Tax planning or avoidance
Enquiry:
I have made a capital gain on selling my property this year. I also had an unrealised capital loss on another asset. However, I wish to keep that asset. I engaged a sale of that asset and then immediately repurchased it back. It would realise that capital loss and reduce assessable income for the year.
Could you advise me whether my action is more likely to be regarded as tax planning or tax avoidance?
Explanation:
Tax laws sometimes provide different outcomes for the same economic activity conducted in different ways, which encourages the development of aggressive schemes to exploit what may be unintended legal features. This has been described as tax avoidance and is based on exploiting tax laws in a manner that is not necessarily illegal.
The anti-avoidance provisions of Part IVA of ITAA36 will apply where it appears that a taxpayer has entered into a scheme with the sole or dominant purpose of obtaining a tax benefit.
Penalties apply for those found to have entered into a scheme proven to fall under the anti-avoidance provisions of ITAA36 (TAA, Schedule 1, ss. 284-140–284-160).
In this case, your action and result was never the intention of the legislation, since the immediate repurchase means that you have enjoyed a reduction in assessable income while still holding that asset. There has been no economic loss to him and the sale and repurchase do not make commercial sense except for the tax benefit obtained.