The Effectiveness of Part IVA of the Income Tax Assessment Act 1936 (Cth): Time for a ‘Not merely incidental’ purpose test?
Abstract
This article examines whether Part IVA of the Income Tax Assessment Act 1936 has been effective in preventing tax avoidance. It argues that the effective operation of the Part IVA anti-avoidance test turns on whether it can catch a scheme which has been entered into for the dominant purpose of a tax benefit. Drawing on case studies, it concludes that Part IVA has been effective, owing to the use of a counterfactual in determining whether there was a reasonable alternative postulate for the scheme in question and the section 177D(2) multifactorial test to determine the purpose of the scheme. However, this article argues that increasingly sophisticated ways of avoiding tax necessitate extension of the dominant purpose test to include any scheme where there is a collateral purpose of a tax benefit, even where the scheme was entered into primarily for commercial benefit.