Is the Australian Taxation Office failing to use all its weapons against aggressive tax planning? An analysis against the facts in Puzey v FC of T
journal contributionposted on 26.09.2016 by Dale Boccabella
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Agreement on the outcome that should follow from the application of the general anti-avoidance rule ("GAAR") to a tax planning arrangement is not always achievable. The differing conclusions reached at various levels of the judicial hierarchy in a number of leading cases support this. In light of this unpredictability of outcome, the Australian Taxation Office ("ATO") should be using whatever non-GAAR, anti tax planning rules or tax principles that are available to attack what the ATO considers unacceptable tax planning. Indeed, the ATO has an obligation to test the reach of these rules or principles. The tax planning in Puzey v FC of T was at the aggressive end on the tax-planning continuum, and it was struck down by the GAAR at each stage in the judicial hierarchy. However, less aggressive tax planning cases that the ATO finds unacceptable may escape the GAAR. In such cases, the ATO will need to place reliance on the non-GAAR rules and principles. This article examines four non-GAAR tax rules or principles that the ATO could have raised in Puzey. While the ATO did make a number of non-GAAR based arguments (eg arrangements were a sham), it failed to raise the four rules or principles canvassed in this article. The circumstances in Puzey presented the ideal factual background to test the four rules canvassed in this article. Three of these rules or principles rely on the seedlings purchased in Puzey being characterised as trading stock (eg capping the deduction to an arm's length purchase price). This article makes the argument that it is hard to see why the seedlings should not be characterised as trading stock. The fourth rule or principle not asserted by the ATO in Puzey was that the incurred concept under the general deduction section does contain a cash-accruals dichotomy. The article also examines this issue.