Cattle Breeding Scheme Struck Down by Part IVA

The Federal Court in Vincent v FCT (2002) FCA 656 has recently applied the anti-avoidance provisions of Part IVA of the Tax Act to deny a taxpayer deductions for expenditure incurred in a mass marketed cattle breeding scheme.

The Court applied Part IVA despite finding that the obtaining of a tax benefit was not the dominant (subjective) purpose of the appellant in entering into the arrangement. The Court found that the purpose which must be found in order to attract the application of the anti-avoidance provisions under Part IVA is that which a reasonable person would conclude was the dominant purpose of one or more of the persons entering into the scheme. That is to say, it is an objective purpose attributed to them.

French J held that regardless of the subjective purpose of the appellant, those taxpayers who entered into the scheme did so with the dominant purpose of obtaining a tax benefit and from an objective point of view there was little other benefit to be derived from the scheme.