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Chapter 24: Anti-avoidance provisions

A case for reform

The tax law relies on a range of specific anti-avoidance provisions. These provisions, used to address structural flaws, add to complexity, uncertainty and compliance costs.

A strategy for reform

Applied fully, the policy, legislation and administrative design principles in A Strong Foundation would ensure integrity in the income tax system — without resort to complex specific anti-avoidance measures. Inevitably, in practice, some specific anti-avoidance measures would be required. The need for those and their design should, however, be based on a clear and systematic process of evaluation.

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Key policy issues

What should be the general approach to anti-avoidance issues?

What specific issues require further examination?

- Examine what underpins tax avoidance activity.
- Look for structural solutions.
- If structural solution is not possible, undertake systematic evaluation of the need for specific anti-avoidance provisions.
- Introduce a robust general anti-avoidance rule.
- Debt/equity issues
- Non-arm’s-length transaction
- Transfer of entity losses
- Unfranked dividend streaming
- Franking credit trading
- Dividend ‘stripping’
- Dividend substitution
- Capital streaming
- Capitalisation of profits
- Redeemable preference shares