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This Case Decision Summary has been withdrawn.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 when taxpayer B, solely to avoid the application of section 149-30 (Income Tax Assessment Act 1997 (ITAA 1997)), purchases 49 of taxpayer A’s 50 pre-CGT shares in a company, when taxpayer B already holds the remaining 50 pre-CGT shares in the company?




A company has 100 pre-CGT shares: 50 held by taxpayer A and 50 held by taxpayer B. Taxpayer B wishes to take over the whole company, but does not wish to trigger [break]section 149-30 (ITAA 1997). After taxpayer B purchases the 49 shares from taxpayer A, taxpayer A continues to enjoy 1 per cent of dividends and other entitlements.

Reasons for Decision:

Where the ITAA 1997 requires more to be done in order to trigger a liability than what is actually done, there is no tax avoidance issue. Section 149-30 (ITAA 1997) sets a structural formula which is not triggered in this case, with taxpayer A retaining a 1 per cent interest. The fact that this has the effect that section 149-30 (ITAA 1997) does not apply to the company, does not mean that Part IVA (ITAA 1936) is attracted.

If, in addition, the rights on taxpayer A’s remaining share are changed - voting rights are removed, and the share is converted to a class on which dividends are not expected to be paid – there is more of a tax avoidance flavour to the arrangement, such that Part IVA would apply.

Legislative References:

Income Tax Assessment Act 1936 Part IVA

Income Tax Assessment Act 1997 section 149-30


Capital gains tax

Company tax

Ownership, interests, control & rights

Part IVA


Takeovers & mergers

Tax avoidance

Tax planning

Tax planning, avoidance & evasion

FOI Number: