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08 Feb 2008
Appeal Status
Not appealed

Physical receipt of income not necessary to be affected by a tax avoidance arrangement

2008 case note – Taxation Review Authority held it is not necessary to physically receive income to be affected by a tax avoidance arrangement.

TRA Decision Number 04/08


The taxpayer applied to have the proceedings dismissed on the ground that he cannot possibly have avoided tax if he did not receive any income, which is a fact he alleged the Commissioner admitted.

It is not necessary to physically receive income to be affected by a tax avoidance arrangement. Whether the disputant was so affected can only be determined after the evidence is heard.


The taxpayer ran a template avoidance scheme for many years during the 80s and 90s, which he sold to clients. The scheme involved the taxpayer's companies and the taxpayer's clients sharing the tax benefits resulting from the scheme. In 2002 the Commissioner assessed him for his profits from operating the scheme. The assessments were the result of applying section 99 of the Income Tax Act 1976 (which was the anti-avoidance provision relevant to the years in question).

This judgment relates to what was effectively an interlocutory application by the taxpayer to have the proceedings dismissed. The taxpayer contended that as he has never received any of the money assessed to him, he cannot possibly be liable for tax on it as he cannot have gained a tax advantage. The taxpayer admitted that he controlled all the relevant entities, but argued this was irrelevant as he never received any of the income personally. The anti-avoidance provisions operate to counter situations where a taxpayer has received income in a non-taxable form (such as exempt income) where the Income Tax Act does not anticipate such results.

The Commissioner argued that the taxpayer received direct and indirect benefits, and that the evidence will show the taxpayer was operating a tax avoidance arrangement, and that he was a person affected by that arrangement. It is not necessary that a person be a part of that arrangement, only that they were affected by it. In any case, it is too early in the proceedings to be dealing with such an application.


The Taxation Review Authority (TRA) accepted the Commissioner's submissions that it is not necessary to receive income, as long as the taxpayer is affected by an arrangement. His Honour agreed that it is too early to determine whether the taxpayer in this case was so affected. Such a conclusion can only be drawn once the evidence has been heard. His Honour also noted that in any case, it appears that the taxpayer had so much control over the income flows that they can be considered to be received by him. The taxpayer's application was dismissed.

Income Tax Act 1976