n Business Tax and Company Law Quarterly - The case - lessons in tax avoidance

Volume 5, Issue 4
  • ISSN : 2219-1585


Taxpayers are constantly devising tax avoidance arrangements in attempts to reduce their liability for tax. The legislature has responded by including various anti-avoidance provisions in the Income Tax Act. The Commissioner has also made use of the common law doctrine of substance over form to deal with tax avoidance arrangements. The well-known case is an example of a tax avoidance arrangement designed to secure a capital allowance on a property development. Despite the availability, and possible applicability of the then general anti-avoidance provision, s 103(1), the Commissioner chose to rely on the doctrine of substance over form to defeat this particular tax avoidance arrangement. The Appellate Division of the Supreme Court (now the Supreme Court of Appeal) agreed with the Commissioner's application of this doctrine to the arrangement in question, and found it unnecessary to examine s 103(1).

The legislature has since replaced s 103(1) with a new general anti-avoidance provision, namely, s 80A read with ss 80B-80L.
The case provides an opportunity to test this new anti-avoidance provision against a known tax avoidance arrangement, to determine whether the current general anti-avoidance provision will be effective. The conclusion drawn is that the provision is indeed effective, and has a broader reach than its predecessor. Taking into account the possibility of an attack based on the common law, this means that a tax-avoiding taxpayer will have a virtually impossible task when defending his tax-saving arrangement in future.
A secondary but significant issue in the case arose in the court . The taxpayer raised as a point the issue of the composition of the tax court that was presiding over the matter, querying the appointment of the two 'assessors'. The court's response to this provides an unusual insight into the mechanics of the tax court.

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