A GST with GRRRRRR: Legislative responses to GST tax avoidance in Australia and New Zealand

Abstract

GST is a transaction tax and therefore it would be though it would be hard to avoid. Beyond blatant evasion through the non-declaring of GST subject income, the paper details the ways 'naughty taxpayers' have exploited the GST regimes in both Australia and New Zealand to create artificial tax advantages. In response these Nations have sought to tackle the problem of GST tax avoidance through General Anti-Avoidance Rules ('GAAR's) rather than relying solely on specific Targeted Anti-Avoidance Rules ('TAAR's). The New Zealand GST GAAR is found in s 76 Good and Services Tax 1985 (GSTA 1985) and, in its current version, echoes the Income Tax Act 2007 GAAR, s BG1. The Australian GST GAAR is contained in Division 165, in particular s 165-5, A New Tax System (Goods and Services Tax) Act 1999 (Cth)(GST Act 1999). Again, it is largely based on Part IVA Income Tax Assessment Act 1936 (Cth) (ITAA 1936). However, it will be seen the GST GAAR is in fact broader than Part IVA in a number of important respects. This paper compares and contrasts the GST GAARs in these two Nations in a bid to determine if one model is optimal. While the legislative goals of each are broadly similar the approach reflected in the legislation differs dramatically. The Australian legislation is quite prescriptive. Section 165-5 GST Act 1999 sets out a number of conditions, such as "scheme" (s 165-10(2)), "GST benefit" (s 165-10(1)), that must be met for the GAAR to apply. Even the final element, the question whether the principal effect or sole purpose of the scheme (or part of the scheme) was to obtain a GST benefit, is determined by a number of factors stated in s 165-15, all of which must be considered by a court. By contrast, while the New Zealand legislation identifies prerequisites to the application of the GAAR, such as arrangement (s 76(8)) and "tax avoidance" (s 76(8), these are defined very broadly. Moreover, in contrast to the Australian s 165-15, there is no legislative guidance in s 76 to assist the courts in coming to the conclusion whether obtaining the GST benefit was one of the purposes or effects of the arrangement. It will be seen that instead the courts have developed judicial doctrines to be applied when determining the crucial question in s 76(1) whether an arrangement amount to GST avoidance arrangement. As discussed, this was an intended policy on the part of the New Zealand Parliament. Ultimately, particularly in light of the dearth of authority in both jurisdictions, it is contended that the broad approach in the New Zealand legislation is too uncertain, particularly as it is based on judicial discretion. The prescriptive approach in the Australia GST Act gives taxpayers and their advisors greater guidance and also provides the courts with direction.