Commissioner of Taxation v Ludekens

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 264 of 2013

BETWEEN: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

A. INTRODUCTION 1 An entity that engages in conduct that results in that, or another, entity being a promoter of a tax exploitation scheme, or 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, may be subject to a civil penalty: s 290-50(1) and (2) in Sch 1 to the Taxation Administration Act 1953 (Cth) (the TAA). 2 Each respondent - Dr Andrew Ludekens and Mr Peter Van de Steeg - was engaged in securing investors to invest in a managed investment scheme known as the "Gunns Plantations Limited Woodlot Project 2006" (the 2006 Gunns Woodlot Project). Investment in the 2006 Gunns Woodlot Project was pursuant to a product disclosure statement entitled "Woodlot Project Product Disclosure Statement" dated 14 March 2006 (2006 PDS) issued by Gunns Plantations Limited (Gunns), the responsible entity of the managed investment scheme. The respondents did not issue the 2006 PDS. 3 The central issues in the appeal concern the respondents' actions in relation to two groups of investors they approached to invest in the 2006 Gunns Woodlot Project. The first group comprised Mrs Jodie Smithson and Mr Andrew Smithson (the Smithsons) and Mrs Elizabeth Velardi and Mr Domenico Velardi (the Velardis). The second group comprised persons described as "Secondary Investors". As will become apparent, the involvement, or potential involvement, of each group in the 2006 Gunns Woodlot Project was substantially different. Moreover, although each respondent dealt with the Smithsons and the Velardis, the respondents dealt with different Secondary Investors. Dr Ludekens dealt with Mr David Tregambe, Mr Eric Poon, Dr Robert Love and Ms Hayben Richards (the Ludekens Investors). Mr Van de Steeg dealt with Ms Jan Gibson (subsequently Jan Taylor), Mr Glenn Crowe, Mr Michael Martino and Mr Peter Berlowitz (the Van de Steeg Investors). Both respondents dealt with Mrs Daniella Ruffato. Mrs Ruffato was also a Secondary Investor. 4 The appellant (the Commissioner) contended that each respondent contravened s 290-50(1) of Sch 1 to the TAA in dealing with the Smithsons and the Velardis and their respective Secondary Investors and, further, that each respondent contravened s 290-50(2) in relation to the Smithsons and the Velardis and/or the Secondary Investors. The primary judge dismissed the proceedings. This is the first time an appeal court has considered Div 290 of Sch 1 to the TAA. 5 For the reasons that follow, the appeal should be allowed. Each respondent contravened s 290-50(1) of Sch 1 to the TAA in dealing with the Smithsons and the Velardis and their respective Secondary Investors. However, neither respondent contravened s 290-50(2) of Sch 1 to the TAA. The Commissioner's application for a civil penalty will be remitted for hearing by a judge of this Court. 6 These reasons for judgment will consider the relevant legislation, describe the six issues on appeal and the one issue raised on the notice of contention, set out the facts and then consider the proper construction of Div 290 and its application to the facts as found.

B. RELEVANT LEGISLATION 7 The main civil penalty provision, entitled "Civil Penalties", in s 290-50 in Sch 1 to the TAA provides: 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. … (Emphasis added.) 8 Section 290-55(4) of Sch 1 to the TAA provides time limits within which the Commissioner must commence any application under s 290-50. It provides: 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. 9 "Entity" is defined in s 960-100 of the Income Tax Assessment Act 1997 (Cth) (the ITAA97) as including, inter alia, an individual, a body corporate and a partnership. Each respondent is an "entity" for the purposes of s 290-50. 10 "Promoter" is defined in s 290-60 in Sch 1 to 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. (3) An employee is not to be taken to have had a substantial role in respect of that marketing or encouragement merely because the employee distributes information or material prepared by another entity. (Emphasis added.) 11 "Tax exploitation scheme" is defined in s 290-65 in Sch 1 to the TAA. It has a number of elements: (1) A *scheme is a tax exploitation scheme if, at the time of the conduct mentioned in subsection 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. (Emphasis added.) To understand the definition of "tax exploitation scheme" in s 290-65, it is necessary to consider three further definitions - "scheme", "scheme benefit" and "tax-related liability". 12 "Scheme" is defined in s 995(1) of the ITAA97 to mean: (a) any *arrangement; or (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. 13 "Scheme benefit" is defined in s 995(1) of the ITAA97 by reference to s 284-150(1) in Sch 1 to the TAA which provides: An entity gets a scheme benefit from a *scheme if: (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. (Emphasis added.) 14 "Tax-related liability" is defined in s 255-1 in Sch 1 to the TAA to mean: A tax-related liability is 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). Note 1: See section 250-10 for an index of tax-related liabilities. Note 2: A taxation law, or a provision of it, may be excluded from being applied to this Part. See section 265-65. 15 It will be necessary to return to consider these provisions.

C. THE ISSUES ON APPEAL AND THE NOTICE OF CONTENTION 16 The Commissioner raised six issues on the appeal. The issues raise questions of the proper construction of Div 290 and then the application of Div 290, properly construed, to findings of fact that were not challenged. 17 The issues raised by the Commissioner on the appeal may be summarised as follows: 1. The primary judge's construction of the definition of "scheme benefit" in s 284-150 for the purposes of s 290-65 (see [247]-[248] of his reasons for judgment (the Reasons)), that the words "less than it would be apart from the scheme or a part of the scheme" required the pleading and proving of what the position would have been concerning the tax-related liability of the relevant entity if the scheme had not been entered into or carried out (the Alternative Postulate), was wrong. For the reasons expressed below, the Commissioner is correct. 2. The primary judge's conclusion (at [256]-[259] of the Reasons) that, for the purposes of s 290-65(1)(a), it was not shown that it was reasonable to conclude that each respondent entered into or carried out the scheme with the dominant purpose of the entities acquiring woodlots in the 2006 Gunns Woodlot Project and, further or alternatively, the Secondary Investors, getting a scheme benefit from the scheme, was wrong. For the reasons expressed below, the Commissioner is correct. 3. The primary judge's construction of the definition of "promoter" in s 290-60 ([17]-[35] of the Reasons) was too narrow. For the reasons expressed below, the Commissioner is correct. 4. Even if the primary judge's construction of s 290-60 were correct, the primary judge should have concluded that the evidence satisfied the narrow definition of "promoter" by reference to the respondents' conduct in relation to the Smithsons and the Velardis. Part of this controversy arises from the respondents' submission that the Commissioner failed to rely upon this conduct at the trial in the pleadings, particulars or submissions. The respondents say that the matter should not be permitted to be raised on appeal. For the reasons expressed below, the matter was sufficiently raised before the primary judge to be permitted to be raised on appeal. 5. The primary judge's construction (at [47]-[54] and [217]-[223] of the Reasons) of the relationship between consideration and marketing or encouragement through the prepositional phrase "in respect of" in s 290-60(1)(b) was too narrow and his conclusion that there was no consideration received by the respondents (except in relation to Mr Van de Steeg vis-À-vis Mr Crowe, Reasons at [227]) in respect of the marketing or encouragement he found to have been undertaken by them was wrong. For the reasons expressed below, the Commissioner is correct. 6. The primary judge's construction of s 290-50(2) (in [300]-[304] of the Reasons) that it only covered schemes formally covered by a product ruling issued by the Commissioner (and thus did not cover the Secondary Investment) was too narrow. Further, that the primary judge's conclusion that the 2006 Gunns Woodlot Project was not implemented in a way materially different from that described in PR 2006/8 was wrong (see [284]-[299] and [305]-[306] of the Reasons). For the reasons expressed below, the Commissioner is not correct. 18 The respondents filed a notice of contention. In that notice, the respondents argued that the primary judge should have held, under s 290-65(1)(b), that it was reasonably arguable that the entities which acquired woodlots in the 2006 Gunns Woodlot Project were entitled to input tax credits in relation to the acquisition of the woodlots and consequently to GST refunds: see [263]-[275] of the Reasons. This argument is directed to one element of the definition of a "tax exploitation scheme". It will be considered after the six appeal grounds. For the reasons expressed below, the respondents' notice of contention is rejected.

D. THE COMMISSIONER'S CASE 19 It is necessary to say something about the way in which this case was conducted at trial and on appeal. 20 The Commissioner's case against the respondents lacked a degree of conciseness and precision. To a degree, the case pleaded was not the case advanced at trial. The Commissioner's opening submissions at trial went further than the pleaded allegations. The trial then proceeded on the basis of the opening submissions and the evidence filed and served by the Commissioner. The Commissioner's final submissions before the primary judge also raised new issues. In a proceeding seeking a civil penalty, it is important to recognise that a respondent is entitled to a fair trial which includes a clear and tolerably stable body of allegations of contraventions of law. The Commissioner, seeking a civil penalty against each respondent, was obliged to put his case clearly and distinctly: Forrest v Australian Securities and Investments Commission (2012) 86 ALJR 1183 at [25]. It requires a pleading (or other document) which states with sufficient clarity, subject, of course, to proper amendment, the facts said to constitute the cause of action or causes of action supporting the relief sought: Forrest at [27]. In satisfying that task, there may be a need for "facts or characterisations of facts to be pleaded in the alternative": Forrest at [27]. So much may be accepted. What is not permitted is the "planting [of] a forest of forensic contingencies" or altering the basis of the allegation of the alleged contraventions on a rolling basis. 21 The difficulties in the present case may be demonstrated by the manner in which the Commissioner sought to identify one element of the cause of action - the "scheme". At trial, the Commissioner relied upon the "Plan", a truncated version of the Plan called the "Conduct" and a number of permutations of the Plan and the Conduct. In addition, the Commissioner contended that the Conduct might be viewed as a series of individual schemes in relation to each of the Secondary Investors, each founding a separate contravention of Div 290. 22 The Plan relied upon by the Commissioner comprised: (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. 23 The Conduct comprised: (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. 24 During oral submissions on the appeal, the Commissioner was asked to prepare a document which addressed precisely how and why each element of s 290-50(1) of Sch 1 to the TAA was contravened by each respondent. As a result of that exercise, the Commissioner narrowed his case in relation to the allegation that the respondents had breached s 290-50(1) of Sch 1 to the TAA. The Commissioner limited the factual basis of the alleged contravention to the Plan. It should be noted that the Plan does not include any reference to the attainment of income tax refunds by those entities that initially acquired woodlots in the 2006 Gunns Woodlot Project. The Commissioner abandoned any separate reliance upon the Conduct. The appeal has been determined on that basis.

E. THE FACTS 25 The primary judge's findings of fact (at [73]-[177]) were not challenged. Before turning to those findings and the evidence adduced in relation to those findings, it is necessary to describe the respondents and the persons and entities associated with them, to describe the initial arrangements Dr Ludekens put in place with Gunns, to describe the 2006 Gunns Woodlot Project, to explain the manner in which the respondents involved the Smithsons and the Velardis and, finally, the manner in which the respondents sought to involve each of the Secondary Investors.

(1) The respondents and their associates 26 The first respondent, Dr Ludekens, was the sole director of Lotus Capital Group Pty Ltd (Lotus) and Romad Financial Services Pty Ltd, each of which held an Australian Financial Services Licence pursuant to Div 4 of Pt 7.6 of the Corporations Act 2001 (Cth) (the Corporations Act). Lotus was an "associate" of Dr Ludekens: s 995 of the ITAA97 by reference to s 318 of the Income Tax Assessment Act 1936 (Cth) (the ITAA36) and [217(a)] of the Reasons. 27 The second respondent, Mr Van de Steeg, carried on business as a financial investment adviser and financial services provider. Mr Van de Steeg carried on a business jointly with Mr Jonathan Ezzy through Meloka Pty Ltd (Meloka). Meloka bought equity in a foreign exchange trading business called Australian Forex Trading Agency (AFTA), which was owned and operated by Mr Berlowitz. Mr Van de Steeg raised funds for Meloka to purchase equity in AFTA through investor loans. Messrs Van de Steeg and Ezzy were also owners of Jameter Pty Ltd (Jameter). Mr Van de Steeg and his wife were also directors and shareholders of Ty-Tia Pty Ltd (Ty-Tia). Each of Meloka and Ty-Tia was an "associate" of Mr Van de Steeg: s 995 of the ITAA97 by reference to s 318 of the ITAA36 and [217(a)] and [261] of the Reasons. 28 Neither respondent gave evidence at trial.

(2) Persons and entities associated with the respondents 29 As just noted, Mr Ezzy was Mr Van de Steeg's business partner. It appeared to the primary judge that Mr Ezzy was materially involved in the development and implementation of the Plan. Mr Ezzy was not called to give evidence at trial because he could not be located. 30 Mr Andrew Crouch was Mr Van de Steeg's personal accountant from December 2007 to January 2009. 31 Mrs Elizabeth Velardi worked as a personal assistant for Mr Van de Steeg between May 2006 and January 2010. In this role, Mrs Velardi was the first point of contact for many of Mr Van de Steeg's clients. Mrs Velardi also undertook work for Mr Van de Steeg's wife and Mr Ezzy. Shortly before 30 June 2007, Mr Van de Steeg also instructed Mrs Velardi to assist Dr Ludekens with the proposed Gunns investment. The Velardis made some investments with Mr Van de Steeg. Mr Velardi's involvement in this proceeding principally related to events that transpired on 30 June 2007 involving applications for woodlots in the 2006 Gunns Woodlot Project (described further below).

(3) Initial Arrangements between Gunns and Dr Ludekens 32 In the first half of 2007, Dr Ludekens attended one of Gunns' "standard adviser tours to Tasmania". On 15 May 2007, Dr Ludekens met with Mr Ian Blanden and Mr Les Baker (who were, respectively, the Manager and the Executive Director of Gunns) in Melbourne. Some time later, Gunns offered Dr Ludekens a commission rate of 15% on investments procured by him in Gunns' managed investment schemes. One of those schemes was the 2006 Gunns Woodlot Project.

(a) Product Disclosure Statement 33 As noted, the 2006 Gunns Woodlot Project was the subject of the 2006 PDS. The 2006 PDS provided that: 1. The 2006 Gunns Woodlot Project was a registered managed investment scheme directed to the cultivation and harvest of trees for timber. 2. Investors (referred to as "Growers") applied for interests in the 2006 Gunns Woodlot Project known as "woodlots". 3. An application fee of $6,820 (GST inclusive) was payable for each woodlot. As part of the application process, Growers were offered the opportunity to obtain finance for the cost of the application fees. 4. Upon acceptance of their application, Growers entered into a "Sub-Forestry Right Deed" with Gunns (the responsible entity of the scheme) whereby they would acquire the right to establish, maintain and harvest trees on their woodlot(s) (referred to as a "Forestry Right"). 5. Growers also entered into a "Management Agreement" with Gunns whereby Gunns was appointed to manage the woodlots. 6. Growers were expected to receive returns from the sale of their wood harvested from commercial thinnings and the final harvest 13, 20 or 25 years after plantation (depending on the type of trees chosen by the Growers). 7. No ongoing rent or maintenance fees were payable by Growers during the course of their investment. Those costs - together with an amount of "Sales Commission" payable to Gunns - were to be deducted from the proceeds from the sale of wood at the conclusion of the 2006 Gunns Woodlot Project. 8. Growers could assign their woodlots subject to the conditions set out in the Constitution for the managed investment scheme and the Management Agreement. 9. "[I]nvestment in the Project should be considered long term as Growers will have a purpose of staying in the Project until it is completed". 10. Investors registered for GST were said to "be entitled to claim an input tax credit for GST paid on any creditable acquisition". 11. The 2006 Gunns Woodlot Project was the subject of a product ruling issued by the Commissioner entitled "Income Tax: Gunns Plantations Limited Woodlot Project 2006 '2007 Growers'" (PR 2006/8). The 2006 PDS included a report from a "taxation adviser" which set out the general effect of PR 2006/8. 12. An offer to participate in the 2006 Gunns Woodlot Project had to be made through the 2006 PDS. Indeed, the Corporations Act prohibited the application form attached to the 2006 PDS (the Application Form) being issued to a person unless that person was given access to the PDS and any supplementary PDS.

(b) PR 2006/8 34 It is then necessary to consider the terms of PR 2006/8 which applied to the 2006 Gunns Woodlot Project. It stated, inter alia, that: 1. It applied to a certain class of entities and did not apply to other entities. In particular, it provided: Class of entities 7. The class of entities to whom this Ruling applies is 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. In this Ruling, these persons are referred to as 'Growers'. 8. 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 Plantation Ltd or its associates; and • entities who are accepted to participate in the Project before 1 July 2006 and after 30 June 2007. 2. It applied to a scheme - defined by reference to the contractual and other documentation constituting the 2006 Gunns Woodlot Project. 3. If the scheme (i.e. the 2006 Gunns Woodlot Project) was not carried out as described in PR 2006/8, the protection afforded by that ruling would be lost. In particular, it provided: Qualifications 9. 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 in paragraphs 15 to 60. 10. 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. 4. An offer to participate in the 2006 Gunns Woodlot Project had to be made through the 2006 PDS and prospective Growers had to complete an Application Form, a power of attorney contained in the 2006 PDS and pay the "Application Fee" (i.e. $6,820 per woodlot). 5. Growers could not rely on PR 2006/8 in relation to the deductibility of interest incurred in relation to application finance acquired other than under the "Terms Arrangement", the "Woodlot Finance Package" and the "Finance Application" referred to in PR 2006/8. 6. Subject to PR 2006/8 being carried out in the manner described, for Growers who: 6.1 were an individual accepted into the 2006 Gunns Woodlot Project by 30 June 2007 as a "2007 Grower"; 6.2 participated in that Project under one of the available "Planting Options"; and 6.3 had losses arising from their participation in the Project that would be deferred to a later income year under s 35-10 of the ITAA97, the Commissioner would exercise the discretion in s 35-55(1)(b) of the ITAA97 to allow those losses to be offset against the Grower's other assessable income in the income year in which the losses were incurred. 35 As is apparent, the 2006 Gunns Woodlot Project (read in conjunction with the 2006 PDS and PR 2006/8) required the completion of the Application Form and any Financing Form (if the payment of the Application Fee was to be financed) and then, of course, the payment of the Application Fee. This was said to generate a tax deduction for the payment of the Application Fee. 36 On 5 June 2007, Mr Blanden's assistant sent an email to Dr Ludekens with hyperlinks to the 2006 PDS and PR 2006/8.

(5) Steps taken by the respondents to secure investors 37 As will become apparent, from June 2007, the respondents were engaged in securing investors to invest in the 2006 Gunns Woodlot Project. The steps they took may be generally divided into two groups - the steps they took to secure the acquisition of woodlots in the 2006 Gunns Woodlot Project before 30 June 2007 (involving the Smithsons and the Velardis) and the onsale of those woodlots to the Secondary Investors. Although the conduct may be divided into these two groups, the timing of the conduct did overlap to some extent. The process of approaching the Secondary Investors commenced before 30 June and continued thereafter for some months. For that reason, it is necessary to separately consider the respondents' conduct in relation to each of the Smithsons, the Velardis and the Secondary Investors.

(a) The Smithsons 38 The Smithsons became friends with Mr Van de Steeg and his wife in 2005. In 2006, the Smithsons accepted an invitation from Mr Van de Steeg to invest in the Meloka foreign currency trading business. Mrs Smithson worked as a personal assistant to Mr Ezzy from August or September 2006 to late 2009. 39 In the proceedings before the primary judge, Mr Smithson swore an affidavit that addressed, inter alia, the matters summarised in the following paragraphs which were the foundation of the unchallenged findings of fact by the primary judge. 40 In June 2007, Mr Van de Steeg rang Mr Smithson to ask for the Smithsons' support for a business opportunity he and Mr Ezzy wanted to enter. Mr Van de Steeg explained that the foreign currency trading business had been affected by the global financial crisis and that this opportunity would provide the necessary funds to keep the business going. Mr Van de Steeg said that he and Mr Ezzy needed the Smithsons' support to buy into the investment and that Mr Ezzy would further discuss the matter with them. 41 Approximately a fortnight before 30 June 2007, Mr Ezzy came to the Smithsons' home and told them that he and Mr Van de Steeg wanted to purchase $20 million of woodlots from Gunns. Mr Ezzy explained to the Smithsons that Dr Ludekens would be paid a $3 million commission by Gunns for selling the woodlots and that Dr Ludekens had agreed to put the commission straight into Meloka for foreign currency trading. Mr Ezzy also said that they would get a $2 million GST rebate, which would also go into Meloka for foreign currency trading. Mr Ezzy told the Smithsons that the global financial crisis had depressed investing activity, which was putting pressure on him and the respondents to purchase the woodlots before 30 June 2007 so that they could get the $5 million (comprising the commission and the GST rebate) into Meloka. Mr Ezzy told the Smithsons that without the tree deal, he had doubts about the Meloka business going forward. 42 Mr Ezzy further explained the Gunns investment as follows: 1. He and the respondents could not apply for the full $20 million of woodlots on their own. 2. The Gunns Manager, Mr Blanden, allowed people to have their names on woodlot applications as a "point of contact" only, without being purchasers, and that this was what Messrs Ezzy and Van de Steeg needed the Smithsons to do. 3. The Smithsons were merely to be the names on the applications to get the purchase through by 30 June 2007 - they would not be actual investors. Once the woodlots were on-sold (within six to eight weeks), the Smithsons' names would be removed. The Smithsons were told that the woodlots were to be on-sold to people known to Dr Ludekens and wealthy investors looking for a tax benefit. 43 Mr Ezzy promised the Smithsons that he would pay them a gift of $5,000 for assisting in purchasing the woodlots. He also said that Mr Van de Steeg would call Mr Smithson to further discuss the matter. 44 Mr Smithson subsequently spoke to Mr Van de Steeg on a number of occasions in the week leading up to 30 June 2007. In those conversations, Mr Van de Steeg explained the proposed investment to Mr Smithson in similar terms to Mr Ezzy, but with some elaboration. Mr Van de Steeg assured Mr Smithson that the Smithsons' names would be removed from the applications as Dr Ludekens had guaranteed that he had doctors waiting to purchase the woodlots. Mr Smithson asked why the Smithsons were needed if Dr Ludekens already had willing investors. Mr Van de Steeg indicated that Dr Ludekens wanted to make more money by on-selling the woodlots after 30 June 2007 and having the purchasers pay him a 25% share of the ultimate harvest return. Mr Van de Steeg emphasised the benefits of the deal to Meloka. He said that by investing $20 million in the trees at least $5 million in cash would be generated for Meloka. He explained that the $5 million would come from Dr Ludekens' commission of $3 million, a GST refund of $2 million and other tax refunds. 45 Mr Van de Steeg also told Mr Smithson that of the $20 million of trees to be purchased, $13 million were to be on-sold and that he and the respondents would keep $7 million worth. Mr Smithson asked Mr Van de Steeg how he and Mr Ezzy were going to keep $7 million worth when their names were only to go on two applications of $2 million each. Mr Van de Steeg told Mr Smithson that Dr Ludekens' name would also be on the applications and that he had asked (or would be asking) the Velardis to use their names on applications in the same way as he was asking the Smithsons. Mr Van de Steeg indicated that if the Smithsons did not help with the woodlot purchase, their investment in Meloka would be at serious risk. 46 After these conversations, Mr Smithson agreed in principle to help out but wanted to talk to Dr Ludekens first. A meeting was set up for 30 June 2007. 47 The respondents and Mr Ezzy met with the Smithsons at their house on 30 June 2007. Mr Smithson expressed his concern that the Smithsons' assets would not be at risk and that they would not be liable for any finance. Dr Ludekens said that Gunns would not allow each of Dr Ludekens, Mr Van de Steeg and Mr Ezzy to have their names on more than two partnerships. Dr Ludekens explained that the Smithsons' names would only be used as a point of reference so that all the woodlots acquired could be broken down into different partnerships in accordance with Gunns' requirements. Dr Ludekens said that he had discussed the Smithsons' involvement with Gunns (including with Mr Blanden), who knew that the Smithsons would only appear on the paperwork as a point of reference. He confirmed that the Smithsons did not need to provide details of their assets as finance had been pre-approved by Gunns for Messrs Van de Steeg and Ezzy. Dr Ludekens assured the Smithsons that their names would be taken off the paperwork in six to eight weeks once he had on-sold the trees to his surgeon friends. 48 In response to a direct query from Mr Smithson, Dr Ludekens confirmed that the $3 million commission would be paid to Meloka via Lotus. Dr Ludekens explained that the offer was only available until 6 pm on that day and that he needed to get the contracts through that day. Mr Smithson told Messrs Van de Steeg and Ezzy that, to proceed with the arrangement, the Smithsons required a written indemnity against any liability. The Smithsons were promised that they would receive one. 49 On the basis of the assurances and promises given to them, the Smithsons signed the forms presented to them by the respondents and Mr Ezzy. The Smithsons were not given copies of the documents they signed on that day. After the forms were signed, the respondents and Mr Ezzy left saying they were going to the Velardis' house as they had also asked them to be points of contact on the woodlot applications. Mr Smithson recalled that, before leaving, Dr Ludekens gave the Smithsons "some colour brochures about Gunns". 50 Approximately four weeks after the meeting on 30 June, Mr Smithson asked Mr Van de Steeg whether Ludekens had on-sold any of the trees so that the Smithsons' names could be removed. Mr Van de Steeg said that Dr Ludekens was working on purchasers and had some ready to go. In the following weeks, Mr Smithson continued to ask both Messrs Van de Steeg and Ezzy about the progress of on-selling the woodlots and the removal of the Smithsons' names. Mr Van de Steeg's general response was that he and Dr Ludekens were working through a couple of issues with Gunns and that there was nothing to worry about. 51 Mr Smithson also repeatedly asked Mr Van de Steeg when the Smithsons would receive the promised indemnity. Some months after the woodlot applications were signed, the Smithsons were given a single letter, dated 30 June 2007, which stated that they were not financially responsible to service the woodlots and were indemnified "in all capacity". That letter also asserted that the Smithsons had purchased woodlots in partnership with Messrs Van de Steeg and Ezzy. Mr Smithson told Mr Van de Steeg that the letter was completely inadequate. It was not until March 2009 that Messrs Van de Steeg and Ezzy and the Smithsons signed a "Deed of Variation, Indemnity, Assignment and Release". 52 At the time of swearing his affidavit, Mr Smithson was shown copies of the documents he had signed on 30 June 2007. He stated that, other than his signature, the forms had been filled out in handwriting other than his own and that he had not authorised that to be done. 53 Mrs Smithson's evidence of her dealings with the respondents and Mr Ezzy was relevantly consistent with that given by her husband. However, she also gave evidence about the following matters. 54 Mrs Smithson recalled having been initially approached by Mr Ezzy in June 2007 in relation to the Gunns woodlot investment. During their discussion, Mr Ezzy told Mrs Smithson that he and Mr Van de Steeg were going to formulate partnerships to buy trees and that he needed the Smithsons to put their names on some of the partnerships. Mr Ezzy said that the Velardis were also going to be on some of the partnerships in the same way. Mr Ezzy explained that the Smithsons' names were needed on the partnerships so that they could get a certain amount of trees to maximise their benefit from the deal. Mr Ezzy said the Smithsons' names would only be on the partnerships to get the deal across the line and would be removed once the trees were on-sold to wealthy investors. Mr Ezzy told Mrs Smithson that the whole deal was being structured and put together to enable Meloka to put a large amount of money very quickly into direct foreign currency trading. Mr Ezzy said that Dr Ludekens was going to contribute his commission to the deal because he was going to be allowed access to direct trading in the foreign currency business at a later stage. Mr Ezzy also indicated that Meloka would obtain GST refunds which would also go into direct foreign currency trading. Mr Ezzy said the he and Mr Van de Steeg needed the Smithsons' help because, without this deal, the foreign currency trading business was going to struggle. Mrs Smithson was told that the deal had to be put together by 30 June 2007. Mr Ezzy indicated that Mr Van de Steeg would separately broach the matter with Mr Smithson. In relation to the 30 June 2007 meeting (see [47]-[50] above) Mrs Smithson also referred to two copies of a "glossy booklet" left by Dr Ludekens. Mrs Smithson identified those glossy booklets as the 2006 PDS. 55 In 2011, Mr and Mrs Smithson were each shown two certificates from the Australian Business Register for two "partnerships". The certificates shown to Mr Smithson referred to two entities: "J P Ezzy & Lotus Capital Pty Ltd & AW Smithson" and "Lotus Capital Pty Ltd & AW Smithson and P Van de Steeg". The entities referred to in the certificates shown to Mrs Smithson were similarly constituted, with "J L Smithson" appearing in place of "AW Smithson." Each did not know of the registrations and did not authorise the use of their name. In addition, in relation to each so-called "partnership", each did not know of, or authorise, the preparation of a Special Purpose Financial Report and unaudited financial statements for the year ended 30 June 2007 (the 2007 financial year) or the preparation and lodgement of the "partnership" taxation return.

(b) The Velardis 56 In the proceedings before the primary judge, Mrs Velardi affirmed an affidavit that addressed, inter alia, the matters summarised in the following paragraphs which were the foundation of the unchallenged findings of fact by the primary judge. 57 Mrs Velardi was introduced to Mr Van de Steeg in 2003. Shortly after their meeting, Mrs Velardi and her husband made some investments with Mr Van de Steeg. The Velardis also lent money to Mr Van de Steeg and his wife for use in a property development. 58 Mr Van de Steeg first mentioned to Mrs Velardi that he was considering an investment in plantation trees with Dr Ludekens in May or June 2007. Mr Van de Steeg indicated that he and Dr Ludekens were going to purchase $20 million of trees from Gunns and subsequently on-sell some of those trees to investors. Mr Van de Steeg explained that Mr Ezzy was also going to be involved and that they were going to use investors' tax returns to finance the acquisition. Mr Van de Steeg said that they would be using $5 million from the deal for the Meloka business and that money was needed for payments overdue to Mr Berlowitz for Meloka's equity in AFTA. 59 Mrs Velardi first met Dr Ludekens at a meeting with Mr Van de Steeg shortly before 30 June 2007. Mrs Velardi recalled Dr Ludekens saying at that meeting that he would receive commission of $3 million on the deal in the first week after 30 June 2007 and that in July 2007, a GST refund of $2 million would be received, followed by investors' tax refunds. 60 On 30 June 2007, Mr Van de Steeg rang Mrs Velardi and said that he, Mr Ezzy and Dr Ludekens wanted to meet the Velardis at their house and talk to them about the trees they were acquiring. Mrs Velardi told Mr Van de Steeg that she was not buying any trees. Mr Van de Steeg said that the Velardis did not have to get involved, they just needed to sign some documents because two signatories were needed. 61 The respondents and Mr Ezzy came to the Velardis' house later that day. The respondents did most of the talking. They told the Velardis that they were acquiring some trees and it was going to help their business. Mrs Velardi asked Mr Van de Steeg why the Velardis needed to sign the paperwork. Dr Ludekens said it was just a formality; this was how Gunns wanted the applications to be completed. 62 One of the respondents told the Velardis that their names would only be on the documents for six weeks. Either Mr Van de Steeg or Dr Ludekens said that they were buying $20 million of trees that day and that they were later going to on-sell $7 million of trees to individuals known to Dr Ludekens and investors identified by Messrs Van de Steeg and Ezzy. The respondents told the Velardis that once the trees were on-sold, the new purchasers would replace the Velardis as the point of reference on the Gunns' contracts. Mr Velardi asked why there were multiple applications each with more than one name. Dr Ludekens said it was a Gunns' requirement. 63 Mr Velardi told the respondents that he wanted to make sure that the Velardis would bear no liability if they signed the documents. One of the respondents assured the Velardis that they would not be liable. Dr Ludekens also said that the Velardis would not be applying for finance because their limited assets and income meant they could not apply for millions of dollars worth of trees. Dr Ludekens said that the finance had been pre-approved based on the combined asset base of the respondents and Mr Ezzy. The Velardis were also told by either Dr Ludekens or Mr Van de Steeg that they would be indemnified for any liability on the woodlots. 64 Having received assurance as to their personal liability, the Velardis signed the single page application forms handed to them by the respondents. Mrs Velardi signed four forms, which were not otherwise filled in when she signed them. After the Velardis had signed, the respondents and Mr Ezzy filled in the forms and then faxed them to Gunns (using the Velardis' fax machine) at approximately 5.30 pm. Dr Ludekens told the Velardis that he had to get the documents done by a certain time and that someone was waiting by the fax machine at Gunns for the documents. The Velardis were not given copies of the completed application forms on that day. 65 In 2011, Mrs Velardi was shown copies of the four completed forms bearing her signature. Two of those forms, headed "Woodlot Finance Package", set out details of assets and liabilities said to be Mrs Velardi's. Those details were not in Mrs Velardi's handwriting and had not been completed when she signed the form. The Velardis had previously given Mr Van de Steeg information about their assets and liabilities when discussing other investments. Mrs Velardi gave evidence that she did not know that information had been entered on the forms at 30 June 2007 and that she did not authorise that to be done. 66 In 2011, Mrs Velardi was shown two certificates from the Australian Business Register for "J P Ezzy & Lotus Capital Group Pty Ltd & L (sic) Velardi" and "Lotus Capital Group Pty Ltd & P Van de Steeg & E Velardi". Those documents show that those entities were registered for GST with a registration date of 1 July 2007. Mrs Velardi did not know about those registrations and did not authorise the use of her name. 67 Mr Velardi also provided sworn evidence. His evidence was relevantly consistent with that of Mrs Velardi. Mr Velardi gave evidence that, in the weeks after they signed the Gunns applications, the Velardis repeatedly asked Mr Van de Steeg about the removal of their names from the contractual documents. However, Mr Van de Steeg did not provide a clear answer. Mr Velardi said that it was not until months later that the Velardis received a letter from Mr Van de Steeg which was supposed to be an indemnity signed by him and Mr Ezzy and that it was not until much later, and following further queries from the Velardis, that a "Deed of Variation, Indemnity, Assignment and Release" was executed. 68 In 2011, Mr Velardi was shown a certificate from the Australian Business Register for a "partnership", "Lotus Capital Pty Ltd & P Van de Steeg & D N Velardi". He did not know of the registration and did not authorise the use of his name. Moreover, in relation to the so-called "partnership", he did not know of, or authorise, the preparation of a Special Purpose Financial Report and unaudited financial statements for the 2007 financial year or the preparation and lodgement of the "partnership" taxation return.

(c) Acquisition of woodlots in the 2006 Gunns Woodlot Project and subsequent steps 69 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

70 Also on 30 June 2007, at the direction of Mr Van de Steeg, Mrs Velardi prepared a letter on Meloka letterhead which was signed by the respondents and Mr Ezzy. That letter evidenced an agreement by those parties to forward all commissions, GST and tax refunds 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". 71 What then followed were two courses of conduct that, to some extent, were necessarily inter-connected - the steps necessary to complete the initial acquisition of the woodlots in the 2006 Gunns Woodlot Project and then the steps necessary to on-sell some of those woodlots to the Secondary Investors. 72 On 2 July 2007, the respondents met with Mr Ezzy. Mrs Velardi prepared notes of this meeting - entitled "Structure and Funding Terms Agreed to". The content is important. It identified the steps to be adopted to replace the Smithsons and the Velardis with the Secondary Investors. The note included 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. (Emphasis added.) 73 On 5 July 2007, Mrs Velardi emailed Dr Ludekens the tax file numbers of Messrs Van de Steeg and Ezzy, the Velardis and the Smithsons. 74 On 6 July 2007, the respondents met with Mr Ezzy again. At Mr Van de Steeg's direction, Mrs Velardi prepared notes for circulation at that meeting. Those notes were substantially based on the notes of the 2 July 2007 meeting. 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". Those notes contained a number of tracked changes made by Mrs Velardi at Mr Van de Steeg's direction. Also on that day, Mrs Velardi emailed Dr Ludekens a further document that had been dictated to her by Mr Van de Steeg entitled "Partnership and Client Management Agreement". Both emails were copied to Mr Ezzy on Mr Van de Steeg's instructions. 75 On 11 July 2007, there was a meeting between the respondents. On the same day, Mr Van de Steeg asked Mrs Velardi to mark-up a number of further changes to both the "Structure and Funding Terms Agreed to" and the "Partnership and Client Management Agreement" documents. 76 On 12 July 2007, Lotus received $3,654,156 from Gunns as commission for the woodlots acquired. Of this amount, $3,324,750 related to the woodlots acquired on 30 June 2007: see [69] above. The remainder of the commission received related to the acquisition of woodlots that are not relevant to this proceeding. On 16 July 2007, Lotus paid $3 million to Meloka. Meloka then distributed these funds in the following manner: 1. $1.4 million was paid to Korlea Pty Ltd (Korlea), a company associated with Mr Berlowitz, for the units in Mr Berlowitz's AFTA business that Meloka was acquiring; 2. $250,000 was paid to Mr Van de Steeg; 3. $200,000 was paid to Mr Ezzy; 4. $90,000 was paid to Arnah Pty Ltd (Arnah), which - at the relevant time - was the trustee of the Ezzy Family Trust; 5. $850,000 was paid to Jameter; and 6. the balance of the $3 million was paid to various creditors of Meloka. 77 On 17 July 2007, the respondents met again. At Mr Van de Steeg's instruction, Mrs Velardi prepared minutes of that meeting which comprised two documents entitled "Lotus and Meloka Trees Agreement" and "Partnership and Client Management Agreement". The minutes also referred to a "client relationship agreement". Mr Van de Steeg told Mrs Velardi that was to be an agreement about who would have the right to market the woodlots investment to certain clients. At a subsequent meeting Mrs Velardi attended with the respondents, Dr Ludekens said that he would not approach Mr Van de Steeg's clients without Mr Van de Steeg's approval. 78 On 20 July 2007, Dr Ludekens emailed Mrs Velardi a number of draft loan and partnership agreements. The purpose of those drafts was to assist Mr Graham Lederman, Mr Van de Steeg's solicitor (of the law firm Ledermans), to prepare similar documents for the Plan. 79 Dr Ludekens then 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 [69] above) and Lotus. 80 On 27 July 2007, Dr Ludekens emailed Mr Van de Steeg the text of an email, along with hyperlinks to the 2006 PDS and PR 2006/8. This email is important. The email was in the following terms: As Promised, here is a snapshot of the investment opportunity. I have attached some links for you if you require more in-depth information. The following example illustrates the basic details: Part 1 - An investor with a high taxable income applies for, say, $100,00 [sic] of GPL woodlots today. We organise 100% finance for the investor. There is no payment made by the investor. - The investor claims a 100% tax deduction on the cost of the woodlots when lodging this year's tax return. The return needs to be lodged in a timely manner. - the ATO will send the investor a tax Refund (because of the woodlot deduction claimed), or if the investor has not yet paid tax to the ATO, then instead the investor sets aside the amount to be repaid. Part 2 - The investor then invests the Refund amount with Lotus. - Lotus repays the principal and interest on the woodlot loan on behalf of the investor for the duration of the loan. - At harvest the investor retains the entire proceeds of the woodlots, less a profit share to Lotus. That is it. Lotus will accept investments from: - individuals on a marginal tax rate of 30% and above (ie: over $25,000 assessable income) - companies on a 30% company tax rate - individuals with Capital Gains, paying 25% tax. Additional detail: 1. I have attached a cashflow calculator so you can project the returns at harvest. If using the calculator, on the finance page leave it as "no finance". 2. GPL Woodlot 2006 Product Ruling from the ATO -http://www.gunns.com.au/plantations/downloadgpl/pr06-008.pdf 3. GPL Woodlot 2006 Product Disclosure Statement - http://www.gunns.com.au/plantations/downloadgpl/WoodlotPDS-Original-supp.pdf (Emphasis in original.) The text of the email was subsequently sent by Mr Van de Steeg to some of the Secondary Investors and had previously been sent by Dr Ludekens to Dr Love: see [97] below. 81 On 1 August 2007, there was a further meeting between the respondents. Mrs Velardi was asked by Mr Van de Steeg to update the notes from the previous meeting (17 July 2007). 82 On 2 August 2007, Dr Ludekens lodged Business Activity Statements for each of the entities purporting to be partnerships (except for the entity registered in the name of the respondents and Lotus, the Business Activity Statement for which was lodged on 14 August 2007). A GST refund was claimed in each Business Activity Statement for input tax credits relating to the acquisition of the woodlots. 83 In or about mid August 2007, the GST Compliance Verification Centre (a branch of the Australian Taxation Office (the ATO) "placed a stopper" on the GST refunds claimed by the purported partnerships. 84 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.

(d) Approaches to Secondary Investors 85 In the proceedings before the primary judge, a number of Secondary Investors (namely, Mrs Ruffato, Ms Gibson, Dr Love and Messrs Tregambe, Martino and Crowe) gave affidavit evidence that addressed, inter alia, the matters summarised in the following paragraphs which were the foundation of the unchallenged findings of fact by the primary judge.

(i) Mrs Ruffato 86 In or about June 2007, 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". Mr Van de Steeg told Mrs Ruffato 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. 87 On 14 June 2007, Mrs Ruffato sent an email to Dr Ludekens to confirm a meeting scheduled for 18 June 2007. This meeting was postponed a number of times. It was ultimately held in August 2007. 88 In August 2007, Dr Ludekens offered Mrs Ruffato and her husband the Secondary Investment during a meeting at the Ruffatos' home. Dr Ludekens showed them the 2006 PDS. Mrs Ruffato understood from this meeting with Dr Ludekens that the proposed investment involved owning trees, lodging an income tax return for that investment, getting a refund and then paying that refund to Dr Ludekens, which he would then invest. Once the trees were fully grown, Mrs Ruffato understood the investors would receive profits from the harvest. 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. 89 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). Mr Van de Steeg was the author of this email: see [80] above. 90 Mrs Ruffato subsequently told Mr Van de Steeg that she and her husband were not interested in proceeding with the investment.

Mr Tregambe 91 Mr Tregambe had known Dr Ludekens socially for approximately seven or eight years and had invested some money with Dr Ludekens. Some time in the first half of 2007, Dr Ludekens met with Mr Tregambe and offered him the trees investment through Gunns. Dr Ludekens told Mr Tregambe that: 1. As an investor, he would purchase allotments of trees, the quantity of which would be determined by his annual income. 2. The investment would be structured in a way that maximised his tax refund and the tax refund would then be used to invest in the trees. 3. The returns from the investment would not come until ten years after the initial investment. 4. The investment would be made through Gunns which would allow Mr Tregambe to obtain a deduction for the investment and a tax refund. 5. There would be a loan obtained to buy the trees and the money received as a tax refund would be used to service the loan. 92 Mr Tregambe decided to go through with the purchase of the trees. Dr Ludekens told Mr Tregambe that he was putting together a partnership and asked him to sign a partnership document. Mr Tregambe did so. Mr Tregambe understood that Dr Ludekens had already purchased some trees and that he would "buy into" some of the trees already purchased. The partnership document named Mr Poon, Ms Richards and Dr Love whom Mr Tregambe had never met and did not know. At no time did Mr Tregambe and Dr Ludekens discuss the role of the partners. Mr Tregambe did not expect to have any say in the running of the partnership. As he understood it, his responsibility for his part of the partnership was a $108,000 allotment. 93 On 13 November 2007, Dr Ludekens emailed Mr Tregambe a copy of partnership financial statements and a tax return and requested that he forward these documents to his tax agent for the preparation of his 2007 tax return. Dr Ludekens also asked that he print, sign and return the Partners' Declaration page as soon as possible. Mr Tregambe forwarded these documents to his accountant on 14 November 2007 and later authorised his accountant to lodge his 2007 tax return which claimed a deduction for the partnership loss in respect of the woodlot investment. That deduction was later disallowed. 94 In 2011, Mr Tregambe was shown a "partnership" tax return for a partnership in the name of "Lotus Capital Group Pty Ltd, A Ludekens and P Van de Steeg". It was the same document sent to him on 13 November 2007 which he forwarded to his accountant. Mr Tregambe's name appeared in the partnership return lodged with the ATO on a page headed "statement of distribution of net Australian income or loss". The "share of income" figure alongside his name was -108,542. Mr Tregambe did not recall seeing this document in 2007. Dr Ludekens did not discuss lodging the partnership return with Mr Tregambe and Mr Tregambe did not authorise him or anyone to lodge it on his behalf.

Dr Love 95 Dr Love was introduced to Dr Ludekens in early 2007. On 13 June 2007, Dr Ludekens offered Dr Love the Secondary Investment during a telephone discussion. During that conversation, Dr Ludekens assured him that the investment he was proposing had an appropriate product ruling. Dr Ludekens offered him interests in woodlots for the 2006 financial year as well as the 2007 financial year. This evidence was tendered as tendency evidence under s 97 of the Evidence Act 1995 (Cth). 96 Dr Love's evidence was that initially he did not understand how he could invest in the 2006 income year as it had already passed. Further he did not understand that a previous tax return could be amended or how he could be offered woodlots from a prior year in which he had received no losses. Dr Ludekens advised Dr Love that there was a tax ruling, that it was legitimate and that he could amend his tax return for the 2006 income year and receive a refund, which Dr Love could then forward to Dr Ludekens to invest. At no time during that conversation did Dr Ludekens mention that Dr Love would be entering into a partnership. 97 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. It was in the same form as that set out at [80] above. 98 From his telephone conversation with Dr Ludekens and the email, Dr Love understood that the investment would involve the following steps: 1. As an investor, he would nominate an amount of money to put towards the acquisition of woodlots in a Gunns managed investment scheme. 2. A loan would be obtained to finance the acquisition of the woodlots. 3. In his tax return, he would claim the amount paid for the woodlots as a deduction. 4. He would pay the resulting tax refund to Dr Ludekens or Lotus, who would then use the refund to pay the principal and interest on the loan. 5. 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. 99 Dr Love raised a concern with Dr Ludekens that, as he understood the terms of the investment, the investment was not guaranteed and that if Dr Ludekens or Lotus become insolvent, Dr Love personally would be responsible for the entire amount of the loan. Dr Love accepted Dr Ludekens' verbal guarantee that any shortfall would be covered by him personally. 100 As a result of the information provided to him by Dr Ludekens, Dr Love decided to invest $200,000 in each of the 2006 and 2007 financial years. Dr Ludekens advised Dr Love that because his assessable income was much higher in those years he could nominate up to that amount. Dr Love considered that he had identified any risks, foresaw no loss and in the worst case believed that he would receive a modest return in 10 and 25 years with no cost to him in the interim. 101 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 2006 financial year was lodged. 102 On 27 September 2007, Dr Love sent Dr Ludekens an email enquiring about the relevant documents for his investment in the 2007 financial year. Dr Love requested Dr Ludekens provide the necessary documents to his accountants so that his tax return could be prepared. 103 On 28 September 2007, Dr Love met with Dr Ludekens in the foyer of his accountant's building. Dr Ludekens asked Dr Love about his other financial interests, his level of debt and other investments, stating that "by law, he needed to know some background." Dr Ludekens requested Dr Love to sign a form headed "Statement of General Advice" which he signed. A copy was not provided to Dr Love. 104 On 17 October 2007, Dr Love sent a further email to Dr Ludekens enquiring about the relevant documents for his investment in the 2007 financial year to enable him to lodge his tax return. On 13 November 2007, Dr Love received an email from Dr Ludekens which attached a set of financial statements in relation to a partnership and a partnership tax return. Dr Love reviewed the documents. He had not met or heard of the other named partners on the partnership financial statements with the exception of Dr Ludekens. Dr Love forwarded the email to his accountants. 105 On 19 March 2008, Dr Love's accountant filed his amended tax return for the 2006 income year and his tax return for the 2007 financial year. On 9 April 2008, a Notice of Assessment was issued in relation to the 2006 financial year. The tax deduction for the 2006 woodlot investment was disallowed. Dr Love said that he spoke to Dr Ludekens after learning that the deduction had been disallowed. Dr Ludekens told him that there had been an error with the paperwork but that there was no error with the investment or the partnership. 106 On 2 May 2008, a Notice of Assessment was issued in relation to the 2007 financial year. The tax deduction for the 2007 woodlot investment was disallowed. Dr Love did not pay Dr Ludekens any money in relation to the 2006 or the 2007 investments as there was no tax refund or tax saving to forward to Dr Ludekens.

Ms Richards and Mr Poon 107 Neither Ms Richards nor Mr Poon was called to give evidence at trial. The case put by the Commissioner at trial did not particularise when Dr Ludekens proposed the relevant scheme to Ms Richards, but it was alleged that Dr Ludekens discussed the Secondary Investment with Mr Poon at social occasions in the first half of 2007. The Commissioner submitted that the primary judge should infer that Dr Ludekens marketed the Secondary Investment to Ms Richards and Mr Poon, as each signed partnership materials prepared for that investment. The primary judge found it appropriate to draw that inference.

Mr Martino 108 In early 2007, Mr Van de Steeg met with Mr Martino through their respective children's sporting activities. Mr Van de Steeg subsequently attended Mr Martino's home to discuss investment opportunities. In early May 2007, Mr Martino invested in Meloka. 109 Sometime after this, Mr Van de Steeg approached Mr Martino about investing in plantation trees. 110 Mr Martino stated that Mr Van de Steeg told him that part of the investment involved obtaining a tax refund after it had been lodged and that the tax refund would then be given to either himself or Dr Ludekens. Mr Van de Steeg told him that Dr Ludekens was a businessman running the tree plantation investment with him. Mr Martino never met Dr Ludekens. 111 At this time, Mr Van de Steeg gave Mr Martino a copy of the 2006 PDS and explained the investment to him as follows: 1. Mr Van de Steeg had bought or was going to buy a considerable amount of plantation trees through Gunns. 2. Investors would buy trees as a partnership. The partners were not identified. 3. Mr Martino could get a tax return of approximately $50,000 from an investment of approximately $120,000. 4. The trees were a long term investment (around 13 or so years) and that once the trees were matured and harvested, he would get a return in excess of $200,000. 5. Investors would get a tax refund from the trees investment and would have to make a one off payment from their tax refund to Mr Van de Steeg or Dr Ludekens. 6. 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. 112 Mr Martino asked Mr Van de Steeg to meet with his accountants in order to explain the investment. On 13 September 2007, Mr Van de Steeg met with one of Mr Martino's accountants, Mr Kirk Webster, to explain the Secondary Investment. At this time, Mr Van de Steeg told him that he had acquired $10 million worth of Gunns woodlots and that he was going to on-sell $3 million 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. 113 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 Dr Ludekens to Dr Love (on 14 June 2007) (see [97] above, by Dr Ludekens to Mr Van de Steeg (on 27 July 2007) (see [80] above) and by Mr Van de Steeg to Mrs Ruffato (on 23 August 2007): see [89] above. Mr Van de Steeg was the author of this email. 114 On 29 November 2007, Mr Van de Steeg and Mr Martino attended a meeting at the offices of Mr Lederman. Also in attendance at the meeting were representatives from the ATO and other people who Mr Martino assumed were other investors. Mr Van de Steeg gave Mr Martino a document titled "Woodlots Info" and advised him to only answer questions from the ATO. The ATO requested to speak individually to each person. 115 Later that day, on 29 November 2007, Mr Martino and another accountant from the same firm as Mr Webster, a Mr Terrance Jasper, met with Mr Van de Steeg to discuss the investment. Mr Van de Steeg explained the Secondary Investment to Mr Jasper and provided him with copies of the partnership tax return and financial statements. At the end of the meeting, Mr Jasper requested Mr Van de Steeg provide documents to him in relation to the investment. Around this time, Mr Martino informed Mr Van de Steeg that he would not go ahead with the investment for the 2007 financial year; it would have to go into the next financial year. At this time, Mr Martino had not lodged his tax return for the 2007 financial year. 116 Some time after the meeting on 29 November 2007, Mr Martino followed up with Mr Jasper for his advice about the investment. Mr Jasper still had not received any documents from Mr Van de Steeg. 117 Mr Van de Steeg subsequently told Mr Martino that the Gunns investment was not going ahead as there was something not right about it. 118 Mr Martino acknowledged that he completed and signed a document titled "Partnership Application" and that this document was provided to him by Mr Van de Steeg. Mr Martino could not recall when he completed and signed the document. However he said that the date of 25 May 2007 and the figure of $108,542 were not on the document when he signed it. Further, he said that the date of 25 May 2007 and the figure of $108,542 were not in his handwriting and are different to the rest of the form. 119 On 22 April 2009, Mr Martino was shown a document titled "Lotus Capital Group Pty Ltd & P Van de Steeg & E Velardi - Special Purpose Financial Report" by the ATO. Mr Martino acknowledged that his signature appears on one page of the document headed "Partners' Declaration" but stated that when he signed this page it was a single page document. Mr Martino could not recall if the single page document contained other signatures when he signed it. 120 On 9 August 2010, Mr Martino was shown the following documents by the ATO: 1. An application for woodlots in the 2006 Gunns Woodlot Project. 2. A letter from Gunns confirming an application for 350 woodlots had been accepted. 3. A tax invoice relating to 350 woodlots. Mr Martino said that he did not know that these documents existed and had never seen them before. 121 On 8 August 2011, Mr Martino was shown a letter from Gunns Finance Pty Ltd addressed to Mr P Van de Steeg and Mrs E Velardi confirming approval of $2,391,179.75 in finance. Mr Martino said that he did not know that this document existed and had never seen it before. 122 In December 2011, Mr Martino was shown a partnership tax return in the name of "Lotus Capital Group Pty Ltd & P Van de Steeg & E Velardi". Mr Martino's name appeared as a "beneficiary". Mr Martino did not know that the tax return had been prepared and did not authorise it to be lodged. Mr Martino did not know the other people named as beneficiaries.

Ms Gibson 123 Ms Gibson (later, Ms Jan Taylor) met Mr Van de Steeg through an investment expo in Melbourne. 124 On 13 September 2007, Mr Van de Steeg attended a meeting with Ms Gibson and her husband at which he offered her the Secondary Investment. 125 Ms Gibson said that she had in the past looked at 'tax effective investments' but decided that the loan repayments had a large financial impact. Mr Van de Steeg advised Ms Gibson that he: … had access to foreign currency exchange trading. [He] would build a fund to invest by taking, amongst other things, the GST refund on the woodlots. While discussing this he drew a block diagram and marked it GST. He said the deal would be that I gave him the tax refund and he would use the funds for trading too. The proceeds of the trading would be used to repay the loans, so we did not have to. (Emphasis in original.) 126 From this meeting, Ms Gibson understood that the Secondary Investment would work in the following way: 1. Her share in the woodlots would depend on her income. 2. She would receive a tax refund based on her investment in the woodlots, which would then be paid to Mr Van de Steeg. 3. Mr Van de Steeg would use the amount of this refund to invest in the woodlots and for foreign currency trading. The proceeds of the foreign currency trading would be used to repay the loans. 127 Mr Van de Steeg told Ms Gibson that he was going to get together a group of people to invest in $20 million worth of trees that he had already acquired. He explained that he and Mr Ezzy were going to be the key investors. 128 Mr Van de Steeg said that Dr Ludekens could provide access to the woodlots and that Dr Ludekens was putting the deal together. Mr Van de Steeg explained that to get the deal for the woodlots he offered Dr Ludekens access to the foreign currency trading. 129 Ms Gibson and her husband were interested in going ahead with the Gunns investment based on the figures Mr Van de Steeg had worked out from Ms Gibson's income details. At the end of the meeting, Mr Van de Steeg said he would get back to Ms Gibson with some more information. 130 In a later discussion about the investment, Ms Gibson told Mr Van de Steeg that she had already put in her tax return. Mr Van de Steeg told Ms Gibson that she could redo her tax and put in an amendment. 131 In around November 2007, Ms Gibson was advised by Mr Van de Steeg that she was required to attend a meeting at the office of Mr Lederman with officers of the ATO. Mr Van de Steeg told Ms Gibson that he was waiting for a cheque for an amount of $2 million, which comprised part of the funds that was going to go into foreign exchange trading along with Ms Gibson's tax return. Ms Gibson stated that Mr Van de Steeg said that "there were some problems with the ATO asking questions about the matter, and so they were putting together a partnership". 132 Around the time of her conversation with Mr Van de Steeg, Ms Gibson also spoke with Mrs Velardi. Mrs Velardi told Ms Gibson that she was sending Ms Gibson some guidelines to do with the meeting at Mr Lederman's office. 133 Ms Gibson said that she had received a "Partners' Declaration" in an email from Mrs Velardi, which she had signed and faxed back. Ms Gibson could not recall precisely when she received that document. Ms Gibson also said that she received a document entitled "Woodlots Info" from Mrs Velardi. That document included a message that if anyone rang from the ATO with questions about the trees investment, the ATO should only be given information if they asked for it. The document also contained the words "you committed to joining the partnership in May/June 2007". Ms Gibson knew that this statement was incorrect. 134 When Ms Gibson next spoke to Mr Van de Steeg, she asked for more information about the investment. 135 At some time in November 2007, Ms Gibson also received a package including a letter on Lotus letterhead, a set of financial statements apparently prepared for "Lotus Financial Group Pty Ltd & P Van de Steeg and E Velardi," a 2007 partnership tax return for the partnership identified as "Lotus Financial Group Pty Ltd & P Van de Steeg and E Velardi," a certificate of investment issued by Gunns and a finance approval letter issued by a Gunns entity. The Partners' Declaration signed by Ms Gibson appeared to form part of the financial statements, except that the copy Ms Gibson received appeared also to have been signed by other people. In the notes to the financial statements was a list of supposed partners and each partner's share of the loss. The names of Mr Crowe and Mr Martino also appeared on the document. Ms Gibson did not recognise either. The amount of partnership loss of $108,542 attributed to Ms Gibson was the amount Mr Van de Steeg worked out that, based on her income, Ms Gibson could claim as a refund. 136 Ms Gibson said that she was surprised when she received the package of material. She had not expected to be dealing with anyone other than Mr Van de Steeg or Mrs Velardi in relation to the trees. 137 Ms Gibson also received a document from either Mr Van de Steeg or Mrs Velardi in the form of an unsigned letter which purported to appoint Mr Lederman as her representative for the meeting with the ATO that was to take place on 29 November 2007. Ms Gibson believed that she was asked to sign and return that letter. 138 Very shortly before the meeting scheduled at Mr Lederman's office, Mr Van de Steeg or Mrs Velardi told Ms Gibson that she no longer needed to attend the meeting. 139 On or around 5 December 2007, Ms Gibson received by email from Mrs Velardi a form headed "partnership application". Ms Gibson signed and completed the form, except for the date and amount of woodlots. Ms Gibson said that Mr Van de Steeg or Mrs Velardi asked her not to complete those parts of the document. 140 After completing the documents referred to above, Ms Gibson heard nothing about the investment for some time. A couple of months later, Ms Gibson called Mr Van de Steeg and asked him what happened about the woodlots. Mr Van de Steeg told Ms Gibson that they had gone ahead with a differently constituted group. This was the last conversation Ms Gibson had with Mr Van de Steeg about the woodlots investment. 141 On 11 August 2010, Ms Gibson was shown by ATO officers an application for woodlots in the 2006 Gunns Woodlot Project and a booklet entitled "Woodlot Finance Package" apparently signed by Mr Van de Steeg and Mrs Velardi. On 5 December 2011, Ms Gibson was shown a letter from Gunns confirming that an application for 350 woodlots was accepted and a tax invoice relating to 350 woodlots. Ms Gibson stated that she had never before seen those four documents and had not been aware that they existed. The only documents similar to those which Ms Gibson could recall were those referred to at [135] above. Ms Gibson did not give anyone any authority to sign documents on her behalf for the Gunns investment. 142 Ms Gibson could not recall any discussions with Mr Van de Steeg about him borrowing money to buy the woodlots. Mr Van de Steeg had never told Ms Gibson that she would be responsible for any debts of the partnership for the woodlots. Ms Gibson did not authorise Mr Van de Steeg or Mrs Velardi, or anyone else, to borrow money on her behalf.

Mr Crowe 143 Mr Crowe and his wife, Mrs Naomi Crowe, (the Crowes) were first introduced to Mr Van de Steeg by Mr Velardi in 2006. In October 2006, the Crowes invested in Meloka. 144 In about October 2007, Mr Van de Steeg met with the Crowes at their home and offered Mr Crowe the Secondary Investment. During this meeting, Mr Van de Steeg told the Crowes that he had bought a huge allotment of trees in partnership with another person and that he was on-selling the trees to his "special investors". Mr Van de Steeg showed the Crowes a "glossy brochure" regarding the tree investment. It was unclear whether that brochure was the 2006 PDS, or some other document. Mr Van de Steeg said that it was a long term investment, that Mr Crowe would be in a partnership which would run at a loss, and that he would get a tax refund because the trees were tax deductible. Mr Van de Steeg said that when Mr Crowe got the refund, he would transfer it to Mr Van de Steeg to pay for his share of the investment. 145 As Mr Crowe had already lodged his tax return for the 2007 financial year, Mr Van de Steeg told Mr Crowe that he would have to re-do his tax return to reflect his investment in the trees partnership. Mrs Crowe asked how it could be possible to say you have been running at a loss when you have not. Mr Van de Steeg said it was legitimate and that there was a loophole in the tax system. He said Mr Crowe would get a tax refund which would pay for the trees. Mr Van de Steeg did not mention any other payment or the need to take out any loan for the trees. 146 After the meeting with Mr Van de Steeg, Mr Crowe sent Mrs Velardi a copy of either his 2007 tax return or his group certificate. On 9 November 2007, Mrs Velardi emailed Mr Crowe a "Partners' Declaration" and a document headed "Woodlots info". The Partners' Declaration had been already been signed by one person who was unknown to Mr Crowe. Mr Crowe signed the Partners' Declaration and faxed it back to Mrs Velardi. 147 On 29 November 2007, Mr Crowe met with the ATO at the offices of Mr Lederman. Mr Van de Steeg spoke briefly to Mr Crowe just before the meeting. Mr Van de Steeg told Mr Crowe to say that he knew Dr Ludekens. Mr Crowe told the ATO this even though, at that time, he had not met Dr Ludekens. 148 In early December 2007, Mr Crowe asked his tax agent, Mr Darren Trew, to put in an amended tax return as Mr Van de Steeg had required. Mr Crowe delivered financial statements (including the single page Partners' Declaration he had signed) and a tax return for a partnership to Mr Trew's office. 149 Mr Van de Steeg gave Mr Crowe a folder of documents about the Gunns woodlots around November or December 2007. Included in that folder was a letter on Lotus letterhead, a certificate that appeared to indicate Mr Crowe owned woodlots and a letter from Gunns Finance confirming the loan. Mr Crowe believed that documents referred to in the letter on Lotus letterhead were the set of financial statements and partnership tax return which he delivered to Mr Trew (see [148] above). 150 After Mr Trew had looked at the documents, he told Mr Crowe there was going to be a big tax refund. Mr Crowe signed a letter (prepared by Mr Trew) asking the ATO to make an amendment to his 2007 income tax return to include a partnership loss of $130,250. 151 On 5 December 2007, Mrs Velardi sent Mr Crowe an email asking that he sign but not date the attached one page document headed "Partnership Application". The Crowes filled out the application and Mr Crowe signed it. Mrs Crowe faxed the partnership application to Mrs Velardi. On about 12 December 2007, Mrs Velardi asked Mr Crowe whether Mr Van de Steeg could collect the original copy. Mrs Velardi sent another copy of the document to Mr Crowe on 12 December 2007. 152 In mid February 2008, Mr Crowe received a letter from Mr Trew enclosing a refund cheque from the ATO for the sum of $47,929.67. Shortly thereafter, Mrs Velardi emailed Mr Crowe the details of an account in the name of Meloka where he was to transfer the tax refund when it came through. On 26 February 2008, Mr Crowe transferred $47,934.67 to that account. 153 In about June 2008, Mr Van de Steeg called Mr Crowe and told him that Dr Ludekens was having problems with the ATO and Gunns and that the trees investment could not go ahead. Mr Van de Steeg told Mr Crowe that he should have his tax return amended again and get out of it. 154 In August 2008, Mr Crowe's tax return was amended again to remove the partnership loss of $130,250 (which returned Mr Crowe to the position in his original tax return). 155 In late January 2009, Mr Crowe received a tax bill. He asked Mr Van de Steeg to repay the refund money so that he could pay his tax bill. Mr Van de Steeg said he would pay the tax bill but did not have the money to pay it then. Mr Van de Steeg said that Mr Crowe should get the ATO to put the debt into his name. 156 In March 2009, Mr Crowe was informed that the ATO was chasing the debt. Shortly thereafter Mr Trew met with Mr Van de Steeg and his accountant. Mr Trew told Mr Crowe that Mr Van de Steeg had agreed to pay the ATO debt by instalments. Some time later, Ms Leanne Taylor (who worked for Mr Trew) told Mr Crowe that a payment arrangement was in place. 157 A month or two later, Ms Taylor told Mr Crowe that the payment plan had gone into default. Mr Crowe attempted to contact Mr Van de Steeg to ask what was going on but was unsuccessful. Mr Crowe had further discussions with Ms Taylor about setting up a second payment plan. She said she had to speak with Mr Van de Steeg and Mrs Velardi again to set it up. Another month or two later, Ms Taylor told Mr Crowe that the second payment plan had also defaulted. Ms Taylor subsequently negotiated a third payment plan with the ATO. 158 In late October, Ms Taylor told Mr Crowe that Mr Van de Steeg had again defaulted on the payment plan. She told Mr Crowe that, because there was default under the payment plan for a third time, the ATO would not accept any more payment arrangements and would be taking action to recover the debt. Mr Crowe told Mr Van de Steeg that the arrangement needed to be paid off in full or transferred to Mr Van de Steeg's name. 159 On 17 August 2009, Mr Crowe's income tax was assessed for the 2009 year and, according to his notice of assessment, he was entitled to a refund of $3,918.67. However, the refund went towards Mr Crowe's debt to the ATO and he did not get the benefit of it. Mr Crowe demanded that Mr Van de Steeg pay him that amount. Mr Crowe eventually received two payments (totalling $3,900), the second of which he received around December 2009. 160 Messrs Crowe, Van de Steeg and Trew and Ms Taylor met at Mr Trew's office on 21 December 2009. Mr Van de Steeg said that the debt was his to pay but he did not have the money to pay it then. He said that Mr Crowe's tax return should be re-done again to say that the woodlots were back in Mr Crowe's name and that he would give them back to Mr Crowe as he still had the woodlots. He said this would bring the tax debt back down to zero. Mr Crowe did not understand how this would work and argued with Mr Van de Steeg about it. Mr Van de Steeg said that if this would not work, he would make an affidavit for Mr Crowe to give to the ATO to convince them that he was responsible for the debt. After that meeting, Mr Crowe's 2007 tax return was amended a third time, seeking to claim the partnership loss again. 161 On 14 January 2010, Mr Crowe spoke to Mrs Velardi. Mrs Velardi told Mr Crowe that Mr Van de Steeg had lost everything and that a lot of people had lost a lot of money. She told Mr Crowe that he did not have any woodlots in his name. 162 On 3 February 2010, ATO investigators met with Mr Crowe. The investigators went through Mr Crowe's documents and told him to write to the ATO again and say that his 2007 income tax return was not to be amended a third time. Mr Crowe did so. 163 On 11 August 2010, Mr Crowe was shown, by ATO officers, an application for woodlots in the 2006 Gunns Woodlot Project and a booklet entitled "Woodlot Finance Package" apparently signed by Mr Van de Steeg and Mrs Velardi. On 2 December 2011, Mr Crowe was shown a letter from Gunns confirming that an application for 350 woodlots was accepted and a tax invoice relating to 350 woodlots. Mr Crowe said that he had never before seen these documents and was not aware that they existed. The only documents like those that Mr Crowe saw before speaking with the ATO about this matter were those provided to him as described in [146] and [148]-[149] above. Mr Crowe did not give anyone any authority to sign documents on his behalf for the Gunns investment. 164 In 2011, Mr Crowe was also shown a copy of a partnership application form filled out in his name (see [151] above) but dated 28 May 2007. Mr Crowe said that he did not insert that date. He did not know anything about the trees investment until around October 2007. A value of $130,250 had been put down on the form. Mr Crowe said he did not fill in that figure and that he was not aware that was the value of the woodlots he would be investing in. Mr Crowe did not recognise the handwriting on the document and did not believe the signature to be his. 165 Mr Crowe did not recall any discussions with Mr Van de Steeg about Mr Van de Steeg borrowing any money to buy the woodlots. Mr Van de Steeg never said to Mr Crowe that he would be responsible for any debts of the partnerships for the woodlots. Mr Crowe did not authorise Mr Van de Steeg, Mrs Velardi, or anyone else to borrow money on his behalf.

Mr Berlowitz 166 Mr Berlowitz was not called to give evidence at trial. At trial, the Commissioner sought to draw the inference that Mr Van de Steeg offered 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 was dated 16 May 2007. However, Mrs Velardi gave evidence that this document was created in late 2007. As Mr Van de Steeg did not give or lead evidence on the issue, the primary judge was prepared to make that inference.

(e) ATO dealings and subsequent steps taken by respondents 167 On 18 September 2007, Dr Ludekens attended a meeting with Mr Michael Hawa - then a senior auditor within the GST Complex Audit branch of the ATO - and other ATO representatives. 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. 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. Dr Ludekens invited Mr Hawa to contact Mrs Velardi for any information required by the ATO if he himself was ever unavailable. 168 In or about October 2007, Mrs Velardi attended the offices of Ms Keep to retrieve all documents relating to the GST refund issue. She did so on behalf of Dr Ludekens (and on the instructions of Mr Van de Steeg). Shortly after this, Dr Ludekens engaged Coghlans Partners Pty Ltd (Coghlans) to assist with the GST refund issue. 169 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 about the purported partnerships. In the following days, there was an exchange of emails between Mr Hawa and Dr Ludekens on this subject. 170 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 [Ludekens] 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 [Ludekens] family Trust or Lotus - $8,071,919.80 Arnah Pty Ltd - $5,202,626.50 (Jonathan [Ezzy]) ... Ty-Tia Pty Ltd - $5,202,626.50 (Peter Van De Steeg) Total Woodlots allocated $20M 171 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 Ezzy 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]

This correspondence further stated that the partnerships relevant to this proceeding were established verbally on 1 May 2007. This letter was the first time Dr Ludekens had stated positively that there were no written partnership agreements. 172 Mr Hawa requested further information from Dr Ludekens 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. 173 Also at or around this time, Dr Ludekens instructed Coghlans to prepare draft financial statements and draft tax returns for 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. 174 On 2 November 2007, Mr Martin Cash, an accountant then employed by Coghlans, 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. 175 Also at or around this time, Mr Hawa continued to correspond with Dr Ludekens, seeking further details regarding the purported partnerships. 176 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". Mr Van de Steeg arranged for Mr Martino to sign the document (see [119] above) and also signed the relevant document on behalf of his company, Ty-Tia. Mrs Velardi then sent the document to Ms Gibson (see [133] above) and Mr Crowe (see [146] above) for signature. At this time, these investors were also provided 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): see [133] and [146] above. Dr Ludekens provided Mrs Velardi with this document for distribution to investors. 177 On 13 November 2007, Dr Ludekens emailed Dr Love (see [104] above), Mr Tregambe (see [93] above), Ms Richards and Mr 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. 178 Mr Tregambe forwarded these documents to his accountant and later authorised his accountant to lodge his 2007 income tax return, which claimed a deduction for the partnership loss for the woodlot investment: see [93] above. Dr Love did the same: see [104]-[105] above. 179 On 14 and 15 November 2007, Mr Hawa received a set of signed partnership financial statements and special purpose financial reports for the purported partnerships. 180 On 19 November 2007, a Business Activity Statement for Lotus was lodged with the ATO. This statement reported the commission received from Gunns for the period ending 30 September 2007. 181 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: 1. A copy of the partnership financial statements; 2. A copy of the partnership tax return; 3. 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 4. 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". Dr Ludekens was actively involved in the drafting of this letter. 182 Mrs Velardi provided the welcome kits to Mr Van de Steeg to distribute to investors. Ms Gibson and Mr Crowe received a welcome kit in about November 2007: see [135] and [149] above. 183 On 29 November 2007, Mr Van de Steeg met with Mr Martino and Mr Jasper to discuss the Secondary Investment: see [115] above. 184 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: see, by way of example, [114] and [147] above. These meetings formed part of the ATO audit of the purported partnerships' claims for GST refunds. 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: see for example [137] above. 185 On 5 December 2007, Mrs Velardi emailed 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. Ms Gibson and Mr Crowe were asked to sign (but not date) that application: see [139] and [151] above. At or around this time, Mrs Velardi also separately printed a copy of the partnership 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: see [151] above. Messrs Crowe and Martino and Ms Gibson all signed the document, leaving the date blank as instructed: see [118], [139] and [151] above. 186 At or around this time: 1. Mr Crowe delivered the partnership financial statements and tax return to his accountant, and requested that his 2007 tax return be amended to claim a deduction for the woodlots: see [149]-[150] above; 2. Mr Berlowitz signed partnership application forms: see [166] above; 3. Dr Ludekens procured the signatures of Ms Richards and Mr Poon on partnership application forms: see [107] above; and 4. Dr Ludekens engaged Coghlans to act in relation to the GST audit being carried out by the ATO. 187 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. 188 On 17 December 2007, Mr Hawa spoke with Mr Lederman about the Decision Summary Report. 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). That same day, Mr Hawa received a fax from Coghlans, 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. 189 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 and the respondents, 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). 190 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 [69] above. 191 On 19 December 2007, Dr Ludekens emailed Mrs Velardi to tell her that most of the partnership Business Activity Statements had been re-lodged (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. 192 On 11 January 2008, the ATO received Mr Crowe's amended income tax return for the 2007 financial year, claiming a deduction of $130,250 in respect of primary production losses: see [150] above. 193 On or about 13 January 2008, Coghlans requested the cancellation of the registration of all of the purported partnership entities previously registered for the Gunns woodlot investment, and registered ten new partnership entities, all of which were constituted without Lotus (GST partnerships). 194 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 for the acquisition of the Gunns woodlots. 195 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: 1. Lotus transferred $1,768,000 to Ty-Tia; 2. Ty-Tia made two payments (of $1,000,000 and $576,000) to Meloka; 3. Meloka distributed this amount as follows: (i) $1,000,000 to Korlea; (ii) $100,000 to Jameter; and (iii) the balance to various creditors. 196 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. 197 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: see [140] above. Also at or about this time, Mr Van de Steeg called Mr Martino and told him that the Secondary Investment would not be proceeding: see [117] above. Further, at around this time, Mr Van de Steeg instructed Mrs Velardi to tell Mr Crowe not to claim the deductions for the Gunns woodlots. However, by this stage, Mr Crowe had already lodged his amended tax return: see [150] above. Mr Van de Steeg subsequently instructed Mrs Velardi to ask Mr Crowe to provide his tax refund to Meloka: see [152] above. 198 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: see [152] above. 199 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%. After Mr Smithson raised the matter with Mr Van de Steeg, Mr Van de Steeg said that there was the opportunity to take $100,000 worth of trees. Mr Smithson told Mr Van de Steeg that the Smithsons were not interested. 200 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. 201 On 9 March 2008, the ATO received Mr Tregambe's tax return for the 2007 financial year. The deduction of $108,542 claimed for primary production losses was ultimately disallowed: see [93] above. 202 On 15 March 2008, Mr Patrick Cussen, a solicitor engaged by Coghlans, advised Dr Ludekens, Mrs Velardi, Mr Crouch and Mr Aldo De Luca (a principal of Coghlans) 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. 203 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 for primary production losses was ultimately disallowed: see [106] above. 204 On 25 March 2008, Mr Crouch spoke with Mr Blanden about assigning interests in the woodlots. 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. 205 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 for the Secondary Investment. 206 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". Both Mr De Luca and Dr Ludekens had "detailed input" into these submissions. The factual background was provided by Dr Ludekens. The submissions were also provided to Mr Cussen for his comment before finalisation. 207 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). 208 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. 209 On 27 August 2008, Mr Trew prepared a further amended tax return for Mr Crowe, reversing the deduction previously claimed: see [154] above. 210 On 4 September 2008, Coghlans lodged requests to amend the 2007 tax returns for the other two purported partnerships, namely, those involving Lotus and the respondents 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. 211 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. 212 On 21 January 2009, the ATO issued a notice of amended assessment to Mr Crowe, assessing his income tax liability for the 2007 financial year 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 Van de Steeg told him that he would repay this amount, but that he was unable to do so at that time. 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 Van de Steeg defaulted on all of these payment plans: see [155]-[158] above. 213 On 29 January 2009, Messrs Van de Steeg and Ezzy, the Smithsons and the Velardis all received letters of demand from Shields Heritage, solicitors for Gunns Finance. These letters sought immediate payment of the arrears owing on the Gunns Finance loans, plus costs. 214 On 2 March 2009, Messrs Van de Steeg and Ezzy, the Smithsons and the Velardis executed a Deed of Variation, Indemnity, Assignment and Release prepared by Mr Lederman: see [51] and [67] above. 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. 215 In or about March 2009, Coghlans prepared amendments to the Business Activity Statements for the GST partnerships and for Lotus for the quarter ending 30 September 2007. The purpose of these amendments was to reflect 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. 216 On 19 March 2009, Dr Ludekens reported the commission received from Gunns (previously reported as a sale in Lotus' 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 for a creditable acquisition in the sum of $3,028,747. 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. 217 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: see [159] above. 218 On 21 December 2009, Mr Crowe met with Mr Van de Steeg, Mr Trew and Ms Taylor. Mr Van de Steeg convinced Mr Crowe to again amend his tax return for the 2007 financial year to claim a deduction for the woodlots which Mr Van de Steeg agreed to transfer to him: see [160] above. 219 In or about January 2010, Gunns Finance obtained default judgment against the Velardis in proceedings commenced in the Supreme Court of Tasmania to recover the loan principal and interest still outstanding. 220 On 3 February 2010, ATO investigators contacted Mr Crowe. The ATO advised him to write to the ATO and cancel the latest amendment of his 2007 income tax return: see [162] above. 221 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. 222 On 19 September 2011, the ATO gave notice that it would audit each of the freshly registered GST partnerships. 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 for its involvement in the 2006 Gunns Woodlot Project. In the interim reports issued by the ATO for each partnership, the ATO concluded that none of the GST partnerships was so entitled. The ATO determined that each partnership was liable to repay a share of the previously paid GST refunds, plus penalties. As at 6 December 2011, no objections had been lodged in respect of those decisions.

F. ANALYSIS 223 Against the background of that factual analysis, it is necessary to turn to consider the six issues raised in the appeal and the single issue raised by the notice of contention.

(a) The proper construction of "scheme benefit" in the context of s 290-65 (the "alternative postulate" point) 224 Division 290 was inserted into Sch 1 to the TAA to deter the promotion of tax avoidance schemes and tax evasion schemes and to deter implementation of schemes that have been promoted on the basis of conformity with a product ruling in a way materially different from that described in the product ruling: s 290-5. Essential to the application of the division is the existence of a "tax exploitation scheme". It is defined in s 290-65: see [11] above. It has a number of elements. 225 First, there must be a "scheme": see [12] above. There is no dispute that the Plan was a scheme. Next, a scheme is a "tax exploitation scheme" if, at the time of the conduct referred to 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. (Emphasis added.) 226 The first issue in the appeal concerns the proper construction of "scheme benefit" in the context of s 290-65. "Scheme benefit" is defined in s 284-150 of Sch 1 to the TAA: see [13] above. This issue was described by the primary judge as the need for there to be an alternative postulate: see [243]-[248] of the Reasons. On appeal, the Commissioner submitted that the primary judge's construction of the definition of "scheme benefit" in s 284-150 for the purposes of s 290-65 (see [247]-[248] of the Reasons) that the words "is, or could reasonably be expected to be … apart from the scheme or a part of the scheme" required the pleading and proving of what the position would have been concerning the tax-related liability of the relevant entities if the scheme had not been entered into or carried out (i.e. the Alternative Postulate), was wrong. For the reasons expressed below, we agree. 227 The essential starting point in appreciating the proper operation of ss 290-65 and 284-150 is the statutory task in s 290-65. Section 290-65(1) is concerned with purpose: that is the purpose with which an entity entered into or carried out the scheme (if the scheme has been implemented), or the purpose with which an entity would have entered into or carried out the scheme (if the scheme has not been implemented). The correct framework of analysis is whether, at the time of the conduct in s 290-50(1) (being the marketing or otherwise encouraging the growth of the scheme or interest in it), "it is reasonable to conclude" that the entity entered into or carried out the scheme (or would have) with the purpose of it, or another entity, getting a scheme benefit from the scheme. 228 The grammatical structure of s 284-150 does not readily permit replacement of the phrase "scheme benefit" in s 290-65 by the words of s 284-150(1). Using such manipulation as is necessary (Commissioner of Police v Kennedy [2007] NSWCA 328 at [44] and SZGIZ v Minister for Immigration and Citizenship [2013] FCAFC 71 at [30]) the above framework can be expressed as whether it is reasonable to conclude that the entity entered into or carried out the scheme (or would have) with the sole or dominant purpose of it, or another entity: (a) getting a lesser tax-related liability or a tax-related liability that could reasonably be expected to be less; or (b) getting a greater amount that the Commissioner must pay or credit to the entity under a taxation law, or an amount that the Commissioner must pay or credit to the entity under a taxation law that could be reasonably expected to be more, than would be apart from the scheme or a part of the scheme. (Emphasis added.) 229 It is incoherent, in that context, to posit an alternative postulate in coming to a view about what the relevant person's purpose was. For instance, if there were available in evidence, a contemporaneous document in the hand of the entity asserted to be the promoter that in terms stated "in entering into the scheme my sole purpose is to get for myself and certain other entities a lesser tax-related liability and greater amounts (through tax deductions) that the Commissioner must pay or credit to me and the other entities than would be the case apart from the scheme", such a document would appear to be satisfactory proof of the matters in s 290-65(1). That kind of evidence does not conclude the debate in argument about a so-called subjective or objective approach. The words of the statute are "it is reasonable to conclude". But there is no reason why a contemporaneous record could not be utilised (if available) to reach such a conclusion. 230 The construction found by the primary judge and supported by the respondents in argument must, however, lead one to conclude that more is needed: the pleading and proving of what the promoter or the other entities would have done if they had not entered into or carried out the scheme and what their respective hypothesised tax position would have been in such circumstances by reference to the matters referred to in s 284-150(1)(a) and (b). 231 In this context, the words "apart from the scheme or a part of the scheme" in s 284-150(1)(a) and (b) do not dictate this. In the context of assessing (through the framework of what is reasonable to conclude) the purpose of an entity, the focus is upon what the entity was proposing to do and why. The focus is not upon any hypothesised events, circumstances or decision requiring you to remove from the proposed future what was done, and positing what might have been done. 232 The importance of the focus of purpose is heightened by the recognition that s 290-65(1)(a)(ii) concerns the circumstance of the scheme not being implemented, yet or at all. There the construction contended for by the respondents would seem to require (at least where the scheme has not been implemented at all, judged ex post facto, as opposed to not yet) not only analysis of the purpose of entering into and / or carrying out of something that did not happen, but also the consideration of some other hypothesis - it would seem - of what would have been the position if the scheme (that was not implemented) had not been proposed to be entered into and / or carried out. Such an hypothesis is meaningless. This is especially so when one appreciates that in circumstances where the scheme has not been implemented, the "other entity" may not be known or not be in existence. An alternative postulate would be impossible. It would be odd if an alternative postulate were required for s 290-65(1)(a)(i), but not for (ii). 233 Further, the requirement for an alternative postulate is not consistent with the objects of Div 290 set out in s 290-5, especially para (a). The deterrence intended is as to the promotion of tax avoidance or tax evasion schemes. Promotion may take place with or without success, and with or without the bringing into the scheme of identified persons. In this context, that is the context of ascertaining the purpose of an entity under s 290-65(1)(a), the words of s 284-150(1) "apart from" do not require or dictate an enquiry foreign to that statutory task. 234 The position can be seen to be different when examining the operation of Pt IVA of the ITAA36. The "tax benefits" under s 177C of the ITAA36 for the purposes of Pt IVA are set out in sub-paras (1)(a) to (bb). In those paragraphs, the alternative hypothesis or postulate is clearly expressed. In that context, a scheme has been entered into or carried out, a particular tax-related position reached, and that position is to be compared with the position that would have obtained had the scheme not been entered into or carried out. The need for the comparison is express and inheres in the notion of what the section is directed to: a benefit that has been obtained, and that is to be cancelled under s 177F. The cancellation of the tax benefit under s 177F is by reference to the meaning of tax benefit defined in s 177C. 235 Section 177D is, of course, concerned with purpose. The purpose is an historical enquiry of the taxpayer's affairs, by reference only to the eight matters listed in s 177D(b)(i) to (viii), through the framework of the enquiry phrased "it would be concluded that". The purpose is the obtaining of a "tax benefit in connection with the scheme". The phrase "tax benefit" is defined in s 177C(1) in terms of expressed comparison between what is and what would have been or might reasonably be expected to have been in the context of the circumstances of the taxpayer knowing of his or her or its own affairs. 236 The enquiry, for the purposes of s 290-65, is different. It is not, as the respondents submitted, of a prediction of a comparative position. It is the assessment of a purpose attending activity (entering into or carrying out the scheme) at the time of conduct of a promotional kind, which is the mischief to which the provisions are directed. That purpose does not involve notions of alternative positions. 237 What then follows from that construction of scheme benefit in the context of s 290-65? It requires an assessment of purpose. It is to that issue that we now turn.

(b) The question of dominant purpose 238 The Commissioner submitted that the primary judge's conclusion (at [256]-[259] of the Reasons) that, for the purposes of s 290-65(1)(a), it was not shown that it was reasonable to conclude that each respondent entered into or carried out the Plan with the dominant purpose of the entities acquiring the woodlots (see [69] above) and, further or alternatively, the Secondary Investors getting a scheme benefit from the Plan, was wrong. For the reasons expressed below, we agree. 239 A number of matters should be noted about the operation of s 290-65(1). They fall into two categories - time and then purpose. The matters are related. 240 First, the time at which the matters in paras (a) and (b) of s 290-65(1) are to be assessed is the time of the conduct satisfying s 290-50(1): the marketing or encouraging. This, of course, may take place by different acts, over a period of time. In any given case, over a course of conduct, it may be that it is to be reasonably concluded that an entity's purpose changed. The matters in paras (a) and (b) may be judged at a variety of times or by reference to a period of time in which it could be said the conduct occurred. Secondly, it is not entirely clear whether sub-para (ii) in each of (a) and (b) of s 290-65(1) is limited to a circumstance where the scheme has not been implemented, judged after the event: in effect, where it is never implemented; or whether it extends to a time when the s 290-50(1) conduct was engaged in and the scheme had not (yet) been implemented, but later was. Thirdly, and related to the second point, there is no premise in the section of partial implementation. The tenses used in (a)(ii) and (b)(ii) may be seen to reflect these last two matters. The tenses in the phrasing in (a)(ii), "had entered into or carried out" and "would have done so" may perhaps be seen as inapt for the circumstance of the scheme prior to implementation (that later did occur). On the other hand, the tenses in the phrasing in (b)(ii), "would be available" and "if the scheme were implemented" may be seen as apt for such a circumstance. 241 One would not readily construe s 290-65(1) to leave a lacuna whereby the section could not be satisfied in respect of a time of conduct satisfying s 290-50(1) prior to a scheme being implemented, if the scheme were implemented, but could be satisfied for such prior conduct if the scheme were never implemented. Thus, whatever infelicity there may be in tense in s 290-65(1)(a)(ii) and (b)(ii), the provision should be understood as covering the whole period prior to and after implementation, whether or not the scheme was implemented or whether it is partly or fully implemented. 242 Next, purpose. The purpose is as to entry into or carrying out of the scheme (not part of the scheme). Nevertheless, the phrase "scheme benefit" from a scheme is defined in s 284-150 as including, in both (1)(a) and (b), the relevant benefit from a part of the scheme. 243 In assessing the purpose and evaluating its importance, and whether it is dominant, one must appreciate that it is the scheme in question to which the enquiry is directed, not a general state of affairs other than the scheme. Persons engaged in trade and commerce do so for personal gain. The purpose of all commercial arrangements is, in a broad sense, the making of profit: cf, by way of example, Federal Commissioner of Taxation v Hart (2004) 217 CLR 216 at [52] and the authorities cited and Federal Commissioner of Taxation v Consolidated Press Holdings Limited (2001) 207 CLR 235 at [96]. Here the respondents undoubtedly wished to make profits from the purchase of woodlots and from running a foreign exchange business. They chose the Plan to effect that. Integral to the Plan was that the entities acquiring woodlots on 30 June 2007 (see [69] above) would obtain scheme benefits from the GST refunds from the purchase of the woodlots and that the Secondary Investors would obtain scheme benefits from tax deductions and tax refunds from their participation. Those are not two purposes: they comprise one purpose - that scheme benefits in terms of lowered tax-related liabilities and increased amounts that the Commissioner must pay or credit (s 284-50(1)(a) and (b)) would flow to them and others. Those two streams of funding, together with the commission from Gunns, were to be used to prop up the foreign exchange business: see [41], [44]-[45] and [58] above. 244 The Plan required all three streams of funds - the Gunns commission, the GST refunds and the Secondary Investors' tax refunds. The commission could have been obtained without the need for the scheme. However, the scheme was quite elaborate in nature. The getting of the GST refunds and tax refunds - in addition to the commission - was vital in order to reduce the level of indebtedness to Gunns and enable the respondents to retain a significant investment in the 2006 Gunns Woodlot Project thereby, it was hoped, to secure commercial gains from participation in the Project and from support of the foreign exchange business. The Plan was centrally driven by the level of the scheme benefits obtained, paid and on-lent to Meloka. The dominant purpose was to get the scheme benefits, and each of them. The additional purposes of profit making and the getting of commission do not affect that conclusion. Those are not competing purposes. There is but one purpose properly answering the description of s 290-65(1)(a)(i). The respondents entered into and carried out the Plan with the dominant purpose of getting the scheme benefits (and each of them) for them and others from the Plan. 245 Two examples perhaps illuminate the matter. First, if a promoter wanted to fund his private business by getting 99 streams of funds from 99 people by way of receipt of a percentage of the scheme benefits from the scheme inuring to each, as well as by raising subscribed capital or loan funds, would it be logical or conformable with the policy of the statute to say that the purpose of receipt of the tax benefits was not dominant because the capital or loan funds were a material and not de minimis source of funds for the business? No: because the dominant purpose is to obtain the scheme benefits to add to the other source of funds in order to make money from the business. 246 Secondly, if one takes a financial scheme and posits that a promoter marketed to members of the public a "wealth maximising scheme" of the kind in Hart, he or she would do so, no doubt, to make profit, perhaps from commissions paid by the financial institutions for the introductions of borrowers and also from sums of money from the introduced borrowers being commensurate with a proportion of their tax benefits. The profit of the promoter comes from the scheme overall. The purpose was to make money in one sense; but the dominant purpose in entering the scheme was to obtain for the prospective borrowers scheme benefits by way of a taxation advantage. 247 The third element of a "tax exploitation scheme" set out in s 290-65(1)(b), that is, whether it is not reasonably arguable that the scheme benefit is available at law, was the subject of the notice of contention filed by the respondents. This issue will be considered later in these reasons for judgment: see [324]-[331] below.

(c) The proper construction of "markets the scheme or otherwise encourages the growth of the scheme or interest in it".

(i) Introduction 248 The third issue on appeal concerned the primary judge's construction of the definition of "promoter" in s 290-60 ([17]-[36] of the Reasons). The Commissioner contended that the primary judge's construction of "promoter" was too narrow. We agree. 249 In construing the definition of "promoter" in s 290-60, the primary judge had recourse to the legislative history of the provisions. No issue was raised on appeal as to the correctness of that approach. It is unnecessary to engage in any discussion of the principles of statutory construction and interpretation beyond making reference to Australian Education Union v Department of Education and Children's Services (2012) 86 ALJR 217 and Certain Lloyd's Underwriters v Cross (2012) 87 ALJR 131, and recognising that the search is not for the subjective intent of those propounding legislation, but rather for the ascribed meaning the legislature is to be taken as having intended, through the words used (being the expression of the governmental act of legislating) having regard to divined legislative purpose from the provisions as a whole in their overall context, including the legislative history. 250 First, the text of the statute. The words employed in s 290-60(1)(a) are wide: "markets the scheme or otherwise encourages the growth of the scheme or interest in it". These words are part of the operative provisions giving effect to the object in s 290-5(a): "to deter the promotion of tax avoidance and tax evasion schemes". 251 This phraseology would indicate that the verb "markets" is one exemplification of encouragement of the growth of the scheme or interest in it. The encouragement is of two abstract nouns - growth (of) and interest (in) the scheme. Such growth of or interest in, however, relates to people - the number of people participating in the scheme and in what amounts they decide to contribute. To that extent, the conduct contemplated by such verbs ("markets" and "encourages") may be seen to involve some notion of communication (of advantage or virtue of the scheme). Any such element would, of course, not need to be spoken or expressly written. It would be a mistake, also, to seek to paraphrase the content of the words used by Parliament; they are wide words to be applied to a myriad of possible factual circumstances. Likewise, it is dangerous to identify conduct in the abstract by a label, such as "implementation" or "mere implementation", as something in contradistinction to "markets" or "encourages", and conclude that consistency of conduct with that contradistinctive word necessarily excludes it from satisfying the words of the section. 252 It can be accepted that the enactment history of the provisions saw some narrowing of language. In the 2005 Exposure Draft, s 290-60 was in the following terms: (1) 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 the 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. (2) However, an individual is not a promoter of a *tax exploitation scheme merely because the individual provides advice about the consequences of entering into a *scheme (as opposed to encouraging or helping entities to enter into the scheme). Included was the notion of promoting the scheme by implementing or advancing it. Also, the consideration was to be "in respect of the scheme". 253 The accompanying Explanatory Memorandum to the 2005 Exposure Draft contained the following in paras 22 and 23: Who is a promoter? 22. For the purposes of the civil penalty regime, a promoter is an individual who: • implements, advances, or encourages the growth or interest in a tax exploitation scheme; and • receives consideration in respect of the scheme and • has a substantial and integral role in promoting the scheme. [schedule#, item #, section 290-60] 23. 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). 254 That Exposure Draft was the subject of consultation. The fact and result of that consultation was described in the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth) (the Explanatory Memorandum) at [3.142]-[3.144]: 3.142 A key concern in consultation was that the promoter penalties regime had not been confined to the promotion of mass-marketed schemes and would catch promoters of boutique tax exploitation schemes, including those designed for only one client. The Government's policy objective to deter all forms of scheme promotion could not be effectively achieved by restricting the regime to mass-marketed schemes. 3.143 Apart from the scope of the regime to include all tax exploitation schemes, the most contentious issues were the definitions of 'promoter' and 'tax exploitation scheme' that govern the scope of the main penalty provisions. 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; • 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; and • a scheme is not a tax exploitation scheme if it is reasonably arguable (at the time of promotion) that scheme benefits are available to investors, regardless of whether those benefits are eventually found to be available at law. 3.144 There were also concerns about employees of entities promoting schemes and tax agents and other advisers who merely give advice to their clients, often on the basis of material prepared by others, or who could not reasonably have been expected to know that their conduct would result in promotion. Employees and advisers have been given special exceptions in the law. (Emphasis in original.) 255 Earlier in the Explanatory Memorandum at [3.40]-[3.42] and at [3.48] the following had been stated as to who was a promoter: Who is a promoter? 3.40 The civil penalty regime applies to promoters of tax exploitation schemes. An entity is a promoter of a tax exploitation scheme if: • the entity markets the scheme or otherwise encourages the growth of the scheme or interest in it; • the entity or an 'associate' of the entity receives (directly or indirectly) consideration in respect of that marketing or encouragement; and • 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. [Schedule 3, item 1, subsection 290-60(1)] 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. [Schedule 3, item 1, paragraph 290-60(1)(a)] 3.42 For an entity to be a promoter of a tax exploitation scheme, that entity, or an associate, must receive consideration in respect of the marketing of that scheme or in relation to encouraging the growth of, or interest in, the scheme. [Schedule 3, item 1, paragraph 290-60(1)(b)] … What is a substantial role? … 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. (Emphasis in original.) 256 Thus, as a conscious choice, after consultation, a refinement of drafting took place whereby "promotes the scheme by implementing it, advancing it or encouraging its growth or interest in it" was changed to "markets the scheme or otherwise encourages the growth of the scheme or interest in it". To a point, it can be accepted that activity or conduct that might be described as implementation of the scheme that was of a day-to-day administrative kind that may not have any element of, or connection with, communication with prospective entrants or with the publicising of the advantages of the scheme might have fallen into the wording of the 2005 Exposure Draft, but would not fall within the words of s 290-60(1). That is not to say, however, that activity or conduct that in one sense might be seen as implementation might not have a sufficiently close connection with other activity that clearly answers the description of marketing, and encouraging the growth of, or interest in, the scheme as to be part of that conduct. 257 Whilst care needs to be taken with the use of dictionaries (see Sea Shepherd Australia Limited v Commissioner of Taxation [2013] FCAFC 68 at [34]-[36]), "market" as a verb is not easily limited to making offers to participate. The Shorter Oxford English Dictionary (5th ed, Oxford University Press, 2002) includes in the definition of "market" (as a verb) the promotion or distributing for sale. The verb "to promote" is defined as including the furtherance of the growth, development, progress or establishment of (a thing); to encourage, help forward or support actively (a course or process); and to publicise (a product) or advertise so as to increase sales or public awareness. Once the potential width of such words is recognised, it is a mistake necessarily to exclude from them all conduct, which, looked at individually, answers the description of development or implementation. Such conduct may, in its proper context, form part of a body of conduct, which, examined as a whole, amounts to marketing, or encouraging the growth of or interest in, a scheme. 258 That construction is supported by the objects of Div 290 (see [224] above) and the structure of s 290-60(1)(a), (b) and (c), (2) and (3). Section 290-60(1)(a) is of tolerably broad concepts, with additional requirements of consideration (in (1)(b)), substantiality (in (1)(c)), mere advice (in (2)) and employee conduct (in (3)) restricting its operation. For example, s 290-60(2) provides an exemption for merely providing advice. It is an express legislative directive that "mere advice" is itself insufficient to satisfy s 290-60(1)(a). However, that legislative directive does not preclude the possibility that advice, in combination with other conduct, may satisfy s 290-60(1)(a). The circumstances of each case must be considered.

(ii) Conduct of the respondents 259 It is necessary to turn to the conduct engaged in by each respondent. The question is whether each respondent marketed the scheme (in this case, the Plan (see [22] above) or otherwise encouraged the growth of the Plan or interest in the Plan: 1. to the Smithsons and the Velardis; and/or 2. to their respective Secondary Investors, and therefore satisfied the first limb of the definition of "promoter" in s 290-60(1). The answer is "Yes". 260 The Smithsons and the Velardis are specifically addressed in the next section of the judgment: see [279]-[284] below. That leaves the conduct of each respondent in relation to Mrs Ruffato and their respective Secondary Investors to be addressed. Each will be dealt with in turn. 261 There is no dispute that in relation to the relevant conduct, each respondent had a substantial role which satisfied s 290-60(1)(c). For example, each of their roles may be contrasted with that of Mrs Velardis who distributed information or material at the direction of the respondents: s 290-60(3).

Mrs Ruffato 262 On any view of the proper construction of s 290-60(1)(a), the respondents marketed the Plan to Mrs Ruffato and encouraged the growth of, or interest in, the Plan. Mr Van de Steeg made the initial contact with Mrs Ruffato in the first half of 2007: see [86] above. Dr Ludekens then met with Mr and Mrs Ruffato in August 2007 and offered them the Secondary Investment. During that meeting, Dr Ludekens provided an explanation of the consequences that would flow from investing in the Plan: see [88] above. Indeed, some days later, Mr Van de Steeg sent Mrs Ruffato the email which set out "the investment opportunity": see [89] above. A template of that email was provided to Mr Van de Steeg by Dr Ludekens on 27 July 2007: see [80] above. In providing that template, Dr Ludekens assisted Mr Van de Steeg to procure the involvement of Mrs Ruffato thereby encouraging the growth of, or interest in, a scheme. Each respondent's conduct in relation to Mrs Ruffato was marketing and encouraging the growth of, or interest in, the Plan. 263 The conclusion reached in relation to Mrs Ruffato is important because s 290-55(4) provides that the Commissioner must not make an application under s 290-50 in relation to an entity's involvement in a tax exploitation scheme more than four years after the entity last engaged in conduct that resulted in the entity or another entity being a promoter of the tax exploitation scheme. As these reasons for judgment demonstrate, there was a tax exploitation scheme which each respondent marketed to Mrs Ruffato and also encouraged the growth of, or interest in. 264 As is apparent from the preceding paragraphs, the conduct relied upon in relation to Mrs Ruffato includes conduct that took place after 27 June 2007 (being the date four years before the proceeding was issued against the respondents): see [67] of the Reasons. There was no dispute on appeal that so long as some of the conduct engaged in by a respondent that contravenes s 290-50 occurs after 27 June 2007 (as is this case), then all related conduct that occurred prior to 27 June 2007 may also be relied upon. 265 In relation to Mrs Ruffato, each respondent last engaged in that conduct in August 2007: see [88]-[89] above. Therefore, the Commissioner is entitled to rely upon all of the conduct that satisfied the requirement "markets the scheme or otherwise encourages the growth of the scheme or interest in it" even if that conduct occurred before 27 June 2007. 266 Against that background, it is necessary to turn to consider the conduct of the respondents in relation to their respective Secondary Investors.

Ludekens Investors 267 There were four Ludekens Investors - Mr Tregambe, Dr Love, Ms Richards and Mr Poon.

Mr Tregambe 268 Dr Ludekens marketed and encouraged the growth of, or interest in, the Plan to Mr Tregambe: see [91]-[93] above. The marketing was comprised of the steps described in [91] and [92] above. The later steps (see [93] above) encouraged the growth of, or interest in, the Plan. These steps included forwarding the partnership financial statements and tax returns to Mr Tregambe and the request that he print, sign and return the Partners' Declaration. The partnership financial statements and tax returns (including the Partners' Declaration) were necessary for the Plan. Put another way, those steps encouraged interest in the Plan thereby increasing the size of, and number of participants in, the Plan.

Dr Love 269 Dr Ludekens marketed and encouraged the growth of, or interest in, the Plan to Dr Love: see [95]-[105] above. He offered the Secondary Investment to Dr Love on 13 and 14 June 2007: see [95]-[99] above. As a result of that marketing, Dr Love decided to invest in the Plan: see [100] above. The later steps (see [101]-[105] above) encouraged the growth of, or interest in, the Plan. These steps included forwarding the partnership financial statements and tax returns to Dr Love and the request that he print, sign and return the Partners' Declaration: see [101]-[102] and [177] above. As with Mr Tregambe, the partnership financial statements and tax returns (including the Partners' Declaration) were necessary for the Plan; those steps encouraged interest in the Plan thereby increasing the size of, and number of participants in, the Plan.

Ms Richards and Mr Poon 270 The primary judge addressed these investors in the following terms (at [204]-[205] of the Reasons): 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. … (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. 271 None of these findings were challenged. Accordingly, for the same reasons as Mr Tregambe and Dr Love, Dr Ludekens marketed and encouraged the growth of, or interest in, the Plan to Ms Richards and Mr Poon.

Van de Steeg Investors 272 There were four investors - Mr Martino, Ms Gibson, Mr Crowe and Mr Berlowitz.

Mr Martino 273 Mr Van de Steeg marketed and encouraged the growth of, or interest in, the Plan to Mr Martino: see [109]-[115] above. The marketing was comprised of the steps described in [109]-[113] above. As with Mrs Ruffato (see [88] above), a template of the email sent by Mr Van de Steeg to Mr Martino's accountant (referred to in [113] above) was provided to him by Dr Ludekens on 27 July 2007: see [80] above. In providing that template, Dr Ludekens assisted Mr Van de Steeg to procure the involvement of Mr Martino thereby encouraging the growth of, or interest in, the Plan. 274 The later steps taken by Mr Van de Steeg (see [114]-[115] above) encouraged the growth of, or interest in, the Plan. These steps included providing the partnership financial statements and tax returns to Mr Martino's accountant. As with the Ludekens Investors, the partnership financial statements and tax returns were necessary for the Plan; those steps encouraged interest in the Plan thereby increasing the size of, and number of participants in, the Plan.

Ms Gibson 275 Mr Van de Steeg marketed and encouraged the growth of, or interest in, the Plan to Ms Gibson: see [124]-[139] above. The marketing was comprised of the steps described in [124]-[130] above. The later steps (see [131]-[139] above) encouraged the growth of, or interest in, the Plan. These steps included providing the Partners' Declaration, the partnership financial statements and the tax returns to Ms Gibson. As with the Ludekens Investors, the Partners' Declaration, the partnership financial statements and the tax returns were necessary for the Plan; those steps encouraged interest in the Plan thereby increasing the size of, and number of participants in, the Plan.

Mr Crowe 276 Mr Van de Steeg marketed and encouraged the growth of, or interest in, the Plan to Mr Crowe: see [144]-[151] above. The marketing was comprised of the steps described in [144]-[145] above. The later steps (see [146]-[151] above) encouraged the growth of, or interest in, the Plan. These steps included providing the Partners' Declaration, the partnership financial statements and the tax returns to Mr Crowe. As with the Ludekens Investors, the Partners' Declaration, the partnership financial statements and tax returns were necessary for the Plan; those steps encouraged interest in the Plan thereby increasing the size of, and number of participants in, the Plan.

Mr Berlowitz 277 The primary judge addressed Mr Berlowitz in the following terms (at [212] of the Reasons): 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. 278 None of these findings were challenged. Accordingly, for the same reasons applicable to Dr Ludekens' conduct in respect of Ms Richards and Mr Poon, Mr Van de Steeg marketed and encouraged the growth of, or interest in, the Plan to Mr Berlowitz.

(d) The Smithsons and Velardis and marketing and encouragement 279 The Commissioner complained about the failure of the primary judge to make a finding about the conduct of the respondents concerning the Smithsons and the Velardis. 280 The Further Amended Statement of Claim clearly pleaded (at [17], [29] and [30]) the marketing or encouragement of the growth of, or interest in, the scheme by procuring the Smithsons' and Velardis' participation. 281 The respondents submitted that the matter was not put to the primary judge in final submissions, and that he was entitled not to deal with it. 282 The Commissioner below made clear in his submissions that the procurement of the Smithsons and the Velardis was part of the way the woodlots were purchased. The matter was dealt with comprehensively in the evidence. In [71] of the Commissioner's final submissions, under the heading "Promoter: each respondent had a substantial role in respect of the marketing or encouragement of the growth of the scheme or interest in it", the following was put: The respondents took the necessary first step - the acquisition of the Woodlots183 - enlisting the assistance of the Smithsons and Velardis to do so. Both Ludekens and Van De Steeg made representations to the Smithsons and Velardis which encouraged them to execute applications for the Woodlots and loan documents184. Footnote 183 referred to [4] of the submissions which set out fully, in tabular form, the ten applications, seven of which the Smithsons and Velardis were a party to: see [69] above. Footnote 184 was a reference to the evidence of Mrs Smithson, Mr Smithson, Mrs Velardi and Mr Velardi. The matter was raised before the primary judge and should have been dealt with. 283 This position was maintained on appeal. Ground 8 of the Commissioner's Notice of Appeal stated that the primary judge should have found that the respondents marketed the scheme or otherwise encouraged the growth of or interest in the scheme to the following further extent: [the respondents'] contact with Mr and Mrs Smithson and Mr and Mrs Velardi in June 2007 and encouraging their participation in the scheme by allowing the first and second respondents to use their names on seven of the ten applications for woodlots in the Gunns Woodlot Project. However, the Commissioner's written submissions filed in the appeal were limited to the contention that each respondent encouraged the growth of the scheme by their conduct. The Commissioner did not submit that the primary judge should have found that the respondents marketed the scheme to the Smithsons and the Velardis or otherwise encouraged interest in the scheme. The appeal has been determined on that basis. 284 On any view of the proper construction of s 290-60(1)(a), each respondent encouraged and procured the Smithsons and Velardis to sign documents in order to increase the financial dimensions of the Plan: see [40]-[54] above in relation to the Smithsons and [58]-[67] above in relation to the Velardis. This was, at the very least, encouraging the growth of the scheme. That conduct took place both before and after 27 June 2007 (being the date four years before the proceeding was issued against the respondents). However, for the reasons above, all related conduct that occurred prior to 27 June 2007 may also be relied upon.

(e) The construction of s 290-60(1)(b): Consideration in respect of that marketing or encouragement 285 The fifth issue in the appeal concerned the primary judge's construction (at [217]-[227] of the Reasons) of the relationship between consideration and marketing or encouragement through the prepositional phrase "in respect of" in s 290-60(1)(b). The Commissioner submitted that the construction adopted by the primary judge was too narrow and his conclusion that there was no consideration received by the respondents in respect of the marketing or encouragement he found to have been undertaken by them (except as to Mr Van de Steeg's conduct in relation to Mr Crowe: see [292] below) was wrong. For the reasons expressed below, we agree. 286 The legislative history of s 290-60(1)(b) has already been mentioned. In the 2005 Exposure Draft, the phrase "consideration in respect of the scheme" was used. It was changed to "consideration in respect of that marketing or encouragement". That change, however, does not warrant the restriction of the necessary relationship between the consideration and the marketing or encouragement to be effectively "for" and not "in respect of". A narrowing of language did occur. The relationship was no longer between the scheme and the consideration, but the marketing or encouragement that did take place and the consideration. The latter had to be in respect of the former. 287 Here, four elements of consideration were relied upon: the commission from Gunns, the GST refunds in respect of the acquisition of the woodlots, the promises by the Secondary Investors to give their tax refunds to the respondents and Mr Crowe's payment of his tax refund.

(i) Smithsons and Velardis 288 The commission received by the respondents from Gunns (see [26], [27] and [76] above) had a clear relationship to the procurement of the Smithsons and the Velardis into the Plan. These persons were parties to seven of the ten applications: see [69] above. The amount of the commission was referable to the number of woodlots purchased, which was increased by the Smithsons' and Velardis' participation. Likewise, the GST refunds had the same close connection to the procurement of the Smithsons' and the Velardis' participation. Therefore the commission and the GST refunds were clearly in respect of the marketing and encouragement of the respondents based on their conduct in procuring the Smithsons and Velardis to participate in the Plan by being parties to the applications. 289 The respondents submitted that the Commissioner should not be entitled to rely on the GST refunds as consideration in respect of the Smithsons and the Velardis. The respondents' complaint was that the GST refunds did not satisfy s 290-60(1)(b) and were raised for the first time on appeal. We have rejected the first contention. The GST refunds did satisfy s 290-60(1)(b): see [288] above. In relation to the second aspect - that the GST refunds were raised for the first time on appeal - the respondents' complaint was that at trial the Commissioner's case was that the whole amount of the GST refunds was the relevant consideration and not some portion of the GST refunds referable to the woodlots acquired using the names of the Smithsons and Velardis. The issue of the GST refunds was pleaded by the Commissioner in the Further Amended Statement of Claim, was referred to by the Commissioner in his outline of submissions filed before trial (at [80]) and in the final submissions provided to the primary judge (at [80]). The respondents' complaint is rejected.

(ii) Secondary Investors 290 What then was the position in relation to the Secondary Investors? The primary judge found no relevant connection between the commission and GST refunds and the marketing and encouragement by the respondents in respect of the Secondary Investors. The commissions and the GST were said by him (at [220] of the Reasons) to be received regardless of any "marketing or encouragement". We cannot agree. The Plan was an integrated whole. The number of woodlots purchased (and the commission and GST refunds received therefrom) bore a relationship to the marketing and encouragement of the growth or interest in the Plan by the procurement of the Secondary Investors. The Secondary Investors, and their tax refunds, were necessary to fund the foreign exchange business. The notes of 2 July 2007 (see [72] above) make it clear that $20 million in woodlots could only be purchased if $13 million of woodlots were sold down to the Secondary Investors. True it is that the Secondary Investors would come in after the purchase of the woodlots, but there is no call in the examination of the operation of the Plan and the relationship of the parts within it to divide it strictly by time to require contemporaneity in the relationship borne by the words "in respect of". There was a sufficient and clear connection and relationship between the commission received from Gunns and the GST refunds from the acquisition of the woodlots for such consideration to be in respect of the activity directed to the procurement of the Secondary Investors, that is, marketing or encouragement of the growth of or interest in the Plan. 291 The primary judge refused to permit the Commissioner to rely upon the promises by the Secondary Investors to pay over their tax refunds to the respondents. The absence of reliance upon these matters in the pleading and the running of the case is set out at [221]-[223] of the Reasons. His Honour was of the view that to permit the point to be run at the heel of the hunt would have been procedurally unfair, in the light, in particular, of the real possibility that cross-examination could have been directed to the issue. That conclusion by the primary judge has not been shown to be wrong. It can be accepted that the receipt by the respondents of the refunds was always in the Commissioner's case as to the nature and operation of the Plan. Nevertheless, no case was made until addresses that the promises to pay were consideration for the purposes of s 290-60(1)(b). In the conduct of a civil penalty hearing, it is essential that the material allegations and the particulars related to them be stated with clarity at the earliest opportunity. Of course, amendment is possible. A judge hearing a penalty case will necessarily be astute, as his Honour was, as to the possibility of unfairness by late changes to or elaboration of the case by the prosecutor after evidence has closed. The primary judge was imbued with the detail and flow of a ten day case. His Honour's view that there would have been unfairness in allowing the point to be run in final address should be respected. It has not been shown to be wrong. 292 However, as noted by the primary judge (at [227] of the Reasons), the position in respect of Mr Crowe is different. Mr Crowe was the only Secondary Investor to have received an income tax refund: see [152] above. The primary judge found (at [227] of the Reasons) 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 also satisfied in respect of Mr Van de Steeg.

(f) Section 290-50(2) 293 The sixth issue concerns the primary judge's construction of s 290-50(2): [280]-[306] of the Reasons. 294 Section 290-50(2) entitled "Implementing scheme otherwise than in accordance with ruling" provides: 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 (Emphasis added.) 295 The Explanatory Memorandum summarised s 290-50(2) as follows: 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. 296 The primary judge found that s 290-50(2) applies to "schemes that are formally covered by a product ruling issued by the Commissioner": at [301] of the Reasons. His Honour's view was that the scheme being implemented must be the same as the scheme the subject of the product ruling. Thus the Commissioner was required to lead evidence of the implementation of the scheme ruled upon (at [298]-[299] of the Reasons) and it was not sufficient to show a contravention that particular investors were not covered by the product ruling: at [299] and [303] of the Reasons. 297 The Commissioner challenged this construction. He contended that the whole assumption of s 290-50(2) is that what is implemented is different from the scheme described in the product ruling, and that the effect of the primary judge's construction is to treat the words "scheme that has been promoted on the basis of conformity with a product ruling" as though they read "scheme that is the subject of a product ruling". 298 The Commissioner's argument points, contextually, to the definition of "scheme" as being capable of comprehending an expansive range of conduct, which may be implemented or not: s 995-1 of the ITAA97. By contrast, a scheme is identified with great precision in a product ruling: see, e.g. PR 2006/8 at [15]. 299 The Commissioner submitted that the object of s 290-50(2) is to deter conduct which risks denying investors the protection of the product ruling (s 290-5(b) and Explanatory Memorandum at [3.71]) and that it is of the essence of the conduct proscribed by s 290-50(2) that what is implemented differs from the scheme ruled upon. 300 The construction arrived at by the primary judge is one the Commissioner contends defeats the intended operation of the provision because a scheme that is implemented in a materially different way from that described in the product ruling will axiomatically not be the scheme described in the product ruling. Accordingly, the Commissioner submitted that to attract the operation of s 290-50(2), the scheme implemented need not be the scheme ruled upon, it need only be a scheme that has been promoted on the basis of conformity with the product ruling: what must be shown is conduct that results in that scheme being implemented in a way which is materially different from that described in the product ruling. 301 The Commissioner submitted that the respondents contravened s 290-50(2) in two different ways. The first depends on characterising the Secondary Investment as the scheme for the purposes of that provision while the second has the 2006 Gunns Woodlot Project in that role.

(i) The Secondary Investment 302 The Commissioner contends that: 1. the Secondary Investment was a scheme; 2. the respondents had promoted the Secondary Investment on the basis of conformity with a product ruling by representing variously to the Ludekens Investors and the Van de Steeg Investors that the tax consequences described in PR 2006/8 were available to participants in the Secondary Investment; and 3. by the steps the respondents had taken to carry into effect the Secondary Investment, the scheme was implemented in a way which is materially different from that described in PR 2006/8. 303 The primary judge accepted the evidence, relied upon by the Commissioner, that the respondents promoted the Secondary Investment to the Ludekens and Van de Steeg Investors on the basis that it was an investment in the 2006 Gunns Woodlot Project and entitled them to the tax deductions supported by PR 2006/8: see [300]-[301] of the Reasons. That evidence the Commissioner argued was sufficient to establish that the Secondary Investment was promoted on the basis of conformity with PR 2006/8. The Commissioner submitted that the respondents' conduct resulted in the Secondary Investment being implemented. The primary judge accepted that the tax outcome for participants in the Secondary Investment was different from the tax outcome described in PR 2006/8: Reasons at [288]. Taken together, the Commissioner submitted that a contravention of s 290-50(2) was made out. 304 The Secondary Investment was not the subject of a product ruling. The primary judge was correct in finding that s 290-50(2) operates only in relation to a scheme that has a product ruling. The relevant scheme was the 2006 Gunns Woodlot Project and the relevant product ruling was PR 2006/8. The Secondary Investment was never a scheme that was the subject of a product ruling. There was no contravention of s 290-50(2) in this first way contended for by the Commissioner. The extrinsic material, to which the primary judge referred at [302] of his Reasons, supports this construction. 305 The expression in s 290-50(2), "on the basis of conformity with a product ruling", presupposes that there is conformity between the scheme that is promoted and the relevant product ruling. The conduct prohibited by s 290-50(2) does not concern "promotion" but rather "implementation". "Promotion" whether by "marketing" or "encouraging", is the subject of s 290-50(1). Section 290-50(2) proscribes conduct in relation to the implementation of a scheme where it is properly promoted as complying with a product ruling. By contrast, s 290-50(1) proscribes conduct the gravamen of which is not the manner of implementation but rather the manner of marketing or encouraging the growth of, or interest in, a scheme. 306 The purpose of the provision is to preserve the integrity and reliability of the product ruling system by ensuring that those that implement schemes that are subject to product rulings do so in a way that ensures the participants can rely on the relevant rulings. 307 It is not axiomatic that the scheme implemented will always be different to that described in the product ruling. The section contemplates that one scheme can be implemented in a number of materially different ways. The provision does not refer to implementing a scheme different to that which is the subject of the product ruling. Rather, it refers to implementing the scheme which is subject to the product ruling in a different way. 308 As the primary judge found, the Secondary Investment was promoted to the Ludekens and Van de Steeg Investors as an investment in the 2006 Gunns Woodlot Project and in conformity with PR 2006/8: see Reasons at [300] and [301]. In fact it was not in conformity with PR 2006/8. Such conduct, as the primary judge correctly observed, is itself the subject of separate statutory proscription under s 290-50(1) and other consumer protection legislation prohibiting misleading and deceptive conduct: see Reasons at [303].

(ii) The 2006 Gunns Woodlot Project 309 The Commissioner's second contention is that the respondents' conduct resulted in the 2006 Gunns Woodlot Project, which was promoted by Gunns as the responsible entity on the basis of conformity with PR 2006/8, being implemented in a way which was materially different from that described in PR 2006/8. It was not disputed that the 2006 Gunns Woodlot Project was a scheme covered by PR 2006/8 and promoted by Gunns on the basis of conformity with that product ruling: see Reasons at [286]. However, the Commissioner submitted that the primary judge wrongly found that there was no evidence that the 2006 Gunns Woodlot Project was implemented in a way that is materially different from that described in the product ruling: see Reasons at [298]. 310 "Implemented" is not defined. As the primary judge observed (at [289]-[290] of the Reasons): '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.] '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). … 311 The ordinary meaning of "implement" is relevantly to "put (a decision or plan) into effect": Shorter Oxford English Dictionary. 312 The Commissioner submitted that a scheme is implemented by the steps taken by each party to it and that a managed investment scheme is implemented, in part, by multiple parties entering into binding legal relations. He also submitted that implementation of the scheme is not the sole province of the responsible entity and that "conduct that results in a scheme … being implemented" comprehends conduct by persons who are not necessarily parties to the scheme. 313 Accordingly, the Commissioner put the following submissions. The respondents caused the 2006 Gunns Woodlot Project to be implemented in a way that is materially different from that described in PR 2006/8 by persuading the Smithsons and the Velardis to sign applications for woodlots in the 2006 Gunns Woodlot Project where it was never intended that they would become bound by the obligations created pursuant to the woodlot applications they signed. Rather, the woodlots were to be on-sold to wealthy individuals who would be able to reduce their tax liability as a result: see Reasons at [84] and [189(d)]. The Smithsons and Velardis had no intention of establishing, maintaining or carrying on a business of afforestation or incurring any outgoing connected with activities by which they would gain or produce assessable income. The respondents' conduct thereby resulted in the 2006 Gunns Woodlot Project being implemented in a way that is materially different from that described in PR 2006/8. 314 The respondents accepted that the Smithsons and the Velardis were not within the "class of entities' to whom PR 2006/8 applied because they did not "have a purpose of staying in the scheme until it is completed … and deriving assessable income from this involvement". However, it does not follow that when an entity that is not within the class of entities to whom the product ruling applies enters into the scheme that this causes the scheme to be "implemented in a way that is materially different from that described in the product ruling". 315 A distinction requires to be drawn between the scheme and the participants in the scheme to which a product ruling applies. A product ruling is a type of public ruling, which is defined in s 358-5 of Sch 1 to the TAA: (1) The Commissioner may make a written ruling on the way in which the Commissioner considers a relevant provision applies or would apply to: (a) entities generally or a class of entities; or (b) entities generally, or a class of entities, in relation to a class of *schemes; or (c) entities generally, or a class of entities, in relation to a particular scheme. … (3) Such a ruling is a public ruling if it: (a) is published; and (b) states that it is a public ruling. … 316 A product ruling by the Commissioner is an example of a ruling under para (1)(c) namely, "a written ruling on the way … a relevant provision applies to … a class of entities in relation to a particular scheme". 317 The provision contemplates that a product ruling need not apply to all entities that might enter into a particular scheme but may be confined to a class of entities. Accordingly, it is important to consider the content of the product ruling and the entities described in it, both expressly and implicitly. PR 2006/8 applies only to a class of entities defined in [7]-[8] of the ruling. This does not preclude other entities from entering into the scheme. The opposite is the case. The provision implicitly recognises that other entities can enter into the scheme in which case the ruling has no application to them. Importantly, that other entities enter into the scheme does not alter the scheme or mean that it has been implemented in a way different to that set out in the ruling. 318 Indeed, implementation of the scheme which involves entities to whom the ruling does not apply is implicitly recognised by PR 2006/8. The distinction between the class of entities and the scheme is recognised in the ruling itself. Paragraphs 7-8 define the class of entities while [15]-[16] define the scheme. At [15] a list of documents that comprise the scheme is set out and at [16] it is noted that: … there are no other agreements, whether formal or informal, and whether or not legally enforceable, which a Grower or any associate of a Grower, will be a party to, which are a part of the scheme. The subsequent paragraphs then contain a summary of the effect of those agreements. 319 There was no evidence that any of the documents entered into by Growers were in any way different to those listed in [15] and thus there is no evidence that the scheme was implemented in any way differently to that described in PR 2006/8. 320 The participation of the Smithsons and Velardis in the 2006 Gunns Woodlot Project in the way that they did has the effect that they cannot rely on the ruling. Their participation does not affect the scheme or the tax consequences for those participants that are within the class of entities to whom the ruling applies. 321 Other exclusions are to be found. Paragraph 7 of PR 2006/8 excludes from the class of entities "entities who finance their participation in the Project through loans other than those loans described at paragraphs 48 to 56 of this product ruling". Paragraph 48 makes it clear that Growers can borrow from an independent lender. If a particular participant does so, the consequence is that he or she cannot rely on the ruling but it does not mean that the scheme has been implemented in a different way. 322 It is not to the point to submit, as the Commissioner does, that a wide range of conduct can result in the product ruling ceasing to bind the Commissioner and produce a materially different tax outcome. 323 Section 290-50(2A) does not assist the Commissioner. The sections referred to in that provision relieve taxpayers from provisions denying deductions for entering into a forestry managed investment scheme where the interest in the scheme is disposed of within four years. However, such relief applies only where the disposal occurs "because of circumstances outside the taxpayer's control". That is not this case. The Smithsons and Velardis entered into the 2006 Gunns Woodlot Project intending to dispose of their investment in the short term.

(g) Notice of contention 324 The primary judge found that the third element of a "tax exploitation scheme", being the requirement in s 290-65(1)(b), was satisfied. Section 290-65(1)(b) required that: (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. 325 The Commissioner submitted that it was not reasonably arguable that the scheme benefits were available at law. In particular, he submitted that it was not reasonably arguable that the allowance of income tax deductions claimed by investors from their participation in the Secondary Investment and the GST refunds upon claims for input tax credits by the woodlot applicants were available at law. The respondents did not contend that it was reasonably arguable that the income tax deductions claimed by investors from their participation in the Secondary Investment were available at law. However, the respondents did contend that it was reasonably arguable that the entities which acquired woodlots in the 2006 Gunns Woodlot Project were entitled to input tax credits in relation to the acquisition of the woodlots and consequently to GST refunds. This latter argument was the subject of a notice of contention filed by the respondents. 326 It is necessary to start with the relevant provisions of the A New Tax System (Goods and Services Tax) Act 1999 (Cth). Entitlements to input tax credits arise on creditable acquisitions: s 7-1(2). Section 11-5 provides that you make a "creditable acquisition" if¸ inter alia, "you acquire anything solely or partly for a *creditable purpose" and you are registered. "Creditable purpose" is relevantly defined in s 11-15 as follows: (1) You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise. 327 "Enterprise" is defined in s 9-20(1) as: … an activity, or series of activities, done: (a) in the form of a *business; or (b) in the form of an adventure or concern in the nature of trade; or … 328 However, s 9-20(2) indicates that: ... enterprise does not include an activity, or series of activities, done: … (c) by … a *partnership (all or most of the members of which are individuals), without a reasonable expectation of profit or gain. 329 An "entity" makes a claim that it is entitled to input tax credits that satisfy those definitions: s 7-5 read with s 17-15. The "entity" must be registered: s 7-10 read with s 23-1. Here, the entities which were registered and making the claim for input tax credits were the so-called "partnerships": see [79], [82], and [193]-[194] above. 330 There is no dispute that the so-called "partnerships" were registered. But is that itself sufficient to justify a finding that it was reasonably arguable that a scheme benefit (the GST refunds) was available at law? The answer is no. To make a claim for an input tax credit, the entity making the claim in the circumstances of this proceeding, must acquire the woodlot (the thing in s 11-15(1)) in carrying on that entity's enterprise. That is, it must acquire the woodlot in carrying on a business or an adventure or concern in the nature of trade. 331 Here, it cannot be said that any of the so-called "partnerships" acquired the woodlots in carrying on a business or an adventure or concern in the nature of trade. The Smithsons and the Velardis, although named as partners, had no intention of the "partnership" of which they were a "member" carrying on a business or an adventure or concern in the nature of trade. They merely permitted their names to be put on the documentation to allow the respondents and Mr Ezzy to acquire the woodlots from Gunns: see [47] and [62] above. Put another way, they did not have a reasonable expectation of profit or gain: s 9-20(2)(c). In those circumstances, it is difficult to conceive of the existence of a partnership, let alone a partnership that is in the form of a business or an adventure or concern in the nature of trade. Whatever was the legal status of these so-called "partnerships", none of them satisfied the essential elements of s 11-15 read with s 9-20. Accordingly, it is not reasonably arguable that the scheme benefit (the input tax credits and consequently the GST refunds) was available at law.

G. CONCLUSION AND ORDERS 332 Each of the respondents contravened s 290-50(1) of Sch 1 to the TAA in dealing with the Smithsons and the Velardis and in dealing with their respective Secondary Investors. Neither respondent contravened s 290-50(2) in relation to the Smithsons and the Velardis or the Secondary Investors. The Court will make appropriate declarations and otherwise remit the question of penalty for hearing by a judge of this Court. I certify that the preceding three hundred and thirty-two (332) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop and Justices Gilmour and Gordon.