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This Case Decision Summary has been withdrawn.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 taxpayer providing services through a family owned company as the company’s principal employee if:

1) the company profits are all distributed to the taxpayer?

2) the company profits are instead distributed as dividends to those family shareholders with the lowest tax rates?

3) no profit distributions are made or planned in the foreseeable future (that is, the profits are retained in the company)?


1) No.

2) Yes.

3) Yes.


A taxpayer, before commencing a new career in entertainment, incorporates a family-owned company. The company only derives substantial income from television programme appearances and public appearances by the taxpayer, and personal appearances in both advertisements and product endorsements featuring the taxpayer. The company pays the taxpayer a salary comparable to what the taxpayer would have earnt if the taxpayer was employed by a talent-scout company.

Reasons for Decision:

1) A taxpayer incorporating a company through which the taxpayer provides services as the company’s principal employee does not, of itself, attract the operation of Part IVA (ITAA 1936).

2) This situation involves alienation of income in a manner which attracts the operation of Part IVA (ITAA 1936).

3) The situation also involves alienation of income to take advantage of different tax rates, timing differences and possibly dividend stripping in a manner which attracts the operation of Part IVA (ITAA 1936).

Legislative References:

Income Tax Assessment Act 1936 Part IVA

Relevant Cases:

Case W58 89 ATC 524; AAT Case 5219 (1988) 20 ATR 3777

Other References:

Taxation Ruling IT 2503


Income alienation

Part IVA

Service companies

Tax avoidance

Tax planning

Tax planning, avoidance & evasion

FOI Number: