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This Case Decision Summary has been withdrawn.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 in which an employer trust makes a distribution to an employee to pay a bonus, rather than pay the bonus as salary?




By paying the bonus as a trust distribution, the employer trust avoids the PAYE system and gives the employee the benefit of the delay of the provisional tax system. The trust deed does not need amendment to make such a distribution.

Reasons for Decision:

The distribution will be assessable income in the hands of the employee. There is no tax benefit here under Part IVA (ITAA 1936) as currently drafted.

Legislative References:

Income Tax Assessment Act 1936 Part IVA


Employee bonuses

Entities & taxpayer groups

Part IVA

PAYE erosion issues

PAYE system

Provisional tax

Tax avoidance

Tax planning

Tax planning, avoidance & evasion

Trust distributions

Trust income


Trusts - PAYE issue

FOI Number: