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ATO Interpretative Decision

ATO ID 2002/613 (Withdrawn)

Income Tax
Tax avoidance - application of Part IVA

Attention This ATO ID is withdrawn. Guidance on the issues contained in this ATO ID can be found in Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules.
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision withdrawn 18 August 2017.

CautionCAUTION: This ATO Interpretative Decision 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 (ITAA 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 ATO Interpretative Decision 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.


Does a sale of shares in the taxpayer company constitute a franking credit scheme, as defined in section 177 EA of the Income Tax Assessment Act 1936 (ITAA 1936), which permits the Commissioner to debit the taxpayer's franking account or deny the franking credit benefit to the recipient of the dividend?


No, the sale of shares in the taxpayer company does not constitute a franking credit scheme and accordingly section 177EA of the ITAA 1936 does not apply.


The taxpayer is a family company. The two directors of the taxpayer company are a husband and wife. The husband has commenced a new business venture.

In order to protect the husband's shares in the taxpayer company from creditors of the new business venture, the husband proposes to sell his shares at market value to his wife and to his family trust.

Reasons for Decision

Section 177EA of the ITAA 1936 is directed to franking credit trading which is the process of transferring franking credits on a dividend from investors who cannot fully use them, to investors who can fully use them.

In order for section 177EA of the ITAA 1936 to apply to a disposition of shares, the Commissioner must be able to conclude, amongst other things, that the purpose of at least one of the participants to the disposition of shares was to obtain a franking credit benefit. A franking credit benefit includes a franking credit rebate under section 160AQU of the ITAA 1936. It is not necessary that this purpose is the dominant purpose but it must be more than merely incidental.

The disposal of shares by the husband is for commercial purposes. Any franking credit benefit obtained by the wife or trust is merely incidental to the commercial purpose.

Date of decision: 4 March 2002

Year of income:Year ended 30 June 2001

Legislative references:
Income Tax Assessment Act 1936
   section 177EA
   section 160AQU

Part IVA
Franking credits

Siebel/TDMS reference number: DW344974; 1-5TY98MA

Business line: Private Groups and High Wealth Individuals

Date of publication: 31 May 2002
Date reviewed: 24 September 2014

ISSN: 1445-2782

ATO ID 2002/613 (Withdrawn) history   Top  
   Date   Version 
    4 March 2002   Original statement   
 You are here ®  18 August 2017   Withdrawn   


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