How the general anti-avoidance provisions apply

Our views, which are set out in Taxation Rulings, rely on the GAAP of the income tax law (Part IVA). The rulings provide general guidance only and must be read with the understanding that the GAAP will only apply if the dominant purpose of an arrangement is to obtain a tax benefit. You may incur penalties if we find that the GAAP do apply to your situation.

If you use a company or trust to retain profits from PSI in your business or split PSI with an associate, and therefore reducing your overall income tax liability, then the GAAP may apply to that arrangement. However, you can pay remuneration (for example, salary or wages) to yourself or an associate for work related to the earning of your PSI if it is equal to the value of their services.

In most cases, a salary equal to the value of your services will be the gross amount received by your business less allowable deductions (other than deductions associated with income splitting). If remuneration is less than the market value for the services provided, then the arrangement may attract the GAAP.


John receives a salary which is paid to him as a principal worker of his company Smith Pty Ltd. His salary is not equal to the value of the services he provides and the remaining income is distributed to his wife and brother who provide administration assistance.

The GAAP may apply to the arrangement Smith Pty Ltd has in place, as John may be obtaining a tax benefit from splitting the income with his associates.

End of example
    Last modified: 14 Sep 2016QC 17216