Tax Avoidance: Causes and Solutions - Scholarly Commons Home

Therefore, as suggested by Trebilcock 138 , the concept of avoidance envisages the targeting
of arrangements which have the effect of preventing a liability from coming into an
existence, where such liability would have arisen but for the arrangement.
The position in respect of the third limb was summarised by Baragwanath J in Miller 139 ,
where his Honour held that: “It plainly embraces the hypothetical situation of what tax the
taxpayer would have had to meet had the arrangement not been made and the former
regime continued.”
Future liabilities
Clearly, the second and third limbs of the definition recognise that tax avoidance can
include relieving, avoiding, postponing or reducing “potential or prospective liability to
future income tax”. The first limb refers only to the “incidence of any income tax” and thus,
it may be less likely that this concept would include a future liability to income tax. It is
arguable, though, that the concept is not limited to a liability to income tax in the current
year.
The income tax liability must in some respects be foreseeable based on a “reasonable
expectation” 140 of what is likely to occur. In some transactions, it will be easy to apply the
test because the alternative actions will be fairly obvious or most likely to occur in the
absence of the actual transaction that did occur. The real challenge arises where there may
be many alternative courses of action, of which none is more likely than the others to be
implemented.
The difficulty in relation to understanding the potential application of the provision was
referred to by Richardson J in CIR v Challenge Corporation Ltd, 141 where his Honour
stated:
“... ‘Liability’ is in turn defined as including a potential or prospective liability in respect of
future income. That definition is still deficient. It still does not answer Lord Wilberforce's
question: ‘is it [the liability] one which must have arisen but for the arrangement, or which
138
MJ Trebilcock, Section 260: A Critical Examination, 1964,The Australian Law Journal, p 237.
139
(1997) 18 NZTC 13,001.
140
Section 177C(1) ITAA 1936 (Cth) outlines the "reasonable expectation test" for the Australian antiavoidance
rules.
141
CIR v Challenge Corporation Ltd [1986] 2 NZLR 513.
51