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20 J. Austl. Tax'n 1 (2018)

handle is hein.journals/jouaustx20 and id is 1 raw text is: THE EFFECTIVENESS OF PART IVA OF THE INCOME TAX ASSESSMENTACT1936 (CTH): TIME FOR A 'NOT MERELY INCIDENTAL' PURPOSE TEST? JOANNE LEE* ABSTRACT This article examines whether Part IVA of the Income Tax Assessment Act 1936 has been effective in preventing tax avoidance. It argues that the effective operation of the Part IVA anti- avoidance test turns on whether it can catch a scheme which has been entered into for the dominant purpose of a tax benefit. Drawing on case studies, it concludes that Part IVA has been effective, owing to the use of a counterfactual in determining whether there was a reasonable alternative postulate for the scheme in question and the section 177D(2) multifactorial test to determine the purpose of the scheme. However, this article argues that increasingly sophisticated ways of avoiding tax necessitate extension of the dominant purpose test to include any scheme where there is a collateral purpose of a tax benefit, even where the scheme was entered into primarily for commercial benefit. I. INTRODUCTION Tax avoidance is a fundamental problem that results in significant losses of government revenue and is a subtle form of defiance of the law. Yet the concept of tax avoidance is elusive.' The distinction between tax avoidance and legitimate tax planning or tax minimisation is often difficult to draw.2 This makes tax avoidance difficult to tackle effectively.3 This article examines the general anti-avoidance rule (GAAR) under Part IVA of the Income Tax Assessment Act 1936 (Cth) ('ITAA36') and considers its effectiveness. It revisits the fundamental concepts of tax avoidance and legitimate tax planning and sets out a clear distinction between tax avoidance and legitimate tax planning. It argues that legitimate tax Post-graduate scholar in Law, University of Queensland. The author would like to thank the anonymous referee for his or her helpful comments. ' GT Pagone, Tax Avoidance in Australia (Federation Press, 2010) 3. 2 David Bloom, 'Tax Avoidance - A View from the Dark Side' (2016) 39 Melbourne University Law Review 950, 951- 953; Lidia Xynas, 'Tax Planning, Avoidance and Evasion in Australia 1970-2010: The Regulatory Responses and Taxpayer Compliance' (2010) 20(1) Revenue Law Journal 1, 18; GT Pagone, Tax Avoidance in Australia (Federation Press, 2010) 3. 3 Lidia Xynas, 'Tax Planning, Avoidance and Evasion in Australia 1970-2010: The Regulatory Responses and Taxpayer Compliance' (2010) 20(1) Revenue Law Journal 1, 18. 1

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