Recently, we have seen a growth in the use of DIS by the Tax Office to provide interpretations of the law. We refer to two DIS documents, being the Cajkusic DIS and the McNeil DIS by way of examples. Both of these documents provide significant levels of technical analysis, as well as providing conclusions (in some instances) which are not supported by any technical analysis. For example, the McNeil DIS states:
To the extent that this compensation is less than the income arising from the issue of the right, the shareholder or unit holder will be entitled to a deduction.
We highlight that there is no analysis provided for the conclusion stated above, which in effect provides a very definitive conclusion that a taxpayer will be allowed a deduction. Accordingly, taxpayers may rely on the statement made in claiming deductions. In the Cajkusic DIS, the Commissioner makes the following statements:
Notwithstanding some broad observations made by their Honours about the effect of trust instruments (e.g., paragraphs 18 and 27 - 30), the question before them did not involve the characterisation of a receipt and, unlike some commentators, the Commissioner does not understand the case to be authority for the proposition that the terms of a trust instrument can govern what is income, for the purposes of subsection 97(1), in the hands of the trustee. The Commissioner considers he must continue to follow what he understands to be the reasoning of the High Court in the ANZ Savings Bank decision (see per Gleeson CJ, paragraphs 14 and 15; cf/ Full Court in Cajkusic at paragraph 29).
In this second example, taxpayers may rely on the statement made by the Commissioner in determining distributions and attribution of net income of the trust. These statements may ultimately be found to be incorrect (for example, given the pending decision in the Bamford case). We note that the DIS documents generally contain the following warning at the top:
This document is not a public ruling, but provides a statement of the Commissioner's position in relation to the decision and how the law will be administered as a consequence of the decision. Any proposals for changes in the law are matters for government and it is not appropriate for the Commissioner to comment.
Given this statement contained in the DIS document, our questions in relation to DISs are as follows:
- Does the Commissioner consider the DIS to be (at the very least) an administrative practice of the Tax Office? That is, what form of protection would exist for taxpayers relying on a comment similar to that contained in the McNeil DIS or the Cajkusic DIS?
- If the documents provide little protection for taxpayers, could the Tax Office consider reducing the scope in which it provides technical analysis and conclusions in the DIS, which should be better placed in documents that taxpayers can rely on (that is, rulings and determinations)?
- Can the Tax Office move to an approach of 'identifying key technical areas to consider' in the DIS, and then making a statement as to how interpretive products will be released to deal with those technical issues. For example, in relation to the deductibility statement in the McNeil DIS, we question whether it would have been better to state that 'the Tax Office believes that a deduction may be available to the extent that this compensation is less than the income arising from the issue of the right. The Tax Office will seek to clarify this issue by releasing a taxation determination on the issue.'
- We would recommend incorporating a new section that is titled 'Proposed new interpretive products to deal with key issues identified in the DIS'. For example, this section could list the proposed determinations or rulings. We are concerned that the current approach has resulted in DIS forming a substitute for providing a formal binding product on the interpretational issue.
Response
As a general proposition, a DIS sets out how the law will be administered as a consequence of a particular decision, pending any change to existing tax office rulings, but is not normally expected to contain advice. They are not public rulings. However, if a DIS contains advice about an indirect tax law, the DIS will state that the advice is a public indirect tax ruling: Refer Law Administration Practice Statement PS LA 2008/3 (paragraphs 234–236 reproduced below).
Decision impact statements
234. Decision impact statements 193 are published in the 'Legal database' on the Tax Office website to communicate to the community the Tax Office reaction to adverse and other significant court or tribunal decisions. They include a summary of the case details, a summary of the facts and issues decided, and they note any consequences in relation to public rulings. They set out how the law will be administered as a consequence of the decision, pending any change to existing Tax Office rulings, but are not normally expected to contain advice. They are not public rulings for the purposes of Part 5-5. To the extent they contain advice on an indirect tax law (other than a fuel tax law) that affects an entity's liability or entitlements; they may be public indirect tax rulings for the purposes of section 105-60.
235. A taxpayer who relies on a decision impact statement that is not a public indirect tax ruling, and makes a mistake as a result of the statement being incorrect or misleading, will receive the same penalty and interest protection as for written guidance. 194
236. Where a decision impact statement does contain advice on how the Commissioner would interpret an indirect tax law (other than a fuel tax law), the decision impact statement will state that the advice is a public indirect tax ruling for the purposes of section 105-60 and the taxpayer will receive the same protection that applies for public indirect tax rulings. 195
Whether or not a DIS evidences a general administrative practice (GAP) is a question of fact to be determined having regard to all the facts and circumstances. While a Tax Office publication such as a DIS may evidence a GAP, it is the consistent actions of the Commissioner that determines the existence or otherwise of a GAP. This view is supported by the explanation of a GAP in the Explanatory Memorandum to the review of self assessment (ROSA) legislation and is reflected in our discussion of this issue in Tax Ruling TR 2006/10, our public ruling on the post-ROSA public rulings system.
If the professional bodies consider that issues dealt with in a particular DIS should be contained in a binding product, please advise us accordingly, and we will consider your request.
If, at the time of issuing a DIS, we have decided to publish a new binding product as a result of the decision, we will include that in the section that covers implications for current public rulings or determinations.
We note the reference to the Cajkusic DIS and the pending decision in the Bamford case which was funded by the Commissioner under our test case program. We are hopeful that the Bamford decision will provide clarification of the law relating to trust taxation.
Meeting discussion
Members appreciated the response provided.
There was a perception that the two DISs mentioned may have encroached on areas normally covered by public rulings. The CTC agreed that a DIS may sometimes include interpretative views but the intention was to avoid providing interpretative advice in such a statement as far as possible.
The Commissioner and CTC invited members to advise of any issues associated with DISs that may be suitable for public rulings.
Sections within Agenda items
Last Modified: Friday, 3 July 2009
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