ATO statements on Pt IVA cases Print E-mail

The ATO has released Decision Impact Statements on the following cases.

RCI case

In RCI Pty Ltd v FCT [2011] FCAFC 104, the Full Federal Court held that Pt IVA did not apply to a scheme which reduced a capital gain made by an Australian company on the transfer of its shares to a related US Company. It did so on the basis of finding that, if the taxpayer had not entered into the scheme, it would be reasonable to conclude that it would have done nothing or something else which would not have involved transferring the shares, and that therefore no "tax benefit" arose in the circumstances. The High Court subsequently refused the Commissioner special leave to appeal the decision.

In its Decision Impact Statement on the case, the ATO said it accepts that the decision is authority for propositions of whether Pt IVA applies to the scheme identified by the Commissioner, tax benefit, and dominant purpose. However, it said the Commissioner will not automatically accept unsubstantiated assertions that a particular commercial transaction would not have been entered into if the tax advantage in question had not been available.

According to the ATO, the decision turned on the facts of the case, and that the onus of proof remains on the taxpayer. Further, it said the views outlined above represent the views of the Commissioner relating to the current application of Pt IVA. The ATO said these views are subject to the proposed retrospective legislative changes to Pt IVA announced on 1 March 2012.

Administrative treatment

The ATO said as the case is in essence a "CGT reduction arrangement", it is subject to Taxation Determination TD 2003/3 (Can Pt IVA apply to a "CGT reduction arrangement" of the type described in this Taxation Determination?). It says the application of Pt IVA to CGT reduction arrangements will continue to be considered by the Commissioner having regard to the facts in each case and the decision in RCI.

Further, while the ATO considers it would be desirable to update Practice Statement PS LA 2005/24 (Application of General Anti-Avoidance Rules) in view of the decision, it said it would be more efficient to await the outcomes of the proposed retrospective legislative changes.

Futuris case

In FCT v Futuris Corporation Limited [2012] FCAFC 32, the Full Federal Court confirmed that Pt IVA did not apply to a scheme under which the value shifting provisions operated to increase the cost base of shares held by the taxpayer in one of its subsidiaries by some $83m, with the result that the capital gain made by taxpayer on the sale of the subsidiary was reduced by that amount. The Full Court agreed that no "tax benefit" arose because if the scheme had not been carried out, it would have been reasonable to expect, on the evidence, that the sale would have taken place by way of the sale of the other subsidiary with the same tax outcome.

In its Decision Impact Statement on the case, the ATO said the Full Federal Court's decision turned largely on the question as to whether the taxpayer met its onus of establishing there was no tax benefit in connection with the scheme. Therefore, it said the case turned on the weight of the evidence and did not appear to have significant implications for other cases.

The decision, in conjunction with the RCI case, contains principles to be applied in determining whether a tax benefit is obtained in connection with the scheme, the ATO noted. It also noted that the decision did not overturn any findings at first instance on points of law raised by the taxpayer. Similar to the RCI Decision Impact Statement, the ATO referred to the proposed retrospective legislative changes and the updating of the PS LA 2005/24.


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