Promoter penalties and the Rowntree case

22 Jul, 2021


The ‘promoter penalty’ laws in Div 290 of Schedule 1 to the TAA are in place to deter the promotion of tax avoidance schemes. Earlier this year, the Federal Court imposed fines totalling $9.415 million on three professionals who together promoted a carbon credits scheme under which the investor paid only a 15 per cent deposit but purportedly could immediately deduct 100 per cent of the purchase price.

The promoter penalty laws

The key elements of the promoter penalty laws are that:

  • an entity must not engage in prohibited conduct;
  • the entity is not a promoter of a tax avoidance scheme.

Prohibited conduct is conduct that results in:

  • any entity being a promoter of a tax avoidance scheme; or
  • a scheme that has been implemented differently to the way it has been described in a product ruling.

A scheme is a tax avoidance scheme if, at the time of promotion, it has the sole or dominant purpose of an entity gaining a scheme benefit that would not be legally available otherwise.
An entity gets a scheme benefit from a scheme if:

  • a tax-related liability of the entity is, or could reasonably be expected to be, less than it would be apart from the scheme; or
  • a tax refund or credit due to the entity is, or could reasonably be expected to be, more than it would be apart from the scheme.

An entity is a promoter if:

  • it markets or encourages the scheme;
  • it directly or indirectly receives a benefit in respect of marketing or encouragement;
  • it causes another entity to be a promoter.


  • An entity can be a promoter regardless of whether the scheme is tailored and marketed to one client or to a broad population.
  • An entity that merely provides advice about the scheme, or an employee that merely distributes information or materials prepared by another, is not a promoter.

Exceptions to the promoter penalty laws include:

  • employees or other entities that have only minor involvement;
  • conduct that occurred by mistake or accident;
  • something outside an entity’s control.


The maximum penalty the Federal Court can impose is the greater of:

  • 5,000 penalty units for an individual;
  • 25,000 penalty units for a body corporate;
  • twice the consideration received or receivable, directly or indirectly, by the entity or its associates in respect of the scheme.

One penalty unit is equal to $222.

Depending on the type or seriousness of the conduct, the ATO may also consider the following actions:

  • voluntary self-correction for less significant non-compliance;
  • applicants for rulings (including product rulings) providing additional promises or guarantees to mitigate taxation risks (including material differences in implementation of the relevant arrangement);
  • executing an enforceable voluntary undertaking (see the ATO’s voluntary undertaking template);
  • applying to the Federal Court to seek an injunction.

PS LA 2021/1

Practice Statement Law Administration PS LA 2021/1 sets out the processes the ATO will follow in administering the promoter penalty laws.

Factors that may indicate promoter behaviour include:

  • advisers who have encouraged taxpayers to seek a tax or superannuation benefit to which the are not entitled;
  • marketing for tax or superannuation schemes that seem ‘too good to be true’;
  • advisers offering tax savings in return for a large fee or a percentage of the tax saved;
  • advisers marketing a scheme that was developed by others;
  • multiple clients of the same adviser engaging in similar arrangements that are unnecessarily complex, or seem designed primarily to get a tax or superannuation benefit;
  • schemes where the ATO has applied anti-avoidance provisions (e.g. Part IVA) which were marketed by an adviser;
  • advisers offering or encouraging illegal early access to superannuation despite release criteria not being satisfied.

ATO officers can refer information to the internal Promoters Program. The objective of the program is to address the behaviours of intermediaries that promote tax avoidance, including consideration of remedies or sanctions. The Promoter Penalty Review Panel advises the on the application of the laws in particular circumstances.

A member of the public can call 1800 060 062, use the form at or use the ATO app.

Factors that might weigh in favour of a civil penalty as the appropriate remedy include where the entity:

  • is knowingly engaging in conduct that is likely to be prohibited and evidence indicates that the entity is unwilling to modify its behaviour;
  • has a history of prohibited conduct as a major source of income;
  • has a large degree of control or influence over whether the prohibited conduct occurred;
  • deliberately frustrates the progression of the ATO investigation;
  • has engaged in prohibited conduct on a significant scale in terms of the number of entities or amounts involved;
  • has promoted a scheme for which participants that have implemented the scheme have or will become liable to administrative penalty.

Civil penalties cannot be imposed where the prohibited conduct was due to:

  • a reasonable mistake of fact;
  • another entity’s role or actions, an accident or some other cause which was beyond the entity’s control and where the entity took reasonable precautions and exercised due diligence to avoid the conduct; or
  • where the scheme in question treats the taxation law as applying in a way that agrees with:
    • advice given to the entity or the entity’s agent by or on behalf of the Commissioner; or
    • a statement in a publication approved in writing by the Commissioner.

The Practice Statement also covers how the ATO will administer the promoter penalty provision in s. 68B of the SIS Act which is designed to deter the promotion of a scheme that has resulted, or is likely to result, in a payment being made from a regulated superannuation fund (an illegal early release scheme).

The promoter penalty laws contain provisions governing the interaction between civil (promoter penalty) proceedings and criminal proceedings. A criminal proceeding can be started against an entity, irrespective of whether a civil penalty application or court order has been made in relation to substantially the same conduct.

The Bogiatto case

The Federal Court decision in FCT v Bogiatto, handed down in August 2020, held that Mr Bogiatto and his two companies were promoters of a tax exploitation scheme to obtain the benefit of an R&D tax offset in 13 alleged tax exploitation schemes.

Mr Bogiatto was a tax accountant whose services included the preparation and lodgment of R&D Tax Incentive Applications and R&D Tax Incentive Schedules. He and his controlled entities engaged in the following general conduct in relation to 20 R&D schemes involving 14 taxpayers in the 2012, 2013 and 2014 income years:

  • Mr Bogiatto would promote himself to the prospective client as an R&D specialist and send a letter of engagement which provided for a fee calculated as a percentage of any R&D tax offset that the client might obtain, typically 30 per cent.
  • Mr Bogiatto would then ask the client to send information about the business’s operations and finances which he would use to prepare an R&D Tax Incentive Application for submitting to AusIndustry.
  • Once registration was confirmed, Mr Bogiatto would prepare and R&D Schedule containing figures that he instructed or advised the client to incorporate in its tax return.
  • One of Mr Bogiatto’s companies would then send an invoice to the client and pursue payment.

If a client questioned Mr Bogiatto’s calculations or asked for an explanation as to the figures, Mr Bogiatto would typically responded by asserting that he would not disclose his methodology because it was his intellectual property, asserting that he was the expert, and stating that the client should not question him.

Two of the 14 taxpayers did not follow through with lodging R&D claims.

In total, R&D tax offset refunds of $45.5 million were paid to Mr Bogiatto’s clients.

His Honour, Thawley J was satisfied that Mr Bogiatto and his companies marketed and encouraged interest in the schemes and were promoters of tax exploitation schemes in 13 out of the 14 taxpayers. The 14th taxpayer’s claims were found to be genuine, and did not amount to tax exploitation due to the scheme benefits being available at law.

In each case the scheme consisted of Mr Bogiatto advising the taxpayers that they were eligible for an R&D tax offset, the collation of information and the lodgment of the application with AusIndustry, and preparation and lodgment of an R&D Schedule for the relevant years.

The Court’s reasoning is summarised as follows.

  • It was reasonable to conclude that Mr Bogiatto entered into or carried out the schemes with the sole or dominant purpose of the taxpayers receiving a tax benefit (the R&D claim benefits).
  • In each case, it was not reasonable arguable that the scheme benefits were available at law, for at least one of the following reasons:
    • the expenditure was not incurred on eligible R&D activities;
    • the amounts were incurred by another entity which was not an R&D entity and therefore the taxpayers were not entitled to the benefits;
    • where some of the benefits were available, the amount of R&D expenditure claimed was either inflated or excessive.

The Court held that each of the relevant implemented schemes involved tax evasion, save for the exception where the claim was found to be genuine. The claims were grossly exaggerated or wholly unavailable. Mr Bogiatto deliberately put forward claims which he knew were wholly or partly unjustifiable and engaged in evasion. Mr Bogiatto avoided regulators when investigated and never looked to redress any amount of loss or damage incurred by scheme participants.

In February 2021, the Court imposed civil penalties totalling $22.68 million on Mr Bogiatto and his three companies. The size of the penalty is the highest ever seen in Australia.

The ATO reported that, as a result of the decision, Mr Bogiatto was also investigated and de-registered as a tax agent in October 2017, and forfeited his membership of the Institute of Public Accountants. He had his Chartered Accountants membership terminated in 2018.

The Rowntree case

In September 2020 the Federal Court in FCT v Rowntree held that three individuals were promoters of tax exploitation schemes.

Dr Rowntree, a solicitor and a qualified tax specialist, Mr Donkin, a chartered accountant and tax agent, and Mr Manietta, a financial planner (the Promoters) promoted investments in emissions reductions purchase agreements (ERPAs).

ERPAs were contracts with an offshore entity to purportedly purchase offshore carbon credits generated through offshore carbon reduction activities, and to acquire a licence to use a logo owned by the offshore entity. Investors could also acquire an option which, if exercised, required the offshore entity to purportedly purchase the number of offshore carbon credits contracted for by the participant for approximately the same amount as the balance payable by the investor.

Upon entering the arrangement, investors were obliged to pay a non-refundable first instalment equal to 15 per cent of the purchase price. The balance of the purchase price was not payable until the Investors received a notice of delivery. The investors would claim to deduct the entire purchase price of the offshore carbon credits in the income year that they entered the arrangement.

Each of the Promoters directly — or indirectly though his associates — received the following from more than 200 investors over the 2009 to 2012 tax years:

  • Dr Rowntree for the four tax years — $6,408,911;
  • Mr Donkin for the 2010, 2011 and 2012 tax years — $194,320;
  • Mr Manietta for the four tax years — $1,152,863.

In 2010, the ATO began querying an investor’s 2009 tax returns, on which the investor had claimed a 100 per cent deduction for the purchase price.

The Federal Court was satisfied that Dr Rowntree and Mr Manietta were promoters of each of the 2009, 2010, 2011 and 2012 tax exploitation schemes Mr Donkin was a promoter of the 2011 and 2012 schemes.

Rares J was satisfied that the Promoters entered into the scheme for the sole or dominant purpose of obtaining tax benefits, and that it was not reasonably arguable that the scheme benefits were available at law. Therefore, the schemes amounted to tax exploitation.

The schemes were entered into for the sole or dominant purpose of obtaining tax benefits as there was no evidence that there were arrangements to actually deliver any carbon credits under the ERPAs, or that it had taken any steps to ensure that the project was in a position to deliver a product. Further, the contracts for carbon credits were uncommercial and the ERPAs did not give the investors any right to compel delivery of the carbon credits for which they had paid a 15 per cent deposit.

The Promoters’ primary market for ERPAs consisted of health professionals, accounting firms and real estate agents — taxpayers that would have no bona fide use for carbon credits in their businesses or operations. The scheme benefit was the use of the full purchase price as a deduction from the investor’s taxable income that, if allowed, would result in its tax-related liability being less than it would have been apart from the scheme.

The purpose of each Promoter was to make money for himself or his associates from sales of contract lots through inducing investors to enter into the ERPAs and with the dominant purpose that each investor would pay only the 15 per cent deposit and get the scheme benefit of an immediate deduction of the full purchase price of each contract lot in the tax year, worth about twice the expenditure on the deposit.

It was not reasonably arguable that the scheme benefit is available at law. The full purchase price of a contract lot was not a loss or outgoing incurred in gaining or producing the investor’s assessable income within the meaning of s. 8-1(a) because the investor had not completely subjected itself to its payment. In addition, there was no apparent nexus between the loss or outgoing for the ERPA, or the 15 per cent deposit, and the production of any of the investor’s assessable income.

His Honour held that the schemes involved tax evasion. Critically, when the ATO commenced investigating investors’ tax returns, Dr Rowntree and his associates requested that the investors withhold contractual documents from the ATO on the basis that ‘the investment vendors are considering the ATO defence strategy’. This evasive behaviour was designed to ‘keep the ATO in the dark’.

More recently, in March, the Federal Court, taking into account each of the relevant factors, imposed civil penalties on the Promoters as follows:

The Promoters have lodged a notice of appeal to the Full Federal Court against the penalty decision.

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