Australia: Part IVA anti-avoidance provisions: where is the line now between legitimate tax planning and tax avoidance?

Part IVA was originally introduced to target tax avoidance arrangements that were 'blatant, artificial or contrived'. Following the 2013 amendments, the focus has shifted to identifying arrangements where the substance of the transaction 'could more conveniently, or commercially, or frugally have been achieved by a different transaction or form of transaction'.

The Commissioner notes, in his practice statement PS LA 2005/24, that the 2013 amendments have not yet been considered by the courts, or even extensively in audit activity by the ATO. However, the Commissioner has made it clear that he considers the amendments have significantly altered the operation of Part IVA.

This has resulted in greater uncertainty about where the line between acceptable tax planning and unacceptable tax avoidance lies. The risk for advisers in SME transactions is that what was previously considered sensible tax planning may now be caught by the anti-avoidance provisions.


Part IVA gives the Commissioner the power to cancel a 'tax benefit' received by a taxpayer where he is satisfied that the following elements exist:

  • there must be a 'scheme' – this requirement will almost always be satisfied because the concept of a 'scheme' is defined broadly
  • the taxpayer must get a 'tax benefit' in connection with the scheme
  • the taxpayer's sole or dominant purpose in entering the scheme must be to obtain a tax benefit – having regard to objective factors listed in the legislation.


The greatest challenge for advisers may be identifying a 'tax benefit'. There are two alternative approaches:

  • the annihilation approach – what 'would have occurred' if a scheme had not been entered into or carried out
  • the reconstruction approach – what 'might reasonably be expected to have occurred' if the arrangement was structured differently but achieved the same results.

Before the 2013 amendments, the Commissioner had difficulty in a number of cases defending a reasonable alternative postulate. In particular, taxpayers successfully argued that the alternative postulate was not reasonable because the tax costs were too high and would have caused them to do nothing. Parliament responded by specifically excluding tax costs from the consideration of whether the alternative postulate is reasonable.

Now, in determining what is a 'reasonable' alternative postulate, 'particular regard' must be had to:

  • the substance of the scheme – what the scheme achieves
  • the result or consequence of the scheme – but not taking into account income tax implications.

Conceptually, this is a challenge for advisers in SME transactions as taxpayers will invariably want to know the tax cost of their proposed course of action before proceeding with it. To disregard the tax consequences is counterintuitive – it requires an analysis of a fiction that is different from the reality that tax costs are almost always considered in any transaction.


An alternative postulate that is reasonable would achieve for the taxpayer results and consequences that are comparable to those achieved by the scheme. Whether an alternative is reasonable can include consideration of:

  • financial consequences, such as transaction costs, stamp duty and payroll taxes; and
  • other consequences, including the effect on personal or family relationships, and satisfying directors' duties, workplace health or safety requirements, environmental standards and other regulatory requirements.

Asset protection is often cited as the motivation for restructures. There is scepticism within the ATO about whether asset protection is a genuine purpose or a mask for an underlying tax purpose.

In identifying whether asset protection is the dominant driver, you should consider:

  • whether the need for asset protection is real, and not fanciful
  • whether the restructuring achieves asset protection
  • whether the asset protection could have been achieved in another, simpler manner.


Advisers will need to be more aware now of discussing avoidance risks with their clients, particularly given the lack of certainty in the application of the new provisions to SME transactions.

To analyse a Part IVA risk, advisers should consider the following steps.

  1. Define the scheme, both broadly and narrowly, and consider possible variations.
  2. For each defined scheme, work through the eight factors in the legislation to determine whether there was a sole or dominant purpose of obtaining a tax benefit. The test is objective.
  3. For each defined scheme, identify whether there is a tax benefit by:
    1. applying the annihilation approach (if applicable); and
    2. applying the reconstruction approach based on reasonable alternative postulates, remembering to disregard tax consequences in considering what is reasonable.
  1. Check whether an exception applies because the tax benefit is accessed under a choice or election permitted under the legislation.
  2. Check whether the scheme is otherwise excluded or whether the relevant amendment period has expired.

PS LA 2005/24 provides an overview of how auditors will approach Part IVA. It makes sense to refer to that practice statement in getting the method right. However, PS LA 2005/24 is unlikely to provide any black and white results if the issue turns on sole or dominant purpose.

It is possible to apply for a private ruling in relation to Part IVA. However, the Commissioner has declined to rule in the past, so query whether that is an acceptable use of time and money.

Another approach where there is a tax benefit, but tax does not appear to be the sole or dominant purpose, is to gather all of the evidence in relation to the non-tax motivations. Like any tax dispute, the taxpayer has the burden of proof in Part IVA matters. Properly evidencing the non-tax purpose (both through the legal documents and in practice) will be critical to showing that the transactions were motivated by commercial reasons.

© Cooper Grace Ward Lawyers

Cooper Grace Ward is a leading Australian law firm based in Brisbane.

This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
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”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions