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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.
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