Commissioner of Taxation of the Commonwealth of Australia v Barossa Vines Ltd
Document type: Decision Impact Statement
Venue: Federal Court of Australia (SAD 146 of 2012)
Judgment date: 3 February 2014
Date published: 31 March 2014

Summary of decision:
Outlines the ATO's response to this case which concerns whether entities engaged in conduct that resulted in schemes that had been promoted on the basis of conformity with product rulings being implemented in a way that is materially different from that described in the product rulings.

Overview of facts:
Barossa Vines Ltd (the taxpayer) was the Responsible Entity for a number of managed investment schemes in the viticulture industry. | The taxpayer applied for and received product rulings PR 2007/32 (2007 Project), 2008/21 and 2008/22 (together the 2008 Project). | Following an investigation, the Commissioner concluded that the schemes had been implemented in a way that was materially different from that described in the product rulings. Following mediation, the parties submitted to the Federal Court a statement of agreed facts and joint submissions on penalty which they contended should be imposed. | Issues decided by the court | The Court held that the five respondents (the taxpayer and four individuals) acted in contravention of subsection 290-50(2) of Schedule 1 of the Taxation Administration Act 1953 ('TAA'), by implementing the schemes in a way that was materially different from that described in the product rulings. | The Court upheld the Commissioner's application for civil penalty orders against the respondents for the contraventions and imposed a penalty of $625,000 on the taxpayer and $125,000 on each of the four individual respondents. | The Court accepted that, to the extent that the two offences (that is, relating to the 2007 Project and the 2008 Project) contained common elements, the taxpayers should not be punished twice for such elements. | In determining the appropriate penalty, the Court had regard to each of the relevant matters listed in subsection 290-50(5) of the TAA, including the nature and extent of the contravention and the circumstances in which the contravention took place. | In terms of the nature and extent of the contravention, the Court noted the lack of care in the management of the schemes, attempts to conceal the failure of certain plantings and the selling of certain vineyard lots knowing that they would not be planted with rootlings, which indicated that attention to good viticultural practice was subordinated to commercial considerations. | In terms of the circumstances, the Court noted at [74] that: "... the material differences in the implementation of the 2007 Project and the 2008 Project were the result of the respondents' failure to prepare adequately or plan the development of vineyards, or to put in place appropriate structures and resources for their establishment and ongoing management." | Other considerations include the respondents' failure, in general terms, to take any steps to avoid the contraventions, the limited degree of cooperation with the Commissioner's investigation and Division 290's object of general deterrence. The Court noted, however, the parties' submission that the penalties be discounted in light of the respondents' cooperation with the Commissioner to resolve the matter by agreeing facts. | The Court also accepted the parties' submission that the penalty imposed on the taxpayer (a body corporate) be in proportion to the individual respondents' penalty that is, 1:5. This is the ratio of the maximum penalties under subsection 290-50(4) of the TAA, namely 5,000 penalty units for an individual and 25,000 for a body corporate.

Issues decided:
The Court held that the five respondents (the taxpayer and four individuals) acted in contravention of subsection 290-50(2) of Schedule 1 of the Taxation Administration Act 1953 ('TAA'), by implementing the schemes in a way that was materially different from that described in the product rulings. The Court upheld the Commissioner's application for civil penalty orders against the respondents for the contraventions and imposed a penalty of $625,000 on the taxpayer and $125,000 on each of the four individual respondents. The Court accepted that, to the extent that the two offences (that is, relating to the 2007 Project and the 2008 Project) contained common elements, the taxpayers should not be punished twice for such elements. In determining the appropriate penalty, the Court had regard to each of the relevant matters listed in subsection 290-50(5) of the TAA, including the nature and extent of the contravention and the circumstances in which the contravention took place. In terms of the nature and extent of the contravention, the Court noted the lack of care in the management of the schemes, attempts to conceal the failure of certain plantings and the selling of certain vineyard lots knowing that they would not be planted with rootlings, which indicated that attention to good viticultural practice was subordinated to commercial considerations. In terms of the circumstances, the Court noted at [74] that: "... the material differences in the implementation of the 2007 Project and the 2008 Project were the result of the respondents' failure to prepare adequately or plan the development of vineyards, or to put in place appropriate structures and resources for their establishment and ongoing management." Other considerations include the respondents' failure, in general terms, to take any steps to avoid the contraventions, the limited degree of cooperation with the Commissioner's investigation and Division 290's object of general deterrence. The Court noted, however, the parties' submission that the penalties be discounted in light of the respondents' cooperation with the Commissioner to resolve the matter by agreeing facts. The Court also accepted the parties' submission that the penalty imposed on the taxpayer (a body corporate) be in proportion to the individual respondents' penalty that is, 1:5. This is the ratio of the maximum penalties under subsection 290-50(4) of the TAA, namely 5,000 penalty units for an individual and 25,000 for a body corporate.

ATO view of decision:
The Court's decision supported the joint statement of agreed facts and submissions on penalty. The ATO respectfully agrees with the outcome.

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil

Legislative references: Income Tax Assessment Act 1997 section 8-1 section 35-10 section 35-55 section 995-1 Taxation Administration Act 1953 section 290-50(2) of Schedule 1
Case references: Australian Competition and Consumer Commission v P & N Pty Ltd [2014] FCA 6 Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8 (2008) 165 FCR 560 Pearce v The Queen [1998] HCA 57 (1998) 194 CLR 610
Subject references: Civil penalties Managed investment scheme Product rulings
Other references: PS LA 2008/8