The Government has announced a proposal to amend Australia’s general anti-avoidance rule (Part IVA) in light of recent cases in which it was found not to apply.
So it is timely to survey the Part IVA battlefield – which has seen considerable action in recent years.
It is not a pretty picture for the Commissioner of Taxation. From 2010 onwards, the Commissioner has succeeded in only six of thirteen cases in the Federal Court in which he sought to apply Part IVA.
Of the six cases in which the Commissioner succeeded, two cases (Noza and Sent) were decided on grounds other than Part IVA.
In his announcement regarding the proposed reforms to Part IVA, the Assistant Treasurer drew attention to cases in which the taxpayer successfully argued there was no “tax benefit”. The taxpayer argued either that the most reasonable alternative course of action to the scheme identified by the Commissioner was to do nothing (in which case no tax would have been payable in any event, had the scheme not been entered) or it was to do something that would have produced a tax outcome at least as favourable to the taxpayer as the tax outcome under the scheme. On that basis, there could not be a “tax benefit” which depends for its existence on the most reasonable alternative course of action to the scheme producing a less favourable tax outcome for the taxpayer than the scheme. The announcement suggests that the amendments to Part IVA will attempt to shut down this type of taxpayer argument, which was raised successfully in RCI and Futuris Corporation.
But the grounds on which the Commissioner has been unsuccessful in most of the cases are wider than those highlighted in the announcement. In particular, establishing that a person possessed the requisite degree of purpose that the taxpayer obtain a tax benefit has been a stumbling block for the Commissioner in a number of cases. Accordingly, whilst the Government announcement suggests that the changes to Part IVA will be to address the tax benefit arguments, the exact breadth of the changes is being awaited with interest.
The Government has indicated that it will engage in public consultation on the changes with the aim of introducing a Bill in the Spring 2012 sittings of Parliament. Given the changes will apply to any scheme entered into after 1 March 2012, making an assessment of whether Part IVA applies to any proposed transaction or arrangement in the meantime will be a challenge.
Click here to see table.