These events were in many respects echoes of events overseas. A UK judicial solution to tax avoidance issues is not imported to Australia.
On 11 April 1978, four days after Treasurer Howard had risen in the House of Representatives to announce significant, but nonetheless limited, retrospective action against Curran schemes of tax avoidance, the British Labour Government's Chancellor of the Exchequer Denis Healey presented in the House of Commons his 1978-79 Budget, in which he attacked with full retrospectivity a particular avoidance scheme running in that country. The two Australian and British ministers had not previously been in touch with each other on the subject.
In his Budget statement, the British Chancellor said:
Lastly, tax avoidance. This has emerged recently in a new form which involves marketing a succession of highly artificial schemes - when one is detected, the next is immediately sold - and is accompanied by a level of secrecy which amounts almost to conspiracy to mislead. The time has come not only to stop the particular schemes we know about but to ensure that no schemes of a similar nature can be marketed in future. So the provisions I shall be introducing this year to deal with artificial avoidance by certain partnerships dealing in commodity futures will go back to 6 April 1976, that is before the date when the intention to legislate was announced in a Parliamentary Answer.
Britain's Inland Revenue told the ATO at the time that 6 April 1976 was a date before the particular scheme had, to their knowledge, first been implemented.
Until the 11 April statement, UK and Australian practice had been in line. That is, where it became necessary to introduce remedial measures the necessary legislation was made effective from the date that the legislation or details of it (as in a ministerial warning statement) were made public. Howard's 7 April statement arose in the circumstances described in Chapter 10. Healey's 11 April statement reflected a loss of official and ministerial patience with their previous no-retrospectivity policy, at least as regards the more blatant schemes.
At the same time as he was dealing with full retrospectivity against commodity futures schemes Healey also tackled other prevalent avoidance schemes on the conventional non-retrospective basis. In Australia, Howard's retrospection to August 1977 of the Curran amendments was accompanied by a non-retrospective attack on gift schemes.350
Speaking a week after the UK statement, Britain's Chief Secretary to the Treasury, Joel Barnett, set out to define what it was the government was determined to eliminate:
I am not referring here to the ordinary ways in which a taxpayer can arrange his affairs to the best taxation advantage. I am . . . referring to schemes which are totally artificial and with no real financial or commercial result other than a fee for the organiser and a large reduction in tax to the detriment of all other taxpayers.
I propose that we should legislate in each case, as it comes to our attention, in such a way to remove all tax advantage of a scheme from the outset.351
In retrospect, the stronger UK approach might have been seen coming at the end of 1977. In answer to a parliamentary question about a report in the Sunday Times concerning commodity futures schemes, Barnett on 25 November had given this answer:
I have read the Sunday Times article and I am aware of these schemes, under which arrangements are made for a partnership to be formed with the definite intention that a tax loss should arise and that the person for whose benefit the arrangements are made should then leave the partnership. The Revenue tell me that it does not recognize the ensuing claims as valid under existing law. However, its refusal to accept them will doubtless be contested and it could be some years before certainty is reached through the judicial process. To put the matter beyond doubt, therefore, the Chancellor will introduce appropriate legislation in next year's Finance Bill. He will be considering from what date legislation against a claim to loss relief contrived in this kind of way should be effective.
Prior to this, comparable warnings indicated that the foreshadowed legislation would be effective from the date of the warning.
The 11 April 1978 British statement was effective. Marketing of the commodity futures scheme stopped immediately and the threat of the government doing it again also killed the marketing of further schemes of the kind. In his 1987 book, In the name of Charity: the Rossminster affair, journalist Michael Gillard says the 11 April 1978 statement 'not only killed the scheme, once exposed, but dealt a mortal blow to all artificial tax avoidance'.352
This was not the end of the schemes story in the UK. Other schemes implemented prior to the effective date of remedial legislation had to be fought through the courts. There was a strengthening of Inland Revenue investigatory resources and raids by officials under warrants in search of documents, leading to high profile court actions, some continuing many years later. One major promoter had as part of his after-sales service offered clients to meet the costs of test case litigation. The fighting fund became exhausted and the Inland Revenue put taxpayers under pressure by sending out the message that it would fight all cases, all the way.
Gillard gives an account of the activities of one major UK scheme promoter, and of his contests with the Inland Revenue. He suggests that the rush for the promoters services may have been stirred by Chancellor Healey's increase in the 1974 British Budget of the top income tax rate from 75 per cent to an unprecedented 83 per cent. That was not all, investment income of more than £2000 a year was to attract a further surcharge of 15 per cent. Two pence in the pound was not a lot left for the taxpayer. Corporation tax went to 52 per cent for most companies.
Gillard commented that however high the promoters charges might be, their services became very attractive. The Chancellor wanted 98 per cent, the promoters would settle for, at most, 20 per cent:
The peak tax-scheme months of February and March were more than ordinarily busy that spring. Clients were queuing on the stairs outside and in the reception areas of Tucker's offices in North Audley Street and Rossminster's in St George Street. 'It was like a supermarket dealing in money,' said the Tyneside property man George Miller, who was one of those in the queue. 'People were queuing up down the street, we could not turn them away,' recalls Tom Benyon.353
As in Australia, secrecy of the schemes was a feature. Gillard quotes a promoter's letter from May 1974:354
Although details of the loan taken are now with various Inspectors of Taxes, to the best of our knowledge the Revenue is not yet aware of the essential ingredients of the scheme. Without unreasonably withholding information we wish to defer as long as possible the Revenue learning of the details.
The British Inland Revenue found out enough for the loophole to be closed in the Finance Act 1974.
The OECD becomes concerned
The concern in 1978 of revenue authorities about tax schemes led to consideration of the issue by the OECD in a series of meetings in the first part of the year. The UK delegate presented to OECD colleagues a paper setting out what was known of various methods of dealing with tax avoidance, other countries, such as Australia, included. The paper described what were said to be the 'grave disadvantages' of the traditional non-retrospective approach:
a. Extremely large amounts of tax may be lost before a new avoidance scheme is discovered and hence before counteraction can be taken. There is no obligation in law for a taxpayer to tell the administration every time he enters into a transaction which may affect his taxation liability (and it would not be practicable to impose such an obligation), only an obligation to make a return of income at the end of the year. The return may be deliberately delayed; in many cases it will contain no indication of the avoidance scheme. Detection may only follow the examination of the accounts of many ostensibly unrelated companies, it may entail the unravelling of complex patterns of transactions, nominee holdings, letter-box companies etc and even a certain amount of luck. The tax advisers who market the most sophisticated schemes do so under conditions of complete secrecy. They know that when the scheme is discovered it will be followed by legislation, so they practise (and arrange for their customers to practise) delaying tactics coupled with the minimum disclosure of information. The aim is to save large amounts of tax for one or two years, then when the scheme is discovered to move on immediately to a new avoidance device.
b. The modern schemes are not only very complicated, they may also be tailored to suit a variety of minor differences in the taxpayer's own financial affairs. It is not always clear how the scheme can be challenged successfully in the courts. In the past this doubt has led to long legal battles which may take two or three years, before new legislation was introduced. This meant that even more tax was lost for the period during which the litigation went on. Nowadays if the effect of a scheme is in doubt, and if large amounts of tax are at stake, legislation may be introduced without waiting for the final verdict of the courts.
c. The legislation needed to counter a sophisticated avoidance scheme, without affecting normal commercial transactions, is often long and complicated. There is a limit to the amount of this highly complicated legislation which can be effectively administered.
d. The very detail and certainty of the law may open the way for future avoidance. The avoider is, in effect, given a detailed map of the minefield and he may then find that there is a way of threading his way through it without being blown up.
Examples included one where it was arranged 'for artificial interest to be created by borrowing a large sum and immediately repaying most of the money in the guise of interest in advance'. This scheme had been dealt with in the UK by section 38 of the Finance Act 1976.
In the course of the OECD process the New Zealand experience was mentioned. In that country, there had long been a sister provision to Australia's section 260, section 108. In 1974, after a process extending over a number of years that section was replaced by a new provision, section 99. In our work on the transformation of section 260 to Part IVA we had considered the New Zealand approach and concluded that it might not adequately address the deficiencies which Australian courts had found to exist in section 260. Seemingly, New Zealand did not experience schemes in the late seventies and early eighties in the way that Australia did.
In the United States
In the United States, the 1970s saw the emergence of what were referred to as 'abusive tax shelters'. Speaking to the Securities Regulation Institute in San Diego in January 1980 on developing standards for tax attorneys355 the General Counsel of the US Treasury Department, Robert H Mundheim, said:
We view abusive tax shelters as one of IRS' most serious compliance problems. IRS has identified as abusive 18,000 shelters promoted in recent years, involving 182,000 taxpayers and almost $4.5 billion in adjustments.
He explained what he meant by 'abusive':
An 'abusive' tax shelter is a transaction without any economic purpose other than the generation of tax benefits that typically employs exaggerated valuations of assets and otherwise mischaracterizes critical aspects of the transactions.
Mundheim gave an example:
Taxpayers are offered an original lithographic plate made by a specific artist (albeit not a renowned artist) plus the right to a limited-edition of prints pulled from the plate under the artist's supervision. The transaction is characterized as a sale of the lithographic plate. The sale price is $200,000: $30,000 in cash and the balance in the form of a partial recourse note due in 12 years. The non-recourse portion of the indebtedness is secured only by the assets purchased and the proceeds. In the event of default, the taxpayer can satisfy his personal liability by turning over to the noteholder any of the unsold prints at a value based on a formula linked to the last retail sales of the prints.
The taxpayer is told that he is entitled to accelerated depreciation, an interest deduction, and an investment tax credit on his purchase of the lithographic plate. Because of the leverage involved - $30,000 in cash purchasing an asset valued at $200,000 - the tax benefits would be substantial. A 50% bracket taxpayer would more than recoup his out-of-pocket costs in tax savings and credits the very first year and by the second year would more than double those out-of-pocket costs in tax benefits.
The key to the transaction is the valuation placed on the lithographic plate. The higher the valuation, the greater the deductions due to accelerated depreciation and the higher the investment tax credit. The abusive tax shelter is that rare transaction in which the interests of both the purchaser and the seller of an asset are served by the highest possible valuation of the asset exchanged.
Of course, the high value of the asset must be coupled with assurance to the taxpayer that he will not be called on to pay the full price. Financing the purchase with non-recourse notes would be the obvious way to achieve this result. But in 1976 and 1978 Congress tightened up on the extent to which the taxpayer could obtain tax benefits from the use of non-recourse financing. Now, losses generated by a shelter (except for real estate) are available only to the extent the taxpayer actually is 'at risk' in the transaction. The current abusive tax shelter seeks to avoid these reforms by structuring the financing so that recourse to the taxpayer is provided in appearance, but not in effect.
There followed an account of what the US Internal Revenue Service had been doing, beginning in 1973. As to the theme of his address:
One of the critical elements in promoting an abusive tax shelter scheme is the tax opinion supplied by the promoter's tax attorney. The theory is that the tax opinion, even if qualified, provides the investor assurance that a negligence or fraud penalty will not be assessed even if deductions taken under the shelter are disallowed on audit. At a minimum the tax opinion is viewed as fraud insurance. With fraud insurance the investor is protected against loss. If no fraud penalty is assessed, the deferral benefits of deductions taken, even if ultimately disallowed some years hence, will generally protect the investor from losses on the shelter.
However, Mannheim concluded 'Unfortunately, the abusive tax shelter still flourishes'.
In Europe
Back in Europe, an article in the February 1979 Financial Times World Tax Report noted that the authorities had 'caught taxpaying, or rather, tax avoiding Holland by surprise' late in the previous year by announcing a series of anti-avoidance measures, two of which had to do with prepayment of interest. The report said it was evident that a full-scale campaign against tax avoidance had been started.
The journal European Taxation of the International Bureau of Fiscal Documentation reported in 1983 on the Netherlands experience. It referred to a provision in Dutch tax law (Article 31 of the General Law for National Taxes) that was described as 'one of the two ultimate tools to combat tax avoidance resulting from acts which, although technically correct from a legal point of view, conflict with the spirit of the tax law'. Article 31 had been introduced 57 years ago and of all the cases submitted to the Netherlands Supreme Court in the last 40 years it was declared applicable in only one case, in 1968.
In 1978, however, there were about 10 authorisations to apply Article 31, leading to no less than 560 authorisations up to January 1982. It was observed that the increase was due 'to the fact that it had become fashionable to affect the amount of taxable income by creating large deductions, resulting in substantial tax savings'. The article continued:
A common element in the cases is that money was borrowed and subsequently invested in such a way that, aside from the tax consequences, the balance of the investment was negative. In other words, the costs of the investment exceeded the gain from it, and the tax benefit was the major, if not only, reason for the arrangement.
Earlier, in October 1978, European Taxation had reported on the tax avoidance situation in Sweden, making the comment that:
Tax avoidance has become a great problem in Sweden during the last decade and probably will continue to grow since the marginal tax rates now exceed 90 per cent and in some extreme cases even 100 per cent.
Until now, the Swedish government has attempted to prevent tax avoidance by enacting specific laws against the use of particular transactions for tax avoidance purposes. This method has proved unsatisfactory because inventive taxpayers have created new tax avoidance transactions faster than the government could pass laws restricting their use. Some of the laws passed were retrospective in application.
In April 1974, Sweden had moved towards drafting a statute prohibiting all tax avoidance. Publication of an initial draft in October 1975 had resulted in adverse reactions, leading the government to direct that the proposal be revised. A revised draft was published for comment in June 1978, with the matter still pending in October 1979.
A new British approach: fiscal nullity
Returning to the UK, two tax avoidance schemes were ruled on by the House of Lords in 1981.356 The Ramsay decision introduced a principle of fiscal nullity, which concept was developed in later cases. An academic view of the development is contained in a 2007 lecture in Melbourne by Professor John Tiley.357
One of the schemes ruled on in 1981 had been effected in 1973, the other in 1975. The headnote for Ramsay gives the essence of the appeals:
In two appeals the question arose whether tax avoidance schemes consisting of a number of separate transactions, none of which was a sham, but which were self cancelling, had the effect of producing a loss which was allowable as a deduction for the purpose of assessing capital gains tax. In each case the scheme included a transaction designed to produce a loss to be offset against a gain previously made by the taxpayer which would otherwise be taxable, while another transaction produced a matching gain which was not liable to tax.
Drawing again from the headnote, the House of Lords dismissed the taxpayers' appeals for a number of reasons, principal among which was:
It was the task of the Revenue and the courts to ascertain the legal nature of any transaction to which it was sought to attach a tax or tax consequence, and if the legal nature was that which emerged from a series or combination of transactions which were intended to operate as such, it was the series or combination of transactions rather than the individual transactions to which regard was to be had. Accordingly, where a taxpayer used a scheme comprising a number of separate transactions with the object of avoiding tax, the Revenue and the courts were not limited to considering the genuineness or other wise of each individual step or transaction in the scheme, but could consider the scheme as a whole and if it was found that the composite transaction produced neither a gain nor a loss it could be treated as a nullity for tax purposes. Applying that principle in each case, the only conclusion consistent with the intentions of the parties and with the documents taken as a whole was that there was an integrated and interdependent series of transactions which (apart from a small loss of £370 in the second case) had produced neither a gain nor a loss, and in those circumstances it would be wrong and a faulty analysis to pick out and segregate for tax purposes the one transaction that produced the loss. Accordingly, in each case the scheme was to be treated as a nullity for tax purposes.
As Lord Wilberforce noted in delivering the principal speech, in the courts below the Crown had in each case relied on more technical arguments, but:
in this House the Crown . . . mounted a fundamental attack on the whole of the scheme acquired and used by the taxpayer. It contended that it should simply be disregarded as artificial and fiscally ineffective.
He went on to note that each taxpayer was first in a situation where he had realised a substantial gain:
He is advised to consult specialists willing to provide, for a fee, a preconceived and ready made plan designed to produce an equivalent allowable loss. The Taxpayer merely has to state the figure involved, i.e. the amount of the gain he desires to counteract, and the necessary particulars are inserted into the scheme.
The scheme consists, as do others which have come to the notice of the courts, of a number of steps to be carried out, documents to be executed, payments to be made, according to a timetable, in each case rapid (see the attractive description by Buckley LJ in Rawling [1980] 2 All ER 12 at 16, [1980] STC 192 at 197). In each case two assets appear, like particles in a gas chamber with opposite charges, one of which is used to create the loss, the other of which gives rise to an equivalent gain which prevents the taxpayer from supporting any real loss, and which gain is intended not to be taxable. Like the particles, these assets have a very short life. Having served their purpose they cancel each other out and disappear. At the end of the series of operations, the taxpayer's financial position is precisely as it was at the beginning, except that he has paid a fee, and certain expenses, to the promoter of the scheme.
There other significant features which are normally found in schemes of this character. First, it is the clear and stated intention that once started each scheme shall proceed through the various steps to the end; they are not intended to be arrested halfway (cf Chinn v Collins (Inspector of Taxes) p 189, ante). This intention may be expressed either as a firm contractual obligation (it was so in Rawling) or as in Ramsay as an expectation without contractual force.
Second, although sums of money, sometimes considerable, are supposed to be involved in individual transactions the taxpayer does not have to put his hand in his pocket (cf Inland Revenue Comrs v Plummer [1979] 3 All ER 775, [1980] AC 896, [1979] STC 793 and Chinn v Collins (Inspector of Taxes). The money is provided by means of a loan from a finance house which is firmly secured by a charge on any asset the taxpayer may appear to have, and which is automatically repaid at the end of the operation. In some cases one may doubt whether, in any real sense, any money existed at all. It seems very doubtful whether any real money was involved in Rawling; but facts as to this matter are for the commissioners to find. I will assume that in some sense money did pass as expressed in respect of each transaction in each of the instant cases. Finally, in each of the present cases it is candidly, if inevitably, admitted that the whole and only purpose of each scheme was the avoidance of tax.
Lord Wilberforce then observed that their Lordships had been invited to take 'what may appear to be a new approach', one which Ramsay's counsel had described as revolutionary. He proceeded to address this challenge by referring to principles that a subject is to be taxed only on clear words, is entitled to arrange his affairs so as to reduce his tax liability and that transactions must not be shams. Those principles would be fully respected by the decision sought by the Inland Revenue.
A further principle, that a court cannot go behind a document or transaction that is genuine, in order to find some 'supposed underlying substance' was the well-known principle from the Duke of Westminster case.358 'This', said Lord Wilberforce, 'was a cardinal principle but it must not be overstated or ever-extended'. It did not:
Compel the court to look at a document or a transaction in blinkers, isolated from any context to which it properly belongs. If it can be seen that a document or transaction was intended to have effect as part of a nexus or series of transactions, or as an ingredient of a wider transaction intended as a whole, there is nothing in the doctrine to prevent it being so regarded; to do so is not to prefer form to substance, or substance to form. It is the task of the court to ascertain the legal nature of any transactions to which it is sought to attach a tax or a tax consequence and if that emerges from a series or combination of transactions, intended to operate as such, it is that series or combination which may be regarded.
Departing for a moment from the judicial account, the Duke of Westminster case was simpler in its facts than the cases being considered in 1981. As the UK delegate observed in his OECD paper:359
[In] 1929, the noble Duke devised a tax avoidance scheme. He owned large estates on which he employed numerous servants. Their wages were not deductible from the Duke's income for tax purposes, so he persuaded many of his servants to enter into Deeds of Covenant under which in consideration of past services he undertook to pay for a period of 7 years a certain weekly sum. In addition to the payments under the Deed the employee was entitled to his usual wages for future work but in practice no such wages were paid.
Payments under deeds of covenant then being tax deductible, the Duke succeeded before the House of Lords.
Before Lord Wilberforce and the other Law Lords decided to distinguish the Duke of Westminster decision, Lord Wilberforce addressed an argument 'of a general character which needs serious consideration', that 'so general an attack on schemes for tax avoidance as the Crown suggest' should be validated only by parliamentary action. Reference was made to provisions like Australia's section 260, and to the practice of parliament responding by hole and plug methods. Lord Wilberforce said these arguments merited serious consideration as in substance they had appealed to Chief Justice Barwick in Australia in the Westraders case.360
Lord Wilberforce concluded:
I have full respect for the principles which have been stated but I do not consider that they should exclude the approach for which the Crown contends. That does not introduce a new principle: it would be to apply to new and sophisticated legal devices the undoubted power and duty of the courts to determine their nature in law and to relate them to existing legislation. While the techniques of tax avoidance progress and are technically improved, the courts are not obliged to stand still. Such immobility must result either in loss of tax, to the prejudice of other taxpayers, or to Parliamentary congestion or (most likely) to both. To force the courts to adopt, in relation to closely integrated situations, a step by step, dissecting, approach which the parties themselves may have negated would be a denial rather than an affirmation of the true judicial process. In each case the facts must be established; and a legal analysis made; legislation cannot be required or even desirable to enable the court to arrive at a conclusion which corresponds with the parties' own intentions.
The capital gains tax was created to operate in the real world, not that of make-believe.
The fiscal nullity doctrine was further developed and refined in the United Kingdom, Furniss v. Dawson361 and Craven v. White362 being two principal cases. In the latter case, the British Inland Revenue was unsuccessful. Furness v. Dawson was significant for the efforts by the Law Lords to clarify the Ramsay decision and to further distinguish the Duke of Westminster decision.
A mark of the change in judicial attitude in the UK (and of the time that sometimes elapses) is provided by a further House of Lords decision in Moodie v IRC.363 Before Ramsay, the Inland Revenue had lost a scheme case in IRC v Plummer.364 In Moodie, the Inland Revenue took the same issue again, but argued fiscal nullity, which it had not done in Plummer. The House of Lords accepted the Inland Revenue argument. The scheme in Moodie was a 1971 one; the House of Lords resolution was not to occur until 1993.
In Moodie, Lord Templeman observed that 'the Ramsay principle restores justice between individual taxpayers and the general body of taxpayers'. He commented that after Ramsay the Chancellor had announced that the decision had saved the Inland Revenue and thus the general body of taxpayers £300m.
A 1982 article by PJ Millet QC in the Law Quarterly Review,365 'A new approach to tax avoidance schemes', discusses the UK cases and extends to the US approach. Speaking of the emergence in the UK in the early 1970s of a new form of tax avoidance, Millett recalled Lord Justice Templeman's observation in Ramsay:
yet another circular game in which the taxpayer and a few hired performers act out a play; nothing happens save that the Houdini taxpayer appears to escape from the manacles of tax. The game is recognisable by four rules. First, the play is devised and scripted prior to performance. Secondly, real money and real documents are circulated and exchanged. Thirdly, the money is returned by the end of the performance. Fourthly, the financial position of the actors is the same at the end as it was at the beginning save that the taxpayer in the course of the performance pays the hired actors for their services. The object of the performance is to create the illusion that something has happened, that Hamlet has been killed and that Bottom did don an ass's head, so that tax advantages can be claimed as if something had happened. The audience are informed that the actors reserve the right to walk out in the middle of the performance, but in fact they are the creatures of the consultant who has sold and the taxpayer who has bought the play; the actors are never in a position to make a profit and there is no chance that they will go on strike. The critics are mistakenly informed that the play is based on a classic masterpiece called 'The Duke of Westminster'.
Millett concludes:
In any jurisdiction less sophisticated than ours, such schemes would simply be laughed out of court.
And Australia?
Inside the ATO news of the Ramsay decision was received with some excitement, although O'Reilly had sounded a cautionary note to Howard.366 On the basis that the English approach could become law in Australia it began to be argued in Australian courts. In Taxation Ruling 2102 of 7 September 1984, dealing with trust strips entered into after the introduction of Part IVA, fiscal nullity was given as one basis for the issue of assessments. Justice McGarvie of the Victorian Supreme Court found support from fiscal nullity for his decision in Benwerrin Developments v Federal Commissioner of Taxation367 and in the Ilbery case two of the three justices368 were prepared to use Ramsay as an alternative basis for their decision against the taxpayer. However, the High Court in refusing the taxpayer special leave to appeal sent a 'hang on a minute' message to these justices.
In Oakey Abattoir Pty Ltd v. FC of T369 a Full Federal Court Bench viewed the fiscal nullity doctrine as being inapplicable here, deciding the case against the taxpayer instead in reliance on section 260.
The High Court took the issue head on when the John case370 came to it. That was the case in which the court took the extreme step of deciding that a previously constituted High Court was wrong in its decision in Curran's case. The Commissioner, not content with seeking that outcome, had for good measure thrown in a fiscal nullity argument. The High Court would have none of it. In the joint judgment of five of the six justices:
The Act, in s 260 and now in Pt IVA, makes specific provision on the topic of what may be called tax minimisation arrangements and thereby excludes any implication of a further limitation upon that which a taxpayer may or may not do for the purpose of obtaining a taxation advantage. We would respectfully adopt as correct that which was said by Gibbs J in Patcorp (CLR at 292):
The presence of s 260 makes it impossible to place upon other provisions of the Act a qualification which they do not express, for the purpose of inhibiting tax avoidance.
Undeterred, and encouraged by the fact that the sales tax law did not contain any general anti-avoidance provision like section 260 or Part IVA, we tried to have Australian courts apply fiscal nullity principles in sales tax avoidance cases.371
Sonenco (No. 87) Pty Ltd v Federal Commissioner of Taxation372 was one such case. It concerned a scheme to avoid substantial sales tax on motor vehicles. The Commissioner argued on ordinary grounds and had also argued fiscal nullity. The Federal Court upheld the Commissioner's assessments on the ordinary grounds, then proceeded to express an opinion on fiscal nullity although it was not strictly necessary that it do so.
The Federal Court decision did not do much to resolve the general issue, it saw fiscal nullity (if it applied) as not adding to what general law would mean in the particular circumstances. The High Court refused special leave to appeal, thus leaving the matter open. A general anti-avoidance rule was later introduced into the sales tax law.
Sections within Chapters 51-60
Last Modified: Wednesday, 16 June 2010