Part IVA general anti-avoidance rule changes

It was late on a Friday afternoon a couple of weeks ago that the Government decided to demonstrate that it truly believes in a transparent and open policy debate by releasing the exposure draft of the Part IVA general anti-avoidance rule changes.

Foreshadowed by the former Assistant Treasurer in March this year, this is the first opportunity that the community has had to see the draft detail of the changes.

Despite the Government's attempt to minimise any media coverage of the announcement, The Tax Institute issued its media release in response that same afternoon.

The Government's proposed changes to the general anti-avoidance rule are an overreaction to recent court cases. The sweeping changes will increase taxpayer uncertainty and negatively affect already dwindling business sentiment.

The proposed changes extend well beyond the Government's announced intention of correcting minor defects in the law highlighted by recent court cases. By changing laws that have been in place for more than 30 years and have been extensively ruled upon by the courts, there is significant potential for widespread confusion and uncertainty.

The general anti-avoidance rules in the income tax law have always been intended to prevent blatant, artificial and contrived tax avoidance behaviour. However, under the Government’s proposed changes, the current tax benefit test will be significantly diminished, requiring taxpayers to consider the difficult 'dominant purpose' test in almost all cases where tax considerations have been taken into account when making commercial decisions.

The proposed tightening of the rules is an unnecessary overreach by the Government that will take years of costly court proceedings to fully realise. The impact on taxpayers who have limited resources to challenge the views of the Tax Commissioner should not be underestimated.

In a welcome and sensible decision, the Government's proposed changes will now be effective from 16 November 2012 rather than having retrospective effect to March 2012 as was originally intended.
It is worth noting that while the Australian anti-avoidance rules are needlessly tightened, comparable jurisdictions, like the United Kingdom, have opted for more sensible rules in order to encourage and not stifle business activity.

Find out more at our Part IVA - Announcements sesssions being held around Australia in November and December 2012.

Robert Jeremenko

Robert Jeremenko CTA is Senior Tax Counsel of The Tax Institute.

The Tax Institute is Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.


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