INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART VI - COLLECTION AND RECOVERY OF TAX  

Division 1B - Collection of tax on companies and trustees of certain funds  

SECTION 221AX   INITIAL PAYMENT AVOIDANCE ARRANGEMENTS  

221AX(1)   [Definition]  

In this section:

"arrangement"
means:

(a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, or intended to be enforceable, by legal proceedings; and

(b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.

221AX(2)   [Reference to arrangement by person]  

A reference in this section to the carrying out of an arrangement by a person includes a reference to the carrying out of an arrangement by a person together with any other person or persons.

221AX(3)   [Reference to arrangement for particular purpose]  

A reference in this section to an arrangement or a part of an arrangement being entered into or carried out by a person for a particular purpose includes a reference to the arrangement or the part of the arrangement being entered into or carried out by the person for 2 or more purposes of which that particular purpose is the dominant purpose.

221AX(4)   [Operation of section]  

Where:

(a) a relevant entity has given a notice under paragraph 221AQ(1)(a) in respect of a year of income (in this section called the ``relevant year of income'' ); and

(b) the Commissioner is of the opinion that:

(i) the entity has obtained or, but for this subsection would obtain, a benefit (in this section called an ``initial payment tax benefit'' ) in relation to its obligation to make an initial payment of tax in respect of its taxable income of the relevant year of income, in connection with an arrangement, whether entered into within Australia or outside Australia, or partly within and partly outside Australia, and whether entered into before or after the commencement of this section; and

(ii) having regard to any one or more of the following:

(A) the manner in which the arrangement was entered into or carried out;

(B) the form and substance of the arrangement;

(C) the time at which the arrangement was entered into and the length of the period during which the arrangement was carried out;

(D) the result in relation to the operation of this Division that, but for this section, would be achieved by the arrangement;

(E) any change in the financial position of the entity that has resulted, will result, or may reasonably be expected to result, from the arrangement;

(F) any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the entity, being a change that has resulted, will result, or might reasonably be expected to result, from the arrangement;

(G) any other consequence for the entity, or for any person referred to in sub-subparagraph (F), of the arrangement having been entered into or carried out;

(H) the nature of any connection (whether of a business, family or other nature) between the entity and any person referred to in sub-subparagraph (F);

it would be concluded that the person, or one of the persons, who entered into or carried out the arrangement or any part of the arrangement did so for the purpose of enabling the entity to obtain an initial payment tax benefit in connection with the arrangement or of enabling the entity and another taxpayer or other taxpayers each to obtain an initial payment tax benefit in connection with the arrangement (whether or not the person who entered into or carried out the arrangement or any part of the arrangement is the entity or is the other taxpayer or one of the other taxpayers);

the following provisions of this section have effect.

221AX(5)   [Determination by Commissioner]  

The Commissioner may determine either:

(a) that the amount of the initial payment of tax to be made by the entity in respect of its taxable income of the relevant year of income is to be taken for the purposes of this Division to be 85% of the entity's notional tax in respect of that year of income; or

(b) that the amount of the estimate or of a revised estimate, as the case may be, made by the entity under this Division of the income tax that would be payable in respect of its taxable income of the relevant year of income is to be taken for the purposes of this Division to be increased by the amount of the initial payment tax benefit.

221AX(6)   [Notice of determination]  

If the Commissioner makes a determination under subsection (5), the Commissioner must cause to be served on the entity written notice:

(a) stating that the Commissioner is of opinion as set out in subsection (4); and

(b) specifying the nature and amount of the initial payment tax benefit; and

(c) setting out the terms of the determination made under subsection (5); and

(d) specifying the date of effect of the determination, being a date not less than 7 days after the date of service of the notice.

221AX(7)   [Other provisions of Division]  

A determination under subsection (5) has effect despite any other provision of this Division.

221AX(8)   [Additional amount payable]  

Any additional amount that, because of a determination under subsection (5), is payable by a relevant entity in respect of the initial payment of tax that the entity is required to make under section 221AP in respect of its taxable income of the relevant year of income is payable not later than the date on which the determination takes effect.

221AX(9)   [Revised estimate by entity]  

After the determination comes into effect, the entity is not entitled to make a revised estimate under section 221AR of the income tax that will be payable in respect of its taxable income of the relevant year of income if:

(a) in the case of a determination under paragraph (5)(a) - the revised estimate would result in the amount of the initial payment of tax to be made by the entity in respect of its taxable income of the relevant year of income being less than 85% of the entity's notional tax in respect of that year of income; or

(b) in the case of a determination under paragraph (5)(b) in respect of an estimate made by the entity under paragraph 221AQ(1)(a) - the revised estimate would be less than the amount of the entity's estimate under that last-mentioned paragraph as increased by the determination.

221AX(10)   [Initial payment tax benefit]  

A reference in this section to the obtaining by an entity of a benefit in relation to its obligation to make an initial payment of tax in respect of its taxable income of the relevant year of income in connection with an arrangement is a reference to the amount of the estimate or of a revised estimate, as the case may be, made by the entity under this Division of the income tax that would be payable in respect of its taxable income of that year of income being less than it would otherwise have been because of:

(a) in the case of an entity that is a company:

(i) an amount not being included in the company's assessable income of that year of income where that amount would have been so included, or might reasonably be expected to have been so included, if the arrangement had not been entered into or carried out; or

(ii) a deduction being allowable to the company in relation to that year of income where the whole or a part of that deduction would not have been so allowable, or might reasonably be expected not to have been so allowable, if the arrangement had not been entered into or carried out; or

(b) in the case of an entity that is a trustee of a fund or unit trust referred to in paragraph (b) of the definition of ``relevant entity'' in subsection 221AK(1) :

(i) an amount not being included in the assessable income of the fund or trust of that year of income where that amount would have been so included, or might reasonably be expected to have been so included, if the arrangement had not been entered into or carried out; or

(ii) a deduction being allowable to the trustee in relation to that year of income where the whole or a part of that deduction would not have been so allowable, or might reasonably be expected not to have been so allowable, if the arrangement had not been entered into or carried out.

221AX(11)   [Amount of initial payment tax benefit]  

For the purposes of this section, the amount of an initial payment tax benefit obtained by a relevant entity in relation to the relevant year of income is to be taken to be:

(a) if, apart from this section, the entity would be required to make an initial payment of tax in respect of its taxable income of that year of income - the amount by which that payment would have been greater if the entity had not obtained that initial payment tax benefit in relation to that year of income; or

(b) if, apart from this section, the entity would not be required to make an initial payment of tax in respect of its taxable income of that year of income - the amount of the initial payment of tax in respect of that taxable income that the entity would have been required to make if the entity had not obtained that initial payment tax benefit in relation to that year of income.

221AX(12)   [Increase of initial payment of tax]  

Subsections (5) to (11), inclusive, do not apply, and are to be taken never to have applied, in relation to an initial payment tax benefit obtained by a relevant entity in respect of the relevant year of income if the Commissioner is satisfied that:

(a) as a result of the arrangement referred to in subsection (4):

(i) the initial payment of tax that another relevant entity has made in respect of its taxable income of that year of income has increased; or

(ii) the initial payments of tax that 2 or more other relevant entities have made in respect of their taxable incomes of that year of income have increased; and

(b) the amount of the increase, or the sum of the amounts of the increases, as the case may be, is not less than the amount of the initial payment tax benefit obtained by the first-mentioned entity in respect of that year of income.

221AX(13)   [Further notice by Commissioner]  

If the Commissioner becomes satisfied under subsection (12) after the serving of a notice under subsection (6), the Commissioner must cause to be served on the entity a further notice informing the entity that the determination does not have, and is to be taken never to have had, any effect.

221AX(14)   [Refund of additional amount]  

If:

(a) because of a determination under subsection (5), a relevant entity has paid an additional amount under subsection (8); and

(b) after the payment of the additional amount, a notice in respect of the determination is served on the entity under subsection (13);

the Commissioner must, as soon as practicable, refund the additional amount to the entity.