Yippy Yi Yo (An analysis of Yip's case)

Abstract

Fans of the Die Hard movie franchise would no doubt recognise this refrain and be too aware of the expletives that followed it, far too crass to be repeated in an article on taxation. However, for many tax advisers the expletives expressed by Bruce Willis' character John McClane may well have been echoed on learning of the decision in Yip v. FC of T 2011 ATC ¶1O-214.

For many years, and most significantly since the introduction of the PBT, the Tax Office and tax advisers have colluded on the notion that salary sacrifice arrangements are tax effective. The advantage to taxpayers is obvious but more puzzling has been why the Tax Office has entered into this subterfuge. One possible explanation is that it has had an eye to the policy of its master, the government, in wishing to encourage the diversion of salary into superannuation investments. Once salary sacrifice arrangements became acceptable for this purpose then it became difficult to impugn them when the salary was diverted to other tax effective purposes, such as the provision of motor vehicles and other concessionally taxed or tax exempt fringe benefits. Notwithstanding, there were very strong arguments to say that the sacrificed amounts were assessable income to the salary earner pursuant to s 6-5(4) or s 6-10(3) of ITAA 1997 or the arrangements were caught by Pt IVA of ITAA 1936.