The purpose of anti-avoidance provisions within any tax legislation is to deter schemes that give entities benefits either in reducing the amount of tax payable, increasing the available refunds or altering the incidence of tax in some way.

These provisions have attracted considerable attention since their introduction, primarily because of their `general' nature. Rather than adopting specific anti-avoidance measure - which would need to be amended to deal with new schemes as they arose - the government took a sweeping approach by adopting a general anti-avoidance provisions (`GAAP'). This approach is aimed at deterring any scheme that would result in a benefit by taking advantage of the GST law (other than in circumstances provided for under the law) for the avoider (the entity getting the benefit of the scheme).

This approach has been adopted in other GST jurisdictions such as New Zealand and South Africa and is similar to the approach taken in Part IVA of the Income Tax Assessment Act 1936.

The GAAP can be divided into two parts:

The GAAP only applies to schemes entered into after 2 December 1998 (when the draft GST legislation was introduced into the Parliament).

For the GAAP to apply, three criteria must be satisfied:

The two tests are quite different.

The purpose test (first test) applies to the entity entering into the scheme without the outcome of obtaining the benefit.

The principal benefit test (second test) relates to the entity actually obtaining the benefit.

Concerns were raised on the introduction of the draft legislation into Parliament that the GAAP would capture transactions which were of a legitimate commercial nature with an incidental effect of also providing a GST benefit. In response, the Government introduced amendments to clarify the fact that the GAAP would only apply where the schemes giving rise to a GST benefit were artificial and contrived.

As an example, the choice of monthly tax periods over three monthly tax periods (because this enables refunds of GST to be collected earlier) would not necessarily be caught by this provision as the purpose or main purpose of the scheme may not be the reduction of a GST liability.

Likewise, a financial institution who may choose to bring accounting and legal services in-house would not be caught under the GAAP even though this will have the benefit of reducing the amount of input tax credits, which could not otherwise be recovered.

The consequences for GST avoidance under the Act are located in Section 165-40. This provision allows the Commissioner to negate the GST benefit derived by the avoider through the scheme. The Commissioner can also reverse the advantage that decisions relating to timing may have had for the avoider.

Where GAAP applies, the Commissioner can negate the GST benefit by making a declaration in two ways:

However, where the GST benefit is one derived from timing, the Commissioner can also adjust the amount of GST for another tax period to ensure the appropriate treatment occurs.

The Commissioner can also make a declaration compensating an entity (called the `loser' in the legislation) for a GST disadvantage arising from a scheme.

Compensation can be made by changing the loser's net amount for a specified tax period.

A loser can make a written request for compensation and if rejected has the opportunity to seek a review. A loser, however, cannot be placed in a more advantageous position than would otherwise be the case.

For example, altering the GST payable on a taxable importation.

Penalties apply where action is taken under the GAAP.

Decisions made under GAAP are reviewable and subject to the rights of objection under the Taxation Administration Act 1953. In addition, there are rights of appeal to the Australian

Administrative Tribunal or Federal Court, and ultimately to the High Court.

These review and appeal provisions should provide an appropriate check on ensuring that the Commissioner's application of the GAAP is appropriate and reasonable.

The penalties for non-compliance with the GST law as authorised by the Taxation Administration Act 1953 are also imposed for: