Part IVA - A toothless tiger?

Abstract

With a change in the public's attitude to tax avoidance in the1980's and revelations of significant revenue losses arising from tax avoidance, the government decided to enact a new general anti-avoidance measure, Part IVA ITAA. Part IVA did not, however, prove to be the 'white knight' the government had hoped. While the legislation is very broadly worded, the judiciary has placed sensible limits upon its scope. While aspects of the initial decisions considering Part IVA have affirmed the existence of significant limits upon the scope of Part IVA, generally, the Courts' interpretations of Part IVA have provided an appropriate balance between preventing tax avoidance without discouraging business and family transactions. However, not all agreed on the appropriateness of limiting Part IVA in this manner. At times the government and Australian Tax Office have lamented that Part IVA is an ineffective as its predecessor, s 260. It was these comments that spurred the author to revisit part IVA, to identify what were the potential limits to Part IVA that have arisen from either its legislative context or judicial interpretation of its terms. The conclusions of this revisit are set out in the first half of this article. The potential limits of each element of Part IVA are identified and then exemplified through leading Part IVA cases. The second part of the article then evaluates the true effect of these potential limitations by examining the successful application of Part IVA in two recent cases, Egan v FCT [2001] AATA 449 and FCT v Consolidated Press Holdings Ltd (2001) HCA 32. These cases show how the potential limitations of Part IVA may be overcome by the courts and thus, ultimately, it is submitted that Part IVA is not a 'toothless tiger' in the fight against tax avoidance.