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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Location of Business

A step in an arrangement entered into by Veda Pharma Ltd has the main purpose of obtaining a tax benefit, although the main purpose of the whole arrangement is commercial. What follows under sections 179 and 181?

The main purpose of the arrangement is presumed to be obtaining a tax benefit unless the assessee proves the contrary. Impermissibility still needs a limb of section 179(1) to be met, and the consequences may include disregarding or recharacterising the step.

  1. AThe main purpose of the arrangement is presumed to be a tax benefit unless the assessee proves otherwise, and if it is declared impermissible, consequences may include disregarding or recharacterising that stepCorrect
  2. BThe arrangement cannot be examined because its overall purpose is commercial
  3. CThe tax benefit is automatically allowed because only a part is tainted
  4. DThe arrangement is declared impermissible without the other conditions in section 179(1) needing to be met

Explanation

Under section 179(2), if the main purpose of a step or part is a tax benefit, the main purpose of the arrangement is presumed to be a tax benefit unless the assessee proves otherwise, irrespective of the purpose of the whole. The arrangement is impermissible only if one of the limbs in 179(1) is also met. Section 181(2)(a) allows disregarding, combining or recharacterising any step or part.

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