tregambe were disallowed by the ATO. Mr Tregambe was cross-examined by both respondents at the hearing. (j) Mr Andrew Smithson, who swore an affidavit dated 3 December 2011. Mr Smithson (along with his wife, Mrs Smithson) invested money with Mr Van de Steeg prior to Mrs Smithson commencing employment as Mr Ezzy's personal assistant in 2006. The Smithsons were also involved in the events of 30 June 2007 involving the Gunns woodlot applications. Mr Smithson was cross-examined by both respondents at the hearing. (k) Mr Ian Blanden, who affirmed an affidavit dated 5 December 2011. In 2007, Mr Blanden was the manager of Gunns Plantations, a member of the Gunns group of companies which is based in Tasmania and, at the relevant time, conducted business principally in the forest products industry. Mr Blanden was cross-examined by both respondents at the hearing. (l) Mrs Daniella Ruffato, who swore an affidavit dated 6 December 2011. At the relevant time, Mrs Ruffato was a program manager for the Asia Pacific and Japanese region with Hewlett Packard. She and her husband made a number of investments with Mr Van de Steeg over time. Mrs Ruffato gave evidence that at the insistence of Mr Van de Steeg, she and her husband met with Dr Ludekens in August 2007 to discuss the Secondary Investment, but they did not ultimately proceed with it. Mrs Ruffato was cross-examined by both respondents at the hearing. (m) Mr Glenn Crowe, who affirmed an affidavit dated 2 December 2011. A roof plumber by profession, Mr Crowe and his wife first met and invested with Mr Van de Steeg in 2006. Mr Crowe gave evidence that he agreed to participate in the Secondary Investment, which was explained to him by Mr Van de Steeg during a meeting in or about October 2007. Mr Crowe lodged an amended tax return as instructed and obtained a tax refund on the basis of the deductions claimed, which was then paid to Meloka Pty Ltd (Meloka), a company associated with Mr Van de Steeg through which a foreign exchange trading business was conducted. The Commissioner claimed that Mr Crowe's claimed deduction was subsequently disallowed, leaving him with a tax debt. By contrast, Mr Crowe gave evidence that some time between March and June 2008, Mr Van de Steeg called him and told him to amend his tax return again, this time to remove the partnership loss previously claimed. Mr Crowe did so, and was subsequently issued with a tax bill by the ATO on the basis of this amended assessment. Mr Crowe was cross-examined by both respondents at the hearing. (n) Mr Martin Cash, who affirmed an affidavit dated 6 December 2011. Mr Cash is an accountant who, at the relevant time, was employed by Coghlan Partners Pty Ltd (referred to by parties in this proceeding as "Coghlans"). Dr Ludekens was a client of Coghlans at the relevant time, and Mr Cash did work for Dr Ludekens under the supervision of Mr Aldo De Luca, a principal of Coghlans. Mr Cash did not give evidence in person at the hearing. (o) Mr Simon Turner, who affirmed an affidavit dated 7 December 2011. Mr Turner is a Commonwealth public servant working in the ATO. Mr Turner did not give evidence in person at the hearing. (p) Mr Michael Hawa, who affirmed an amended affidavit dated 6 December 2011. Mr Hawa is a Commonwealth public servant working in the ATO, who, at the relevant time, was a senior auditor within the GST Complex Audit branch of that organisation. Mr Hawa was cross-examined by both respondents. (q) Mr Adrian Dilger, who affirmed an affidavit dated 6 December 2011. Mr Dilger is an accountant who was, at the relevant time, employed by Coghlans and worked mainly for Mr De Luca. Among other things, Mr Dilger completed work for Dr Ludekens in respect of the GST refunds audit commenced by the ATO in 2007. Mr Dilger was cross-examined by both respondents. (r) Dr Robert Love, who swore an amended affidavit dated 28 November 2011. Dr Love gave evidence that he was introduced to Dr Ludekens in early 2007, and first spoke with Dr Ludekens about the Secondary Investment in June 2007. Dr Love agreed to invest in respect of both the 2006 and 2007 income years. Ultimately the investment did not proceed, as the ATO disallowed the tax deductions claimed in Dr Love's tax returns for the relevant years. Dr Love was cross-examined by Dr Ludekens. 71 I accept each of the witnesses called by the Commissioner as credible, and I have relied on their evidence in determining the Commissioner's case against the respondents. As is perhaps to be expected in a case of this nature, a number of the witnesses clearly bore some animosity towards one or both of the respondents. However, there were no instances in which I determined that a witness's testimony was in some way compromised or deserving of lesser weight because of this fact. All comported themselves professionally whilst attending Court and giving evidence. The evidence of the witnesses was consistent with the documentation relied upon by the Commissioner, and was logically probative. 72 There were a number of participants in the events that are the subject of this proceeding who were not called to give evidence. Accordingly, the Court has before it no statement from these witnesses for the purpose of determining the issues that are the subject of this proceeding. These witnesses were Ms Hayben Richards, Mr Eric Poon (both of whom were alleged by the Commissioner to be part of the group referred to as the 'Ludekens Investors'), Mr Peter Berlowitz (alleged by the Commissioner to be part of the group referred to as the 'Van de Steeg Investors') and Mr Ezzy. In respect of the first three, no reason was given for their absence. In respect of Mr Ezzy – who, by all accounts, appears to have been materially involved in the development and implementation of the alleged scheme – it was said that he was unable to be found. FACTS RELIED UPON BY THE COMMISSIONER Chronology of key events 73 Accompanying the Commissioner's final submissions in this proceeding was a chronology setting out key events. It is appropriate to substantially reproduce that chronology here, supplemented by those aspects of the evidence given by witnesses at the hearing that were expressly relied upon by the Commissioner in his final submissions. I have accepted the facts set out hereunder as true and correct, except where otherwise stated. 74 In the first half of 2007, Dr Ludekens attended one of the "standard adviser tours to Tasmania" run by Gunns. On 15 May 2007, Dr Ludekens met with Mr Blanden and Mr Les Baker (Executive Director of Gunns Plantations) in Melbourne. Some time after this meeting, Gunns offered Dr Ludekens a commission rate of 15% on investments procured by him in Gunns' managed investment schemes. 75 According to Mr Tregambe, some time around the first half of 2007 Dr Ludekens met with him and offered him the Secondary Investment. Mr Tregambe understood from this conversation that the investment would involve the following steps: (a) As an investor, he would purchase allotments of trees, the quantity of which would be determined by his annual income. (b) A loan would be obtained to purchase the trees. (c) He would claim a deduction for this investment, and the resulting tax refund would be used to service the loan. 76 On 5 June 2007, Mr Blanden's assistant sent an email to Dr Ludekens that included hyperlinks to the 2006 PDS and PR 2006/8. Mr Blanden gave evidence at the hearing that prior to 30 June 2007, Gunns was aware that "there were going to be applications submitted of a substantial nature… circa $20 million". 77 Also at or around this time, Mr Van de Steeg rang Mrs Ruffato to discuss the Secondary Investment. During this conversation, Mr Van de Steeg suggested that Mrs Ruffato meet with Dr Ludekens, who "really knew about this investment". Mrs Ruffato gave evidence that Mr Van de Steeg told her at this time that the investment involved the purchase of plantation trees, was all legitimate and was an opportunity to make some tax savings. On this basis, Mrs Ruffato agreed to meet with Dr Ludekens, and later received a call from Dr Ludekens to set up a meeting time. 78 On 13 June 2007, Dr Ludekens offered Dr Love the Secondary Investment during a telephone discussion. Dr Love gave evidence that during this conversation, Dr Ludekens assured him that the investment he was proposing had an appropriate product ruling. Dr Love also gave evidence that at this time, Dr Ludekens offered him interests in woodlots for the 2006 income year. It was conceded by the Commissioner during the hearing that this evidence is tendency evidence for the purpose of s 97 of the Evidence Act 1995 (Cth). For such evidence to be admissible, reasonable notice in writing is required to be given to all other parties in a matter by the party seeking to adduce the evidence (s 97(1)(a)). Section 97(1)(b) further requires that the Court must be satisfied that the evidence will have significant probative value (either by itself, or having regard to the other evidence adduced or to be adduced by the party seeking to adduce that tendency evidence). In this case, the Commissioner failed to give notice in the proper form but relied instead on the affidavit of Dr Love which was served in December 2011. In the circumstances, I would dispense with the relevant notice requirements under s 100 of the Evidence Act 1995 (Cth). I consider that the evidence in question has significant probative value, being contemporaneous and similar conduct, and should therefore be admitted. 79 On 14 June 2007, Dr Ludekens sent an email to Dr Love that summarised the Secondary Investment, and included hyperlinks to the 2006 PDS and PR 2006/8. Dr Love gave evidence that from his telephone conversation with Dr Ludekens and this email, he understood that the investment would involve the following steps: (a) As an investor, he would nominate an amount of money to put towards the acquisition of woodlots in a Gunns managed investment scheme. (b) A loan would be obtained to finance the acquisition of the woodlots. (c) In his tax return, he would claim the amount paid in respect of the woodlots as a deduction. (d) He would pay the resulting tax refund to Dr Ludekens or Dr Ludekens' company, Lotus Capital Group Pty Ltd (Lotus), who would then use the refund to pay the principal and interest on the loan. (e) After 10 years, there would be a payout of the proceeds of an initial cropping of the trees. After 25 years, there would be a final payout. 80 Also on 14 June 2007, Mrs Ruffato sent an email to Dr Ludekens to confirm a meeting scheduled for 18 June 2007. As will shortly become apparent, this meeting was postponed a number of times (and was ultimately held in August 2007). 81 In or about the period 20 to 29 June 2007, Messrs Van de Steeg and Ezzy discussed a proposal with the Smithsons, whereby each of the Smithsons would sign documentation in relation to the proposed acquisition of woodlots in the 2006 Gunns Woodlot Project. Mrs Smithson gave evidence that Mr Van de Steeg explained that their names would only be on the documents to "get the deal across the line", and that the woodlots would then be on-sold and the Smithsons' names would be removed. This process would take "four to six weeks at the very most". Mrs Smithson also gave evidence of a conversation she had with Mr Ezzy at this time, during which he told her that without the Gunns investment, Meloka (the foreign exchange trading business in which the Smithsons had invested money) was "going to struggle". Mr Ezzy offered the Smithsons a "gift" of $5,000 each for signing the documents relating to the proposed Gunns investment. 82 Also at or around this time (and in any event, not long before 30 June 2007), Mr Van de Steeg informed Mrs Velardi that as part of her duties as his personal assistant, she would be required to assist Dr Ludekens with the proposed Gunns investment. At or around this time, a meeting was held between Messrs Van de Steeg and Ezzy, Dr Ludekens and Mrs Velardi at a Richmond cafÉ. 83 On 29 June 2007, there was a meeting between Messrs Van de Steeg and Ezzy and Dr Ludekens. The notes of this meeting show that elements of the Plan were discussed. The purchase of $20m trees was contemplated, as were various strategies to finance this venture. 84 On 30 June 2007, Dr Ludekens and Messrs Van de Steeg and Ezzy attended the homes of both the Smithsons and the Velardis. At this time, both the Smithsons and the Velardis agreed to be signatories to the Gunns woodlot and finance applications on the express conditions that their names would only appear on the documents temporarily and they would not be liable for any payments. It was explained to them by the respondents and Mr Ezzy that the use of their names was merely a formality; the woodlots were to be on-sold to wealthy investors who would use the investment to reduce their tax liabilities. The Smithsons and the Velardis gave evidence that they were expressly assured by the respondents and Mr Ezzy that by signing the documents in the manner requested, their assets would not be at risk. They were also promised a written indemnity. 85 I note that there was some dispute at the hearing whether the Velardis were paid $5,000 apiece as the Smithsons were, as a gift for signing the application forms. Mrs Velardi maintained under cross-examination that no such payment was ever received, a fact which was contested by Dr Ludekens. It is ultimately unnecessary for me to decide this point, as I consider that it is not relevant to the question of the respondents' liability in this proceeding. However, for the avoidance of doubt, I note that I do not consider Mrs Velardi's credit to have suffered as a result of the repeated attacks made upon it by Dr Ludekens in this context. The same can be said about matters such as Mr Van de Steeg's challenge to Mrs Velardi's evidence that this conversation about her and her husband's involvement with the woodlot investment occurred on 30 June 2007 (rather than several weeks prior to this, as alleged by Mr Van de Steeg). Ultimately, nothing turns on this issue, and Mrs Velardi was not shaken in her testimony about these matters. 86 The Smithsons and the Velardis gave evidence that on 30 June 2007, they simply signed the documents put in front of them, and did not complete the sections of the application forms relating to assets and liabilities. At that time, they were not given copies of the documents they signed. They each gave evidence that the application forms tendered as evidence in this proceeding contain handwriting other than their own. For example, Mr Smithson gave evidence that apart from his signature, the documents contain a number of false statements written in handwriting that does not belong to him, regarding matters such as his income, profession and home address. Further, neither of the Smithsons recalled seeing anyone sign the application forms as a witness to their signatures, yet Dr Ludekens' signature appears in this capacity on the forms tendered in evidence. In addition, the Smithsons and the Velardis gave evidence that they did not authorise the preparation or use of Australian Business Register partnership registrations, partnership GST registrations, financial statements or tax returns that were subsequently prepared in their names. Further, they did not know about the existence of these documents until they were shown (or otherwise obtained copies) in 2010 and 2011. Similar evidence was given by other witnesses. 87 Also on 30 June 2007, at the direction of Mr Van de Steeg, Mrs Velardi typed up a letter that was then printed on Meloka letterhead and signed by each of the respondents and Mr Ezzy. The letter – which was dated 30 June – evidenced an agreement by these parties to forward all commissions, GST and client tax rebates arising from the sale of Gunns trees to Meloka. It stated that the respondents and Mr Ezzy would meet on 2 July 2007 to "work out the process of Meloka Pty Ltd paying off the $20 million of Plantation Trees purchased and an agreement for Andrew Ludekens Trading Account". Mrs Velardi maintained under cross-examination by both respondents that this document was created on 30 June 2007. Given that there is nothing in evidence that contradicts Mrs Velardi's position on this issue, I accept her evidence. 88 Pursuant to these events, on 30 June 2007, 3,250 fully-financed woodlots in the 2006 Gunns Woodlot Project to the value of $22,165,000 were acquired in the following manner: Woodlot Application No. First Signatory Second Signatory Number of woodlots Cost of application (incl GST) Loan application amount (1 - 10) 1 Van De Steeg Ludekens 350 $2,387,000 $2,391,179.75 2 Van De Steeg Ezzy 350 $2,387,000 $2,391,179.75 3 Van De Steeg D Velardi 350 $2,387,000 $2,391,179.75 4 Van De Steeg E Velardi 350 $2,387,000 $2,391,179.75 5 Ezzy Ludekens 350 $2,387,000 $2,391,179.75 6 Van De Steeg J Smithson 300 $2,046,000 $2,049,583.00 7 Ezzy A Smithson 300 $2,046,000 $2,049,583.00 8 Ezzy J Smithson 300 $2,046,000 $2,049,583.00 9 Van De Steeg A Smithson 300 $2,046,000 $2,049,583.00 10 Ezzy E Velardi 300 $2,046,000 $2,049,583.00 Totals 3,250 $22,165,000 $22,203,813.75 89 On 2 July 2007, as foreshadowed in the letter prepared and signed on 30 June, the respondents met with Mr Ezzy. At this meeting, the Plan was discussed in detail. Typed notes of this meeting – entitled "Structure and Funding Terms Agreed to" – were prepared by Mrs Velardi. Relevantly, these notes contain the following points: 1. New Company to be set up and the directors to be Peter Van de Steeg, Jonathan Ezzy and Andrew Ludekens. 2. The new Company & Meloka Pty Ltd will be liable for the $20m of trees purchased and for the interest payments payable monthly until paid in full. 3. Commissions and GST derived from sales of the trees will be paid to the new Company and on-lent to Meloka Pty Ltd. 4. The trees will be on-sold to customers. Once the customers have purchased the trees, their tax refunds will be invested within the new Company and the new Company will then on-lend this to Meloka Pty Ltd. The only obligation of Meloka Pty Ltd and the new Company is to pay off the principal and interest component of the trees on behalf of the customer. The tax refund is non refundable to the customer on the proviso that, the trees that they have purchased has [sic] been paid off in full, by the new Company and Meloka Pty Ltd. 5. The on-sale of the trees must equate to a minimum of $6m in tax refunds which will come through the new Company from customers and then on-lent to Meloka Pty Ltd. 6. Once the new Company on-sells the trees, if the tax refunds are approximately 45c in the dollar, only $13m worth of trees need to be on-sold to get tax refunds totalling $6m from customers. This will leave $7m worth of trees in the new Company of which Peter Van de Steeg, Jonathan Ezzy and Andrew Ludekens have equal shareholdings. If $13m is sold and the total tax refunds equate to less than $6m, more trees need to be sold until the total amount of $6m derived from customer tax refunds is achieved. … 8. The money raised by the sale of the trees by the new Company will be $3m by the 6th July 2007, $2m by 30th July 2007 and then $6m over the course of July to December 2007. 9. All parties being Peter Van de Steeg, Jonathan Ezzy and Andrew Ludekens agree that a total of $8m will come in by the end of July 2007 which will be a combination of the following: • Commissions paid and the GST rebate on $20m of trees purchased, • Sale of other trees by Andrew Ludekens bringing in $500,000 of which [sic] will be invested with Meloka Pty Ltd on behalf of Andrew Ludekens and, • Other sales made by Peter and Jonathan & Andrew Ludekens. It is also agreed that: • 30% of the additional $6m still to come in from tax refunds from the customers and that $2m will be lent to a trading account that Peter Van de Steeg, Jonathan Ezzy and Andrew Ludekens own. • The $2m is to be loaned from Meloka Pty Ltd to the trading account and is repayable once the account reaches $8m or 3yrs, whichever comes first. • 100% of all profits from this account will be owned by Andrew Ludekens or one of his associated companies. We will allow this account to compound up to AU$20m and once reached all profits must be drawn as they are derived. 10. Out of the initial $3m which is the commission component and the $2m which the GST rebate [sic], $500,000 of this amount will be put into a bank account which will be used to capitalise and pay the interest on the $20m at 10% p.a. for the first 3 months. An additional $500,000 will go into a trading account owned by Peter Van de Steeg and Jonathan Ezzy and also an additional $2.5m will be put into this trading account totalling $3m that will pay the interest component payable monthly on the outstanding balance being initially $20m until paid in full. … 13. Peter Van de Steeg, Jonathan Ezzy and Andrew Ludekens all agree to work together for the next 6 months to on-sell the $13m worth of trees (or more if required) as quickly as possible so that we can acquire the $6m in tax refunds. 90 On 5 July 2007, Mrs Velardi emailed Dr Ludekens the tax file numbers of Messrs Van de Steeg and Ezzy, along with those of the Velardis and Smithsons. 91 On 6 July 2007 there was a further meeting between the respondents and Mr Ezzy. At Mr Van de Steeg's direction, Mrs Velardi prepared notes for circulation at that meeting. These notes were substantially based on the notes of the 2 July 2007 meeting. 92 On 9 July 2007, Mrs Velardi emailed Dr Ludekens a copy of the notes of meeting from 6 July 2007, which were substantially the same as the 2 July 2007 notes of meeting entitled "Structure and Funding Terms Agreed to". These notes – which were erroneously dated 6 June 2007 – contain a number of tracked changes made by Mrs Velardi at Mr Van de Steeg's direction. Also on this day, Mrs Velardi emailed Dr Ludekens a further document that she gave evidence had been dictated to her by Mr Van de Steeg, entitled "Partnership and Client Management Agreement". Both of these emails were copied to Mr Ezzy. 93 On 11 July 2007 there was a meeting between Mr Van de Steeg and Dr Ludekens. On this same day, Mr Van de Steeg asked Mrs Velardi to make a number of further marked-up changes to both the "Structure and Funding Terms Agreed to" and the "Partnership and Client Management Agreement" documents. 94 On 12 July 2007, Lotus received commission of $3,654,156 from Gunns in respect of the woodlots acquired. Of this amount, $3,324,750 relates to the woodlots acquired pursuant to the Plan (the remainder of the commission received relates to the acquisition of woodlots that are not the subject of this proceeding). 95 On 16 July 2007, Lotus paid $3m to Meloka. Meloka then distributed these funds in the following manner: (a) $1.4m was paid to Korlea Pty Ltd (Korlea), a company associated with Mr Berlowitz. Mr Crouch gave evidence that this payment was for the units in the Advanced Forex Trading Agency business of Mr Berlowitz's that Meloka was acquiring. (b) $250,000 was paid to Mr Van de Steeg (Mr Crouch gave evidence that to the best of his recollection, this would have been recorded as a loan from Meloka to Mr Van de Steeg). (c) $200,000 was paid to Mr Ezzy (again, to the best of Mr Crouch's recollection, this would have been recorded as a loan from Meloka to Mr Ezzy). (d) $90,000 was paid to Arnah Pty Ltd, which – at the relevant time – was the trustee of the Ezzy Family Trust (Arnah). Mr Crouch could not recall whether this payment was recorded as a loan or a return of capital to Arnah. (e) $850,000 was paid to Jameter Pty Ltd, which – at the relevant time – was a company owned by Mr Van de Steeg and Mr Ezzy (Jameter). To the best of Mr Crouch's recollection, he thought this payment would have been recorded as a loan to Jameter. (f) The balance of the $3m was paid to various creditors of Meloka. 96 On 17 July 2007, there was a meeting between Mr Van de Steeg and Dr Ludekens. Mrs Velardi was asked to type up the minutes of meeting by Mr Van de Steeg. These minutes comprised two documents entitled "Lotus and Meloka Trees Agreement" and "Partnership and Client Management Agreement". These documents were similar to those used for and created in respect of previous meetings. 97 On 20 July 2007, Dr Ludekens emailed Mrs Velardi a number of draft loan and partnership agreements. Mrs Velardi gave evidence that the purpose of these drafts was to assist Mr Graham Lederman, Mr Van de Steeg's solicitor (of the law firm Ledermans), in preparing similar documents for the purpose of the Plan. 98 At or around this time, Dr Ludekens lodged Australian Business Number and GST registrations for 10 entities purporting to be partnerships. Each entity was registered in the name of three 'partners', being the two signatories to each woodlot application (as set out in the table at [88] above) and Lotus. 99 On 27 July 2007, Dr Ludekens emailed Mr Van de Steeg the text of the email that he had previously sent to Dr Love on 14 June 2007, along with hyperlinks to the 2006 PDS and PR 2006/8. 100 On 1 August 2007 there was a further meeting between Mr Van de Steeg and Dr Ludekens. Mrs Velardi was asked by Mr Van de Steeg to update the notes from the previous meeting (17 July 2007) accordingly. 101 On 2 August 2007, Dr Ludekens lodged Business Activity Statements in respect of each of the entities purporting to be partnerships (except for the entity registered in the name of A Ludekens, P Van de Steeg and Lotus, the Business Activity Statement for which was lodged on 14 August 2007). A GST refund was claimed in each Business Activity Statement in respect of input tax credits relating to the acquisition of the woodlots. 102 Also on 2 August 2007, Dr Ludekens emailed a 2006 partnership tax return and the tax invoice relating to that partnership's woodlot investment to Dr Love for the purpose of forwarding to his accountant. It is unclear from the evidence when Dr Love's tax return for the income year ending 30 June 2006 was lodged. 103 In or about mid August 2007, the GST Compliance Verification Centre (a branch of the ATO) "placed a stopper" on the GST refunds claimed by the purported partnerships. At this time, the ATO's concerns included the following: (a) There were 11 partnerships (one of which is not relevant for the purpose of this proceeding) claiming a GST refund of between $186,000 and $217,000 in similar circumstances. Each partnership had invested approximately $2m with Gunns Plantations. (b) In each of the entities claiming a refund, Lotus was registered as a partner along with two other individuals. (c) Each partnership had nominated a bank account belonging to Lotus for payment of the refunds. (d) A review of past income tax returns of some of the entities involved in the partnerships suggested that their income was insufficient to meet the monthly loan instalments they owed to Gunns in respect of their investments. 104 At or around the same time, Dr Ludekens offered Mrs Ruffato and her husband the Secondary Investment during a meeting at the Ruffatos' home. Mrs Ruffato maintained under cross-examination by Dr Ludekens at the hearing that at this meeting in August 2007, he showed them the 2006 PDS. Notwithstanding Dr Ludekens' cross-examination about the similarity in appearance of agribusiness product disclosure statements (and the potential to become confused when dealing with such documents), I accept Mrs Ruffato's evidence in this regard. Mrs Ruffato gave evidence that she understood from this meeting with Dr Ludekens that the proposed investment involved owning trees, lodging an income tax return in respect of that investment, obtaining a refund and then paying that refund to Dr Ludekens, which he would then invest. Once the trees were fully grown, the investors would receive profits from the harvest. Mrs Ruffato gave evidence that Dr Ludekens told her that the tax aspects of the investment had been approved by the ATO and were legal, and that he wanted her and her husband "to sign something there and then to participate in the investment". She told him that they would need to think about it. Exactly what document Dr Ludekens asked the Ruffatos to sign at this meeting was in contention at the hearing (an issue to which I will return later in these reasons for judgment). 105 Also at or around this time, Mr Van de Steeg met with Mr Martino to offer him the Secondary Investment. Mr Martino gave evidence that at this time, Mr Van de Steeg gave him a copy of the 2006 PDS, and explained the Secondary Investment as follows: (a) Investors would buy trees as a partnership. (b) Investors would obtain tax refunds in respect of this investment. (c) They would then pay this tax refund to Mr Van de Steeg or Dr Ludekens. (d) Investors would only have to pay the amount of their tax refund to participate in the investment – they would not have to find the money elsewhere, or borrow it. 106 Mr Martino asked Mr Van de Steeg to meet with his accountants in order to explain the investment further. 107 On 20 August 2007, a letter was sent to Messrs Van de Steeg and Ezzy (copied to Mrs Velardi) by Ledermans, enclosing revised versions of the partnership and loan agreements for review and comment. It does not appear that these documents were ever finalised or formally executed. 108 On 21 August 2007, an officer within the GST Compliance Verification Centre referred the question of the GST refunds claimed by the entities registered by Dr Ludekens to the GST Complex Audit branch. 109 On 23 August 2007, an email was sent from the address "petervandesteeg@thereevagroup.com.au" to Mrs Ruffato, thanking her for her time and setting out some further information regarding the Secondary Investment (including hyperlinks to the 2006 PDS and PR 2006/8). This email is in substantially the same form as emails previously sent by Dr Ludekens to both Dr Love and Mr Van de Steeg on 14 June and 27 July 2007 respectively. At the hearing, there was some dispute about the identity of the author of this email. Mr Van de Steeg made submissions from the Bar table to the effect that he did not have an email address associated with the Reeva Group, and that this was one of Mr Ezzy's companies. Further, Mrs Ruffato gave evidence that she found it strange that Mr Van de Steeg would be thanking her for her time the week before, when she had met with Dr Ludekens. Nevertheless, without evidence from Mr Van de Steeg, I find that he was in fact the author of this email (and the other email subsequently sent from this address to Mr Webster, one of Mr Martino's accountants). 110 On 13 September 2007, Mr Van de Steeg met with one of Mr Martino's accountants, Mr Webster, to explain the Secondary Investment. Mr Webster maintained under cross-examination by Mr Van de Steeg that at this time, Mr Van de Steeg told him that he had acquired $10m worth of Gunns woodlots, and that he was going to on-sell $3m of the woodlots "to a few friends via partnership agreements". Mr Van de Steeg explained that upon making a payment to the partnership, Mr Martino would be entitled to an immediate deduction, as the partnership agreement was signed on 30 June 2007. On this basis, Mr Martino would then receive a tax refund, which was to be paid to Mr Van de Steeg as part of the arrangement. 111 Also on this day, Mr Van de Steeg attended a meeting with Ms Gibson at which he offered her the Secondary Investment. It was in issue at the hearing whether, at this meeting, Mr Van de Steeg showed to or left with Ms Gibson (and her husband at the time) the 2006 PDS. I find this point unnecessary to ultimately determine, as it seems clear from the evidence that the Secondary Investment was explained and actively marketed to Ms Gibson by Mr Van de Steeg at this time. Ms Gibson gave evidence (which was not challenged) that from this meeting, she understood that the Secondary Investment would work in the following way: (a) Her share in the woodlots would depend on her income. (b) She would receive a tax refund based on her investment in the woodlots, which would then be paid to Mr Van de Steeg. (c) Mr Van de Steeg would use the amount of this refund to invest in the woodlots, and for trading. The proceeds of trading would be used to repay the loans. 112 On 17 September 2007, an email was sent to Mr Webster from the email address "petervandesteeg@thereevagroup.com.au", summarising the Secondary Investment and providing hyperlinks to the 2006 PDS and PR 2006/8. This email was substantially in the form of the emails previously sent by Mr Van de Steeg to Mrs Ruffato (on 23 August 2007), by Dr Ludekens to Mr Van de Steeg (on 27 July 2007) and by Dr Ludekens to Dr Love (on 14 June 2007). As with the email sent to Mrs Ruffato on 23 August 2007, Mr Van de Steeg disputed that he was either the author of this document, or the person in charge of this email account. For the reasons previously set out, I find that Mr Van de Steeg was the author of this email. 113 On 18 September 2007, Dr Ludekens attended a meeting with Mr Hawa and other ATO representatives. Mr Hawa gave evidence that the purpose of this meeting was to find out about Dr Ludekens' businesses and the entities through which he conducted them, as Dr Ludekens had been calling the ATO about when the GST refunds claimed by each of the purported partnerships would be paid. Mr Hawa gave evidence that at that time, he needed to understand more about the transactions and the purported partnerships in order to determine whether they were entitled to the input tax credits they were claiming. At this meeting, Dr Ludekens invited Mr Hawa to contact his book-keeper, Ms Nancy Keep, for details of the other entities with which he was involved. Mr Hawa also asked for a list of all partnerships with which Dr Ludekens and/or Lotus were involved, copies of all partnership agreements, and any other relevant agreements. At this time, Dr Ludekens also invited Mr Hawa to contact Mrs Velardi for any information required by the ATO if he himself was ever unavailable. Mr Hawa gave evidence that he understood from this that Mrs Velardi was some sort of administrative assistant to Dr Ludekens. 114 In or about October 2007, Mr Van de Steeg met with Mr Crowe and his wife, and offered Mr Crowe the Secondary Investment. Mr Crowe maintained under cross-examination that during this meeting, Mr Van de Steeg showed them some promotional material (but was unclear whether it was the 2006 PDS, or some similar document). From this meeting, Mr Crowe understood that the Secondary Investment involved the following steps: 1. "Special investors" of Mr Van de Steeg's could purchase trees from him. 2. Investors would be in a partnership which would be run at a loss, so that investors could claim deductions for the trees and obtain tax refunds. 3. When these refunds were received, investors would transfer them to Mr Van de Steeg to pay for their share of the investment. 115 Also at or around this time, Mrs Velardi attended the offices of Dr Ludekens' book-keeper, Ms Keep, to retrieve all documents relating to the GST refund issue. She gave evidence that this was done on behalf of Dr Ludekens (and on the instructions of Mr Van de Steeg). Shortly after this, Dr Ludekens engaged Coghlans to assist with the GST refund issue. 116 On 12 October 2007, Mr Hawa and Mrs Velardi discussed the GST refund issue. That day, Dr Ludekens approved an email to be sent to Mr Hawa by Mrs Velardi, confirming the information sought by the ATO in respect of the purported partnerships. In the following days, there was an exchange of emails between Mr Hawa and Dr Ludekens on this subject. 117 On 29 October 2007, Dr Ludekens and Mr Van de Steeg determined the allocation of interests in the woodlots. This was confirmed in an email from Mr Van de Steeg to Dr Ludekens, which provided as follows: Andrew's Client? - $890,000 worth of woodlots Glen Crow [sic] - $118,000 worth of woodlots Jan Taylor - $94,827 worth of woodlots Michael Martino - $95,000 worth of woodlots Peter Berlowitz - $325,000 worth of woodlots[…] Andrew family Trust or Lotus - $8,071,919.80 Arnah Pty Ltd - $5,202,626.50 (Jonathan) … Ty-Tia Pty Ltd - $5,202,626.50 (Peter Van De Steeg) Total Woodlots allocated $20M 118 On 30 October 2007, Dr Ludekens sent an email to Mr Hawa (which was subsequently reformatted and sent as a letter), setting out the following purported allocation of partnership interests to investors in the Secondary Investment: No. Entity name (corresponding to Woodlot Application) Purported Partnership 1. Van de Steeg & Ludekens Ludekens 69% Poon 14% Love 10% Tregambe 5% Richards 2% [The tax return lodged for this entity indicates that Dr Ludekens held this interest on behalf of the Ludekens Family Trust] 2. Van de Steeg & Ezzy Arnah 84% Berlowitz 16% 3. Van de Steeg & D Velardi Ludekens 30% Ty Tia 60% Arnah 10% 4. Van de Steeg & E Velardi Ty Tia 84% Crowe 6% Taylor 5% Martino 5% 5. Ezzy & Ludekens Ludekens 1% Ludekens 99% [The tax return lodged for this entity indicates that Dr Ludekens held this interest on behalf of the Ludekens Family Trust] 6. Van de Steeg & J Smithson Arnah 80% Ty Tia 20% 7. Ezzy & A Smithson Ezzy 1% Arnah 99% 8. Ezzy & J Smithson Ludekens 1% Ludekens 99% [The tax return lodged for this entity indicates that Dr Ludekens held this interest on behalf of the Ludekens Family Trust] 9. Van de Steeg & A Smithson Van de Steeg 1% Ty Tia 99% 10. Ezzy & E Velardi Ludekens 1% Ludekens 99% [The tax return lodged for this entity indicates that Dr Ludekens held this interest on behalf of the Ludekens Family Trust] 119 This correspondence further stated that the partnerships relevant to this proceeding were established verbally on 1 May 2007. Mr Hawa gave evidence that this letter was the first time that Dr Ludekens had stated positively that there were no partnership agreements in writing. 120 Mr Hawa responded to Dr Ludekens' email by requesting further information, including details of the investors in all partnerships related to him (including names, ACNs or ABNs, and contact details), and any changes to interests held in these partnerships since 1 June 2007. Later that evening, Mrs Velardi emailed the home addresses and tax file numbers for Ms Gibson, Mr Martino and Mr Crowe to Dr Ludekens. 121 Also at or around this time, Dr Ludekens instructed Coghlans to prepare draft financial statements and draft tax returns in respect of the purported partnerships. For this purpose, Dr Ludekens provided Coghlans with a spreadsheet setting out the allocation of partnership interests to investors in the Secondary Investment. 122 On 2 November 2007, Mr Cash sent a number of emails to Dr Ludekens via Mrs Velardi, attaching draft partnership financial statements and tax returns for the purported partnerships. On 7 November 2007, the documents were re-sent following a number of minor amendments by Coghlans. 123 Also at or around this time, Mr Hawa continued to correspond with Dr Ludekens, seeking further details regarding the purported partnerships. 124 On 9 November 2007, Dr Ludekens instructed Mrs Velardi to obtain the signatures of Ms Gibson and Messrs Crowe, Martino and Berlowitz on a page taken from the partnership financial statements prepared by Coghlans entitled "Partners' Declaration". Mrs Velardi gave evidence that Mr Van de Steeg arranged for Mr Martino to sign the document, and also signed the relevant document on behalf of his company, Ty-Tia Pty Ltd (Ty-Tia). Mrs Velardi then sent the document to Ms Gibson and Mr Crowe for signature. At this time, she also provided these investors with a copy of a document entitled "Woodlots info" (which provided instructions on how to respond if contacted by the ATO about the Secondary Investment). At the hearing, Mrs Velardi maintained under cross-examination that Dr Ludekens provided her with this document for distribution to investors (although the Commissioner did not ultimately press this point). Dr Ludekens denied this, and in seeking to support this position during the hearing, produced some evidence of the electronic record of authorship of this document that was, at best, inconclusive. On balance, I accept Mrs Velardi's evidence on this point (but I note that ultimately, very little turns on this issue). 125 On 13 November 2007, Dr Ludekens emailed Dr Love, Ms Richards and Messrs Tregambe and Poon a copy of the relevant partnership financial statements and tax returns, and requested that they forward these documents to their respective tax agents for the preparation of their 2007 income tax returns. Dr Ludekens also asked that they print, sign and return the Partners' Declaration page as soon as possible. 126 Mr Tregambe forwarded these documents to his accountant on 14 November 2007, and later authorised his accountant to lodge his 2007 income tax return, which claimed a deduction for the partnership loss in respect of the woodlot investment. At or around this time, Dr Love did the same. 127 On 14 and 15 November 2007, Mr Hawa received (by a combination of fax and personal delivery) a set of signed partnership financial statements and special purpose financial reports for the purported partnerships. 128 On 19 November 2007, a Business Activity Statement for Lotus was lodged with the ATO. This statement reported the commission received from Gunns in respect of the period ending 30 September 2007. 129 On 26 November 2007, Mrs Velardi collected a number of "welcome kits" from Dr Ludekens for distribution to the Van de Steeg Investors. These kits included: (a) A copy of the partnership financial statements; (b) A copy of the partnership tax return; (c) A copy of the partnership Certificate of Investment from Gunns and a Gunns finance approval letter (both in the name of Mr P Van de Steeg and Mrs E Velardi); and (d) A covering letter, instructing investors to provide the partnership tax return and financial accounts to their accountants to include in their 2007 tax returns and requesting that investors "forward [their] tax refund (if any) to the partnership within 2 days". Mrs Velardi gave evidence that Dr Ludekens was actively involved in the drafting of this letter. 130 Mrs Velardi gave evidence that she provided the welcome kits to Mr Van de Steeg to distribute to investors. Ms Gibson gave evidence that she received a welcome kit in November 2007, as did Mr Crowe. 131 On 29 November 2007 there was a meeting between Mr Van de Steeg, Mr Martino and Mr Jasper (who, it will be recalled, was one of Mr Martino's accountants). At this time, Mr Van de Steeg explained the Secondary Investment to Mr Jasper, and provided him with copies of the partnership tax return and financial statements. Mr Martino gave evidence that some time after this meeting, Mr Van de Steeg approached him to say that the Secondary Investment would not be proceeding as "there was something not right about it". Mr Martino did not ultimately proceed with the investment. 132 Also on 29 November 2007, a number of meetings were conducted by ATO officers at the offices of Mr Lederman with Ms Richards and Messrs Van de Steeg, Crowe, Berlowitz, Martino and Tregambe. These meetings formed part of the ATO audit of the purported partnerships' claims for GST refunds. Mr Hawa gave evidence that the purpose of the meetings was to determine the investors' understanding of their participation in the purported partnerships. Mr Lederman was authorised in writing by a number of the investors to be present at this meeting as their tax advisor in relation to the Secondary Investment. 133 On 5 December 2007 Mrs Velardi emailed to both Ms Gibson and Mr Crowe a partnership application that had been prepared by her on instructions from Mr Van de Steeg, and approved by Dr Ludekens. Both Ms Gibson and Mr Crowe were asked to sign (but not date) this application. At or around this time, Mrs Velardi also separately printed a copy of the application for Mr Van de Steeg to take to Mr Martino in person, and filled out a copy of the partnership application with Mr Van de Steeg's details for him to sign. On 12 December 2007, Mrs Velardi sent a further copy of the partnership application to Mr Crowe by email. Messrs Crowe and Martino and Ms Gibson all signed the document, leaving the date blank as instructed. 134 At or around this time, Mr Crowe delivered the partnership financial statements and tax return to his accountant, and requested that his tax return be amended to claim a deduction in respect of the woodlots. 135 Also at or around this time, Messrs Berlowitz and Ezzy signed partnership application forms, and Dr Ludekens procured the signatures of Ms Richards and Mr Poon on partnership application forms. 136 It was also at or around this time that Dr Ludekens engaged Coghlans to act in relation to the GST audit being carried out by the ATO. 137 By 7 December 2007, the ATO had reached a preliminary position in relation to the input tax credits and GST refunds claimed by the purported partnerships. On this date, Mr Hawa faxed an ATO Decision Summary Report to Dr Ludekens. The cover sheet from Mr Hawa states that the decision summary is in respect of "11 partnerships associated with Dr Andrew Ludekens through Lotus Capital", but the decision summary itself purports to relate to the GST registered partnership "S Braham & Lotus Capital Group Pty Ltd & A Ludekens" (which is not the subject of this proceeding). In summary, the ATO's preliminary view was that the purported partnership – registered as it was, in the name of an entity that was not a signatory to the Gunns grower and finance agreements (namely, Lotus) – was not entitled to the input tax credits or GST refunds claimed. 138 On 17 December 2007, Mr Hawa spoke with Mr Lederman about the Decision Summary Report. Mr Hawa gave evidence that Mr Lederman agreed that the partnerships as registered were not entitled to claim the input tax credits. As a solution, Mr Lederman proposed that the purported partnerships be re-registered in a manner that reflected the correct partners (such work to be done by Coghlans). 139 That same day, Mr Hawa received a fax from Coghlans (erroneously dated 17 November 2007), stating that they had advised Dr Ludekens that the ATO's position was correct, and asking the ATO to amend the ABN and GST registrations for the purported partnerships to ensure that "the entities which entered into the Gunns Plantations Ltd Woodlot Project be the only partners named on the GST / ABN Registration". Coghlans also undertook to amend the 2007 tax returns submitted for these entities to ensure consistency between the partners involved in the Gunns woodlot investment and the partners reported on the tax returns. 140 On 18 December 2007, the ATO sent a number of finalisation letters to Coghlans in respect of the GST audit. These letters confirmed that the input tax credits sought by the purported partnerships had not been allowed. As previously foreshadowed in the Decision Summary Report, the reason for the ATO's decision in this regard was principally that the partnerships that were registered for GST (and which claimed the input tax credits) were not the same entities that entered into the agreements with Gunns. For example, in the case of the partnership registered in the name of Lotus Capital Group Pty Ltd, A Ludekens and P Van de Steeg, only Dr Ludekens and Mr Van de Steeg had signed any documentation with Gunns. From the ATO's perspective, the situation was further complicated by the fact that the income tax return for this partnership purported to distribute the initial losses made on the investment to entities other than the named partners, including Messrs Poon and Tregambe, Dr Love, Ms Richards and the Ludekens Family Trust. At this time, the ATO indicated its preparedness to accept new registrations for partnerships that did not suffer from these defects (as had been proposed by the letter sent by Coghlans to the ATO on 17 December 2007). 141 Shortly after receipt of this correspondence, Dr Ludekens instructed Coghlans to cancel the registrations for the purported partnerships, and register 'fresh' partnerships that did not include Lotus. The partners for these new entities would comprise the signatories to the ten woodlot applications as set out in the table at [88] above. 142 On 19 December 2007 Dr Ludekens emailed Mrs Velardi to tell her that most of the partnership Business Activity Statements had been relodged (with the rest shortly to follow). He requested that she print out the attached forms authorising release of GST refunds from the Coghlans trust account to Lotus, and obtain the signatures of Messrs Van de Steeg and Ezzy on behalf of the partnerships. 143 On 11 January 2008, the ATO received Mr Crowe's amended income tax return for the financial year ending 30 June 2007, claiming a deduction of $130,250 in respect of primary production losses. 144 On or about 13 January 2008, Coghlans requested the cancellation of the registration of all of the purported partnership entities previously registered in respect of the Gunns woodlot investment, and registered 10 new partnership entities, all of which were constituted without Lotus (GST partnerships). 145 Also at or around this time, Coghlans lodged Business Activity Statements for the GST partnerships for the quarter ending 30 September 2007. These Statements sought GST refunds for input tax credits claimed in respect of the acquisition of the Gunns woodlots. 146 On 24 January 2008, Lotus received GST refunds of $2,214,640 from the Coghlans trust account. Of this amount, $2,015,000 related to the GST partnerships in issue in this proceeding. On this same day, the following transactions occurred: (a) Lotus transferred $1,768,000 to Ty-Tia; (b) Ty-Tia made two payments (of $1,000,000 and $576,000) to Meloka; (c) Meloka distributed this amount as follows: (i) $1,000,000 to Korlea; (ii) $100,000 to Jameter; and (iii) the balance to various creditors. 147 On 29 January 2008, Lotus transferred a further $235,000 to Ty-Tia. On 30 January 2008, Ty-Tia made another two payments (of $200,000 and $30,375) to Meloka. 148 In or about February 2008, Ms Gibson called Mr Van de Steeg to inquire about the progress of the Secondary Investment. Mr Van de Steeg told her that the investment had proceeded without her, with a differently constituted group of investors. 149 Also at or about this time, Mr Van de Steeg called Mr Martino and told him that the Secondary Investment would not be proceeding. Further, Mrs Velardi gave evidence that at around this time, Mr Van de Steeg instructed her to contact Mr Crowe to tell him not to claim the deductions in respect of the Gunns woodlots. However, by this stage, Mr Crowe had already lodged his amended tax return. Mrs Velardi gave evidence that upon receipt of this information, Mr Van de Steeg instructed her to ask Mr Crowe to provide his tax refund to Meloka. 150 On 8 February 2008, Mr Crowe received a letter from his tax agent, enclosing a tax refund cheque in the amount of $47,929.67. 151 On 12 February 2008, the Smithsons received letters from Gunns Finance, advising that their loans were in arrears and that overdue interest would be charged at a rate of 2%. 152 On 14 February 2008, Lotus amended its Business Activity Statement for the quarter ending 30 September 2007 to remove the commission received from Gunns as a sale for that period. 153 On 19 February 2008, Mrs Velardi emailed Mr Crowe, providing details of the Meloka bank account into which Mr Crowe was to deposit his tax refund. This transfer was completed on 26 February 2008. 154 On 9 March 2008, the ATO received Mr Tregambe's tax return for the income year ending 30 June 2007. The deduction of $108,542 claimed in respect of primary production losses was ultimately disallowed. 155 On 15 March 2008, Mr Patrick Cussen, a solicitor engaged by Coghlans, advised Dr Ludekens, Mrs Velardi and Messrs Crouch and De Luca by email that in theory, the interests in the woodlots were assignable. In Mr Cussen's opinion, the tax effects of an assignment were likely to be that the partners named in the applications would be entitled to deductions in the income year ending 30 June 2007, but the amount paid by the 'new partners' may not be deductible by those parties in the income year ending 30 June 2008 as the ATO may treat the situation as one involving an outlay of capital. He suggested that a private ruling be sought from the ATO on the question of whether the new partners could claim these deductions. 156 On 19 March 2008, the ATO received Dr Love's income tax return for the income year ending 30 June 2007. The deduction of $217,083 claimed in respect of primary production losses was ultimately disallowed. 157 On 25 March 2008, Mr Crouch spoke with Mr Blanden about assigning interests in the woodlots. Mr Crouch gave evidence that Mr Blanden said that an assignment could be documented, but that Gunns would need to consider credit issues before allowing the transfer of debt from one party to another. 158 Some time between March and June 2008, Mr Van de Steeg contacted Mr Crowe to tell him to amend his income tax return and reverse the deduction previously claimed in respect of the Secondary Investment. 159 On 22 July 2008, following a meeting conducted with the ATO in or about mid June 2008, Coghlans provided the ATO with written submissions containing a "simple chronological account of the events". Mr Dilger gave evidence that both Mr De Luca and Dr Ludekens had "detailed input" into these submissions, and that the factual background was provided by Dr Ludekens. The submissions were also provided to Mr Cussen for his comment before finalisation. 160 On 11 August 2008, Coghlans lodged amendment requests for the 2007 income tax returns of eight of the ten purported partnerships, seeking to alter the statements of distribution of loss to include only those individuals named in the registered partnerships (and not the persons named in the tax returns as originally lodged). 161 On 30 July 2008, Mr Crouch emailed Mr Blanden, attaching a spreadsheet summarising proposed changes to woodlot ownership, whereby the Smithsons and the Velardis would be replaced with Messrs Van de Steeg and Ezzy as holders of the interests in the woodlots in question. 162 On 27 August 2008, Mr Trew prepared a further amended tax return for Mr Crowe, reversing the deduction previously claimed. 163 On 4 September 2008, Coghlans lodged requests to amend the 2007 tax returns for the other two purported partnerships, namely, those involving Lotus, Dr Ludekens and Mr Van de Steeg on the one hand, and Lotus, Mr Ezzy and Dr Ludekens on the other. The effect of the amendment sought was to alter the statements of distribution of loss, such that losses would be distributed only to individuals named in the registered partnerships. 164 By early October 2008, Gunns had advised Mr Crouch that they would not consent to the assignment of interests and loan obligations connected to the woodlots as previously proposed. 165 On 21 January 2009, the ATO issued a notice of amended assessment to Mr Crowe, assessing his income tax liability for the income year ending 30 June 2007 at $50,747.70. At or around this time, Mr Crowe called Mr Van de Steeg, seeking repayment of the tax refund that he had previously paid to Meloka. Mr Crowe gave evidence that Mr Van de Steeg told him that he would repay this amount, but that he was unable to do so at that time. Mr Crowe said that Mr Van de Steeg advised him to have the ATO transfer the debt into Mr Van de Steeg's name. Ultimately a series of payment plans with the ATO were established, by which Mr Van de Steeg was to repay the debt. Mr Crowe and Ms Leanne Taylor both gave evidence that Mr Van de Steeg defaulted on all of these payment plans. 166 On 29 January 2009, Messrs Van de Steeg and Ezzy and the Smithsons and Velardis all received letters of demand from Shields Heritage, solicitors for Gunns Finance Pty Ltd. These letters sought immediate payment of the arrears owing on the Gunns Finance loans, plus costs. 167 On 2 March 2009, Messrs Van de Steeg and Ezzy and the Smithsons and the Velardis executed a Deed of Variation, Indemnity, Assignment and Release prepared by Mr Lederman. Pursuant to this Deed, Messrs Van de Steeg and Ezzy agreed to indemnify the Smithsons and the Velardis in relation to all costs and liabilities arising from the partnerships bearing their names. 168 In or about March 2009, Coghlans prepared amendments to the Business Activity Statements for the GST partnerships and for Lotus in respect of the quarter ending 30 September 2007. The purpose of these amendments was to reflect the fact that the partnerships were liable to pay much of the GST in respect of the commission received from Gunns. Also at or around this time, a series of invoices (printed on letterhead specific to each of the GST partnerships and addressed to Dr Ludekens) were generated. 169 On 19 March 2009, Dr Ludekens reported the commission received from Gunns (previously reported as a sale in Lotus's Business Activity Statement for the quarter ending 30 September 2007) as a receipt in his own activity statement. At this time, he also claimed an input tax credit in respect of a creditable acquisition in the sum of $3,028,747. 170 On 23 March 2009, the Business Activity Statements for the GST partnerships were amended to show the receipt by each of a share of the Gunns commission. 171 By about December 2009, Mr Crowe had received approximately $3,900 from Mr Van de Steeg in two instalments. This figure represented the amount of Mr Crowe's 2009 tax refund, which – rather than being paid to Mr Crowe – had been applied by the ATO in reduction of the tax debt still outstanding. 172 On 21 December 2009, there was a meeting between Messrs Crowe, Van de Steeg and Trew and Ms Leanne Taylor. At this time, Mr Van de Steeg convinced Mr Crowe to again amend his tax return for the income year ending 30 June 2007, to claim a deduction in respect of woodlots which Mr Van de Steeg agreed to transfer to him. Mr Crowe gave evidence that at his instruction, Mr Trew prepared a further amendment to his income tax return. 173 In or about January 2010, Gunns Finance obtained default judgment against the Velardis in proceedings that had been commenced in the Supreme Court of Tasmania to recover the loan principal and interest still outstanding. 174 On 3 February 2010, ATO investigators contacted Mr Crowe. Mr Crowe gave evidence that they advised him to write to the ATO and cancel the latest amendment of his income tax return for the income year ending 30 June 2007. 175 In or about March or April 2010, Gunns Finance served writs upon the Smithsons in proceedings commenced in the Supreme Court of Tasmania for recovery of the loan principal plus interest still outstanding. 176 On 19 September 2011, the ATO gave notice that it would audit each of the freshly registered GST partnerships. 177 In the course of these audits, the ATO examined whether each partnership was entitled to register for GST or an ABN, or to claim input tax credits in respect of its involvement in the 2006 Gunns Woodlot Project. In the interim reports issued by the ATO in respect of each partnership, the ATO concluded that none of the GST partnerships was so entitled. As a result, the ATO determined that each partnership was liable to repay a share of the previously paid GST refunds, plus penalties. Mr Hawa gave evidence that as at the date of affirming his affidavit, no objections had been lodged in respect of these decisions. ANALYSIS 178 Very few of these facts were the subject of substantive challenge by the respondents, either during the hearing or in final submissions. The final submissions of Dr Ludekens, prepared and presented by counsel, contained little factual disputation, but correctly focused on the real issues to be determined. I have already alluded to the fact that the cross-examination of the witnesses called by the Commissioner in this proceeding often focused on matters peripheral to the issues to be determined by the Court. In most instances, the respondents put to the witnesses that they disagreed with some of the evidence given by those witnesses about what the respondents themselves said or did. However, as I have indicated, neither respondent gave evidence themselves, and I have accepted the evidence called by the Commissioner. Although I would be entitled to do so, I do not draw any inferences from the decision by the respondents not to give evidence. I have simply considered the actual evidence presented, weighed the cross-examination, and made findings based upon this evidence. 179 I note some preliminary matters before proceeding to deal with the Commissioner's arguments under s 290-50(1) and (2). Preliminary Matters 180 First, I accept that each respondent was an 'entity' for the purpose of Div 290, given the breadth of the definition of that term in s 960-100 of the ITAA97. 181 I also note s 298-85 of the TAA, which provides that in determining this proceeding, the Court must apply the rules of evidence and procedure that apply to civil matters (which includes s 140 of the Evidence Act 1995 (Cth)). 182 It is also relevant to note that no submission was made by the Commissioner at any time that there was a conspiracy operating as between the two respondents, or that I should otherwise treat them as engaged in a joint venture of sorts and attribute the conduct and knowledge of one to the other for the purpose of determining liability. As a result, allegations that the respondents engaged in different or divergent conduct in respect of various elements of s 290-50(1) requires separate consideration of the Commissioner's case as against each respondent. Section 290-50(1) – "Promoter of tax exploitation scheme" 183 The Commissioner submitted that each respondent is an entity that engaged in conduct that resulted in them (or another entity) being a promoter of a tax exploitation scheme, thereby contravening s 290-50(1). Specifically, the Commissioner submitted that: (a) there was a scheme; (b) the scheme was a tax exploitation scheme; and (c) each respondent was a promoter of the tax exploitation scheme, and/or engaged in conduct that resulted in the other being a promoter of the tax exploitation scheme. Was There a 'Scheme'? 184 The principal scheme relied upon by the Commissioner in his final submissions was the 'Plan' as defined at the commencement of these reasons for judgment, namely: (a) to acquire fully financed woodlots in the 2006 Gunns Woodlot Project; (b) to meet loan obligations in respect of the acquisition of these woodlots from profits obtained by investing (into a foreign exchange trading business) a fund comprised of the following: (i) commission received in respect of the acquisition of the woodlots; (ii) GST refunds to be obtained in respect of the acquisition of the woodlots; and (iii) funds obtained from offering the woodlots to subsequent investors; and (c) to otherwise retain profits from investing the fund in the foreign exchange trading business. 185 The Plan broadly corresponds with the scheme as pleaded by the Commissioner in the Further Amended Statement of Claim (although it was not referred to as the "Plan" therein). However, in his final submissions the Commissioner sought (for the first time) to rely upon a further scheme, being a more truncated version of the Plan referred to as the "Conduct". The Conduct – which largely comprises the acquisition of the woodlots and the further steps taken by the respondents to "put the Plan into effect" – is alleged to have involved the following steps: (a) the initial acquisition of the woodlots; (b) the making of offers to the Ludekens and Van de Steeg Investors, and Mrs Ruffato; and (c) the preparation and delivery to investors of partnership financial statements, tax returns and other materials. 186 In his final submissions, the Commissioner sought to rely on a number of permutations of the Plan and the Conduct as being a 'scheme' for the purpose of s 290-50(1). It was submitted that the Plan and the Conduct (taken collectively) might constitute such a scheme, as might the Plan as separately conceived by each respondent. Further, it was submitted that the Conduct, as applied to each of the Ludekens and Van de Steeg Investors, might be viewed as a series of individual schemes, each founding a separate contravention of Div 290. 187 On this aspect of the case, it is not necessarily fatal that the Commissioner did not specifically plead or include in his opening submissions the Conduct as an alternate scheme. As the High Court noted in Commissioner of Taxation v Peabody (1994) 181 CLR 359 (in the context of a Pt IVA scheme), the Commissioner is entitled to put his case in different ways. At 382-383, the Court commented: If, within a wider scheme which has been identified, the Commissioner seeks also to rely upon a narrower scheme as meeting the requirements of Pt IVA, then in our view there is no reason why the Commissioner should not be permitted to do so, provided it causes no undue embarrassment or surprise to the other side. If it does, the situation may be cured by amendment, provided the interests of justice allow such a course. [Citations omitted] 188 I do not think that any undue embarrassment or surprise is caused to the respondents in this proceeding by permitting the Commissioner to now rely on the Conduct as an alternative to, or in combination with, the Plan. The Conduct is effectively a subset of the Plan, insofar as each of the elements of the Conduct fit within the broader elements of the Plan (for example, the making of offers and provision of partnership financial materials to the Ludekens and Van de Steeg Investors are necessary components of the element of the Plan that is obtaining funds from investors to whom the Secondary Investment is offered). Accordingly, the following analysis refers to both the Plan and the Conduct, separately and in combination (although in this proceeding, in light of the way in which the Commissioner has put his case against the respondents, I consider that nothing turns on the drawing of such a distinction). 189 The evidence in respect of the Conduct is contained in the foregoing chronology of key events. To prove the existence of the Plan, the Commissioner specifically relied upon the notes of the meetings held between 29 June and 11 July 2007, and a number of events that preceded most or all of these meetings, being: (a) the discussion that Dr Ludekens had with representatives of Gunns Plantations in or about mid-May 2007 regarding the prospect of arranging a large (approximately $20m) investment in the 2006 Gunns Woodlots Project, and being offered a 15% commission rate in return; (b) the telephone conversation Dr Ludekens had with Dr Love on 13 June 2007, immediately followed on 14 June 2007 with an email in which the Secondary Investment was discussed (and hyperlinks to the 2006 PDS and PR 2006/8 were provided); (c) Mr Van de Steeg's referral of Mrs Ruffato to Dr Ludekens for an explanation of the Secondary Investment; and (d) the representations made by the respondents on 30 June 2007 to the Smithsons and Velardis that their names would be used on applications for the woodlots only temporarily, as they were to be 'on-sold' to wealthy individuals who would be able to reduce their tax liability as a result. 190 I have already adverted to the breadth of the definition of 'scheme' as set out in s 995-1(1) of the ITAA97. I note that the inclusion of terms such as 'plan' and 'proposal' in this definition indicate that a scheme need not have been carried out in its entirety (or even at all) in order to satisfy this definition. This conclusion is buttressed by the references in s 290-65 to a scheme that has not been implemented. Similarly, I do not consider that it is an impediment to the Commissioner's case that the Plan as conceived by the respondents did not ultimately succeed (principally due to the audits commenced by the ATO in respect of the GST refunds claimed, and the disallowance of the deductions claimed by investors in the Secondary Investment). 191 Accordingly, whether taken separately or collectively, I consider that the Plan and the Conduct satisfy the broad definition of 'scheme' invoked by Div 290. Further, I accept on its face all of the documentation relied upon by the Commissioner to demonstrate the existence of the Plan and the Conduct. Was Either Respondent a 'Promoter'? Section 290-60(1)(a): An Entity That Markets the Scheme or Otherwise Encourages the Growth of the Scheme or Interest in it 192 The first element of the definition of 'promoter' in s 290-60 is that an entity "markets the scheme or otherwise encourages the growth of the scheme or interest in it". I have already found that these words are confined to active promotional activities carried out in respect of a scheme. I do not accept the submissions made by the Commissioner to the effect that development and implementation of a scheme (without more) is encompassed by this phrase. 193 The conduct sought to be relied upon by the Commissioner in his final submissions in respect of one or both respondents under this element of s 290-60(1)(a) includes: (a) formulating the Plan (as evidenced by the notes of the meetings conducted between 29 June and 11 July 2007); (b) applying for and acquiring the woodlots; (c) receiving commission from Gunns; (d) offering the Secondary Investment to the Ludekens Investors, the Van de Steeg Investors and Mrs Ruffato; (e) seeking and obtaining GST refunds in respect of the acquisition of these woodlots by the purported partnership entities; (f) preparing, or arranging the preparation of, draft loan and partnership agreements; (g) preparing, or instructing Coghlan Partners to prepare, financial statements and tax returns for the partnerships (and later, to prepare amended material to address the concerns of the ATO); (h) preparing various material including, for example, the welcome kits (which included the partnership financial statements, partnership tax returns, certificate of investment in the Gunns Woodlot project and Gunns Finance approval letter), and provision of this material to investors for the purposes of (a) obtaining the GST refunds, (b) enabling investors to claim deductions in respect of the woodlot investment and obtain concomitant tax refunds, and/or (c) enabling investors to answer questions asked by the ATO about the relevant scheme; and (i) attempting to get the woodlots transferred from the Smithsons and the Velardis to the Ludekens and Van de Steeg Investors or the respondents. 194 The Commissioner specifically submitted that the Conduct – being the acquisition of woodlots, the offering of the Secondary Investment to investors, and the preparation and delivery to investors of key documents such as partnership financial statements, tax returns and other materials – establishes the relevant promotional activity, as by doing these things, the respondents encouraged the growth of or interest in the Plan. Further, specifically in respect of the Plan, the Commissioner submitted that the respondents encouraged its growth or interest in it by the steps taken to obtain the GST refunds (including the initial acquisition of the woodlots, and applications made for the GST refunds). 195 In light of the conclusions previously reached in respect of the scope of the definition of 'promoter' in s 290-60, I accept the submissions made by counsel for Dr Ludekens that much of what the Commissioner seeks to rely upon as evidence that the respondents were marketing or encouraging the growth of or interest in the Plan or Conduct constitutes mere development or implementation of these schemes. Conduct such as the mere acquisition of woodlots may be relied upon generally to establish that a scheme as defined by the Commissioner existed, but does not of itself enliven the definition of 'promoter' in s 290-60. Accordingly, on this basis, much of the conduct listed in [193] does not need to be considered further. 196 There is potentially a question about whether the preparation and delivery of key material (such as partnership financial documents) to investors over the course of 2007 and 2008 may constitute 'promotion' for the purpose of this section, but, at least in this case, I consider that it does not. The various partnership materials (such as tax returns, financial statements and declaration pages for the investors to sign) were not promotional, but rather, were provided for the express purpose of implementing the scheme after investors had already agreed or decided to participate (for example, to provide the investors and their financial advisers with the material required to submit their 2007 tax returns). The 'welcome kits' may well have enlivened the concept of marketing or encouragement of the growth of the scheme or interest in it were it not for the fact that these materials were distributed to investors only days before their meeting with the ATO about the scheme in November 2007. I find that the purpose of the provision of these materials was not, therefore, to promote the scheme and persuade investors to participate, but rather, to ensure its survival in the face of increasing ATO interest. Although these steps or events may have been integral to the scheme, this does not necessarily mean that they constitute or demonstrate 'promotion' for the purpose of s 290-60. Accordingly, of the list of conduct set out in [193] above, only the offering of the Secondary Investment to investors by both respondents remains for further analysis. 197 Before proceeding with this analysis, I note that in addition to the conduct set out in [193], the Commissioner specifically submitted that Dr Ludekens encouraged interest in the relevant scheme by assisting with Mr Van de Steeg's marketing of the Secondary Investment (and vice versa). Broadly, Dr Ludekens is alleged to have done so by providing various materials to Mr Van de Steeg, either directly or through Mrs Velardi (such as the text of an email previously sent to Dr Love, the welcome kits and various partnership documents). The complementary allegations against Mr Van de Steeg include the fact that he made Mrs Velardi's administrative services available to Dr Ludekens; he assisted Dr Ludekens in determining the allocation of the woodlots on 29 October 2007; he arranged for Mr Lederman (his solicitor) to attend the meetings with the ATO on 29 November 2007; and he offered Dr Ludekens (and, indirectly, the Ludekens Investors) the use of profits from foreign exchange trading through Meloka (which was said to be capable of delivering returns in excess of the interest owing on the woodlot finance). 198 The allegations made in respect of Mr Van de Steeg can be disposed of relatively quickly. As these allegations only appeared in the Commissioner's final submissions after the Commissioner's case had closed (rather than in pleadings, or in the Commissioner's outline of opening submissions filed in February 2012), he should now be permitted to rely on them. 199 The allegations involving Dr Ludekens do not suffer from this same problem, as they were foreshadowed in both the Further Amended Statement of Claim, and in the Commissioner's outline of opening submissions. However, in my opinion, most of the conduct relied upon by the Commissioner in this regard falls into the same category as the conduct discussed above – namely, it is conduct that constituted mere development or implementation of the relevant scheme, rather than marketing or encouragement of its growth of or interest in it as required by s 290-60(1)(a). This leaves for consideration only the email sent by Dr Ludekens to Mr Van de Steeg on 27 July 2007, containing the text of the email (including hyperlinks) that Dr Ludekens had previously sent to Dr Love on 14 June 2007. I have previously concluded that Mr Van de Steeg subsequently sent emails that were in substantially similar terms to both Mrs Ruffato and Mr Webster in August and September 2007 respectively. This email will be considered further below. It is convenient to deal with the specific allegations relating to each respondent in turn. DR LUDEKENS 200 The primary evidence in support of the Commissioner's contention that Dr Ludekens marketed or otherwise encouraged the growth of the Plan or the Conduct (or interest in either of these schemes) is the fact that he offered the Secondary Investment to Mrs Ruffato and to the group referred to by the Commissioner as the "Ludekens Investors". This group comprised Messrs Tregambe and Poon, Dr Love and Ms Richards. I will address the evidence concerning each of these investors in turn. 201 The evidence of Dr Ludekens' meetings and correspondence with Mr Tregambe and Dr Love is set out in the foregoing chronology of events. I consider that Dr Ludekens' conduct in this regard constituted marketing or encouragement of the growth of or interest in the relevant scheme for the purpose of s 290-50(1) (whether the relevant scheme is the Plan or the Conduct or some amalgam of the two). I am satisfied on the basis of the evidence of the witnesses in question that during these interactions, Dr Ludekens explained how the scheme was to operate and the benefits to be obtained by the potential investors, with a view to getting them involved. At this time, Dr Ludekens also provided both the 2006 PDS and PR 2006/8 to Dr Love. It is unclear whether these were also provided to Mr Tregambe, whose recollection was simply that Dr Ludekens provided him with "some documents about the investment and the historical returns of timber plantations". Notwithstanding this uncertainty, I am satisfied that the evidence of these interactions between Dr Ludekens and the potential investors demonstrates that Dr Ludekens engaged in promoter conduct proscribed by s 290-50(1). 202 I reach the same conclusion in respect of Dr Ludekens' meeting with Mrs Ruffato in August 2007, notwithstanding the apparent challenge to her evidence mounted by Dr Ludekens during cross-examination at the hearing. Dr Ludekens suggested during cross-examination that Mrs Ruffato may have been confused when she claimed that he showed her a copy of the 2006 PDS; and submitted that the document that she claimed Dr Ludekens had wanted signed "there and then" may simply have been a client application form for Mrs Ruffato to provide her personal details and express interest in future investments with Dr Ludekens. Under cross-examination, Mrs Ruffato maintained her belief that she had been shown the 2006 PDS at this meeting, but she could not remember the exact detail of the form given to her to sign. On the strength of Dr Ludekens' cross-examination of Mrs Ruffato, counsel for Dr Ludekens submitted that her evidence regarding this meeting was vague, it was not clear which income year Dr Ludekens purportedly discussed with her, and it was possible that Dr Ludekens met with Mrs Ruffato in August 2007 only to discuss "in general terms how the schemes work with future years in mind". 203 By contrast, the Commissioner submitted that having regard to the "overall context" (including the email subsequently sent to Mrs Ruffato from the address "petervandesteeg@thereevagroup.com.au" on 23 August 2007 which referred to an "investment opportunity"; and the fact that Mrs Ruffato was not challenged in her recollection that Dr Ludekens explained that the scheme would involve her paying her income tax refund to him – something that she was loath to do), Dr Ludekens did market the relevant scheme to Mrs Ruffato at the time. Dr Ludekens declined to formally give or lead evidence on his own behalf in this proceeding. In a situation where a witness's evidence stands mostly intact, mere submissions (whether provided in writing after the hearing, or made from the Bar table) containing assertions to the contrary may not be sufficiently probative to carry the day. Accordingly, I accept the Commissioner's submissions on this issue, and I am satisfied that Dr Ludekens did market the scheme to Mrs Ruffato at the relevant time. 204 In respect of Mr Poon and Ms Richards, the Commissioner submitted that the Court may infer that Dr Ludekens marketed the Secondary Investment to these investors, as each signed partnership materials prepared in respect of this investment. I am prepared to draw that inference. However, the Commissioner is then confronted with the difficult issue of the timing of this conduct (and the conduct involving Mr Tregambe and Dr Love) on which he seeks to rely. 205 As will be apparent from the foregoing chronology of key events, to the extent that dates have been established for Dr Ludekens' promotion of the relevant scheme to the Ludekens Investors, they all appear to fall before 27 June 2007. To this end: (a) The Commissioner concedes that the evidence is not clear when it comes to the precise dates on which Dr Ludekens spoke with Messrs Tregambe and Poon, and Ms Richards. In respect of Ms Richards and Mr Poon, the signed partnership materials that form the basis for the inference that the Commissioner seeks to have the Court draw are dated 30 March 2007 and 19 June 2007 respectively. Mrs Velardi gave evidence that she prepared these materials in "late 2007", Dr Ludekens approved them and instructed her that clients were not to date the relevant documents when signing. Neither Mr Poon nor Ms Richards gave evidence at the hearing. The Further Amended Statement of Claim does not particularise when Dr Ludekens proposed the relevant scheme to Ms Richards, but it does allege that Dr Ludekens discussed investment in the relevant scheme with Mr Poon at social occasions in the first half of 2007. (b) Dr Ludekens' meeting with Mr Tregambe occurred "[s]ome time around the first half of 2007". (c) Dr Ludekens' telephone and email correspondence with Dr Love occurred on 13 and 14 June 2007. 206 Only Dr Ludekens' meeting with Mrs Ruffato appears to have occurred after 27 June 2007. This meeting occurred in August 2007, after being rescheduled several times from June 2007. I have already concluded that this meeting constituted marketing or encouragement of the growth of or interest in the relevant scheme. On this basis, I am satisfied that Dr Ludekens satisfies the first limb of the definition of 'promoter'. In respect of the conduct occurring prior to 27 June 2007 concerning Messrs Tregambe and Poon, Ms Richards and Dr Love, it will be recalled that the terms of s 290-55(4) stipulate that the Commissioner must not bring an application under s 290-50 more than four years after the entity last engaged in conduct that resulted in that entity or another entity being a promoter of the scheme. Accordingly, to be able to rely on the conduct involving the Ludekens Investors, the Commissioner needs to show that Dr Ludekens' marketing of the scheme to Mrs Ruffato satisfies all elements of the definition of 'promoter' in s 290-60. As will shortly become apparent, the Commissioner has not been able to discharge this burden to the satisfaction of the Court. I find, therefore, that the Commissioner may not rely on the conduct relating to the Ludekens Investors that occurred prior to 27 June 2007. 207 This leaves only the outstanding issue of the email sent by Dr Ludekens to Mr Van de Steeg on 27 July 2007, which reproduced the text of the email (plus hyperlinks) that Dr Ludekens had previously sent to Dr Love. The Commissioner relies on this as evidence that Dr Ludekens encouraged interest in the relevant scheme by assisting Mr Van de Steeg in his marketing of the Secondary Investment. I have found that Mr Van de Steeg did, in fact, send emails in substantially similar terms to both Mrs Ruffato and Mr Webster in August and September 2007 respectively. It might be thought that this conduct would be better incorporated into an argument that Dr Ludekens engaged in conduct that resulted in another entity being a promoter of a tax exploitation scheme for the purpose of s 290-50(1) (about which more will be said later in these reasons for judgment). But that is not how this point was put by the Commissioner. There is no doubt that the emails subsequently sent by Mr Van de Steeg constitute 'marketing' for the purpose of s 290-60(1). They purport to offer a summary of the "investment opportunity" that is the Secondary Investment, and – after setting out the way in which this investment is intended to operate – invite further discussion with Mr Van de Steeg after the recipient has considered the information therein. Hyperlinks to the 2006 PDS and PR 2006/8 were also provided. Accordingly, I find that by providing Mr Van de Steeg with the template for these emails, Dr Ludekens encouraged the growth of the relevant scheme as submitted by the Commissioner. 208 There are, therefore, two types of conduct that the Commissioner may rely upon in respect of Dr Ludekens that satisfy the first limb of the definition of 'promoter': his provision of the promotional email to Mr Van de Steeg on 27 July 2007, and his meeting with Mrs Ruffato in August 2007. For the reasons that follow, however, neither of these examples of conduct by Dr Ludekens satisfies the remaining elements of the definition. MR VAN DE STEEG 209 In support of the contention that Mr Van de Steeg marketed or otherwise encouraged the growth of the Plan or the Conduct (or interest in either of these schemes), the Commissioner principally relies upon the fact that Mr Van de Steeg offered the Secondary Investment to Mrs Ruffato and to the group referred to by the Commissioner as the "Van de Steeg Investors". This group comprised Messrs Crowe, Martino and Berlowitz, and Ms Gibson. 210 With the exception of Mr Van de Steeg's conversation with Mrs Ruffato – which she gave evidence occurred "in about June 2007", and about which more will be said in due course – all of the conduct relied upon by the Commissioner in respect of this respondent occurred after 27 June 2007. Accordingly, it does not suffer from the same time limit issue under s 290-55(4) that so afflicts the Commissioner's case in respect of Dr Ludekens. 211 Mr Van de Steeg's meetings with Messrs Crowe and Martino (and Mr Martino's accountants) and Ms Gibson clearly occurred after 27 June 2007. The evidence of these witnesses was not challenged insofar as their general recollections of the meetings with Mr Van de Steeg went. For example, although Mr Van de Steeg specifically challenged Ms Gibson and Mr Crowe's recollections that he provided them with the 2006 PDS at their respective meetings with him, there was no dispute – for example – as to the fact that Mr Van de Steeg met with these witnesses at around the time alleged, and discussed with them the Secondary Investment. Regrettably, the presence or absence of the 2006 PDS at these meetings was an issue with which the respondents were preoccupied during their examination of various witnesses during the hearing, but which is ultimately of little import to my current task. One does not necessarily need to show a PDS to potential investors to be marketing or encouraging the growth of or interest in a scheme – particularly when it is conceded that key elements of the relevant scheme were explained at those meetings (as was frequently the case during Mr Van de Steeg's cross-examination of these witnesses). I am satisfied on the evidence before me that Mr Van de Steeg was actively marketing the relevant scheme to these individuals at this time. The promotion of the scheme to Mr Martino was cemented by the email subsequently sent to Mr Webster in September 2007 (which, I have already found, constituted marketing or encouragement of the growth of or interest in the relevant scheme for the purpose of s 290-60(1)(a), as did the equivalent email sent to Mrs Ruffato in August 2012). 212 In respect of Mr Berlowitz, the Commissioner seeks that similar inferences be drawn as for Ms Richards and Mr Poon in respect of Dr Ludekens – namely, that Mr Van de Steeg must have marketed the Secondary Investment to Mr Berlowitz, as he signed partnership materials prepared for investors in the Secondary Investment. The partnership application signed by Mr Berlowitz is dated 16 May 2007. However, as previously noted, Mrs Velardi gave evidence that this document was created in late 2007. This is another situation where, as Mr Van de Steeg did not give or lead evidence on the issue, I am prepared to draw the inference sought. 213 On the strength of the foregoing, I am satisfied that the Commissioner has made out the first limb of the definition of 'promoter' in respect of Mr Van de Steeg's meetings with all of the Van de Steeg Investors, and the email sent to Mrs Ruffato in August 2007. All of this conduct postdates 27 June 2007. The only conduct relied upon by the Commissioner in respect of Mr Van de Steeg that occurred prior to 27 June 2007 is the telephone conversation he had with Mrs Ruffato in June 2007. It was claimed that during this telephone conversation, Mr Van de Steeg encouraged Mrs Ruffato to meet with Dr Ludekens to discuss the Secondary Investment with a view to her participating in it. This evidence of Mrs Ruffato was not challenged by Mr Van de Steeg during cross-examination. In the circumstances, this appears to be conduct that encourages the growth of or interest in the relevant scheme – Mr Van de Steeg may not have delivered the 'final pitch' to Mrs Ruffato, but he laid the groundwork for Dr Ludekens to do so. 214 The question then is whether, given the timing of this conduct and the strictures imposed by s 290-55(4), the Commissioner may now rely upon it. 215 Mrs Ruffato gave evidence that this telephone conversation occurred "in about June 2007", prior to receiving a telephone call from Dr Ludekens. As Mrs Ruffato sent an email to Dr Ludekens on 14 June 2007 confirming an appointment for 28 June 2007 (an event which, she gave evidence, only occurred after receiving the initial telephone calls from both respondents), I am satisfied that Mr Van de Steeg's conversation with Mrs Ruffato occurred prior to 27 June 2007. To be able to rely on this conduct as evidence against Mr Van de Steeg under s 290-50(1), the Commissioner must demonstrate that all of the elements of the definition of 'promoter' are satisfied in respect of one or more instances of promoter conduct engaged in by Mr Van de Steeg after 27 June 2007. As will shortly become apparent, I am satisfied that the Commissioner has done so in respect of the conduct involving Mr Crowe. The Commissioner is, therefore, entitled to rely on the conduct involving Mrs Ruffato that predates 27 June 2007. Section 290-60(1)(b): The Entity (or an Associate Thereof) Receives (Directly or Indirectly) Consideration in Respect of That Marketing or Encouragement 216 Having demonstrated that both respondents marketed the relevant scheme (or otherwise encouraged its growth or interest in it) and thus satisfy the first limb of the definition of 'promoter' in s 290-60, the Commissioner must also establish that one or both of them received (either directly or indirectly) consideration in respect of that marketing or encouragement. 217 As previously alluded to, the consideration relied upon by the Commissioner in this regard is threefold: (a) Commission received from Gunns in respect of the acquisition of woodlots. As previously set out, Lotus received $3,324,750 from Gunns on 12 July 2007. I am satisfied that Lotus was an 'associate' of Dr Ludekens for the purpose of s 290-60, as Dr Ludekens held a majority voting interest in this company at the relevant time, being the sole director and shareholder. Of this amount, $3,000,000 was paid by Lotus to Meloka on 16 July 2007. Although the evidence before me is that Mr Van de Steeg owned Meloka jointly with Mr Ezzy, s 318 of the ITAA36 provides that an entity will be considered to be an associate of Mr Van de Steeg if it is a company that is "sufficiently influenced by" him. Mr Crouch gave evidence (that was not challenged in cross-examination) that for the accountancy or financial work he carried out in respect of Meloka, he took his instructions solely from Mr Van de Steeg. He further observed that "Jonathan Ezzy did not have an active role in the company and it was Peter who made the decisions". On this basis, I am prepared to accept that Meloka was an 'associate' of Mr Van de Steeg for the purpose of this analysis. (b) GST refunds received from the ATO in respect of the acquisition of woodlots. As previously set out, GST refunds totalling $2,015,000 were paid to Lotus in January 2008. Of this amount, $2,003,000 was forwarded to Ty-Tia. This is a company of which, at the relevant time, Mr Van de Steeg and his wife were both directors and shareholders. It is not clear from the evidence before me what proportion of shares each held at the relevant time, and whether one held a majority voting interest. However, for the reasons that follow, this is ultimately of little import. (c) Tax refund promises made by investors. The third type of consideration alleged by the Commissioner is promises obtained by the respondents from the Ludekens and Van de Steeg Investors to the effect that these investors would pay the income tax refunds they expected to receive by proceeding with the Secondary Investment to the respondents. These were referred to by the Commissioner as the 'Ludekens tax refund promises' and the 'Van de Steeg tax refund promises', respectively. 218 A further element of consideration is relied upon in respect of Mr Van de Steeg alone, being the income tax refund received by Meloka from Mr Crowe in February 2008. 219 Taking first the commission and GST refunds alleged to have been received by both respondents, I note that to succeed under this limb of s 290-60, the Commissioner is required to demonstrate that this consideration has been received in respect of the marketing or encouragement that has already been found to exist under the first limb of that provision. Accordingly, in the case against Dr Ludekens, the Commissioner must show that this consideration was received in respect of his encouragement of the growth of or interest in the scheme (effected by the promotional email sent to Mr Van de Steeg on 27 July 2007), and his marketing of the relevant scheme to Mrs Ruffato in August 2007. In the case against Mr Van de Steeg, the Commissioner must show that the consideration was received in respect of his marketing or encouragement of the growth of (or interest in) the relevant scheme in respect of one or more of Messrs Crowe, Martino and Berlowitz, Ms Gibson and Mrs Ruffato. For the following reasons, I am not persuaded that the Commissioner has done so in respect of the consideration comprising the commission and the GST refunds. 220 As previously concluded, the words 'in respect of' require a material connection between the consideration (however received, whether directly or indirectly) and the marketing or encouragement in question. There is no such connection between the commission and GST refunds received and the marketing or encouragement carried out by the respondents. Rather, the commission was paid by Gunns to Lotus because application forms relating to approximately $20m worth of woodlots were submitted. Similarly, the GST refunds were paid in respect of the acquisition of the woodlots and the input tax credits relating thereto that were claimed by the purported partnerships. This much is expressly acknowledged by the Commissioner in his submissions (apparently on the assumption that the acquisition of woodlots in and of itself constitutes marketing or encouragement for the purpose of the first limb of the definition of 'promoter' – a proposition that I have not accepted in this proceeding). On the construction of the phrase "markets the scheme or otherwise encourages the growth of the scheme or interest in it" that I have adopted in these reasons, I consider that these payments were made regardless of any marketing or encouragement of the relevant scheme (whether this constitutes the Plan, the Conduct or a combination of the two) undertaken by the respondents. Accordingly, I find that the Commissioner has failed to make out the requisite connection between marketing and encouragement and these two categories of consideration relied upon. In light of this conclusion I find it unnecessary to address the parties' arguments about whether the respondents retained the consideration received (although I venture to comment that this is not an express requirement of the provision in question). 221 Turning to the third category of consideration relied upon – the 'tax refund promises' – 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. But that is not the fundamental problem with the third category of consideration relied upon by the Commissioner. As submitted by counsel for Dr Ludekens, the Ludekens tax refund promises were not specifically pleaded by the Commissioner in the most recent iteration of the pleadings (the Further Amended Statement of Claim), or expressly relied upon in the Commissioner's opening outline of submissions filed in February 2012. Nor were the Van de Steeg tax refund promises. Further, when counsel for the Commissioner opened the applicant's case, she stated: And as I've already indicated, your Honour, we say that the relevant consideration is the Commission and the GST refunds. 222 The tax refund promises as consideration were relied upon for the first time in the Commissioner's final submissions, filed after both the Commissioner and the respondents' cases had closed. Counsel for Dr Ludekens submitted that his client has suffered prejudice as a result, as Dr Ludekens ran his case on the basis of the Commissioner's pleadings and opening address. It was further submitted that had it been known that the Ludekens tax refund promises were relied upon, there might have been the ability to cross-examine certain witnesses on the nature of the promises allegedly made. Alternatively, one or both of the respondents might have chosen to give evidence themselves, or to call Mr Poon or Ms Richards to give evidence. No submissions were made by Mr Van de Steeg specifically on this point, but it may be imagined that he would feel similarly aggrieved. 223 For all of these reasons, it would be procedurally unfair for the Commissioner to now be permitted to rely on the Ludekens and Van de Steeg tax refund promises as consideration received by the respondents under s 290-60. Accordingly, I will not permit them to do so. 224 This conclusion has severe implications for the Commissioner's case, as it leaves the Commissioner with no consideration which could be said to have been received by Dr Ludekens in respect of either the promotional email sent to Mr Van de Steeg in July 2007, or his meeting with Mrs Ruffato in August 2007. Apart from his reliance on the commission and GST refunds received, no particular type of consideration was alleged to have been received by Dr Ludekens specifically in respect of either of these examples of promoter conduct. However, even if the Commissioner had submitted that there were tax refund promises (or similar) attaching to this conduct, for the reasons I have already explained, I would not permit him to do so at this stage of the proceeding. It is also on this basis that, even if I had permitted the Commissioner to rely on the evidence relating to Messrs Tregambe and Poon, Ms Richards and Dr Love that predates 27 June 2007, his case against Dr Ludekens would fail. Having dismissed the arguments relating to the commission and GST refunds received, this leaves only the impugned tax refund promises to be relied upon as consideration for the purpose of s 290-60(1)(b). 225 The same can be said for Mr Van de Steeg's marketing or encouragement of the growth of or interest in the relevant scheme insofar as it relates to Messrs Berlowitz and Martino, Ms Gibson and Mrs Ruffato. Again, no specific argument was made by the Commissioner about consideration alleged to have been received by Mr Van de Steeg in respect of the conduct involving Mrs Ruffato. But I am satisfied for the foregoing reasons that the tax refund promises specifically alleged to relate to the promoter conduct involving Messrs Berlowitz and Martino and Ms Gibson cannot now be relied upon. 226 Accordingly, the Commissioner has failed to make out this element of the definition of 'promoter' in respect of any of the conduct concerning Dr Ludekens, and the conduct involving Messrs Berlowitz and Martino, Ms Gibson and Mrs Ruffato in respect of Mr Van de Steeg. 227 This brings us to the consideration alleged to have been received by Mr Van de Steeg alone – namely, Mr Crowe's tax refund. This tax refund resulted from the deductions claimed in Mr Crowe's 2007 income tax return in respect of the acquisition of the woodlots. I find that this amount was consideration directly received by Mr Van de Steeg's associate, Meloka, in respect of Mr Van de Steeg's marketing of the relevant scheme to Mr Crowe. Accordingly, the second limb of the definition of 'promoter' under s 290-60 is satisfied in respect of Mr Van de Steeg. This conclusion obviates the need for the Commissioner to rely on the tax refund promise allegedly given by Mr Crowe to Mr Van de Steeg (which I would not permit, for the reasons previously set out). Section 290-60(1)(c): The Entity Has Had a Substantial Role in Respect of That Marketing or Encouragement 228 In light of the Commissioner's failure to demonstrate the requisite consideration in respect of Dr Ludekens, it is unnecessary to consider how this final element of the definition of 'promoter' might apply to him. 229 The question then is whether it is reasonable to conclude that Mr Van de Steeg played a substantial role in respect of the marketing or encouragement of the relevant scheme carried out in respect of Mr Crowe. In determining this issue, the provision states that the Court is to have regard to "all relevant matters". 230 It is important to note that in s 290-60(1)(c), the 'substantial role' requirement is expressly linked to "that marketing or encouragement" that is the subject of s 290-60(1)(a) and (b). It is not sufficient to demonstrate that an entity has simply had a substantial role in respect of the scheme in general. Of this requirement, the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth) makes the following comments (emphasis in original): 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. 231 In the circumstances, I consider that it is reasonable to conclude that Mr Van de Steeg had a substantial role in respect of the marketing of the relevant scheme carried out in respect of Mr Crowe. There is no evidence before me that Dr Ludekens (or indeed, anyone else) played any real role in this marketing of the relevant scheme. Indeed, Mr Crowe gave evidence that he had never met Dr Ludekens. Having invested with Mr Van de Steeg in the past, Mr Crowe was Mr Van de Steeg's client. Mr Crowe appears to have exclusively met with and received information regarding the relevant scheme from Mr Van de Steeg. Accordingly, I find that s 290-60(1)(c) is satisfied in respect of this conduct. 232 In the circumstances, the Commissioner has demonstrated that – other than the requirement that the scheme promoted be a 'tax exploitation scheme', which is discussed further below – Mr Van de Steeg satisfies the definition of 'promoter' under s 290-60. 233 The Commissioner has, however, failed to do so in respect of Dr Ludekens. This is sufficient to merit disposal of the case brought against Dr Ludekens under s 290-50(1) in his favour. However, despite this conclusion, as this is the first case brought under Div 290 of the TAA, it is appropriate for me to continue with my analysis of the Commissioner's case in respect of both respondents. Was the Plan or the Conduct a 'tax exploitation scheme'? 234 The next question is whether the Plan or the Conduct (either separately, or in combination) constitute a 'tax exploitation scheme'. 235 It will be recalled that this is to be determined by reference to the criteria set out in s 290-65. Accordingly, the Plan and the Conduct will each constitute a tax exploitation scheme if, at the time of the conduct referred to in s 290-50(1): (a) it is reasonable to conclude that an entity that (alone or with others) 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; and (b) it is not reasonably arguable that the scheme benefit is available at law. 236 It will also be recalled an entity gets a scheme benefit for these purposes if 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 if 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 (s 284-150). 237 The Commissioner submitted that it is "reasonable to conclude that the respondents entered into the Plan with the sole or dominant purpose of getting" the following scheme benefits: (a) for investors in the Secondary Investment: a reduced income tax liability (or increased income tax refund); and (b) for the purported partnership entities that acquired the woodlots: GST refunds in respect of those acquisitions (this scheme benefit relates to the Plan only – not the Conduct). 238 In support of these submissions, the Commissioner pointed to the following facts: (a) the Secondary Investment was to be made from tax savings obtained from deductions claimed by investors in respect of the woodlots; (b) income tax refunds were proposed to comprise "the major part of the fund" to be invested in a foreign exchange trading business, from which loan obligations would also be met; and (c) it was an "integral part of the Plan" that GST refunds obtained in respect of acquisition of woodlots would form part of this investment fund. 239 In respect of the first element of s 290-65, the elements that the Commissioner is required to prove can be expressed in the form of the following questions: (a) do one or more of the reduced income tax liabilities, increased income tax refunds and GST refunds constitute a 'scheme benefit' for the purpose of s 284-150? (b) did the respondents (alone or with others) carry out or enter into the relevant scheme with the sole or dominant purpose of getting themselves (or another entity) such a scheme benefit? 240 These elements are considered in turn. 'Scheme Benefit' 241 I accept that a reduced income tax liability for the investors in the Secondary Investment – secured by way of deductions claimed in respect of the acquisition of woodlots – may constitute a "tax-related liability" for an accounting period under ss 284-150 and 250-10 of the TAA. Similarly, I accept that both an increased income tax refund for these persons, and a GST refund for the entities which acquired the woodlots, may constitute an amount that the Commissioner must pay or credit to an entity under a taxation law (in this case, the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act)) for an accounting period for the purposes of s 284-150. 242 Therefore, in light of the foregoing, to demonstrate the existence of a scheme benefit under s 284-150, the Commissioner must show: (a) in respect of the reduced income tax liability for the investors in the Secondary Investment: that the tax-related liability of one or more of these entities is, or could reasonably be expected to be, less than it would be apart from the relevant scheme (or part thereof); and (b) in respect of the increased tax refunds for the investors in the Secondary Investment, and the GST refunds for the purported partnership entities that acquired the woodlots: that one or both of these amounts are, or could reasonably be expected to be, more than they would be apart from the relevant scheme (or part thereof). 243 The definition of 'scheme benefit' in the TAA is similar to the definition of 'tax benefit' found in s 177C of the ITAA36, which forms part of the general anti-avoidance provisions in Pt IVA. The phrase "is, or could reasonably be expected to be" contained in s 284-150 is similar to the phrase "would have been included, or might reasonably be expected to have been included" found in s 177C. I am prepared to accept that case law on the interpretation and application of s 177C is relevant to the analysis of s 284-150 insofar as it relates to this shared concept. 244 It is well-established in case law relating to s 177C that this phrase requires a comparison to be undertaken between the relevant scheme, and an alternative postulate (Federal Commissioner of Taxation v Hart (2004) 217 CLR 216 at 243 [66]). This alternative postulate requires a "prediction as to events which would have taken place if the relevant scheme had not been entered into or carried out and the prediction must be sufficiently reliable for it to be regarded as reasonable" (Federal Commissioner of Taxation v Lenzo (2008) 167 FCR 255 at 278 [122], citing Federal Commissioner of Taxation v Peabody (1994) 181 CLR at 385; cited with approval in Federal Commissioner of Taxation v Trail Bros Steel & Plastics Pty Ltd (2010) 186 FCR 410 at 418). The question posed by s 177C(1) is to be answered on the assumption that the scheme in question has not been entered into or carried out (Lenzo (2008) 167 FCR 255 at 278 [121], cited with approval in Trail Bros (2010) 186 FCR 410 at 418). 245 Demonstrating what might have occurred in the absence of a scheme can be done in different ways. In Lenzo (2008) 167 FCR 255, Sackville J (with whom Heerey and Siopsis JJ agreed), noted some examples relevant to this inquiry under s 177C (at 279): The Court must consider, in the absence of the scheme, what activity the taxpayer would have undertaken. The taxpayer can satisfy the onus of showing that he or she has not obtained a tax benefit in connection with a scheme if: • he or she would have undertaken or might reasonably be expected to have undertaken a particular activity in lieu of the scheme; and • the activity would or might reasonably be expected to have resulted in an allowable deduction of the same kind as the deduction claimed by the taxpayer in consequence of the scheme. 246 Despite the fact that s 177C is not in identical terms to ss 284-150 and 290-65 of the TAA, I find these principles to be instructive. 247 In this proceeding, no alternative postulate was pleaded by the Commissioner in respect of any of the reduced income tax liability, the increased tax refunds or the GST refunds, all of which were submitted to comprise 'scheme benefits' for the purpose of the s 290-65 analysis. Nor was any direct evidence led on what the entities in question (being the investors in the Secondary Investment, and the purported partnership entities that acquired the woodlots) would have done if the relevant scheme had not been entered into or carried out. The result is that the Commissioner has not discharged his burden of proof in respect of what would have happened apart from the relevant scheme. 248 It is not sufficient in the scheme benefit analysis under Div 290 to simply identify a benefit capable of being characterised as a tax-related liability, or an amount that the Commonwealth must pay or credit to an entity. Both elements of the definition of 'scheme benefit' in s 284-150 must be made out. 249 In respect of the reduced income tax liability and increased tax refunds, it cannot simply be assumed that, in the absence of the relevant scheme, the investors in the Secondary Investment would not have undertaken other activities that led to the same reduction in income tax liability or increase in tax refunds. For example, the evidence suggests that Dr Love in particular may have been looking for a tax effective investment in the relevant income year. His evidence was that he was referred to Dr Ludekens by a friend and colleague "in the context of a discussion about investments". It is also possible that Mr Martino might have considered some other way of minimising his tax in the absence of the scheme, as he was liable to capital gains tax after selling an investment property in the 2007 income year. Further, Mr Tregambe gave evidence that Dr Ludekens would often "approach [him] and tell [him] what he [i.e. Dr Ludekens] was doing", as Mr Tregambe was "interested in investments… [and is] always open to discussing new ones". Mrs Ruffato gave evidence that Mr Van de Steeg would "come and visit [their] house or telephone regularly to discuss investment opportunities". Ms Gibson gave evidence that the purpose of the meeting at her home in September 2007 at which Mr Van de Steeg proposed the Secondary Investment was "tax effective investments" in general (and to this end, the corresponding calendar entry in her palm pilot for this meeting was "Meloka and tax effective stuff"). 250 In respect of the GST refunds, again, there is no evidence (and no submissions were made by the Commissioner) about what would have happened in the absence of the relevant scheme. To this end, counsel for Dr Ludekens submitted that the Commissioner has not established that the entities in question would not have entered into some other transaction under which GST refunds would have been clearly and legitimately available. I accept this submission. 251 Accordingly, I am not satisfied that the Commissioner has demonstrated the existence of the scheme benefits alleged for the purpose of s 290-65. However, even if I was prepared to find in favour of the Commissioner on this point, there are further flaws in the Commissioner's argument regarding sole or dominant purpose that preclude an overall determination of this case in favour of the Commissioner. 252 It is somewhat regrettable that the Commissioner in his final submissions referred to the respondents as having both a "dominant purpose of getting for persons making the Secondary Investment a reduced income tax liability or an increased tax refund", and "a dominant purpose of getting for the entities which acquired the Woodlots a payment or credit that would not be available apart from the scheme" (being the GST refunds). In this context, I adopt the comments made by the plurality in Spotless Services (1996) 186 CLR 404 in the context of s 177D of Pt IVA, to the effect that 'dominant' means "that purpose which was the ruling, prevailing, or most influential purpose" (at 416). As both a matter of logic and a matter of law, therefore, an entity cannot have two dominant purposes. 253 However, even assuming that these submissions were put in the alternative, the Commissioner's submissions on this element of the definition of 'tax exploitation scheme' suffer from a more fundamental problem. The Commissioner has relied on the respondents having the required purpose – not the investors who entered into the scheme, which might be considered to be the more usual case to which s 290-65(1)(a)(i) is directed. For the following reasons, the Commissioner's arguments in this regard must fail. 'Sole or Dominant Purpose' 254 The first element of the definition of 'tax exploitation scheme' is that it must be (per s 290-65(1)(a)(i)): 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. 255 In most circumstances, it would seem that the entities who are most likely to be 'entering into' or 'carrying out' a scheme are the scheme participants. To this end, in addressing this requirement of the legislation, the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth) refers to the requirement that it be reasonable to conclude that "participants enter into or carry out the scheme with the sole or dominant purpose of receiving a scheme benefit" (at [3.57]; emphasis added). 256 This proceeding may be thought of as a slightly unusual case, in that the alleged promoters of the scheme – the respondents – also participated in the alleged scheme (in that they were signatories to woodlot applications, and the purported partnership entities were registered in names including theirs). In these circumstances, the respondents can fairly be said to have "entered into or carried out" the relevant scheme (terms which I consider should not be given any restricted meaning in this context) in addition to, and as distinct from, any promoter conduct they may have carried out. However, putting the case solely in this way creates problems for the Commissioner when it comes to the question of the sole or dominant purpose of these parties. 257 Putting aside the Commissioner's failure to make out the elements of the scheme benefits alleged, on the basis of the evidence before me, it cannot be said that the respondents entered into or carried out the scheme (whether that be the Plan, the Conduct, or some combination of the two) at the relevant time with the sole or dominant purpose of getting either the investors in the Secondary Investment, or the purported partnership entities that acquired the woodlots, a scheme benefit. It is difficult to conceive of a case in which the sole or dominant purpose of a scheme promoter will be to obtain a scheme benefit for another entity (rather than to obtain profit for themselves from the marketing and carrying out of the scheme in question). In this context, it is instructive to have regard to the comments of Hill J in Commissioner of Taxation v Sleight (2004) 136 FCR 211, a Pt IVA case involving an investment by Mr Sleight (a taxpayer) in a tea-tree oil agribusiness project. In addition to making arguments under s 177D about the sole or dominant purpose of Mr Sleight in entering into or carrying out the scheme in question, the Commissioner submitted that the promoter of the scheme had a sole or dominant purpose of providing Mr Sleight with a tax benefit. 258 About this submission, Hill J made the following remarks (at 235; Hely J concurring): With respect to the submission of counsel for the Commissioner it is difficult to see why, having regard to the relevant eight factors, the conclusion would be drawn that the promoter entered into or carried out the scheme for the dominant purpose of providing to Mr Sleight a tax deduction. The promoter no doubt was motivated by the profit which the promoter and his or her entities would make. That profit was no doubt dependant upon Mr Sleight and others entering into the scheme. That in turn no doubt depended upon Mr Sleight forming the view that a tax benefit was available to him. However, I do not think that it would be concluded that the promoter or associated entities entered into or carried out the scheme for the dominant purpose of Mr Sleight obtaining tax deductions. 259 I consider that in this case, having regard to the manner in which the respondents entered into or carried out the relevant scheme, it is reasonable to conclude that the ruling, prevailing, or most influential purpose of the respondents was to make a profit, or to otherwise benefit themselves. This is not to say that a purpose of each of the respondents was not to secure reduced income tax liabilities and increased tax refunds for the investors in the Secondary Investment, and GST refunds for the entities acquiring the woodlots. Certainly, such aspects of the scheme were important – after all, the GST refunds and tax refunds were to form part of a fund to be invested in foreign exchange trading, the profits of which would in part be used to meet loan obligations. But on the facts, it cannot be said that getting these purported scheme benefits for the Secondary Investment investors and the entities acquiring the woodlots was the sole or dominant purpose of the respondents. 260 In so concluding, I do not consider that I fall into the trap of the false dichotomy warned of by the High Court in Spotless Services (1996) 186 CLR 404 – namely, to ignore the fact that a person may enter into a scheme (in that case, being a scheme under s 177D) with the dominant purpose of enabling the relevant taxpayer to obtain a tax benefit in circumstances where that purpose is entirely consistent with the pursuit of commercial gain in the course of carrying on a business (at 415). In this case, the purported scheme benefits did not directly benefit either of the respondents. It is not sufficient for the Commissioner to simply submit that the effectiveness of the scheme depended on the investors obtaining tax refunds or successfully claiming deductions to reduce their income tax liability; or on the purported partnerships securing their GST refunds (however true this may be). Nor is it sufficient to simply assert that it was proposed that income tax refunds would comprise a major part of the fund for investment in a foreign exchange trading business, or that the GST refunds were an "integral part" of the Plan. It must be possible, on the evidence, to reasonably conclude that this was the sole or dominant purpose of the entity in question. The Commissioner has not been able to discharge this burden, and accordingly, his case against the respondents must fail. This conclusion does not change depending on whether it is the Plan or the Conduct (or some combination of the two) that is invoked for the purpose of the analysis. 261 In reaching this conclusion, I have placed little weight on the evidence given from the Bar table by the respondents during the hearing to the effect that their intention of entering into or carrying out the scheme was to acquire woodlots on behalf of their families, and benefit from the income stream once the trees were harvested. In final submissions, counsel for Dr Ludekens pointed to the fact that Dr Ludekens (together with his family trust) retained interests in woodlots worth more than $8m, whilst Mr Van de Steeg (along with his associate, Ty-Tia) retained approximately $5m of woodlots. Counsel submitted that the value of the woodlots retained by the respondents far outweighed the value of any scheme benefits the investors or the entities acquiring the woodlots could have received, further suggesting the implausibility of the sole or dominant purpose contended for by the Commissioner. This may be true, but I decline to place any substantial weight on what is effectively unsworn evidence given in circumstances where each respondent elected not to give or lead evidence on his own behalf. 262 On the subject of what the respondents may have subjectively intended to achieve, I note that – unlike the situation under s 177D – the Court's inquiry into purpose under s 290-65 is not constrained by a list of enumerated factors. An inquiry into subjective intention may therefore be permissible under this section (contra s 177D: Commissioner of Taxation v Hart (2004) 217 CLR 216 at 243). However, in the absence of formal evidence of this nature in this proceeding, it is unnecessary for me to ultimately determine this point. 'Not Reasonably Arguable That the Scheme Benefit Would be Available at Law' 263 The second element of the definition of 'tax exploitation scheme' in s 290-65 is that it is not reasonably arguable that the scheme benefit in question is available at law. Again, in light of the foregoing conclusions (particularly the conclusion that no scheme benefit has been established by the Commissioner in this case), it is strictly unnecessary to consider this requirement. However, I make the following brief comments. 264 The Commissioner submitted that it was not reasonably arguable, at the time of the conduct referred to in s 290-65, that: 1. a reduced income tax liability or increased tax refund was available at law to persons making the Secondary Investment; and 2. relevantly to the Plan, GST refunds relating to input tax credits arising on acquisition of the woodlots were available to the entities which made the acquisitions. 265 The Explanatory Memorandum cautions that "[t]he test of whether it is reasonably arguable that a scheme benefit is available at law is applied when the promoter's conduct takes place, and not with the benefit of hindsight once the review and appeal rights for scheme participants have been exhausted". 266 In support of his argument that it was not reasonably arguable that the reduced income tax liabilities and increased income tax refunds were available at law to the investors in the Secondary Investment, the Commissioner relied on that part of PR 2006/8 that governs the application of the product ruling to various entities. 267 Paragraph 61 states that PR 2006/8 applies only to "a Grower who is accepted to participate in the Project on or before 30 June 2007 as a '2007 Grower' and who has executed a Management Agreement and either an Agreement to Grant a Sub-Forestry Right or a Sub-Forestry Right Deed on or before that date". 268 It further states at [68] that "[a] Grower who is accepted to participate in the Project on or before 30 June 2007 may claim tax deductions, on a per Woodlot basis, under section 8-1 of the ITAA 1997" for various revenue expenses identified in that paragraph. Paragraph 63 notes that a Grower is not eligible to claim any tax deductions until the Grower's application to enter the Project is accepted and the Project has commenced. 269 The Commissioner submitted that the investors in the Secondary Investment were not accepted to participate in the 2006 Gunns Woodlot Project prior to 30 June 2007 (or in fact, at any time). To this end, the Commissioner pointed to the fact that these investors never signed the agreements that are the subject of PR 2006/8, incurred fees relating to this project or commenced the carrying on of a business of primary production. Accordingly, they were not entitled to claim deductions in the 2007 income year. The Commissioner submitted that as a result, it was not reasonably arguable at the relevant time that the purported scheme benefits (being the reduced income tax liabilities, and increased income tax refunds) were available at law to the investors in the Secondary Investment. 270 In response, counsel for Dr Ludekens sought to differentiate between the investors who committed to the Secondary Investment prior to the end of the 2007 income year, and those who did not. In respect of the former class of investors (which was said to be the only class of investors relevant to the case against Dr Ludekens), it was submitted that it was reasonably arguable that a tax deduction was available, notwithstanding that these investors did not sign the Gunns Woodlot project application form and other documents required under PR 2006/8. Submissions to this end included the assertion that an investor could have been a member of a partnership for which the signatories on the application form acted as nominees or agents. Alternatively, there could have been a partnership in the general law sense of persons carrying on a business with a view to profit (or in receipt of ordinary income and statutory income jointly), in which case the benefits and obligations of investing in the 2006 Gunns Woodlot Project would have rested with those partners, rather than with the nominees or agents who physically signed the applications. It was further alleged that investors might have agreed to purchase the woodlots from the original applicants and take over responsibility for the loans from Gunns Finance, which would be followed by assignment of the woodlots to those investors (with the consent of Gunns). 271 In respect of the GST refunds, the Commissioner submitted that s 11-20 of the GST Act provides that "you" (defined as "entities generally: see s 195-1 of that Act) "are entitled to the input tax credit for any creditable acquisition you make". However, an entity is only entitled to input tax credits for acquisitions made in carrying out an enterprise: see ss 11-5, 11-15 and 11-20 of the GST Act. The definition of "entity" includes a partnership. As previously set out, 'partnership' is in turn defined in s 995-1 of the ITAA97 as: (a) an association of persons (other than a company or a limited partnership) carrying on business as partners or in receipt of ordinary income or statutory income jointly; or (b) a limited partnership. 272 The Commissioner submitted that the entities acquiring the woodlots were not entitled to GST refunds because: (a) the signatories to the woodlot applications were not in fact partners, despite being treated as such by the respondents in their applications to the ATO for GST refunds; and (b) even if found to be 'entities' for the purpose of the GST Act, the purported partnerships were not carrying out an enterprise for the purpose of that Act. 273 Counsel for Dr Ludekens made submissions in response on two bases. The first was that after suspending payment of the GST refunds in order to conduct an audit that ran for approximately five months, the Commissioner in fact paid the GST refunds in or about January 2008 (a fact which, it was submitted, implies that the refunds were available at law; and is incongruous with the Commissioner's present position). 274 Secondly, it was submitted that the Commissioner's analysis of the concepts of 'entity' and 'enterprise' was flawed. First, in that the signatories to the woodlot applications (and in whose names the purported partnership entities were registered) could be considered to be a partnership in the form of "an association of persons… in receipt of ordinary income or statutory income jointly", as they jointly owned income-producing property (Commissioner of Taxation v McDonald (1987) 15 FCR 172 at 182-183 was cited in support of this proposition). Secondly, in that rather than the appropriate definition of 'enterprise' being "an activity, or series of activities, done in the form of a business" as alleged by the Commissioner under s 9-20(1)(a) of the GST Act, a more appropriate choice of definition was that contained in s 9-20(1)(b) – being "an activity, or series of activities, done in the form of an adventure or concern in the nature of trade". 275 Without needing to ultimately determine this issue for the reasons I have previously given, it seems to me that in the circumstances, the Commissioner has shown that it was not reasonably arguable that the scheme benefits were available at law. But of course, this does not surmount the Commissioner's failure to make out the other aspects of the definition of 'tax exploitation scheme' in his case against the respondents, and hence does not affect my ultimate conclusion in this proceeding. An entity must not engage in conduct that results in another entity being a promoter 276 It is appropriate at this stage, before turning to consider the Commissioner's case against each of the respondents under s 290-50(2), to briefly make mention of the Commissioner's assertion in his final submissions that the respondents may be liable under s 290-50(1) on account of each having engaged in conduct that resulted in the other being a promoter of a tax exploitation scheme. 277 The Commissioner did not make any substantive submissions in support of this point. It was not specifically pleaded in the Further Amended Statement of Claim. Nor was it articulated by counsel for the Commissioner during the opening address at the hearing. Accordingly, and for the avoidance of doubt, I do not consider that the Commissioner can be permitted to rely, at this stage of the proceeding, on these allegations. However, I make the following observations. 278 Of this aspect of s 290-50(1), the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth) states (at [3.20]-[3.21]): the proscription states that an entity must not engage in conduct that would result in another entity being a promoter of a tax exploitation scheme. This proscription does not apply to conduct that is merely peripheral to the conduct that makes the second entity a promoter. There needs to be a degree of active engagement by an entity in causing another entity to be a promoter. The conduct of the entity must result in the second entity satisfying each of the elements of the term 'promoter' in subsection 290-60(1). For example, as corporations and other nonindividual entities usually require individuals to act for them, those individuals must not take decisions that result in the entity being a promoter of a tax exploitation scheme. For example, a managing director of a company or partner in a partnership could trigger the provision by taking decisions that result in the company or partnership being a promoter of a tax exploitation scheme. This approach is important as an individual may operate through another entity in promoting a tax exploitation scheme. Subsection 290-50(1) therefore enables the Commissioner to take action against the individual in these cases. This ensures that individual promoters cannot use a business structure with minimal assets to avoid liability for the penalty. The mechanism also enables the Commissioner to apply for a penalty against a key person promoting a tax exploitation scheme from within a larger entity. However the intention is not to make employees who merely carry out actions as lawfully directed by their arms' length employer responsible for the employer's actions. 279 Despite the fact that the key example invoked in the Explanatory Memorandum is that of individuals acting through corporate entities, it is not suggested that this aspect of s 290-50(1) is confined to such situations. But in order to successfully make such an argument, the Commissioner would need to demonstrate that the conduct of one respondent has "resulted in" the other being a promoter – words which would seem to require a direct causal link between the two. It is questionable whether such a link could be established in this case. However, as this was not an argument formally pressed by the Commissioner, it is not necessary for me to ultimately determine this issue. Section 290-50(2) – "Implementing scheme otherwise than in accordance with ruling" 280 Quite independent from the allegations made under s 290-50(1), the Commissioner submitted that the respondents contravened s 290-50(2) by engaging in conduct that resulted in a scheme that was promoted on the basis of conformity with a product ruling being implemented in a materially different way from that described in that ruling. 281 The Commissioner's submissions in respect of s 290-50(2) can be summarised as follows: (a) the 2006 Gunns Woodlot Project and/or the Secondary Investment were promoted on the basis of conformity with PR 2006/8; (b) the tax outcome for participants in the Secondary Investment was materially different from the tax outcome described in PR 2006/8; and (c) accordingly, by the steps each respondent took to carry the Secondary Investment into effect, each engaged in conduct that resulted in the scheme that was promoted on the basis of conformity with PR 2006/8 (whether that be the 2006 Gunns Woodlot Project, or the Secondary Investment) being implemented in a materially different way from that described in PR 2006/8. 282 It was also submitted that a further breach of s 290-50(2) was committed in respect of the acquisition of the Gunns woodlots using the signatures of the Smithsons and the Velardis. 283 I accept for the purpose of this analysis that both the 2006 Gunns Woodlot Project and the Secondary Investment may constitute a 'scheme' for the purpose of this provision. I will address the submissions relating to the 2006 Gunns Woodlot Project, the Secondary Investment in turn, and the acquisition of woodlots using the signatures of the Smithsons and the Velardis. The 2006 Gunns Woodlot Project 284 In order to succeed under s 290-50(2) in respect of the 2006 Gunns Woodlot Project, the Commissioner is required to demonstrate that one or both of the respondents engaged in conduct that resulted in the 2006 Gunns Woodlot Project (being a scheme that has been promoted on the basis of conformity with a product ruling, namely, PR 2006/8) being implemented in a way that is materially different from that described in PR 2006/8. 285 It will be recalled that the note to s 290-50(2) provides that a scheme is not implemented in a materially different way from that described in a product ruling if the tax outcome for participants in the scheme is the same as that described in the ruling. 286 As a preliminary matter, I accept for the purpose of this analysis that PR 2006/8 satisfies the definition of "product ruling" provided by s 995-1 of the ITAA97. Entitled "Income Tax: Gunns Plantations Limited Woodlot Project 2006 '2007 Growers'", it was made on and applied prospectively from 8 March 2009. I am also prepared to accept that Gunns promoted the 2006 Gunns Woodlot Project by reference to this ruling and the 2006 PDS, which bore a logo on its front cover in the form of a seal with the words "Australian Taxation Office Product Ruling No. 2006/7 – 2006/8" on it. The text of the 2006 PDS also made reference to PR 2006/8 – for example, it advised prospective investors that the project had been issued with PR 2006/8, and referred them to the Gunns website for a copy of that ruling. Further, amongst the risks associated with participating in the 2006 Gunns Woodlot Project listed in the 2006 PDS is the possibility of disallowance of tax deductions "in the event that the Project is not operated in accordance with the product ruling". There is no indication in s 290-50(2) that the entity accused of implementing the scheme in a materially different way must also be the one that promoted the scheme on the basis of conformity with a product ruling. Accordingly, I accept that the 2006 Gunns Woodlot Project was promoted by Gunns on the basis of conformity with PR 2006/8. So much was conceded by counsel for Dr Ludekens in his submissions. 287 The real difficulty for the Commissioner arises in respect of the requirement that the respondents' conduct resulted in the implementation of the 2006 Gunns Woodlot Project in a way that is materially different from that described in PR 2006/8. 288 In the Commissioner's final submissions, it was asserted that "[t]he tax outcome for participants in the Secondary Investment was different from the tax outcome described in the Product Ruling". I accept the Commissioner's submissions on this point. As previously accepted in the context of considering the requirement under s 290-65, the investors in the Secondary Investment were not "accepted to participate" in the 2006 Gunns Woodlot Project before 30 June 2007 (or at any time) as required by PR 2006/8. This is principally attributable to their failure to pay application fees and sign key agreements governing the operation of the 2006 Gunns Woodlot Project as required by both the 2006 PDS and PR 2006/8. Accordingly, these investors were not carrying on a business of primary production at the relevant time, and correspondingly were not entitled to claim tax deductions in respect of their participation in the Secondary Investment. However, such a conclusion does not inexorably lead to a finding that the respondents "implemented" the 2006 Gunns Woodlot Project in a way that is materially different from that described in PR 2006/8. 289 No definition of 'implemented' is provided by the income tax legislation. 'To implement' is defined in the Macquarie Dictionary (2009, 5th ed) as "to put (a plan, proposal, etc) into effect". 'Implemented' in this context is therefore a different concept to 'promoting' (being the chief concept invoked by s 290-50(1)). This is supported by the following statements that appeared in the Explanatory Material circulated for discussion in 2005 (which are not reproduced in the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth)): Who is a scheme implementer? 33. The provisions identify two types of individuals to which the measures may apply – promoters and scheme implementers. A promoter is responsible for the promotion of a tax exploitation scheme (see paragraphs 22 to 32). A scheme implementer, however, is at risk of penalty for the implementation of a scheme inconsistently with its product, or other binding ruling, resulting in a different tax outcome for investors. [schedule #, item #, subsection 290-50(2)] 34. A scheme implementer has an instrumental role in the operation of the scheme. They are responsible for making the supervisory or managerial decisions that put a scheme into operation or significantly influence the running of the scheme. Scheme implementers are likely to be individuals in a position to make executive decisions about the operation of the scheme. 35. Implementation would not extend to the actual carrying out of specific tasks related to the running of the scheme. For this reason, someone who is employed or contracted to carry out such tasks would not be a scheme implementer. [Emphasis in original] 290 'Implementation' is therefore a broader concept than mere promotion. Accordingly, the emphasis of s 290-50(2) is quite different to that of s 290-50(1). This conclusion is buttressed by a consideration of the operation and purpose of product rulings in general. 291 It will be recalled that a product ruling is defined (somewhat circularly) by s 995-1(1) of the ITAA97 as a public ruling under the TAA that expressly states itself to be a product ruling. A "public ruling" is a published, written ruling made by the Commissioner on the way in which he considers a relevant provision applies (or would apply) to any of the entities listed in s 358-5(1) of the TAA, that also states itself to be a public ruling (s 358-5 TAA). To this end, PR 2006/8 describes public rulings as being: an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. 292 Public rulings are issued by the Commissioner in respect of and on the basis of the schemes specifically described in those rulings. Such rulings provide certainty for potential participants by confirming that the tax benefits set out in the ruling are available, provided that the scheme is carried out in accordance with the information given to the Commissioner and described therein. To this end, PR 2006/8 states: If the scheme is not carried out as described, participants lose the protection of this Product Ruling. Potential participants may wish to seek assurances from the promoter that the scheme will be carried out as described in this Product Ruling. … Terms of use of this Product Ruling This Product Ruling has been given on the basis that the entity(s) who applied for the Ruling, and their associates, will abide by strict terms of use. Any failure to comply with the terms of use may lead to the withdrawal of this Ruling. … Qualifications The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described… If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: • this Ruling has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled; and • this Ruling may be withdrawn or modified. 293 PR 2006/8 sets out how the scheme is to be implemented in order for the tax benefits referred to therein to be available to participants. The scheme itself (being the 2006 Gunns Woodlot Project) is specifically defined by reference to and as incorporating a number of documents, such as the draft 2006 PDS, the draft Constitution of the 2006 Gunns Woodlot Project, and a number of agreements to be executed by investors (such as the Forestry Right Deed and the Management Agreement). The scheme is further defined at [18] in PR 2006/8 as a function of a number of "salient features". These comprise the 'mechanics' of the scheme, and include the type of business to be carried on by each participant (being the commercial growing of Eucalyptus globulens (Tasmanian Blue-Gum), Pinus radiata (Radiata Pine) and Eucalytpus nitens (Shining Gum) trees under one of three planting options), the number of hectares to be offered for cultivation, and number of trees per hectare. Further, as previously explored, PR 2006/8 was issued on the basis that it applies only to a defined class of entities, namely: the entities more specifically identified in the Ruling part of this Product Ruling and who enter into the scheme specified below on or after the date this Ruling is made. They will have a purpose of staying in the scheme until it is completed (that is, being a party to the relevant agreements until their term expires), and deriving assessable income from this involvement as set out in the description of the scheme… The class of entities to whom this Ruling applies does not include: • entities who intend to terminate their involvement in the scheme prior to its completion, or who otherwise do not intend to derive assessable income from it; • entities who participate in the Project through offers made other than through the Product Disclosure Statement; • entities who finance their participation in the Project through loans other than those loans described at paragraphs 48 to 56 of this product ruling; • Gunns Plantations Ltd or its associates; and • entities who are accepted to participate in the Project before 1 July 2006 and after 30 June 2007. … Application of this Ruling … [T]his Ruling applies only to a Grower who is accepted to participate in the Project on or before 30 June 2007 as a '2007 Grower' and who has executed a Management Agreement and either an Agreement to Grant a Sub-Forestry Right or a Sub-Forestry Right Deed on or before that date. The Grower's participation in the Project must constitute the carrying on of a business of primary production. A Grower is not eligible to claim any tax deductions until the Grower's application to enter the Project is accepted and the Project has commenced. 294 The foregoing indicates that the fundamental purpose of s 290-50(2) is to protect the integrity of the product ruling system, such that taxpayers are able to rely upon a product ruling when making investment decisions in respect of the scheme to which that ruling specifically relates. To this end, the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth) states: 3.68 If a scheme with a product ruling is not implemented in conformity with its ruling, with potential tax consequences for investors, then a penalty may apply under the second civil penalty provision. [Schedule 3, item 1, subsection 290-50(2)] What is a product ruling? 3.69 A product ruling is a form of public ruling issued by the Commissioner. Product rulings were introduced in 1998 to rule on the availability of tax benefits from particular investment products. The Commissioner has published information about how and when a product ruling is issued. 3.70 Scheme promoters or implementers can apply for a product ruling. The Commissioner can then issue a product ruling confirming that a tax benefit is available at law provided the scheme is implemented in the manner described to the Commissioner in the ruling application. 3.71 Where a scheme is implemented in a materially different way to that described in its product ruling, there is a risk that investors may lose the protection of the ruling and may have scheme benefits disallowed, and be charged penalties and interest. The second civil penalty provision ensures that the entity responsible for the scheme not being implemented in conformity with its product ruling is at risk of penalty. [Emphasis in original] 295 Accordingly, it is critical to distinguish between the effect that conduct has on the scheme as described in the relevant product ruling, and its effect on participants in an investment involving the scheme. 296 A scheme can be implemented in exactly the way that is described in a product ruling, notwithstanding that some of participants are not covered by that product ruling. The fact that persons who do not fall within the scope of PR 2006/8 (such as those amongst the Ludekens and Van de Steeg Investors and Mrs Ruffato who ultimately participated in the Secondary Investment) purport to participate in the 2006 Gunns Woodlot Project does not mean that the scheme itself has been implemented in a way that is materially different to that described in PR 2006/8. Without more, all that has happened is that the scheme has been implemented exactly as described in PR 2006/8 (for example, the woodlots have been planted and allocated according to the terms set out in that document), but some participants do not fall within the scope of (and hence are not entitled to take advantage of the tax benefits described in) that product ruling. 297 This conclusion finds support in the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth), which provides the following example of the implementation of a scheme in a way that is not materially different from that described in the relevant product ruling: An example of a non-material difference would be where a plantation scheme installs a drip system for watering seedlings instead of micro-sprayers, on advice from experts that this would result in more efficient irrigation of the plantation. If such a departure from the implementation plan set out in the product ruling application does not impact on the commercial viability of the scheme or on the tax consequences for investors, then it would not constitute a material difference. [Schedule 3, item 1, subsection 290-50(2), note] [Emphasis added] 298 The reference in s 290-50(2) to the 'implementation' of a scheme therefore pertains to the way in which the scheme as a whole is actually carried out, as described in detail in the corresponding product ruling (and on the basis of which the Commissioner has issued the product ruling). In this proceeding, no evidence was led to the effect that the 2006 Gunns Woodlot Project as a whole was not, in fact, implemented in accordance with PR 2006/8. 299 Therefore, at its highest, this part of the Commissioner's case under s 290-50(2) amounts to no more than a contention that the Ludekens and Van de Steeg investors and Mrs Ruffato either did not participate in the 2006 Gunns Woodlot Project at all, or did so but were not covered by PR 2006/8. Without more, this is not sufficient to enliven s 290-50(2). Accordingly, the Commissioner's case against the respondents under s 290-50(2) in respect of the 2006 Gunns Woodlot Project must fail. The Secondary Investment 300 The Commissioner also put his case under s 290-50(2) on the basis that the Secondary Investment was a 'scheme' that was promoted on the basis of conformity with PR 2006/8, and was implemented in a way that was materially different from that described therein. To this end, the Commissioner relied upon evidence that one or more of the Ludekens and Van de Steeg Investors and Mrs Ruffato were told by one or both of the respondents that the Secondary Investment complied with PR 2006/8. 301 Despite being prepared to accept this evidence, I find that the Commissioner still fails in his arguments under s 290-50(2) in respect of the Secondary Investment. This is because the Secondary Investment – which was not, and was never intended to be, covered by PR 2006/8 – is not a 'scheme' to which s 290-50(2) properly applies. As should be apparent from the foregoing analysis, this subsection applies to schemes that are formally covered by a product ruling issued by the Commissioner. Therefore, the Secondary Investment – which does not have, and has never had, an applicable product ruling – does not fit within the scope of this provision. 302 Support for this interpretation derives from the terms of the legislation itself, as well as its corresponding explanatory materials. The heading accompanying s 290-50(2) is "Implementing scheme otherwise than in accordance with ruling", suggesting that the mischief to be addressed by this provision is schemes that are implemented otherwise in accordance with their corresponding product rulings. To this end, the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth) contains the following references to a scheme and "its ruling" (emphasis added): (a) Heading on p 94: "Implementation of a scheme otherwise than in accordance with its ruling"; (b) [3.68]: "If a scheme with a product ruling is not implemented in conformity with its ruling…"; (c) [3.71]: "Where a scheme is implemented in a materially different way to that described in its product ruling…"; (d) [3.108]: "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"; and (e) [3.145]: "Clarity has also been provided in the new law about the concept of 'materially different' which is important for the second penalty provision of implementing a scheme not in conformity to its product ruling". 303 If s 290-50(2) was intended to prevent the mere promotion of schemes on the basis that they are covered by a product ruling when in fact they are not, the legislature could have expressly provided for this. Further, I accept the submissions of counsel for Dr Ludekens to the effect that if this was the intended purpose of the provision, the requirement that the scheme also be implemented in a materially different way from that described in a product ruling would seem to be superfluous and unnecessary. In any event, s 290-50(1) (coupled with existing consumer protection legislation prohibiting misleading and deceptive conduct) would appear to be adequate to prevent such conduct. 304 Accordingly, the principal problem for the Commissioner in this case is that the Secondary Investment does not have, and never has had, a corresponding product ruling. It does not, therefore, fall within the scope of s 290-50(2). For these reasons, the Commissioner's case on this ground must also fail. The Velardis and the Smithsons 305 Finally, I have previously alluded to the fact that the Commissioner alleged a further breach of s 290-50(2) in respect of the Gunns woodlots acquired pursuant to the signatures of the Smithsons and the Velardis. To this end, the Commissioner submitted that the tax outcome of that acquisition was "different from the tax outcome described in the Product Ruling for participants in the Gunns Woodlot project", as the Smithsons and Velardis signed the woodlot applications on the respondents' assurances that this would be a temporary matter – they would not be liable for any repayments, and their names would be removed upon the on-sale of the woodlots to wealthy investors seeking to reduce their tax liabilities. The Commissioner submitted that in the circumstances, the Smithsons and Velardis had no intention of either remaining in the 2006 Gunns Woodlot Project until it was completed, or deriving assessable income therefrom (as required by PR 2006/8 for the purpose of legitimately claiming tax deductions). It was submitted that accordingly, the respondents engaged in further conduct that resulted in the 2006 Gunns Woodlot Project being implemented in a way that is materially different from that described in PR 2006/8. 306 This argument is rejected for similar reasons to those set out above. First, the 'scheme' relied upon by the Commissioner for the purpose of this argument was the acquisition of Gunns woodlots (described by the Commissioner in his final submissions as the "initial step in implementing the Plan and the Secondary Investment"). Like the Secondary Investment, in and of itself this is not a 'scheme' to which s 290-50(2) applies – it does not have, and has never had, a product ruling. Further, the mere fact that the Smithsons and the Velardis were not protected by or able to enjoy the tax consequences enumerated in PR 2006/8 is not evidence that the 'scheme' has been implemented in a materially different way from that described in PR 2006/8 for the purpose of s 290-50(2). As previously concluded, there was no evidence before me that the 2006 Gunns Woodlot Project was not implemented in accordance with PR 2006/8. Accordingly, this argument also fails. CONCLUSION 307 For the foregoing reasons, the case against the respondents must be dismissed. I will order that the parties confer and thereafter bring minutes to the Court reflecting the outcome of this proceeding (including costs) by 4:00 pm on 18 March 2013. If the parties cannot agree as to a form of proposed orders, then appropriate directions can be made to determine the dispute between the parties. I certify that the preceding three hundred and seven (307) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton. Associate: Dated: 4 March 2013