The Australian Treasury has published a discussion paper as part of a review of the operation of anti-avoidance provisions in Australia’s income tax laws. The stated aim of the review is to improve the integrity, certainty and simplicity of those laws. The paper looks at both the general anti-avoidance rule (GAAR) in Part IVA of the Income Tax Assessment Act 1936 (Cth), as well as a range of specific anti-avoidance provisions (SAAPs) scattered throughout the income tax legislation.
In the more integrity-focussed part of the paper, the key proposal in relation to the GAAR is that the definition of ‘tax benefit’ should be expanded. Three alternative approaches to this expansion are identified:
- retain and expand the existing list-based approach in Part IVA
- replace the list with a comprehensive definition or
- combine a comprehensive statement of principle with a list of the most common tax benefits.
The paper appends a brief review of the GAARs of Canada, New Zealand, Ireland and South Africa, from which it appears that in broad terms Canada, Ireland and South Africa employ a comprehensive statement of principle, while New Zealand has something of a combined principle and list approach to defining what is a tax benefit or tax advantage.
The paper also notes that a review of the current GAAR provisions could coincide conveniently with moving Australia’s GAAR out of the 1936 Act and into the Income Tax Assessment Act 1997 (Cth), in line with the ongoing tax re-write project. That move would trigger the use of a number of more modern drafting techniques, such as more frequent headings and examples, and standardisation of terminology used in other places in the legislation.
The approach to SAAPs, in contrast to the GAAR, seems more directed towards achieving greater simplicity and certainty, rather than merely increasing the tax take. The paper identifies by list a large number of SAAPs spread throughout the income tax laws, suggesting that each should be examined to determine if it might be removed, consolidated or standardised. Three principles are identified:
- where the mischief for which a SAAP was introduced is no longer relevant due to the mischief only being available at a certain historical time, the SAAP should be repealed
- where the purpose for which a SAAP was introduced is served by another provision, in particular the GAAR, it should be repealed and
- where two SAAPs cover substantially the same mischief, one of the SAAPs should be amended so that the other SAAP can be repealed.
The paper also suggests eight principles by reference to which the future introduction and retention of SAAPs in the legislation could be standardised, including that a SAAP should only be introduced where there is not an existing provision that could deal with the mischief targeted, and that explicit policy conditions should be clearly expressed by a SAAP.
Overall, the concerns raised in the paper are not of new origin, with references back to Treasury papers published in 1998 and 1999, and there is no analysis of the complex difficulties in interpretation and application of the GAAR illustrated by court decisions made in recent years. The development of principles to guide future legislative developments is particularly welcome, but it remains to be seen whether all of the challenging aspects of the current law will be tackled, and whether taxpayers will be afforded any greater certainty as to the likelihood of a transaction potentially being subject to a GAAR or SAAP.
Comments are invited on a list of specific questions and also by way of general feedback on the discussion paper. Submissions should be made by 18 February 2011.