| Tax Office wins Anti-avoidance Case. |
| Tax Office wins. |
The Tax Office has been successful in applying the anti-avoidance provisions in a recent case. It argued for the cancellation of an interest tax deduction that would not have been available due to foreign loss quarantining rules but for the interposing of an Australian resident company between the taxpayer and its foreign subsidiaries.
The Court held that the taxpayer's dominant purpose in interposing the company was to obtain the interest tax deduction, therefore the deduction was not allowed. In determining this, the purpose of the taxpayer's advisers in recommending the scheme was considered relevant, and attributed to the taxpayer.
This case highlights the need for arrangements to be driven by commercial, rather than tax, considerations.
Anti-avoidance and Interposed Entities who Split Income
A Court has found that the anti-avoidance provisions in the Tax Act applied to cancel income splitting advantages arising from using an interposed company to provide consulting services.
The Court considered that the consulting fees derived by the company related to the personal services of the taxpayer, and that the use of the company was only explicable by a desire to income split (and therefore save tax).
Whilst this case has potential relevance for all taxpayers providing consulting or similar services via an interposed entity, it seems likely that the Tax Office would now attack such arrangements under the alienation of personal services income rules, which apply from 1 July 2000. The facts in this case occurred prior to 1 July 2000.
7th-August-2001 |
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