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In Australian, requirement of the reasonable expectation test was clarified by the decision
in FCT v Peabody 200 :
“A reasonable expectation requires more than a possibility. It involves a prediction as to
events which would have taken place if the relevant scheme had not been entered into or
carried out and the prediction must be sufficiently reliable for it to be regarded as
reasonable.”
It could not be reasonably concluded that the taxpayer would have received an amount if
the relevant arrangement was not entered into. 201 In order to form an opinion as to what
may reasonably be expected to occur, in the absence of the scheme, the taxpayer’s previous
actions may be relevant.
In the case Spotless 202 , the Full High Court of Australia was able to determine the
reasonably expected alternative course of action in the absence of a past history of
transactions and stated it as follows:
“The taxpayers were determined to place the $40 million in short-term investment for the
balance of the then current financial year. The reasonable expectation is that, in the absence
of any other acceptable alternative proposal for 'off-shore' investment at interest, the
taxpayers would have invested the funds, for the balance of the financial year, in Australia.
The amount derived from that investment then would have been included in the assessable
income of the taxpayers. ...”
7.2.1.3 Objective purpose
In Australian, s 177D of ITAA 1936 provides eight tests to determine whether there is a
dominant purpose to derive the tax benefit having regard to:
(i) the manner in which the scheme was entered into or carried out;
(iii) the form and substance of the scheme;
(iv) the time at which the scheme was entered into and the length of the period during
which the scheme was carried out;
200
Federal Commissioner of Taxation v. Peabody (1994) 181 CLR 359 at 385.
201
Ibid.
202
FCT v Spotless Services Ltd [1996] HCA 34.
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