Tax planning, anti-avoidance and ethics
This domain tests whether you can distinguish legitimate planning from arrangements caught by Part IVA or specific anti-avoidance rules, and apply the professional conduct standards that bind registered tax agents.
Part IVA
- Three elements must be present: a scheme, a tax benefit obtained in connection with the scheme, and a dominant purpose of obtaining a tax benefit, judged objectively under section 177D.
- The eight factors in section 177D(b) include the manner of the arrangement, its form and substance, timing, the result achieved, and any change in financial position.
- Section 177CB sets the counterfactual: the alternative postulate must be reasonable, and a merely possible alternative is insufficient.
- The diverted profits tax under section 177DA imposes a 40% rate on significant global entities with turnover of $1 billion or more.
Specific rules and their interaction
- Division 7A, section 100A, Division 165, the PSI rules in Division 86 and the non-commercial loss rules operate alongside Part IVA and may apply to the same facts.
- Personal services income rules test the results, employment and business premises tests before income can be alienated through an entity.
Ethics and professional obligations
- The Tax Agent Services Act 2009 Code of Professional Conduct requires honesty and integrity, independence, confidentiality, competence and compliance with tax laws.
- Advisers must not lodge returns knowing them to be false and must hold evidence for claims under section 900-15.
- Sanctions include civil penalties, suspension and termination of registration.
Worked example
A high-income professional interposes a discretionary trust and a company, streams fees from clients who deal with him personally, and appoints income to a low-income relative who performs no work. He cannot pass the PSI results test, and the arrangement also risks Part IVA because the commercial substance is unchanged and the tax benefit is the dominant purpose; penalties and interest follow.
Traps
- Assuming legal form defeats Part IVA.
- Failing to document the commercial rationale for a restructure.
- Overlooking that specific rules apply before or alongside the general provision.
- Advising without documenting the client's instructions and the basis of the claim.