In essence, the changes to Part IVA were introduced to address perceived flaws exposed in recent court decisions and ensure:
- the dominant purpose test becomes the decisive factor (that is, the fulcrum), and
- tax benefit requires identification of a positive alternative (that is, the 'do nothing' argument no longer applies).
There is more uncertainty until the amended Part IVA is considered by the ATO and the courts. While the manner in which the courts would analyse recent cases will be different, it is likely the conclusions of the courts would be similar in most instances as under the prior law.
What this means for taxpayers is:
- when considering proposed transactions, the commercial drivers for the shaping of a transaction must be clearly articulated early on
- these commercial reasons should be contemporaneously documented
- consideration must be given to potential alternatives and commercial reasons for discarding the alternatives are also documented.
In conclusion, similar doomsday assertions were made when Part IVA was introduced in 1981. Since then, the concept of tax avoidance has swung like a pendulum. The Courts are the great leveller and ultimately it is predicted that this will be the case again.