While the Commissioner considers many cases of tax avoidance are dependent on the facts of each case, our current concerns are with structures or transactions that produce the following inappropriate actions.
Income shifting or sheltering
Income is allocated or shifted to a taxpayer with the lowest tax rate or losses to use, and deductions and/or credits are allocated to those in the highest tax rate brackets. An example of income sheltering is where a non-resident sells credits to a resident because the non-resident has no use for them.
Income recognition is deferred or smoothed to a lower taxable income for a particular year. In this way income is kept under the highest tax rates (this does not include the income equalisation scheme).
Accelerating the use of losses or credits
There may be schemes that artificially bring forward a liability to income tax that is offset against losses or credits. This is commonly used when future shareholder changes may otherwise result in the loss of a company's tax benefit (such as tax losses or imputation credits).
Creating or inflating expenses
The Ben Nevis case is the most well-known example of creating expenses for tax purposes where there is either no, or nominal economic cost. Similarly, some transactions look to inflate the expenses associated with the scheme (to increase the deduction or GST credit claimed).
Changing the character of receipts or outlays
This occurs where a taxpayer tries to change a transaction's characteristics so that:
income that would otherwise be liable for tax is:
- exempt, or
- not within the tax rules, or
- expenses that would not be ordinarily be deductible is changed to something that is.
Payments/invoice basis arbitrage - generally the person seeking the credit brings forward their entitlement to claim the credit while the person liable for the GST defers this for as long as possible using:
- timing advantages
- structuring around thresholds
- unregistered persons.
- Inflating expenses while avoiding the output liability
- Attempted avoidance of the associated persons' rules
- Avoiding GST consequences of ending business or forced sales (eg, under mortgagee sales).
Date published: 22 Jul 2011