Small Business Glossary

General Anti-Avoidance Rule (GAAR) - definition & overview

Contents

The General Anti-Avoidance Rule (GAAR) in Australia is a set of principles-based rules designed to eliminate unacceptable tax avoidance practices. The key points about the Australian GAAR are:

What is the General Anti-Avoidance Rule?

The General Anti-Avoidance Rule (GAAR) is a rule in Australian tax law designed to stop people and businesses from using artificial or contrived arrangements to avoid paying tax. It's essentially a safety net to protect the integrity of the tax system.

How does it apply to small businesses?

The GAAR applies to all taxpayers, including small businesses. It's a last resort measure used by the Australian Taxation Office (ATO) when they believe a small business is entering into a scheme for the main purpose of avoiding tax.

What does the ATO consider when applying the GAAR?

The ATO will look at the objective facts and circumstances of each case. They'll consider whether the main reason a small business entered into a particular arrangement was to gain a tax benefit, not for any genuine commercial purpose.

What happens if the GAAR applies?

If the ATO decides the GAAR applies, they can disregard the artificial parts of the arrangement and tax the small business as if they hadn't entered into it at all. This could mean the business ends up paying more tax than they originally planned.

Important points for small businesses to remember:

  • The GAAR is a complex area of tax law. If you're unsure about a transaction or arrangement, it's always best to seek advice from a registered tax agent.
  • The ATO encourages small businesses to plan for their tax affairs legitimately. There are many legitimate ways to minimise your tax bill, such as claiming all your eligible deductions.
  • You can find more information about the GAAR on the ATO website.

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