The Federal Government has recently released exposure draft
legislation that will amend the taxation general anti avoidance
rules under Part IVA, potentially rendering around 30 years of
jurisprudence all but obsolete.
The Government has been working on the consultation and design
of the proposed changes for quite some time now. While the changes
were originally to apply from March 2012, when the consultation
process began, Assistant Treasurer Bradbury has announced that they
will now apply from 16 November 2012.
Special counsel Justin Byrne outlines the proposed changes and
explains their effect.
The new rules will have retrospective effect once passed, and
will apply from 16 November 2012. Any transactions undertaken since
that time will be subject to the proposed amendments.
If enacted in its current form, the legislation will materially
alter the operation of the general anti avoidance rules. The exact
breadth of the changes, however, will only become apparent in the
next five to ten years, once the courts start to judge matters
based on the new legislation. Until then, there will be some level
of uncertainty as to the true application of the laws.
Although the proposed changes may make it more likely that a
'tax benefit' will arise, the sole or dominant purpose of
the taxpayer (which is objectively determined) still needs to be
obtaining that tax benefit, if the anti avoidance rules are to
Taxation general anti avoidance rules
The taxation general anti avoidance rules apply where a taxpayer
obtains a tax benefit and, objectively viewed, the sole or dominant
purpose of the taxpayer in entering into a scheme is to obtain a
The provisions require that an alternate course of action, which
the taxpayer could have taken, be put forward. This alternate
course of action is then compared with the actual course of action,
taking into consideration a number of factors, which provide a
basis upon which a conclusion about the purpose of participating in
the scheme can be drawn. As currently drafted, Part IVA allows an
alternate case to be put forward that the taxpayer would have
'done nothing' in comparison to what actually occurred.
This is often coupled with the argument that the tax cost of an
alternative course of action would have been prohibitive, leading
to the decision to do nothing. If this is shown to be the case,
Part IVA has no application as it is currently drafted.
Under the proposed amendments, the alternative courses of action
that the taxpayer could have taken are to be framed on the basis
that the tax outcome of that alternate course of action is to be
ignored. On that basis, true comparisons of alternate courses of
action can be made, none of which involve a consideration of the
tax consequences of those actions. This will remove the
taxpayer's ability to argue that an alternate course of action
was not taken because of the resulting adverse taxation outcome and
the quantum of that tax liability.
On an initial reading of the proposed legislation, it appears
that it will be easier for a tax benefit to be identified. However,
even if a tax benefit is found to exist, the taxpayer's
objective purpose (which must be the sole or dominant purpose) in
entering into the scheme must have been to obtain that tax benefit,
if Part IVA is to apply. The proposed amendments therefore appear
to shift the focus of Part IVA from determining what a 'tax
benefit' is (which may be more readily identified under the
proposed changes) to what the 'main game' of Part IVA
really is - that is, the issue of whether the taxpayer entered into
the scheme for the sole or dominant purpose of obtaining that tax
Consultation on the draft legislation closes on Wednesday 19
December 2012, with HopgoodGanim assisting the Law Council of
Australia to make a submission to Treasury on the proposed
Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
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