Friday 16 November 2012: The Government's proposed changes to the general anti-avoidance rule in the income tax law are an overreaction to recent court cases, said The Tax Institute today.
"The Government's proposed sweeping changes to the general anti-avoidance rules in the income tax law will increase taxpayer uncertainty and negatively affect already dwindling business sentiment," said Tax Institute Senior Tax Counsel, Robert Jeremenko.
"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, Mr Jeremenko said that 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 sensible decision, the Government's proposed changes will now be effective from today rather than having retrospective effect to March 2012 as was originally intended.
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.
Robert Jeremenko, Senior Tax Counsel, The Tax Institute, 0468 987 300