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The government has released an exposure draft package, including draft legislation and an explanatory memorandum, to implement the government’s proposal to introduce amendments to ensure the continued effectiveness of the general anti-avoidance rule in Part IVA of the ITAA 1936.

The proposed amendments were designed in consultation with a roundtable of independent experts and with the benefit of formal advice from senior counsel.

The government intends to introduce legislation into Parliament in the Autumn 2013 sittings. Subject to the passage of legislation, the proposed amendments will apply to arrangements that are entered into or commenced to be carried out from 16 November 2012.

The Assistant Treasurer has confirmed that the draft amendments do not change the core operation of the “purpose” test in Part IVA. The amendments focus on the definition of “tax benefit”: Assistant Treasurer’s media release No 143 (16 November 2012).

In brief summary, the proposed amendments are intended to achieve the following outcomes:

  • The question whether Part IVA applies to a scheme necessarily involves a single, holistic, inquiry into whether a person participated in the scheme with a sole or dominant purpose of securing for the taxpayer a particular tax benefit in connection with the scheme.
  • When hypothesising alternative postulates to a scheme, consideration should be given to other ways in which the taxpayer could reasonably be expected to achieve the same non-tax effects (if any) as it achieved from the scheme.
  • When hypothesising alternative postulates to a scheme, no consideration is to be given to the potential tax costs of those alternatives.

The Tax Institute considers that the proposed amendments are an overreaction to recent court cases. For more information go here.

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