The proposed expansion of Part IVA

The federal government has announced an intention to expand the general anti-avoidance rules for income tax.

The general anti-avoidance rules are in place to allow the Commissioner of Taxation to void a transaction, from a tax point of view, if a scheme is entered into with the sole and dominant purpose of obtaining a tax benefit.

Over the past decade, the ATO along with the federal governments have strengthened the powers of the Commissioner with anti-avoidance laws in order to counter the emerging challenges to the erosion of the tax base. These challenges have come from many different areas, but mainly focus around globalisation and rapid technological change and economic disruption.

So, what is happening?

The government has proposed an expansion of the general anti-avoidance rules for income tax, to include:

  • schemes that reduce tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents, and
  • schemes that achieve an Australian income tax benefit, even where the dominant purpose is to reduce foreign income tax.

Does this apply to me?

Some of the announcements in the past few years around tax avoidance have revolved around significant global entities. They are companies or groups of companies with an annual aggregated turnover of $1 billion or more.

However, the proposals in the 2023 Federal Budget could apply to everyone who is dealing with an international tax situation.

Therefore, we propose that you exercise caution when looking to change your current arrangements. Major changes which have the effect of significantly reducing your tax liability may be voided due to them being outside the intention of tax laws.

If you have any questions relating to this proposal, please contact me. I would be happy to have a conversation with you about your matters.

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