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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1051239993219

Date of advice: 20 June 2017

Ruling

Subject: The general anti avoidance provisions

Question 1

Will Part IVA of the Income Tax Assessment Act 1936 apply to the arrangement?

Answer

No

Question 2

Will section 207-115 of the Income Tax Assessment Act 1997 apply to the arrangement?

Answer

No

Question 3

Will section 100A of the ITAA1936 apply to the arrangement?

Answer

No

This ruling applies for the following period(s)

Year ended 30 June 2017

Year ended 30 June 2018

Year ended 30 June 2019

The scheme commences on

1 July 2016

Relevant facts and circumstances

Background

X are executors and beneficiaries of the Estate of the Late X (parent of the Siblings) died in 20xx and their estate (the Estate) is currently being administered.

One of the major assets of the Estate is its interest in Z Pty Ltd (Z).

Z was incorporated in 19xx. Z was established by X (parent of the siblings and spouse to X). They used Z to run a number of enterprises during his lifetime and also to hold a number of share investments. X passed away in 20xx.

Z, together with its wholly owned subsidiaries controls a portfolio of investments valued at approximately $x as at 30 June 20xx.

X has investments in shares that have been held since X’s death.

X has investments in shares that have been traded by X on behalf of the entity from time to time since X’s death.

In the will of X, the shares in Z were bequeathed variously to X.

After the Estate is administered, X will each effectively hold equal shares of Z and its subsidiaries (indirectly).

X wish to change the ownership structure of the investment portfolios held within the Z group of entities.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section207-155

Income Tax Assessment Act 1997 Subdivision 152-A

Income Tax Assessment Act 1997 Subdivision 152-C

Income Tax Assessment Act 1997 Subdivision 152-E

Income Tax Assessment Act 1997 Section 152-10

Income Tax Assessment Act 1997 Section 152-15

Income Tax Assessment Act 1997 Section 152-35

Income Tax Assessment Act 1936 Part IVA

Income Tax Assessment Act 1936 Section 177A

Income Tax Assessment Act 1936 Section 177C

Income Tax Assessment Act 1936 Section 177D

Income Tax Assessment Act 1936 Section 100A

Reasons for decision

Question 1

Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance provision that can apply in certain circumstances if a taxpayer obtains a tax benefit in connection with a scheme, and it can be concluded that the scheme, or any part it, was entered into for the dominant purpose of enabling a tax benefit to be obtained. Part IVA is a provision of last resort.

In order for Part IVA to apply, the following requirements must be satisfied:

It is determined that Part IVA would not apply to the proposed business reorganisation. While the arrangement described in the discussion above amounts to a scheme which would give rise to a tax benefits(s) in connection with the scheme, it is accepted that the taxpayer (or any other person involved in the scheme) did not have the sole or dominant purpose of entering into the scheme to obtain the tax benefit.

Question 2

Section 207-155 of the Income Tax Assessment Act 1997 (ITAA 1997) defines 'dividend stripping operation’ in similar terms to section 177E. As the proposed arrangement is not considered to be a scheme 'by way of or in the nature of dividend stripping’ for the purposes of section 177E, it follows that it is also not a 'dividend stripping operation’ for the purposes of section 207-155 of the ITAA 1997.

Question 3

Section 100A of the ITAA 1936 may apply to allow the Commissioner to assess the trustee rather than a presently entitled beneficiary where there is a reimbursement arrangement in place.

The definition of a reimbursement agreement in subsection 100A(7) of the ITAA 1936 is also subject to a purpose test which is outlined in subsections 100A(8) and 100A(9) of the ITAA 1936. Those subsections require that one of the purposes for which the reimbursement agreement was entered into by any of the parties to the agreement, must be the reduction or elimination of a tax liability that would have existed had the reimbursement agreement not been entered into.

As the proposed arrangement is not considered to be a scheme 'entered into for the sole or dominant purpose of entering into the scheme to obtain the tax benefit’ for the purposes of section 177D, it follows that it is also not a reimbursement agreement for the purposes of section 100A of the ITAA 1936.

Where the taxpayer adheres to the arrangement described above, it is accepted that arrangements to be put in place between the family trusts and the beneficiary companies, should they comply with either section 109N of the ITAA 1936 or PSLA 2010/4, will not be arrangements to which section 100A of the ITAA 1936 should apply.

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