1 February 2012

Maintaining the effectiveness of the general anti­avoidance rule

Assistant Treasurer Mark Arbib today announced the Government would act to protect the integrity of Australia's tax system by introducing amendments to Part IVA of the income tax law.

Senator Arbib said the amendments would ensure that the general anti‑avoidance rule, known as Part IVA, continued to be effective in countering tax avoidance schemes that are carried out as part of broader commercial transactions.

"As well as directly attacking illegitimate tax avoidance, Part IVA also plays an important role in deterring the potential abuse of the tax system by the broader tax-paying community," Senator Arbib said.

"Without Part IVA there would be significant scope for taxpayers to simply plan their way around the intended operation of the tax law, significantly undermining its integrity.

"The Government understands that the vast majority of taxpayers do the right thing and pay their fair share of tax. These changes seek to clarify the operation of Part IVA to ensure that those taxpayers who are not doing the right thing cannot escape their tax obligations."

Senator Arbib said Part IVA was enacted in 1981 and was intended to counter schemes that comply with the technical requirements of the tax law but, when objectively viewed, were conducted or carried out in a particular way primarily to avoid tax.

For Part IVA to operate there must be a 'scheme' and a 'tax benefit' obtained in connection with the scheme, and it must be reasonable to conclude that a person entered into the scheme for the 'sole or dominant purpose' of enabling a taxpayer to obtain the 'tax benefit'.

If these conditions are satisfied, the Commissioner of Taxation may make a determination to cancel any 'tax benefit' obtained through the scheme.
Senator Arbib said despite Part IVA working effectively since its introduction, there was a need to clarify its operation to continue that effectiveness.

"In recent cases, some taxpayers have argued successfully that they did not get a 'tax benefit' because, without the scheme, they would not have entered into an arrangement that attracted tax," Senator Arbib said.

"For example, they could have entered into another scheme that also avoided tax, deferred their arrangements indefinitely or done nothing at all. Such an outcome can potentially undermine the overall effectiveness of Part IVA and so the Government will act to ensure such arguments will no longer be successful.

"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."

Senator Arbib said the Government was mindful that any amendments should not interfere with genuine commercial transactions and activities of taxpayers.

To ensure that this is the case, the Government will consult extensively.

"In particular, the Government will obtain advice from independent experts about how best to implement the proposed clarifications, without unintentionally affecting genuine commercial and business activity," Senator Arbib said.

"The Government will obtain this advice before preparing the draft amendments as well as during the drafting process."

The consultation process will involve public consultation on the draft amendments. Treasury will also conduct roundtable discussions at key stages in the development of these amendments.

These roundtable discussions will provide further opportunities for interested stakeholders to be involved with the clarification of this important area of the income tax law.

To minimise any potential for taxpayers to obtain unintended tax advantages in the interim, the amendments will apply to schemes entered into or carried out after today.

The Government intends to introduce the necessary amendments into Parliament in the Spring 2012 sittings.