Newsletter
April 2013 Newsletter
Tax anti-avoidance law to be amended
In response to a number of high profile cases lost by the Tax Commissioner, the Government has introduced legislation into Parliament that proposes to ensure the effective operation of the income tax general anti-avoidance law. In those cases, the taxpayers successfully argued that the income tax general anti-avoidance law did not apply as tax was a legitimate consideration in commercial decision-making, and where the tax cost of a transaction was considerable the taxpayer would have done nothing. The changes, once enacted, will apply retrospectively from 16 November 2012.
The changes aim, among other things, to rectify what the Government considers to be perceived weaknesses in the “tax benefit” concept, which have reduced the effectiveness of the law in countering tax avoidance arrangements. Broadly, the amended law will continue to apply where a taxpayer enters into a scheme with a sole or dominant purpose of obtaining a tax benefit. However, in considering alternative postulates (ie what the taxpayers might otherwise have done), tax costs will be disregarded under the amended law.
Consequently, it will be necessary to compare the scheme entered into with other ways of achieving the same commercial outcome, regardless of the tax cost. Eliminating the defence that the taxpayer would otherwise have done nothing will broaden the potential application of the rules significantly.