• Internal Code :
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  • Subject Name : Taxation Law

Income Tax Assessment Act 1936

Question 1:

According to the general anti-avoidance rules that are provided in part IVA of the Income Tax Assessment Act 1936, the rules provided by Part IVA will be applicable to an arrangement or scheme entered into the by the taxpayer if both of the below conditions are satisfied:

  • The taxpayer obtained a tax benefit by entering into the said arrangement or scheme and he/she would not have been able to claim the tax benefit had they not entered into the scheme (ATO, n.d.). In order to determine that whether a tax benefit would have been otherwise available or not the complete financial consequences or results of the scheme will have to be considered and it will also have to be determined if it was possible to receive those benefits in a more convenient and simple way.

  • A consideration of the 8 matters that are specified in part IVA would lead to the conclusion that the taxpayer or any other person entered into the scheme or arrangement for the main purpose of receiving the particular tax benefit (ATO, n.d.).

The 8 matters that are specified in Part IVA include– the way in the scheme was entered, the substance of the scheme, time length of the scheme, the results or benefits that would be received from the scheme if Part IV was not applicable, the change that will take place in the financial position of taxpayer due to the scheme, etc. (ATO, n.d.). If after all consideration ATO is satisfied that part IV is applicable to the scheme it will cancel the tax benefits that were received by the taxpayer and issue a fresh assessment with tax liability and penalties payable by the taxpayer.

In the given case, the said 20-year investment arrangement was entered into by Jay with the main intention of claiming the tax losses that would arise in the first 15 years by intending to use the opt-out clause available at the end of 15 years. Jay would not have been able to claim those losses of $ 18000 per year for 15 years if he had not entered into the arrangement. Also, the 8 matters provided in Part IVA are applicable in this case. Hence, this 20-year investment would be covered under Part IVA.

References

ATO. (n.d.) Part IVA. The general anti-avoidance rule for income tax. Retrieved from https://www.ato.gov.au/General/Gen/Part-IVA--the-general-anti-avoidance-rule-for-income-tax/

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