Anti-Avoidance

Question 1

s80A Impermissible tax avoidance requirements

Answer 1

(1) Arrangement – defined in Act
(2) Avoidance Arrangement – results in a tax benefit
(3) Sole or main purpose to obtain tax benefit
(4) Tainted element –> Abnormal
In the context of a business:
- Entered into/carried out in an abnormal manner which would not normally be employed for bona fide purposes; or
- Lacks commercial substance;

In the context other than a business
- Entered into/carried out in an abnormal manner which would not normally be employed for bona fide purposes;

In Any Context:

• Created rights and obligations that would not normally be created between people dealing at arm’s length (not at arm’s-length); OR
• Results in misuse or abuse of the provisions of the Act.

Question 2

s80B Remedies

Answer 2

May apply to parts of the arrangement, not necessarily the whole arrangement (straight out of ACT)

• Determine tax liability as if transaction not entered into
• Disregard / combine steps in arrangement
• Deem parties to be one in the same (connected parties/tax indifferent)
• Re-allocate/ re-classify any receipts or accruals expenditure or rebates

Question 3

S103 - Utilisation of Assessed Losses in companies or trusts

Answer 3

Requirements:
1. Change in shareholding OR Agreement affecting company or trust; AND
2. Results in income accrued/received or proceeds on disposal of an asset; AND
3. Solely/ main purpose of utilising an assessed loss or capital loss;
S103 (4) –> Presumed purpose was solely to use assessed loss - until contrary proved.
AND
4. To avoid liability for tax (Income tax Act)

–> If so = utilisation of assessed loss = disallowed.

Question 4

S103(5): dividend/income swaps

Answer 4

Prevents any tax advantage created by swapping of the right to receive income for the right to receive a dividend.

• Without s103(5) this could be achieved by profitable Company A ceding its right to interest income to a Company B with an assessed loss in exchange to receive an amount in preference dividends. The dividends would be exempt for Company A and Company B would use the income to pay preference dividend and would not care about the increase in taxable income because of its assessed loss.