Changes to tax avoidance rules announced
Jamie Wells
Thu, 16 Oct 2014 5:45pm
Jamie Wells, Partner
Julian Donnan and Rob Pick
Tue, 14 Oct 2014 4:30pm
Julian Donnan and Rob Pick, Partners
Nick Church
Mon, 15 Sep 2014 9:15am
Nick Church, Managing Associate
Andrew Mansour, Michael Ryan and Rob Watt
Fri, 5 Sep 2014 12:30pm
Andrew Mansour, Michael Ryan and Rob Watt, Partners
Grant Anderson and Anna Collyer
Fri, 29 Aug 2014 2:30pm
Anna Collyer and Grant Anderson, Partners
Rachel Nicolson
Mon, 28 Jul 2014 9:30am
Rachel Nicolson, Partner
Tim Lester, Partner & Matthew Ireland, Managing Associate
Thu, 24 Jul 2014 2:40pm
Tim Lester, Partner & Matthew Ireland, Managing Associate
Emma Warren and Andrew Mansour
Wed, 18 Jun 2014 9:30am
Emma Warren and Andrew Mansour, Partners
Eleanor Jewell
Thu, 5 Jun 2014 10:45am
Eleanor Jewell, Special Counsel
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BRR

Today BRR Media speaks with Larry Magid; he’s a Partner in the Tax team with Allens Arthur Robinson in Sydney, welcome back to BRR Media Larry.

LM

Thanks David how are you?

BRR

Very, very good.  Larry of course we saw yesterday Assistant Treasurer Mark Arbib announce changes to the anti-avoidance provisions in Part IVA.  Can you just run us through what those changes are; and when will they take affect?

LM

Well David the problem with this media release is we don’t really know from it what the changes will be because it’s clear the Government hasn’t worked out yet what exactly they’re going to do.  They’ve only indicated the general area in which they’re going to make changes, but despite that the changes when they do come in will be effective in relation to – or they’ll apply to schemes entered into or carried out after the 1st of March 2012.  So this is a return to the sort of legislation by press release that was so prevalent under Treasurer Keating in the 1980s, and it’s an unwelcome return to that because it introduces a significant element of uncertainty in evaluating business transactions between now and six, eight, nine months from now when we actually see what the legislation is going to say.

BRR

Now Larry is it the Government or the ATO is insisting on these changes?  And why do they think the general anti-avoidance rule needs to be tightened?

LM

Well David that’s a short question to which there’s a very long answer, but the short answer to that question is that they’re sore losers.  The ATO have lost a couple of cases recently and they’re very unhappy about it.  I don’t know why they thought they should win every case, but the ATO has initiated a review within Treasury and Treasury’s made a recommendation to the Government and that’s resulted in this announcement.  And despite the fact that Part IVA is already widely regarded as one of the toughest anti-tax avoidance regimes in the world, the Tax Office is very concerned about one aspect of it that has enabled a couple of tax payers to get the upper hand recently.  And that aspect relates to the first stage of the Part IVA analysis which is to identify the relevant tax benefit.  It’s only once you’ve identified the relevant tax benefit that you then go to consider whether the dominant purpose of the scheme that gave rise to that tax benefit was to enable the tax benefit to be obtained, and only then does Part IVA apply.  Now the Tax Office doesn’t think that they should fail at that first hurdle, the Tax Office thinks that in any case they ought to be able to identify a tax benefit, but the structure of the definition of that term is that you have to compare what actually happened with what would otherwise have happened if the relevant scheme hadn’t been carried out.  And in a couple of recent cases the tax payer has successfully argued well if the relevant scheme hadn’t been carried out then nothing would have happened, the transaction wouldn’t have occurred at all, and so if the transaction had not occurred at all, then no assessable income would have been generated by it, and therefore there’s no tax that’s been avoided.  And the Tax Office feels that this leads to the perverse result that the greater the amount of tax avoided the stronger is the taxpayer’s argument that I would have done nothing, if I would have had to incur that tax.  And the Tax Office thinks that that’s going to open the flood gates to tax avoidance if the changes aren’t made; and I think they’re grossly exaggerating that risk.  But they’ve convinced the Treasury and you know as you know the Government is committed to achieving a surplus in 2013, so it seems that all the Tax Office has to do to get legislative change these days is say oh this is a threat to the revenue and that’s the end of the story.

BRR

Well just finally I guess, tying it altogether, will this be a major problem for Australian business?

LM

Well it’s hard to predict because as I said at the outset the press release doesn’t specify what the changes are going to be.  The press release does recognise that amendments in this area should not interfere with genuine commercial transactions, but the trick in this area is always who’s view of genuine is going to apply, really that’s what Part IVA is all about, it’s about a balancing test to see how far is too far, and obviously the private sector and the ATO often have different views of how far is too far.  So I’m sure we’re not going to see any fewer disputes in this area but I’m hopeful that the consultation process which the government has announced will result in any changes being narrowly targeted to the specific problem that’s been identified, and not lead to a wholesale rewrite of Part IVA.  The difficulty is the uncertainty in the meantime as to what the end result will be.

BRR

We’ll certainly look forward to seeing I guess the devil in the detail as it’s called, and thank you again for your time today Larry.

LM

Okay, David we’ll talk to you again when the amendments come out.

BRR

Indeed.  That was Larry Magid, Partner in the Tax team at Allens Arthur Robinson in Sydney.  Listeners if you have any questions for Larry please send a message using the panel on your screen or you can email through to law@brrmedia.com and we’ll forward your query.