BEYOND BLATANT, ARTIFICIAL AND CONTRIVED : PART OF THE STORY SO FAR. Taxation Institute of Australia Lecture, Victorian State Library, 13 October 2010

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1 BEYOND BLATANT, ARTIFICIAL AND CONTRIVED : PART OF THE STORY SO FAR Taxation Institute of Australia Lecture, Victorian State Library, 13 October 2010 G.T. Pagone * Trevor Boucher s book Blatant, Artificial and Contrived 1 should be read by everyone who practices in taxation law and particularly by anyone seeking to understand, advise upon, apply or adjudicate upon Australia s anti-tax avoidance provisions. Part IVA of the Income Tax Assessment Act 1936 (Cth) ( the Act ) was enacted to deal with the problems of s 260 in the context of a burgeoning tax avoidance industry that was undermining the integrity and effectiveness our fiscal system. It was also distorting commerce. When I first began to practice in tax litigation, I would frequently hear taxpayers, sometimes my clients sometimes parties against whom I appeared, saying that they were compelled economically to go into tax schemes because they could otherwise not compete in their small businesses with competitors whose prices were lower or whose profits were higher through their participation in tax avoidance schemes. Trevor Boucher s book records the events and concerns which led to the enactment of Part IVA. It does so in a way that has not been done before and by a person who is ideally placed to do so. The book brings together in one place an enormous wealth of material for us to understand something about how Part IVA is supposed to work. The material provides a useful reference point against which we can also * 1 Judge in charge of the Commercial Court, Supreme Court of Victoria; Professorial Fellow, University of Melbourne. TPW Boucher, Blatant, Artificial and Contrived: Tax schemes of the 70s and 80s (2010). 1

2 ask whether it is working the way it should. What the legislature intended The application of legislation in the Australian legal system depends upon the belief that the words found in a statute express a discernible intention of the law maker. This may seem obvious and self-evident to this gathering in this country but such a belief is neither self-evident nor necessarily desirable. The idea that words in legislation reflect a discernible intention enables them sometimes to be applied, not by what they literally say, but by what they can be interpreted to have said. Indeed, sometimes they are applied by what they should be understood to say even when a fair reading of the words do not say so. That may seem a reasonable thing, but legislation is often about compromise by people with different objectives to achieve and who have different understandings of what they mean by the words they have used. 2 The legal battles about the meaning, effect and application of s 260 were in part about the difficulty of bringing together the vast range of possible meanings ascribable to the section to produce a meaning for useful application. The legal battles which have emerged about the meaning, effect and application of Part IVA are also in part about the same difficulty. Murray Gleeson QC (later Chief Justice of the High Court) and Graeme Hill (later Justice Hill of the Federal Court) were the Sydney counsel identified in Trevor Boucher s book as having been retained by the Commissioner to advise upon the terms of Part IVA 3 and who themselves drafted the language that, with some refinement by Parliamentary Counsel, became the core component of the new 2 3 KA Shepsle Congress Is a They, Not an It : Legislative Intent as Oxymoron (1992) 12 International Review of Law and Economics 239; cf RA Posner, How Judges Think (2008) Boucher, above n 1,

3 section 260 now emerging as Part IVA of the Act. 4 One might think from that fact that the two would have a common understanding of what the terms of Part IVA meant and how it was to be applied on similar facts. However, the two did not always agree even when the facts were the same. In Hart s case Hill J concluded that Part IVA could not apply on the facts saying: On any view of the matter the dominant purpose of the scheme which included the borrowing by the Harts of funds used to finance and refinance the two properties was the obtaining of funds to permit them to do so. In my view the present case is similar to Eastern Nitrogen and distinguishable from Spotless. 5 On appeal Gleeson CJ, however, reached the very opposite conclusion on the very same facts. In a joint judgment with McHugh J the Chief Justice said of the same facts: In applying s 177D, Hill J said: While the scheme did permit the borrowing of moneys for the two purposes indicated, one private and the other income producing, the manner in which the scheme was formulated and thus entered into or carried out is certainly explicable only by the taxation consequences. By manner here I refer to splitting what might commercially be seen as one advance into the two separate advances with interest on the income producing advance being permitted to remain unpaid, to be capitalised and the capitalised amount then attracting the compound interest with the amount which would otherwise have gone towards payment of that interest 4 5 Ibid 159. Hart v Federal Commissioner of Taxation (2002) 121 FCR 206,

4 being directed towards the repayment of the capital outstanding on the private advance. Notwithstanding that finding, the Full Court, after taking account of all the factors listed in s 177D, held that it would be concluded that the dominant purpose of the respondents in entering into or carrying out the scheme was the obtaining of borrowed money to purchase a new home and refinance what was to become a rental property. We are unable to share that opinion. 6 The present point is not whether one was right and the other wrong, but that the very people so intimately involved in the drafting of the test disagreed about its meaning and effect on the very same facts. In the subsequent case of Macquarie Finance Ltd v Federal Commissioner of Taxation 7 Hill J concluded that Part IVA did apply on the facts in question on the basis of the High Court s decision in Hart required that conclusion but that he reached his conclusion with some reluctance and doubted if the legislature would have regarded the present scheme as involving the application of Part IVA when the part was enacted in Those remarks sound much like an author saying that his words have been misunderstood. The fact is that words can mean different things to different people. 9 We should not be surprised to find ambiguity and doubt about the meaning or application of Part IVA when the very people intimately involved in its drafting do not agree about its application and where one of them positively doubted that the conclusion he reluctantly felt compelled to reach was one which was an outcome intended by the legislature which in part was adopting language he helped draft Federal Commissioner of Taxation v Hart (2004) 217 CLR 216, 226 (citations omitted). (2004) 57 ATR 115. Ibid 147. DC Pearce and RS Geddes, Statutory Interpretation in Australia (6 th ed, 1996) 3 [1.3]. 4

5 Scheme There has been considerable litigation and doubt about what role is played in the application of Part IVA by the scheme identified by the Commissioner. The scheme to which Part IVA is to be applied is important. The Commissioner s power to cancel a tax benefit is limited to the cancellation of a tax benefit obtained in connection with a scheme to which Part IVA applies. The Commissioner is not given unlimited power to cancel tax benefits. For a tax benefit to be cancelled it must be a tax benefit with a sufficient connection between the obtaining of the tax benefit and the scheme. Furthermore, the cancellation of the tax benefit is limited to those tax benefits obtained in connection with the scheme to which Part IVA applies; in other words, there needs to be a scheme which is capable of falling within the operation of Part IVA for any tax benefit obtained through it can be cancelled by the Commissioner. A view was held for some time that the importance of the scheme meant that what mattered was the Commissioner s identification of a scheme to whether Part IVA applied. The basis for the view depended in part upon the word may in s 177F. That word was argued to confer upon the Commissioner a discretion about whether or not to apply the anti-avoidance provisions and that any challenge to the exercise of the discretion in s 177F depended upon whether the Commissioner had validly exercised the power in relation to the particular scheme which the Commissioner had identified. The argument was put for the taxpayer in Federal Commissioner of Taxation v Peabody 10 with counsel contending: Central to the operation of these provisions is the scheme in connexion with 10 (1994) 181 CLR

6 which the tax benefit the subject of the determination is obtained. It must be the scheme in connexion with which the tax benefit in s. 177F(1)(a) is obtained. Accordingly, that scheme must be the one in whose absence it is (s. 177C) reasonable to expect that the particular taxpayer would have derived the amount of income assessed. That scheme must be entered into with the purpose specified in 177D(b). Once he has made a determination and assessment, it is the Court s role to consider whether, in respect of the tax benefit actually cancelled, the statutory preconditions to the determination are satisfied and whether the Commissioner has had regard to all and only the relevant matters and reached his conclusion unaffected by any mistake of fact or law. 11 In that case the Court held that the Commissioner s wrongful identification of a scheme would not necessarily be fatal to his application of Part IVA. The existence of a discretion to cancel a tax benefit was held not to depend on the Commissioner s opinion or state of satisfaction, but, rather, upon the actual existence of a tax benefit and of its having been obtained in connection with a scheme. These were held to be objective facts and not matters which depended upon the Commissioner s opinion, whether reasonable or otherwise. Indeed, in Peabody the High Court sanctioned the view which had been taken by the trial judge of substituting a different scheme for that which the Commissioner had used to apply Part IVA. 12 That victory for the Commissioner, however, was lessened somewhat by an observation in the judgment which suggested that, notwithstanding the breadth of definition given to the word scheme by the legislature, something might nonetheless not be a scheme for the purposes of Part IVA if there were only a set of Ibid 369 (emphasis in original). Ibid 383 (Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ). 6

7 circumstances which were incapable of standing on their own without being robbed of all practical meaning. 13 Much debate then arose about whether the scheme in any given case which the Commissioner sought to rely upon was not a scheme but only part of a scheme. It was not for another ten years before the High Court would reconsider what had been meant by that observation. In the joint judgment of Gummow and Hayne JJ in Federal Commissioner of Taxation v Hart 14 their Honours explained the error in treating the earlier observations in Peabody as a criterion which must be applied in deciding whether there is a scheme to which Part IVA applies. 15 Their Honours pointed out that what had been said in Peabody had been addressed to a particular argument on which the Commissioner had sought to rely and went on to say: Thirdly, and most importantly, there is no basis to be found in the words used in Pt IVA for the introduction of some criterion additional to those identified in the Act itself. There is no reference to a scheme having some commercial or other coherence. Far from the Part requiring reference only to the purpose of those who carry out all of whatever is identified as the scheme, s 177D(b) specifically refers to it being concluded that the person, or one of the persons, who entered into or carried out... any part of the scheme did so for the purpose of enabling the relevant taxpayer (alone or with others) to obtain a tax benefit in connection with the scheme 16 It would seem now that the identification of a scheme has lost much of the significance it had in earlier litigation. However, it is important not to substitute lore for the words of the statute. It may be true that the Commissioner s identification of Ibid 384. (2004) 217 CLR 216. Ibid 237. Ibid 238 (emphasis in original). 7

8 a scheme is not determinative of whether Part IVA applies and that scheme is defined very widely to permit a great range of things to come within its statutory meaning, but the importance of what is identified as the scheme to the application of Part IVA should not be ignored. Part IVA only applies where a tax benefit has been obtained in connection with the scheme. 17 That circumstance is only satisfied where it is the scheme which gives rise to, or produces, the tax benefit. Indeed, that is the role played by s 177C(1); namely, to ensure that Part IVA is limited in its application to those schemes which produce the tax benefits. Section 177C(1) statutorily compels that there be a clear and discernable link between the tax benefit obtained and the scheme by which it is obtained. It may be that the link can be satisfied by reference to reasonable expectations but the need for the link is important both analytically and as a safeguard for taxpayers. Tax benefit A newer area of uncertainty that has emerged is about the application of s 177C. That section is headed Tax Benefits and is somewhat inaccurately seen as a definition of the tax benefits to which Part IVA may be applied. I will say no more about its status as a definition section, 18 because the more pressing uncertainty which has emerged is more fundamental. There appear to be at least two rather different ways of reading s 177C. One way is that it requires the precise identification of the things (for which read scheme ) which give rise to the tax benefit. On that view satisfying s 177C does no more than require the precise and careful identification of the scheme as that which produces the tax benefit. The purpose of the section by that construction is to provide intellectual rigour by Income Tax Assessment Act 1936 (Cth) s 177D(a). GT Pagone, Tax Avoidance in Australia (2010),

9 ensuring that any tax benefit cancelled by the Commissioner is a tax benefit which is in fact produced by the scheme. This reading of the section does not require a consideration of any counterfactual or alternative postulate. It simply asks that there be identified that which the scheme either would or might reasonably be expected to produce. A very different construction has emerged in a series of cases which appear to require a very different enquiry and a more complex one. That construction assumes that s 177C excludes from the operation of Part IVA any tax benefit which would have been obtained had the scheme not been entered into. The idea behind this construction may be that Part IVA should not apply where the tax benefit obtained by the taxpayer through the scheme would have been obtained had the scheme not been entered into or carried out. This view has been said to require a consideration of what the scheme produced and its comparison with an alternative postulate. In Lenzo v Federal Commissioner of Taxation 19 the taxpayer relied on the latter view. The submission at first instance was that if Mr Lenzo had not invested in the plantation project on which the Commissioner had applied Part IVA he would have obtained a similar tax benefit by putting money into his self-managed superannuation fund. 20 The answer given to this at first instance by French J was that s 177C(1)(b) sought to identify whether that deduction, namely the deduction referable to the identified scheme, would not be, or might not reasonably be, (2007) 68 ATR 381; Federal Commissioner of Taxation v Lenzo (2008) 167 FCR 255. (2007) 68 ATR 381, 407 [116] (French J). 9

10 allowable if the scheme had not been entered into or carried out. 21 His Honour therefore considered the superannuation counterfactual which had been contended for by the taxpayer to be extraneous to the statutory alternatives contemplated by the section. 22 His Honour went on to say, however, that a relevant counterfactual was that the taxpayer might have invested in the plantation project using either an alternative source of funds or his own funds. 23 These counterfactuals were challenged on appeal on the basis that they amounted to an erroneous finding at first instance that Mr Lenzo would still have invested in the plantation scheme. The basis of that contention was that the task required by s 177C(1) was to be undertaken by comparing what the scheme produced with what else a taxpayer might have done in the absence of the scheme. On appeal the Full Federal Court held that, in assessing the counterfactual, s 177C(1)(b) requires the entirety of the scheme identified for application by Part IVA to be ignored. 24 In reaching that conclusion no distinction was made between a scheme and its factual components but the counterfactuals used by the trial judge were criticised on the basis that they dispensed with part of the scheme but left the balance intact. 25 In AXA Asia Pacific Holdings Ltd v Federal Commissioner of Taxation 26 Jessup J explained the decision of the Full Court in Lenzo by saying: In my view, Lenzo is authority for the proposition that the starting point under s 177C(1)(a) is one which the whole scheme identified by the Commissioner must be assumed out of existence. The question then Ibid 407 [115]. Ibid 407 [117]. Ibid 407 [119]. Federal Commissioner of Taxation v Lenzo (2008) 167 FCR 255, 281 [136] (Sackville J), 263 [42] (Heerey J agreeing), 286 [159] (Siopis J agreeing). Ibid 280 [130] (Sackville J). [2009] FCA 1427 (Unreported, Jessup J, 4 December 2009). 10

11 arises: what then might reasonably have been expected to have been included in the assessable income of the taxpayer? Here the court is engaged in a prediction as to events which would have taken place in the absence of the scheme: Commissioner of Taxation v Peabody (1994) 181 CLR 359, 385. The exercise thus postulated, in my view, is wholly one of fact-finding. A fact is not disqualified, a priori as it were, from consideration merely by reason of it having been an element of the scheme which was in place. To the contrary: what the taxpayer and his or her associates in fact did in the commercial circumstances which existed is likely to shed much light on what they would have done in the absence of the scheme, and in some cases to be, as a matter of prediction, elements of that counterfactual. Nothing in Lenzo requires me to hold otherwise. Indeed, the way Sackville J approached the task of prediction was entirely consistent with the counterfactual in any particular case involving elements of the presumptively discarded scheme, assuming always that the facts of the case indicated such an outcome. 27 The view adopted by Jessup J draws a distinction between the scheme and any facts which may constitute its elements. It is the former, but not the latter, which the authority of Lenzo was seen to require to be entirely ignored 28 or assumed out of existence. 29 Whether that is what had been intended by the Full Federal Court in Lenzo may be doubted in view of the observation that the difficulty with the counterfactuals adopted by French J at first instance was that they apparently dispense with part of the scheme (as found by his Honour), yet leave the balance of the scheme intact Ibid [118]. Federal Commissioner of Taxation v Lenzo (2008) 167 FCR 255, 281 [136] (Sackville J). AXA Asia Pacific Holdings Ltd v Federal Commissioner of Taxation [2009] FCA 1427 (Unreported, Jessup J, 4 December 2009) [117]. Federal Commissioner of Taxation v Lenzo (2008) 167 FCR 255, 280 [130] (Sackville J). 11

12 The approach to Lenzo adopted in AXA would appear to have been endorsed in Federal Commissioner of Taxation v Trail Bros Steel & Plastics Pty Ltd 31 where the Court said: When assessing the alternative postulate or predicting the events that would or might take place, that question is answered on the assumption that the scheme has not been entered into or carried out: Lenzo 167 FCR 255 at [121]. Put another way, s 177C does require the entirety of the scheme to be ignored: Lenzo 167 FCR 255 at [136]. But that is not the entire question posed by s 177C. The rest of the question involves the objective enquiry of predicting the events that would have, or might reasonably be expected to have, taken place in the absence of the scheme. As Sackville J said in Lenzo 167 FCR 255 at [128]: "[I]n determining whether the particular deduction claimed by the taxpayer would or might reasonably have been allowable, the Court must consider, in the absence of the scheme, what activity the taxpayer would have undertaken. The taxpayer can satisfy the onus of showing that he or she has not obtained a tax benefit in connection with a scheme if: he or she would have undertaken or might reasonably be expected to have undertaken a particular activity in lieu of the scheme; and... " (Emphasis added). The particular activity or the events that would have, or might reasonably be expected to have, taken place in the absence of the scheme and which 31 [2010] FCAFC 94 (Unreported, Dowsett, Edmonds and Gordon JJ, 29 July 2010). 12

13 are identified as a result of the objective enquiry are not confined or defined by the scheme. Of course, it cannot be the same complete set of events giving rise to the scheme - that would be the scheme. But at the same time, the identification of the activity or the events does not necessarily preclude any element of the scheme. As the High Court has said, "scheme" is a word of wide import: Peabody 181 CLR 359 at 383; Hart 217 CLR 216 at [87]. A scheme is usually comprised of a number of "steps" or "integers". It is conceivable that a scheme (comprising just some of the integers of a wider scheme to which Pt IVA applies) may be a scheme to which Pt IVA does not apply. If the narrower scheme is the particular activity or the events that would have or might reasonably be expected to have taken place in the absence of the scheme, then that is the alternative postulate. The difference between the deduction claimed in relation to the scheme and the allowable deduction from the narrower scheme is the tax benefit. Similarly, the alternative postulate may comprise some of the integers of the scheme to which Pt IVA applies and other integers which do not form part of that wider scheme. The express words of s 177C require a prediction about what would happen or might reasonably be expected to happen. It is necessarily a hypothetical analysis. But it is a hypothetical analysis directed at ascertaining what particular activity would have been (or might reasonably have been) undertaken if the scheme was not entered into. The "integers" that are relevant to that objective enquiry are not limited and "may not always permit the precise identification of... all the integers of a particular "scheme"": Hart 217 CLR 216 at [43]. The integers will be different for each case and the onus is on the taxpayer to identify those integers which establish the alternative postulate. 13

14 It is contrary to the express words of s 177C (including s 177C(2)), its context and its purpose to exclude particular integers from a prediction about what would happen or might reasonably be expected to happen. Put another way, absent particular integers, the enquiry would not be an objective enquiry as required by s 177C but a prediction of what would happen or might happen having regard to only a sub-set of the integers available to a taxpayer. That is not the object of Pt IVA. 32 Accepting a distinction between the scheme as a whole and its integers, there is still likely to be litigation about how that may be done consistently with the actual decision in Lenzo. In any event we have begun to see dispute about whether what is set up as the alternative postulate in any given case is permitted by the legislation. The reason for that dispute is the fight over whether what the Commissioner has cancelled as a tax benefit is not a tax benefit for the purposes of Part IVA. Purpose of tax avoidance The lynchpin to the operation of Part IVA is s 177D. It is that section which was thought to put into statutory language the test which Lord Denning had articulated in Newton s 33 case and which in the explanatory memorandum accompanying the relevant bill the treasurer had said gave legislative expression to the words blatant, artificial and contrived. What the Act does not say, however, is how the conclusion called for is to be reached. It does identify what is to be taken into account but it does not say how those matters are to be considered whether for or against the conclusion which s 177D requires before the Part can be invoked Ibid [28] [31] (Dowsett and Gordon JJ). Newton v Federal Commissioner of Taxation (1958) 98 CLR 1. 14

15 The relevant and operative avoidance purpose must be the dominant purpose and not merely one of many that may be in play. 34 The purpose must be objectively ascertained without regards to the subjective motive or intention of the participants. It is, after all, desirable that the anti-avoidance provisions should apply uniformly across the tax paying community and that its operation not be made to depend upon the fiscal awareness of any particular taxpayer. 35 It would be a curious outcome (and wrong in principle) if there could be different legal results reached by two parties entering into precisely the same tax avoidance scheme. The test which had been enunciated by Lord Denning in Newton s case was similarly lacking in guidance when it came to determining how the tax avoidance purpose was to be found in any particular case. In that case their Lordships said: In order to bring the arrangement within the section you must be able to predicate by looking at the overt acts by which it was implemented that it was implemented in that particular way so as to avoid tax. If you cannot so predicate, but have to acknowledge that the transactions are capable of explanation by reference to ordinary business or family dealing, without necessarily being labelled as a means to avoid tax, then the arrangement does not come within the section. Thus, no one, by looking at a transfer of shares cum dividend, can predicate that the transfer was made to avoid tax. Nor can anyone, by seeing a private company turned into a non-private company, predicate that it was done to avoid Div. 7 tax Nor could Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404, 416 (Brennan CJ, Dawson, Toohey, Gaudron, Gummow and Kirby JJ). Federal Commissioner of Taxation v Consolidated Press Holdings Ltd (2001) 207 CLR 235, [95] (Gleeson CJ, Gaudron, Gummow, Hayne and Callinan JJ). 15

16 anyone, on seeing a declaration of trust made by a father in favour of his wife and daughter, predicate that it was done to avoid tax 36 The predication test enunciated in Newton is similar in many ways to that in s 177D. Their Lordships required a consideration of certain facts from which a person was asked to predicate that the arrangement was implemented in a particular way to avoid tax. Implicit in that test, and in the test found in s 177D, is that one is capable of reaching some conclusion when the facts are looked at. Another attempt to provide more content to the statutory test found in s 177D was given in argument before the High Court in Spotless Services Ltd where counsel for the Commissioner said: The inquiry required by s 177D suggests the indicia by which the relevant conclusion is to be reached or rejected. If the conclusion be whether a person entered into the scheme for the dominant purpose of enabling the taxpayer to obtain a tax benefit, the inquiry (having regard to the eight matters) must necessarily be whether the scheme is so attended with elements of artificiality or contrivance primarily directed to the obtaining of the tax benefit that any commerciality of the scheme is overshadowed. 37 This, as Brennan CJ observed in the argument, led inevitably to an evaluative judgment about artificiality and contrivance. A consequence of this is that the application of Part IVA is to some extent dependent upon the eye of the beholder. In that regard one may sympathise with Hill J in Macquarie Finance Ltd in his reluctance to conclude that Part IVA applied to the facts with which he was concerned and the expression of a doubt that the legislature had intended the anti-avoidance provisions to apply to them Newton v Federal Commissioner of Taxation (1958) 98 CLR 1, 8-9 (Lord Denning on behalf of the Court). Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404,

17 Taxation on a tax avoidance purpose There is one important aspect of the application of Part IVA that usually goes unnoticed and unremarked. It is an aspect which should be considered more fully especially in light of the potential for the application of Part IVA to be loose and unpredictable. The feature I have in mind is perhaps that which most starkly distinguishes Part IVA from s 260 and almost all other general anti-avoidance provisions. Section 260 did not itself impose tax. What it did was to enable other provisions to operate on a modified basis. Section 260 rendered void as against the Commissioner those contracts, agreements or arrangements to the extent that they were entered into for the purpose of tax avoidance but it was not s 260 that imposed the tax. Tax would only be imposed, or a deduction would be disallowed, or some other taxing provision would operate on its terms, if the operative provisions applied on the facts as modified by s 260. Part IVA operates in quite a different way. Where it operates it is the Commissioner s cancellation of the tax benefit (whether to include an amount in assessable income, disallow a deduction or otherwise) that has effect upon the tax payable by a taxpayer. An amount included in assessable income through Part IVA is, by definition, not otherwise assessable as income. Part IVA is a taxing provision with the subject of taxation being, in effect, the successful avoidance of tax where the avoidance has occurred upon the proper application of the words of the taxing provisions read in accordance with their purpose and objectives. What Part IVA effects, therefore, is a tax upon a tax avoidance purpose in a way not previously 17

18 achieved by the operation of s 260. This, of course, may be both desirable and necessary but its desirability and necessity may be somewhat questioned where the provisions by which it is brought about may depend upon differences in point of view. Indeed, there are significant, but usually unstated, doubts about whether Part IVA should apply in the way that it has been. Professional opinions have understandably focused upon the impact of decisions like Spotless, 38 CPH, 39 and Hart 40 but not upon whether the outcomes are what were intended when Part IVA was enacted or whether the outcomes are desirable through an anti avoidance rule rather than some other fiscal measure. The tax outcome in Spotless, for example, could easily have been achieved by the taxpayer posting a cheque for deposit in the Cook Islands. It is hard to see how Part IVA could possibly have applied if the taxpayer simply opened an account offshore even though the tax consequences were the same as those actually achieved in the case decided by the Court. The elements of the actual transactions relied upon for the application of Part IVA were, on one view, not those which secured the tax benefit but, rather, which gave commercial protection to the taxpayer for the foreign source risk. We should not be afraid to ask whether an anti avoidance rule should work like that. What is the policy that justifies the cancellation of favourable tax advantages which could have been obtained more easily and where the complications are directed to securing commercial ends Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404. Federal Commissioner of Taxation v Consolidated Press Holdings Ltd (2001) 207 CLR 235. Federal Commissioner of Taxation v Hart (2004) 217 CLR

19 Let me therefore return to where I began. The book by Trevour Boucher is a welcome addition for us to remind us what the legislature sought to do when enacting Part IVA. The book can do much as a source by which to measure whether what we have fits what we need. In saying that, and in you hearing what the law is, you may be reminded of an exchange between Lords Mansfield and Ashburton very many years ago: Lord Mansfield: If that be law, I ll go home and burn my books. Lord Ashburton: My Lord, you d better go home and read them. 41 oooooo 41 Maria Leach, The Ultimate Insult (1996)