The general anti-avoidance rules in the income tax law, commonly
referred to as Part IVA, are to be rewritten in 2012.
The Government's decision, announced by then Senator Mark
Arbib on 1 March 2012, followed a series of court cases lost by the
Commissioner of Taxation in attempting to apply Part IVA.
Part IVA-the existing law
Part IVA gives the Commissioner the power to cancel a 'tax
benefit' received by a taxpayer in certain circumstances.
For Part IVA to apply:
there must be a scheme within the meaning of the
there must be a tax benefit in connection with the scheme;
the dominant purpose of the taxpayer must have been to obtain a
If the Commissioner is satisfied that these criteria are met, he
can make a determination to cancel the tax benefit.
A common difficulty for the taxpayer is that, as in all tax
appeals, the taxpayer has the onus of proving their case. There is
no obligation on the Commissioner to prove that the criteria are
This often creates a muddy playing field where the taxpayer
seeks to prove that their transaction could not be done in any
other way – that is, there was no other viable
alternative scenario that the taxpayer would have pursued to obtain
the same commercial result.
For example, in the Commissioner's most recent loss, the
taxpayer successfully demonstrated that, if it had not completed
the transaction in the way it did (which involved a restructure to
divest a particular services division by public float), it would
not have entered into the transaction at all: see Commissioner
of Taxation v Futuris Corporation Ltd
 FCAFC 32.
What can we expect under the new law?
In recent years, the Commissioner has been more willing to
expand the scope of Part IVA to transactions, or parts of
transactions, implemented in a particular (tax-effective)
This is reflected in Senator Arbib's comments:
The Government amendments will confirm that Part IVA always
intended to apply to commercial arrangements which have been
implemented in a particular way to avoid tax. This also includes
steps within broader commercial arrangements.
It is difficult to see how Part IVA always intended to apply to
ordinary commercial arrangements, when the Treasurer's comments
introducing Part IVA in 1981 were in clear terms.
The proposed provisions - embodied in a new Part IVA of the Income
Tax Assessment Act 1936 - seek to give effect to a policy that such
measures ought to strike down blatant, artificial or contrived
arrangements, but not cast unnecessary inhibitions on normal
commercial transactions by which taxpayers legitimately take
advantage of opportunities available for the arrangement of their
Leading cases such as
Spotless Services made it clear that Part IVA could apply to
cancel a tax benefit in commercial arrangements that were
'tax-driven'. However, this was not the same as choosing to
implement part of a transaction in a tax-effective way. Part IVA
was never intended to compel taxpayers to pay the greatest amount
of tax possible in the circumstances.
The trend, if left unchecked, is likely to be that the
Commissioner will have greater scope to determine that transactions
– and parts of transactions – implemented in a
tax-effective manner will fall within the scope of the
The Government's intention is to introduce amendments into
Parliament for the 2012 spring sitting. The amendments are expected
to apply retrospectively to the date of Senator Arbib's
Taxpayers should also be wary of the Commissioner continuing to
attack transactions entered into before 1 March 2012. Language such
as the 'amendments will confirm that Part IVA was always
intended to apply to commercial arrangements' suggests that the
Commissioner will maintain his current position despite the recent
run of losses in the courts.
Our team specialising in tax controversy will be monitoring the
consultation process. Please contact us if you would like to
Winner - EOWA Employer of Choice for Women Citation 2009, 2010
Winner - Australasian Law Awards Gold Employer of Choice 2011
Finalist - ALB Australasian Law Awards 2008, 2010 and 2011 (Best
Winner - BRW Client Choice Awards 2009 and 2010 - Best Australian
Law Firm (revenue less than $50m)
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Depending on the type of ETP, the employee's age and years of service, the amount may be taxed in various different ways.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).