CAUTION: This Case Decision Summary should not be relied upon in deciding whether to enter into any particular arrangement or transaction (referred to as a 'scheme' in Part IVA Income Tax Assessment Act 1936 for the reasons which follow. It is recommended that should you wish to enter into a scheme similar to that summarised you seek further advice or a ruling from the ATO, or advice from a professional adviser.

This Case Decision Summary illustrates the approach taken by the Commissioner of Taxation in applying Part IVA to a real fact situation. The facts have been simplified to focus on key practical issues.

To properly apply Part IVA, the law must be applied to all the relevant facts. In particular, an eight step test must be applied to determine whether, on the facts, a particular scheme objectively has the dominant purpose of obtaining a tax benefit not intended by the law. Where the scheme simply takes advantage of the intended operation of a structural feature of the law, Part IVA will not apply because the required dominant purpose will not exist.

In applying the dominant purpose test, regard must be had to the manner in which the scheme is carried out; that is, whether the scheme bears the stamp of tax avoidance. The Full Federal Court in Bellinz Pty Limited v Federal Commissioner of Taxation 98 ATC 4634 at 4647; 39 ATR 198 at 212 has noted the difficulty in applying Part IVA prior to the scheme being carried out, because the execution of the scheme may in fact be different to that originally proposed. Even where the scheme has been carried out, the Court has noted that a difficulty in coming to a view on the application of Part IVA is to ensure that all relevant facts are considered, including those concerning the manner in which the scheme is carried out.

This Case Decision Summary has been withdrawn.

ATO Case Decision

Case Decision Number:



Does Part IVA (Income Tax Assessment Act 1936 (ITAA 1936)) apply to a proposed arrangement under which a taxpayer incurs expenses related to the production of rental income, including interest on money borrowed to purchase spouse’s interest in the rental property?


No. Part IVA (ITAA 1936) does not apply to the proposed arrangement.


At the time this matter came under consideration in September 1997 the taxpayer and the spouse owned a rent-producing property as tenants in common. Until June 1996 the property had been their principal place of residence. By then the property was unencumbered. Since July 1996 the property had been producing rental income. Both the taxpayer and the spouse had other income from full time employment. They were living in a rented house and were planning to build a new home. They had attempted to sell the rental property but were unable to obtain a satisfactory price and had taken the property off the market.

In September 1997 the taxpayer sought a private ruling that deductions would be allowed for expenses related to the production of the rental income, including agent’s commission, repairs, insurance premiums and interest on money the taxpayer proposed to borrow to finance the acquisition of the spouse’s share of the rental property at market value. Market value was to be established through an independent valuation. The consideration the spouse received from the sale was intended to partly finance the construction of their new home.

Reasons for Decision:

There was nothing unusual in the means adopted by the taxpayer to acquire the spouse’s share of the property. Viewed objectively, a reasonable person would not conclude that the taxpayer, in acquiring the spouse’s share, took the steps for the dominant purpose of obtaining deductions for rental property expenses. The transaction was conducted at arm’s length even though the parties were associated. It was of no consequence that the arrangement would have the effect that the taxpayer would be entitled to deductions for interest that would not have been available had the taxpayer and the spouse borrowed the same amount of money to build their new home.

Legislative References:

Income Tax Assessment Act 1936 Part IVA


Arms length transactions

Deductions & expenses

Family members

Part IVA

Private rulings

Rental expenses

Rental property

Rental property income

Rental property loan interest expenses

Schemes & shams


Tax avoidance

Tax planning, avoidance & evasion

Tenants in common

Date of decision:

1 June 1998

Year of Income/Date of Transaction:

Year ended 30 June 1997

FOI Number: