The evolution of construing tax avoidance arrangement

Fusitu'a, Lola Kalolaine Hua
Smith, Nigel
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Master of Business
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Auckland University of Technology

Tax avoidance is a problem in every modern tax system, specifically when businesses and personal transactions are overwhelmed by the impact of high tax rates. In the case of Duke of Westminster (1936), the courts had traditionally permitted taxpayers to diminish their tax liabilities. There are two ways to escape paying taxable liability: one is tax avoidance, which is legal and the other is tax evasion, which is illegal. The form approach, instead of the substance approach, was traditionally applied by the courts in tax cases and an arrangement was allowed, whether tax avoidance was or was not the purpose of the arrangement. When an arrangement involves an "anti-avoidance" section, the courts usually disregard the condition of tax avoidance arrangement. Tax mitigation is one example of this rule. There are two "anti-avoidance" sections in the Income Tax Act 1994: specific anti-avoidance provision and general anti-avoidance provision. Tax avoidance arrangement is affirmed in the case of McGukian and the Commissioner. Part IVA is the current anti-avoidance provision of Australia income tax legislation. It is applicable when a tax advantage is gained from the arrangement by the taxpayer. There are a few federal taxes (e.g. FBT, superannuation guarantee charge and income tax etc.) that have been falsely avoided from being paid and have been found as crimes under the Crimes Act 1980. Trying to avoid tax on a tax haven income is a crime. A general anti-avoidance provision is applicable when a taxpayer has received an advantage in association with the arrangement that was committed. It is important to examine all corners of a tax planning scheme for possible tax benefits. Tax benefits have amendments propositions and the reasonable test will be amended. The Income Tax Assessment Act 1891 was the first income tax act in New Zealand and during the 20th century, there were other acts that followed at different times: the Land and Income Tax Act 1923, the Land and Income Tax Act 1954, the Income Tax Act 1976, and the Income Tax Act 1994. Goods and Services Tax Act was first introduced on 1 October 1986. Both sections 76 of the Goods and Services Tax Act 1985 and BG 1 of the Income Tax Act 2004 contain the same wordings. Section OB 1 of the Income Tax Act defines tax avoidance arrangement. Section 76(8) defines "tax avoidance". Section BG 1 is designed to counteract the tax avoidance arrangement. The definition of arrangement contains three elements: agreement, contract and plan or understanding. The definition of tax avoidance raises doubts in the case of BNZI where tax avoidance existed in downstream transactions. Tax mitigation and tax avoidance are distinguished but may not solve all problems globally. Case K52 (1988) 10 NZTC 426 is another example of a tax avoidance arrangement. The interpretation problems of the Act (s 99) can be ameliorated by a succinct analysis of the scheme of the legislation and the purpose of the legislation.

Fiscal Nullity Doctrine , Business finance , GST , Goods and Service Tax , Tax law , White collar crime
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