House of Representatives

Tax Laws Amendment (Improvements to Self Assessment) Bill (No. 2) 2005

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)

Chapter 3 - ATO advice

Outline of chapter

3.1 Schedule 2 to this Bill amends the Income Tax Assessment Act 1936 (ITAA 1936) and the Taxation Administration Act 1953 (TAA 1953) to implement a new framework for Australian Taxation Office (ATO) advice. This chapter deals with that framework.

Context of amendments

3.2 This Bill implements the Government's response to the recommendations made in the Report on Aspects of Income Tax Self Assessment (the Report). Background to the Report and its recommendations is in Chapter 1 of this Bill.

3.3 The ATO gives a wide range of advice to taxpayers and their representatives about how, in the Commissioner of Taxation's (Commissioner's) opinion, the tax law applies, or would apply. That advice ranges from general information for the public to advice relating to specific taxpayers and arrangements.

3.4 Since 1992, the tax law has made certain categories of ATO advice, called rulings, binding on the ATO. Where the ATO has issued a ruling that applies to a taxpayer, the taxpayer is not liable to pay more tax than the ruling requires, even if the ruling turns out to be wrong. In such a case, the taxpayer cannot be liable for penalties or interest either. Some non -ruling advice from the ATO also currently gives taxpayers protection from penalties.

3.5 The Report recommended that the current system be expanded in scope and effectiveness to provide protection in a wider range of circumstances (Recommendation 2.1).

Public rulings

3.6 Under the current law, the Commissioner may make public rulings on the way in which, in the Commissioner's opinion, a particular tax law would apply to a person or class of persons in relation to an arrangement or a class of arrangements.

3.7 Public rulings are labelled as such, published and Gazetted and may be withdrawn. Under the current law, rulings can only be binding in relation to matters affecting a taxpayer's liability.

3.8 The Report recommended expanding the category of matters that a public ruling may deal with to cover matters of administration, procedure, collection and ultimate conclusions of fact (Recommendation 2.2). The Report also concluded that, even if some other general information products might not be suitable for inclusion in the formal ruling series, some of them such as TaxPack should be able to have the same protection for certain categories of taxpayers. Thus the Report recommended that the Commissioner be empowered to declare that advice provided for the general information of non-business self -preparers be binding (Recommendation 2.3).

Private rulings

3.9 Under the current law, private rulings are available to taxpayers in certain circumstances. The basic framework for private rulings is as follows:

·
A person may apply for a private ruling about the way in which, in the Commissioner's opinion, a tax law would apply to them.
·
The Commissioner is required to comply with a private ruling application unless the request falls into one of a number of stipulated categories.
·
Once a person receives a private ruling, the Commissioner is bound by the interpretation in the ruling if the tax payable under the law would exceed that payable under the ruling.

3.10 Among a range of improvements, the Report recommended:

·
expanding the category of matters on which private rulings can be provided (Recommendation 2.11);
·
providing an avenue for review where an application for a private ruling has not been determined within 60 days (Recommendation 2.15);
·
allowing the Commissioner to make reasonable assumptions in dealing with a private ruling request (Recommendation 2.16);
·
allowing the Commissioner to consider information other than that supplied by the applicant in making a private ruling, provided the applicant is informed (Recommendation 2.17);
·
clarifying the rules where rulings are inconsistent (Recommendation 2.19);
·
allowing the Commissioner to take account of additional information supplied after making the private ruling application (Recommendation 2.21); and
·
allowing future trustees of a trust estate to rely on private rulings obtained by their predecessors (Recommendation 2.22).

Oral rulings

3.11 The current provisions governing oral rulings were enacted in 1999 (by A New Tax System (Tax Administration) Act 1999 ) in response to a recommendation made in Tax Reform: not a new tax, a new tax system (ANTS). These provisions were intended to allow taxpayers with very simple affairs to rely on oral advice received from the ATO in much the same way as written private rulings.

3.12 Before the oral rulings provisions were enacted the Commissioner was not legally bound by oral advice, although there were administrative practices to achieve this result in some cases.

3.13 Currently oral rulings are:

·
available to individuals who apply to the Commissioner for a ruling on the way in which the income tax law applies to them (although a person can apply on another's behalf in very limited circumstances);
·
only available on interpretative matters that are straightforward or simple; and
·
legally binding on the Commissioner if they result in a lower amount of final tax payable by the taxpayer.

3.14 The Report recommended extending the availability of oral rulings to all non -business issues raised by self -preparing individual taxpayers unless the issues are so complex that they would better be dealt with in writing (Recommendation 2.23).

Other advice and general administrative practice

3.15 Under the current law, taxpayers are protected from administrative penalties to the extent that they follow non -ruling advice given to them or their agents by the ATO or a statement in an ATO publication, or if they act consistently with the ATO's general administrative practice. There is no similar protection from interest charges, although the Commissioner has the power to remit them in certain circumstances.

3.16 The Report recommended extending that protection to cover interest charges (Recommendation 2.1) and that taxpayers who rely on public rulings in draft form should also be protected from penalties and interest in the event that the final ruling is issued in different terms, to their detriment (Recommendation 2.7).

Summary of new law

3.17 This Bill replaces the existing provisions on rulings entirely. It makes certain categories of ATO advice - called rulings - legally binding on the Commissioner where taxpayers rely on rulings that apply to them. The categories of rulings are:

·
public rulings;
·
private rulings; and
·
oral rulings.

3.18 In some cases this Bill also gives taxpayers protection from interest charges in the absence of a ruling. This protection applies where they reasonably and in good faith rely on:

·
advice (other than a ruling), or a written statement in a publication by the Commissioner, unless the advice is labelled as non -binding; or
·
the Commissioner's general administrative practice.

This Bill does not address the question of protection from penalties in these circumstances because section 284 -215 of Schedule 1 to the TAA 1953 remains in force, covering that ground. Between this Bill and section 284-215, Recommendation 2.1 is given effect in full.

Comparison of key features of new law and current law

New law Current law
The expanded rulings regime applies to provisions of Acts and regulations applying to income tax, withholding tax, mining withholding tax, Medicare levy, fringe benefits tax, franking deficit tax, venture capital deficit tax, over -franking tax and product grants and benefits, including provisions about the administration and collection of those taxes relevant to the rulings regime. The rulings regime applies to income tax, withholding tax, mining withholding tax, Medicare levy, fringe benefits tax, franking deficit tax, venture capital deficit tax, over -franking tax and product grant and benefit laws.
A ruling binds the Commissioner if the ruling applies to a taxpayer and the taxpayer relies on the ruling. A taxpayer relies on a ruling when they act (or omit to act) in accordance with the ruling.

A taxpayer can stop relying on a ruling by acting (or omitting to act) in a way that is not in accordance with the ruling, within their period of review.

If there is a ruling on the way in which a tax law applies to a person in relation to an arrangement, and that law applies to a person in relation to that arrangement in a different way, and the amount of tax would be lower (or the amount of the grant or benefit would be higher) under the ruling, then the tax liability (or grant or benefit) is determined according to the ruling.
Relying on a ruling provides protection from additional primary tax, penalties and interest. Relying on other advice or general administrative practice provides protection from penalties and interest. Relying on a ruling provides protection from additional primary tax, penalties and interest. Relying on other advice or general administrative practice provides protection from penalties.
Public rulings may apply to all entities or a class of entities, either generally or in relation to a particular scheme or class of schemes. Public rulings may apply to any person or class of persons in relation to an arrangement or class of arrangements.
Public rulings may be made on any matter involved in the application of a provision, including matters relating to administration, procedure, collection and ultimate conclusions of fact. Public rulings may be made on issues relating to the calculation of a tax liability, but not on matters relating to administration, procedure, collection or on questions of fact.
Public rulings may be withdrawn by publishing notice of the withdrawal. The withdrawal may take effect from the day the notice is published or such later date as specified in the ruling. A public ruling that is withdrawn continues to apply to schemes begun to be carried out before the withdrawal. A public ruling may be withdrawn at any time. A public ruling that is withdrawn continues to apply to arrangements begun to be carried out before the withdrawal.
Private rulings are statements about the way in which the Commissioner considers a relevant provision applies or would apply to a specified scheme. They may cover anything involved in the application of the provision, including valuations of any thing. The Commissioner may charge for a private ruling on a valuation issue. Private rulings may deal with how the Commissioner considers a tax law or tax laws would apply to a person in respect of a year of income in relation to an arrangement, or how a product grant or benefit law would apply to a person in respect of a claim period in relation to an arrangement.
The Commissioner may decline to make a private ruling if he or she considers that making the ruling would prejudice or unduly restrict the administration of a taxation law; the matter to be ruled on is already being, or has been considered; or where the matter to be ruled on is how the Commissioner would exercise a power under a relevant provision, and the Commissioner decides whether to exercise the power. The Commissioner is not required to comply with an application for a private ruling if any of the listed circumstances are present. For example, the Commissioner is not required to comply with an application for a private ruling if there is already a private ruling on the matter sought to be ruled on, or if the application is frivolous or vexatious.
The Commissioner is taken not to have made a private or oral ruling by later issuing an inconsistent public ruling, provided that neither the scheme nor the income year (or other period) to which the private or oral ruling relates has begun. The Commissioner may withdraw a private ruling by serving notice on the applicant or issuing an inconsistent public ruling. If the relevant arrangement has begun, (or the relevant income year has commenced), the Commissioner may only withdraw the ruling in limited circumstances.
If a taxpayer has applied for a private ruling and the Commissioner has neither made the ruling nor declined to make the ruling within 60 days, the applicant may issue a written notice requiring the Commissioner to make the ruling. If the Commissioner fails to make the ruling or declines to rule within 30 days, this leads to an objection right. If a taxpayer has applied for a private ruling and the Commissioner has neither made the ruling nor told the applicant that the application will not be complied with nor asked for further information from the taxpayer, the taxpayer may ask the Commissioner for a written statement of the reasons why the consideration of the application has been delayed.
The Commissioner must ask for further information from the taxpayer if the private or oral ruling cannot be made without that further information.

The Commissioner may take into account additional information supplied by the applicant after the application was made but before the private or oral ruling is given.

The Commissioner may rely on information from other sources, provided that the Commissioner tells the applicant what the information is, and gives them a reasonable opportunity to respond before making the private or oral ruling.

The Commissioner must ask for further information from the taxpayer if the private or oral ruling cannot be made without that further information.

The Commissioner is not empowered to rely on information provided by an entity other than the applicant.

For a private or oral ruling, the Commissioner can make assumptions about a future event or other matter, provided the Commissioner informs the applicant of the assumptions and gives the applicant a reasonable opportunity to respond. If the Commissioner considers that the correctness of a private ruling would depend on assumptions made about a future event or other matter, the Commissioner may decline to make the ruling, or may make assumptions as the Commissioner considers to be appropriate.
No change. A taxpayer may object to a private ruling and appeal from an objection decision.
An individual, non-business taxpayer may apply for an oral ruling on how the tax law applies to them. A limited class of taxpayer may apply for an oral ruling on how the income tax law applies to them.
The Commissioner has the power to decline to make an oral ruling where the question being asked relates to a business matter or a complex matter. The Commissioner can only give an oral ruling where the taxpayer's tax affairs fall within specified categories and the taxpayer's inquiry is simple.
The validity of any ruling is not affected because there is a procedural defect in the making of that ruling. The validity of an oral ruling or private ruling is not affected because there is a procedural defect in the making of that ruling.
A document signed by the Commissioner, a Second Commissioner or a Deputy Commissioner, which purports to be a copy of a public or private ruling, or of a notice of withdrawal of a public ruling is conclusive evidence of the proper making of either type of ruling, or of the withdrawal of the public ruling. The production of a notice of, or the notice of the withdrawal of, a private ruling or a document signed by the Commissioner, a Second Commissioner or a Deputy Commissioner, purporting to be a copy of such a notice, is conclusive evidence of the proper making of the private ruling or its withdrawal.

Detailed explanation of new law

Object

3.19 The object of the new law is to provide improved ways for taxpayers to find out the Commissioner's view about how certain laws apply to them, so that the risks of uncertainty when self assessing, or working out their tax obligations or entitlements, are reduced.

3.20 This object is achieved by:

·
making advice in the form of rulings by the Commissioner available to many taxpayers on a wide range of matters;
·
ensuring that the Commissioner provides rulings in a timely manner;
·
enabling the Commissioner to obtain, and make rulings based on, relevant information;
·
protecting taxpayers from increases in tax and from penalties and interest where they rely on rulings;
·
limiting the ways the Commissioner can alter rulings to a taxpayer's detriment; and
·
giving protection from interest charges where a taxpayer relies on other advice from the Commissioner, or on the Commissioner's general administrative practice.

Common rules for all rulings

Provisions that are relevant for rulings

3.21 This Bill governs rulings about income tax, withholding tax, mining withholding tax, the Medicare levy, fringe benefits tax, franking deficit tax, venture capital deficit tax and over -franking tax, plus rulings about a grant or benefit mentioned in section 8 of the Product Grants and Benefits Administration Act 2000 . The listing technique allows the scope of the rulings regime to be expanded if future events prove that it is suitable to apply to other taxes administered by the Commissioner (Recommendation 7.2).

3.22 Section 357 -55, read in conjunction with subsections 358 -5(2) and 359 -5(2), allows the Commissioner to make rulings about any aspect of the taxes and entitlements listed. The Commissioner may make rulings on all the matters and circumstances in which rulings are currently made and the authority is extended to cover any aspect of the tax or entitlement, including the collection and recovery of the tax, and its administration, or the administration or payment of a relevant grant or benefit. Note, however, that the Commissioner may decline to make a private ruling (see paragraph 3.77) or an oral ruling (see paragraph 3.122). [Schedule 2, item 1, section 357-55 of Schedule 1 to the TAA 1953]

When a ruling binds the Commissioner

3.23 A ruling binds the Commissioner if the ruling applies to the taxpayer and the taxpayer relies on the ruling. [Schedule 2, item 1, subsection 357-60(1) of Schedule 1 to the TAA 1953]

3.24 A ruling applies to a taxpayer if the taxpayer is a member of the class to whom the ruling applies (in the case of a public ruling), or it is given in response to an application (in the case of a private or oral ruling) and the facts, assumptions or conditions set out in the ruling are met. The ruling applies for the period specified, while the law to which it relates remains in force. Where the law is merely re -made, the ruling continues to apply (see paragraph 3.34), but where the law is repealed or materially amended, the ruling ceases to apply.

3.25 A taxpayer relies on a ruling when the taxpayer acts (or omits to act) in accordance with it. The taxpayer does not need to know of the existence of a public ruling in order to rely on it.

3.26 If a taxpayer acts (or has acted, or omits to act) in the way stated, a ruling that applies to a taxpayer binds the Commissioner and the Commissioner must not apply the provision in a way that is inconsistent with the ruling. However, if the scheme is not implemented in the way set out in the ruling, or material facts were omitted from the ruling application, or misleadingly or inaccurately stated, the ruling does not bind the Commissioner. [Schedule 2, item 1, paragraph 357-60(1)(b) of Schedule 1 to the TAA 1953]

Example 3.1 Raelene applies for and obtains a private ruling that states that a payment from a company is not assessable income. Raelene lodges her tax return, omitting to include the amount in assessable income. The ruling is binding on the Commissioner because it applies to Raelene and she has relied on it.

3.27 A taxpayer may rely on a ruling at any time unless prevented from doing so by a time limit imposed by a taxation law, for example, the taxpayer's period of review for their assessment. It is not necessary for the taxpayer to rely on a ruling at the first opportunity, but the opportunity must in practice be taken before the end of the time in which they can request an amendment of their assessment. [Schedule 2, item 1, subsection 357-60(2) of Schedule 1 to the TAA 1953]

Stopping relying on a ruling

3.28 A taxpayer may change their mind and stop relying on a ruling and, having stopped relying on a ruling, may rely on it again at a later time. A taxpayer stops relying on a ruling by acting, or omitting to act, in a way that is not in accordance with the ruling. However, the ability for such changes of mind to affect a taxpayer's liability is limited by relevant time limits contained in taxation laws. [Schedule 2, item 1, section 357-65 of Schedule 1 to the TAA 1953]

Law more favourable than ruling

3.29 Where a taxpayer relies on a ruling that applies to them, the Commissioner may nevertheless apply a relevant provision of the law as if the taxpayer had not relied on the ruling, if doing so would produce a more favourable result for the taxpayer. The Commissioner can do this unless prevented by a relevant time limit in the tax law. However, the Commissioner does not have a duty to consider the ruling at the time of processing the taxpayer's self assessment. [Schedule 2, item 1, section 357-70 of Schedule 1 to the TAA 1953]

3.30 The interaction of the provision that rulings bind the Commissioner with the proviso that the Commissioner may apply a more favourable interpretation of the law means that rulings bind the Commissioner in the following ways:

·
To the extent that a ruling determines a tax liability or an amount (or whether there is a tax liability or an amount) under a relevant provision, the amount must be determined in accordance with the ruling. However, if the Commissioner concludes that the ruling was wrong, the Commissioner may adopt the correct position if it is more favourable to the taxpayer than was set out in the ruling.
·
To the extent that a ruling expresses the Commissioner's opinion on an ultimate conclusion of fact for the purposes of a relevant provision (eg, whether the taxpayer is a resident or is carrying on a business), the Commissioner is bound to follow his or her expressed opinion, or adopt the correct conclusion if that is more favourable for the taxpayer to whom the ruling applies.
·
To the extent that a ruling deals with matters of administration, procedure, collection or any other matter involved in the application of a relevant provision, the Commissioner must not act inconsistently with the ruling to the taxpayer's detriment.

[Schedule 2, item 1, sections 357-60 and 357-70 of Schedule 1 to the TAA 1953]

Inconsistent rulings

3.31 The rules governing cases where two inconsistent rulings apply to the same taxpayer are listed in the table at subsection 357 -75(1). The structure of the table is such that a taxpayer may always choose to rely on a public ruling that applies to them and they may choose to rely on a private ruling that specifically addresses their circumstances, notwithstanding an apparent inconsistency with a prior public ruling. It allows the Commissioner to correct erroneous private and oral rulings by a public ruling, but only where the taxpayer has not already entered into the relevant scheme and the relevant income year or other period has not commenced. Finally, it allows a taxpayer to check or clarify a private or oral ruling (although the Commissioner may decline to rule if there is already a ruling on the matter, see paragraph 3.78), but only if they do so honestly, by disclosing the existence of the prior ruling when they apply for the later ruling. A special rule for revising private rulings allows the Commissioner to correct a private ruling with another private ruling in limited circumstances (see paragraphs 3.97 to 3.99). [Schedule 2, item 1, subsection 357-75(1) of Schedule 1 to the TAA 1953]

3.32 The table in subsection 357 -75(1) also governs cases where there are three or more inconsistent rulings. In such cases, the rules in the table should be applied to each combination of two rulings in the order in which they were made, to determine whether any of the rulings are taken not to have been made, and then to determine which of the remaining rulings the taxpayer can rely on. [Schedule 2, item 1, subsection 357-75(2) of Schedule 1 to the TAA 1953]

Other common rules

3.33 For the purposes of these provisions, if a contract requiring a scheme has been entered into, the scheme is taken to have begun to be carried out. For instance, a company might enter into a contract requiring the construction of a pipeline, which will not commence for another 6 months. The scheme of constructing the pipeline will have begun to be carried out when the contract was made. [Schedule 2, item 1, section 357-80 of Schedule 1 to the TAA 1953]

3.34 If the Commissioner has made a ruling about a relevant provision and that provision is re -enacted or remade, the ruling is taken to be about the re -enacted or remade provision, so far as the new law expresses the same ideas as the old law. If the law is changed, the ruling ceases to apply. [Schedule 2, item 1, section 357-85 of Schedule 1 to the TAA 1953]

3.35 The validity of the ruling is not affected by the fact that a provision relating to the form of the ruling or the procedure for making it has not been complied with. For example, if the Commissioner issues a public ruling, but fails to publish notice of the making of that ruling in the Gazette as required by subsection 358 -5(4) of this Bill, a taxpayer to whom it applies may nevertheless rely on the ruling and it will bind the Commissioner. [Schedule 2, item 1, section 357-90 of Schedule 1 to the TAA 1953]

Common rules for public and private rulings

3.36 To improve flexibility and timeliness in communications between the Commissioner and other entities for the purposes of a public ruling or a private ruling, communications may be made electronically. The Commissioner may therefore provide an electronic copy of a private ruling to an applicant, where the applicant is willing and able to receive it in that form. [Schedule 2, item 1, section 357-95 of Schedule 1 to the TAA 1953]

3.37 A document signed by the Commissioner, a Second Commissioner or a Deputy Commissioner that purports to be a copy of a public or private ruling, or of a notice of withdrawal of a public ruling is conclusive evidence of the proper making of either type of ruling, or of the withdrawal of the public ruling. This provision does not apply to the withdrawal of private rulings, as private rulings cannot be withdrawn, although they can be revised in limited circumstances (see paragraph 3.97). [Schedule 2, item 1, section 357-100 of Schedule 1 to the TAA 1953]

Common rules for private and oral rulings

3.38 To make a private or oral ruling, the Commissioner may require further information. The Commissioner must first ask for that information from the taxpayer. The Commissioner may also obtain information necessary for a ruling in other ways, but is not obliged to do so. While the Commissioner cannot refuse to rule simply because insufficient information was provided with the initial application, where the Commissioner asks the applicant for additional information, but it is not provided within a reasonable time, the Commissioner may decline to rule.

3.39 The Commissioner should make a private ruling within 60 days. Failure to do so allows the taxpayer to take action to have their application determined, which may lead to an objection right (see paragraph 3.109). However, where the Commissioner requests additional information from a taxpayer, the 60 -day period is suspended until the information requested is received by the Commissioner (see paragraph 3.96). If a response is not received within a reasonable time the Commissioner may decline to rule. [Schedule 2, item 1, section 357-105 of Schedule 1 to the TAA 1953]

3.40 Issuing a ruling may depend on an assumption about an unknown fact, such as a future event. If the Commissioner considers that correctly making a private or oral ruling would depend on an assumption, the Commissioner may make the assumption and tell the applicant about it, giving a reasonable time for their response, or may decline to make the ruling.

3.41 Where the Commissioner informs the applicant of any proposed assumption, the 60-day period after which a taxpayer can require the Commissioner to make the private ruling is suspended until the Commissioner receives the applicant's response about the assumptions. [Schedule 2, item 1, section 357-110 of Schedule 1 to the TAA 1953]

3.42 The Commissioner may take into account additional information provided by the applicant after the initial application, whether provided in response to a request for further information or otherwise. [Schedule 2, item 1, section 357-115 of Schedule 1 to the TAA 1953]

3.43 In considering an application for a private ruling or an oral ruling, the Commissioner may rely on relevant information provided by an entity other than the applicant, whenever the relevant information is provided, as long as the Commissioner tells the applicant that the Commissioner intends to take the information into account and gives the applicant a reasonable opportunity to respond.

3.44 If disclosure of the relevant information is not possible because such action would breach the tax secrecy provisions, privacy legislation or the confidentiality of the person providing the information, the Commissioner must not use that information in making a ruling. If the Commissioner considers that information that cannot be disclosed is material to the outcome of the ruling, the Commissioner may decline to rule. It is expected that this circumstance would be very rare.

3.45 Where the Commissioner informs the applicant within 60 days of receiving the application that he or she intends to take into account the relevant information, the 60-day period after which a taxpayer can require the Commissioner to make the private ruling requested is suspended until the Commissioner receives the applicant's response about the information. [Schedule 2, item 1, section 357-120 of Schedule 1 to the TAA 1953]

3.46 Making an application for a private or an oral ruling does not affect the taxpayer's other obligations or the Commissioner's right to exercise powers. For example, a taxpayer who applies for a ruling is not excused from their obligation to lodge a tax return or pay their tax liabilities, and the Commissioner remains empowered to make or amend their assessment (in accordance with the laws governing periods of review) or undertake collection action. [Schedule 2, item 1, section 357-125 of Schedule 1 to the TAA 1953]

Public rulings

What is a public ruling?

3.47 A public ruling is binding written advice, published by the Commissioner for the information of taxpayers generally, on the way in which, in the Commissioner's opinion, a provision of a tax law would apply. Thus a public ruling may be relied on by anyone to whom it applies. A public ruling may be stated to apply to:

·
entities generally, or a class of entities;
·
entities generally, or a class of entities, in relation to a class of schemes; or
·
entities generally, or a class of entities, in relation to a particular scheme.

[Schedule 2, item 1, subsection 358-5(1) of Schedule 1 to the TAA 1953]

3.48 As noted in the Report, general advice provided by the ATO should wherever possible be made in a style that is simple and easy to understand. Public rulings with a potentially limited readership may be tailored to the needs of the target audience.

3.49 A public ruling may deal with anything involved in the application of a provision, including issues relating to liability, administration, procedure, collection, and ultimate conclusions of fact. [Schedule 2, item 1, subsection 358-5(2) of Schedule 1 to the TAA 1953]

3.50 The Commissioner must publish notice of the making of a public ruling in the Gazette . A public ruling may also be published by electronic or other means and must state that it is a public ruling. However, the validity of the ruling is not affected by a procedural defect (see paragraph 3.35). [Schedule 2, item 1, subsections 358-5(2) and (4) of Schedule 1 to the TAA 1953]

3.51 The structure of section 358-5 provides flexibility so that, in addition to broad statements that anyone may rely on, the Commissioner may tailor public rulings to a set of arrangements applying to a range of taxpayers (ie, class or product rulings) where a qualified, conditional or more limited statement is required. A single document labelled a public ruling may in practice contain a number of separate expressions of opinion about provisions, thus consisting of a number of separate rulings. This approach allows the Commissioner flexibility. (It is particularly relevant to electronic information where it is not always clear what is a separate document.) By using this flexibility, the Commissioner may give effect to Recommendation 2.3 and declare that advice such as TaxPack or E-tax is a public ruling for a class of taxpayers, such as individual, non -business self-preparers.

Example 3.2 The Commissioner issues an information booklet which is stated to be a public ruling and to apply to taxpayers who are 'non-business individual self-preparers who have acted in good faith and reasonably relied on the ruling'. This public ruling is for an identifiable class of entities even though the booklet itself contains information relevant to a broader class.Kerry and Simon are non-business self-preparers. Kerry, in preparing her own tax return acts in good faith and reasonably relies on the public ruling. However, Simon, unreasonably attempts to exploit a typographical error in the booklet despite being notified of the error by the ATO before he relies on it.Kerry can rely on the ruling but Simon cannot, as Simon does not fall within the identifiable class of entities to which the ruling applies.

When do public rulings apply?

3.52 A public ruling binds the Commissioner from the time it is published, or from such earlier or later time as is specified in the ruling. [Schedule 2, item 1, subsection 358-10(1) of Schedule 1 to the TAA 1953]

3.53 Taxpayer uncertainty may arise where public rulings are withdrawn and not replaced or where the Commissioner changes an established interpretation or practice. Therefore, a public ruling that changes the Commissioner's general administrative practice or overturns a previous ruling cannot apply earlier than the day on which it is published if that change is less favourable to the taxpayer than the practice. Where a final ruling takes a position contrary to that canvassed in a draft ruling that represents the Commissioner's general administrative practice (see paragraph 3.130), that final ruling cannot apply retrospectively, to a taxpayer's detriment. [Schedule 2, item 1, subsection 358-10(2) of Schedule 1 to the TAA 1953]

3.54 A public ruling may specify the time when it ceases to apply. This power would usually be used when changing from one public position to another, over time. Where a public ruling does not specify the time at which it ceases to apply, it will apply until it is withdrawn. [Schedule 2, item 1, section 358-15 of Schedule 1 to the TAA 1953]

3.55 The Commissioner withdraws a public ruling, either wholly or in part, by publishing notice in the Gazette . The withdrawal is effective from the time specified in the notice, and this time cannot be retrospective. Where a public ruling is withdrawn, that ruling continues to apply to schemes to which it applied that had begun to be carried out before the withdrawal took place, but does not apply to schemes that begin to be carried out after the withdrawal. [Schedule 2, item 1, section 358-20 of Schedule 1 to the TAA 1953]

3.56 For the withdrawal of a public ruling to be valid, all the requirements mentioned in section 358 -20 must be complied with. Where all the requirements are not met, the public ruling remains in force (which contrasts with the making of a ruling, where lack of formality does not affect the validity of the ruling). As a result, if the Commissioner purports to withdraw a public ruling, but fails to publish notice of the withdrawal in the Gazette , the public ruling continues to apply until it is effectively withdrawn.

3.57 The timing rules specifically recognise that, in many cases, it would be inappropriate for a public ruling to be withdrawn on short notice and accordingly grant the Commissioner flexibility to defer withdrawal. For example, a product ruling is a form of public ruling issued to provide investor certainty that the taxation benefits claimed in the promotion of an investment product are indeed available to investors. Many hundreds or thousands of investors may invest on the basis of the claims, as endorsed by the Commissioner.

3.58 If the Commissioner decided that an aspect of such a ruling was, on reflection, incorrect, and withdrawal occurred late in the financial year, in the peak investing period, the result might be that investors on different days would receive radically different tax outcomes. This might occur irrespective of how well the withdrawal was publicised. In some cases the viability of the investment or the timing of the project and its returns might be prejudiced by the sudden withdrawal of projected investment, with detrimental consequences for those who invested while the ruling was in force. In such a case it may be entirely appropriate for the withdrawal or modification to take effect from the beginning of the following financial year, even if that is some months away.

3.59 In other cases, it might emerge that aspects of a public ruling are outdated or incorrect due to changing circumstances, technological developments or judicial decisions. While it is less than ideal for a ruling to remain in force where the Commissioner has doubts about its correctness, nevertheless the consequences of precipitate withdrawal may be worse. For example, although a ruling may no longer be absolutely correct, it may take some time to produce a replacement and the existing position may be the best alternative to provide taxpayers with certainty in the interim. Recognising that public rulings are premium products, often relied upon by many taxpayers through their practitioners, and are not issued lightly, it is appropriate that they should generally only be withdrawn when either, they are able to be adequately replaced by another product that meets the need originally identified, or they are clearly no longer needed.

3.60 As a result, in appropriate circumstances, the Commissioner may leave a public ruling in force even though there are doubts about its correctness. In each case of the proposed withdrawal of a public ruling, the Commissioner is entitled to have regard to the consequences for taxpayers of an immediate date of effect of withdrawal and may therefore delay the date to minimise those consequences.

Private rulings

What is a private ruling?

3.61 A private ruling is a written expression of the Commissioner's opinion on the way in which the Commissioner considers a relevant provision applies, or would apply, to a taxpayer who has sought an opinion. [Schedule 2, item 1, section 359-5 of Schedule 1 to the TAA 1953]

What can you apply for a private ruling on?

3.62 A private ruling may deal with anything involved in the application of a relevant provision, including issues relating to liability, administration, procedure and collection, and ultimate conclusions of fact. This includes being able to provide a ruling which covers the value of any thing (see paragraph 3.86).

3.63 As with public and oral rulings, the Commissioner is bound by the ruling if the ruling applies to the taxpayer and the taxpayer relies on it (see paragraphs 3.23 to 3.27).

3.64 The essential difference between a private ruling and a public ruling is that a private ruling deals with a specific course of action by a particular person, whereas a public ruling is provided for the information of taxpayers generally, or a class of taxpayers.

3.65 A single document may contain opinions about a number of provisions and may therefore constitute a number of private rulings. A private ruling may deal with any matter involved in the application of a relevant provision, including matters relating to liability, administration, procedure and collection, and ultimate conclusions of fact. However, in expanding the range of situations in which the Commissioner may provide a private ruling, the intent is not to oblige the Commissioner to provide a ruling when the more appropriate course would be to take other authorised action such as issuing an assessment, exercising a discretion, conducting an audit, initiating recovery action or otherwise performing his or her statutory responsibilities. Thus, the Commissioner may decline to rule in certain circumstances (see paragraphs 3.77 to 3.85).

3.66 By considering and exercising an administrative power such as the power to extend time to pay a tax liability, the Commissioner is not making a ruling.

Applying for a private ruling

3.67 Any taxpayer, their agent (which includes the taxpayer's tax agent) or their legal personal representative may apply for a private ruling. Trustees may apply for private rulings about the affairs of the trust, and partners may apply for private rulings on behalf of partnerships. With some limited exceptions, the ruling applies only to the entity in respect of whom the application was made. However, a private ruling given to a trustee in respect of the tax affairs of a trust continues to apply where a new trustee is appointed and a ruling relating to the affairs of the trust also applies to the beneficiaries of the trust. In situations where the trustee is replaced, the private ruling continues to apply to the new trustee, or any trustee replacing the new trustee, provided the ruling would have applied to the former trustee. [Schedule 2, item 1, subsection 359-10(1) and section 359-30 of Schedule 1 to the TAA 1953]

3.68 An application for a private ruling must be made in a form approved by the Commissioner. The Commissioner can approve a form under section 388 -50 of Schedule 1 to the TAA 1953. In stating the form that a ruling application may take, the Commissioner may require certain information to be supplied. [Schedule 2, item 1, subsection 359-10(2) of Schedule 2 to the TAA 1953]

3.69 An applicant may withdraw their application for a private ruling (orally or in writing) at any time before the ruling is made. The Commissioner must give written confirmation of the withdrawal. [Schedule 2, item 1, subsection 359-10(3) of Schedule 1 to the TAA 1953]

Additional information

3.70 As outlined earlier under common rules for private and oral rulings (see paragraphs 3.38 to 3.46), there are four ways the Commissioner may get information about matters that are not in a private ruling application in order to make the private ruling:

·
The Commissioner must ask the applicant to provide additional information where the Commissioner considers it is required.
·
The applicant may volunteer additional information after the application is made.
·
The Commissioner may rely on information supplied by an entity other than the applicant, provided that the applicant is made aware of that information and has an opportunity to comment on it.
·
The Commissioner may make an assumption that the Commissioner considers to be most appropriate in the circumstances, provided the applicant is informed of this assumption and given a reasonable opportunity to respond.

Making a private ruling

Private rulings to be given to applicants

3.71 The Commissioner makes a private ruling by recording the ruling in writing and giving a copy of it to the applicant, either on paper or electronically. [Schedule 2, item 1, section 359-15 of Schedule 1 to the TAA 1953]

What a private ruling must contain

3.72 A private ruling must:

·
be in writing;
·
state that it is a private ruling;
·
specify the relevant scheme;
·
identify the entity to which it applies; and
·
identify the relevant provision to which it relates.

[Schedule 2, item 1, subsection 359-5(1) and section 359-20 of Schedule 1 to the TAA 1953]

3.73 A private ruling should state any assumptions the Commissioner has made in making the ruling, or additional information from another entity that has been relied on.

3.74 Where a provision relating to the making of a private ruling is not complied with, the ruling will still be a valid private ruling (per section 357-90, see paragraph 3.35). For instance, if the private ruling responding directly to a taxpayer's application does not state explicitly that it is a private ruling, this does not preclude a taxpayer from relying on the ruling.

When does a private ruling apply?

3.75 The private ruling may specify the time it begins to apply and the time it ceases to apply, for example, a specified income year. This can be any time (in the future or the past), but a ruling cannot retrospectively replace another ruling to the taxpayer's detriment. If the ruling does not specify the date (or refer to a specified event) from which it begins, then the ruling applies from when the ruling is made. [Schedule 2, item 1, subsections 359-25(1) to (3) of Schedule 1 to the TAA 1953]

3.76 If the private ruling does not specify an end time, it ceases to apply at the end of the income year or other accounting period in which it started to apply. The reason for having a deemed end time for a private ruling where no end time is specified is to provide certainty about the period covered by their ruling. If an end time is not provided, it could be argued that the private ruling applied for the length of operation of the scheme in question. Therefore, if the taxpayer and the Commissioner want a private ruling to apply indefinitely, the taxpayer should request that the Commissioner explicitly state that there is no end time for that ruling. [Schedule 2, item 1, subsection 359-25(4) of Schedule 1 to the TAA 1953]

Circumstances in which the Commissioner may decline to make a private ruling

3.77 The Commissioner must comply with an application to make a private ruling unless there is a basis to decline. [Schedule 2, item 1, subsection 359-35(1) of Schedule 1 to the TAA 1953]

3.78 The Commissioner may decline to make a private ruling if the Commissioner considers that;

·
making the ruling would prejudice or unduly restrict the administration of a taxation law;
·
the matter sought to be ruled on is already being, or has been considered by the Commissioner for the taxpayer; or
·
the matter sought to be ruled on is how the Commissioner would exercise a power under a relevant provision and the Commissioner decides to exercise the power (or not to).

[Schedule 2, item 1, subsections 359-35(2) and (3) of Schedule 1 to the TAA 1953]

3.79 The question of whether making the ruling would prejudice or unduly restrict the Commissioner's administration is a matter for the Commissioner. While the Commissioner is not expected to decline to rule lightly, a decision to decline is not reviewable under the tax law. However, it may be reviewable under the Administrative Decisions (Judicial Review) Act 1977 .

3.80 Private rulings do not replace the Commissioner's decision -making power under the tax law, and applications should not be allowed to interfere with the proper administration of the tax law. If a taxpayer wants the Commissioner to exercise a particular power under the law, the appropriate course would normally be to ask the Commissioner to exercise that power, rather than to seek a ruling. For example, a taxpayer should normally ask the Commissioner for an extension of time to pay a tax -related liability rather than seeking a ruling on the issue. [Schedule 2, item 1, subsection 359-35(3) of Schedule 1 to the TAA 1953]

3.81 The Commissioner may also decline to make a private ruling where:

·
the Commissioner has asked the taxpayer to give further information under section 357 -105 and the taxpayer does not provide it in a reasonable time (see paragraph 3.39);
·
the Commissioner considers that information provided by an entity other than the applicant is material to the outcome of the ruling, but providing the ruling with that information would breach the tax secrecy provisions, privacy legislation or the confidentiality of the person providing the information (see paragraphs 3.40 to 3.45); or
·
an applicant does not agree to pay the amount charged by the Commissioner for a valuation, or a review of an applicant's valuation (see paragraph 3.90).

3.82 The purpose of these exclusions is to allow the Commissioner to focus efforts on increasing certainty for taxpayers in the most genuine and worthy cases. The ATO is not in the business of giving advice as a purely academic exercise, or assisting unscrupulous people to provide doubtful tax planning advice, or allowing some taxpayers to divert the ATO's resources to meet their needs to the detriment of others and the robustness of the system as a whole. Currently the ATO receives millions of requests for advice a year and only a fraction of them need to be dealt with in the formal private ruling system.

3.83 Examples where making a ruling would prejudice or unduly restrict the administration of a tax law include where:

·
the application is frivolous or vexatious or not seriously contemplated;
·
complying with the request for the private ruling would not have any practical consequences for the taxpayer, for example, because it relates to a transaction that occurred some years ago and the taxpayer's amendment period has already expired; or
·
making the private ruling would unreasonably divert resources from other matters to which the Commissioner must attend in the course of administering the taxation laws.

[Schedule 2, item 1, subsection 359-35(3) of Schedule 1 to the TAA 1953]

3.84 Other examples of circumstances in which the Commissioner might decline to give a private ruling include the following:

Scenario 1 A product ruling applies to Tim, and he asks for a private ruling on the same issue.

Scenario 2 Ingrid requests a private ruling where her liabilities or obligations will not be affected by the outcome of the ruling because the opportunity for her to act on the advice has passed.

Scenario 3 Alex, a scheme promoter, lodges a series of requests about the effectiveness of a number of tax avoidance schemes (so that it is unlikely he is seriously contemplating any one of them).

Scenario 4 Amanda asks for a private ruling about how the Commissioner would exercise the discretion to remit a penalty in hypothetical circumstances.

Scenario 5 Nicholas asks for a private ruling on whether a particular course of conduct will result in the Commissioner referring the circumstances to the Director of Public Prosecutions (DPP) for possible prosecution.

[Schedule 2, item 1, subsections 359-35(2) and (3) of Schedule 1 to the TAA 1953]

3.85 Where the Commissioner declines to give a private ruling, written reasons for doing so must be given to the applicant. [Schedule 2, item 1, subsection 359-35(4) of Schedule 1 to the TAA 1953]

Private ruling requiring a valuation

3.86 With private ruling requests which would require the determination of the value of any thing (which includes any property, service or intangible asset), the applicant may provide the Commissioner with a valuation or ask the Commissioner for a valuation.

3.87 Where the Commissioner is requested by the applicant to provide a valuation, the Commissioner may refer the valuation aspect of the ruling to a valuer. If the Commissioner refers the valuation to a valuer, the Commissioner must tell the applicant that this has occurred and must also tell the applicant when the valuer has completed its work. [Schedule 2, item 1, paragraph 359-40(1)(a) and subsections 359-40(2) and (3) of Schedule 1 to the TAA 1953]

3.88 Where the Commissioner is provided with a valuation by the applicant, the Commissioner may accept the valuation, or may refer it to a valuer for review. If the Commissioner refers the valuation to a valuer for review, the Commissioner must tell the applicant that this has occurred and tell the applicant when the valuer has completed its review work. [Schedule 2, item 1, paragraph 359-40(1)(b) and subsections 359-40(2) and (3) of Schedule 1 to the TAA 1953]

3.89 A typical situation where the Commissioner may accept a valuation provided with a private ruling application would be where the valuation or a similar valuation has been provided previously and was accepted by the Commissioner.

Example 3.3 Arif has previously received a valuation from a valuer in relation to the value of an investment property, which was accepted by the Commissioner. Arif subsequently applies for a private ruling and submits the valuation received from the valuer with his application for the Commissioner to consider.The Commissioner accepts the valuation without referring it for further review.

3.90 Where the applicant asks the Commissioner for a valuation, or provides the Commissioner with a valuation for review, the Commissioner may charge the applicant the relevant amount worked out in accordance with the regulations. Where a taxpayer does not agree to pay the relevant amount, the Commissioner will be unable to comply with the taxpayer's request for a private ruling requiring a valuation and the Commissioner may then decline to make the private ruling sought. A taxpayer who pays the charge can deduct the charge under section 25-5 of the Income Tax Assessment Act 1997 (ITAA 1997) as expenditure for managing their tax affairs. [Schedule 2, item 1, subsection 359-40(4) of Schedule 1 to the TAA 1953]

3.91 A private ruling request for the valuation of a gift or contribution for the purposes of Division 30 of the ITAA 1997 is not covered by section 359 -40, as Division 30 has valuation requirements specific to that Division. [Schedule 2, item 1, subsection 359-40(5) of Schedule 1 to the TAA 1953]

Making related rulings

3.92 Where the Commissioner is making a private ruling sought by an applicant, the Commissioner may make the ruling a ruling on a different provision (eg, a ruling on section 8-1 of the ITAA 1997 rather than section 51 of the ITAA 1936), or make an additional private ruling. The additional private ruling may be about the way in which another relevant provision or provisions would apply, or about how a relevant provision applies or would apply to a related scheme. [Schedule 2, item 1, section 359-45 of Schedule 1 to the TAA 1953]

3.93 However, Recommendation 2.16 of the Report stated that the Commissioner should refrain from ruling on issues not directly raised in a private ruling application without the applicant's agreement. This is to ensure timely responses and allow self assessing taxpayers to make their own judgements about tax obligations, notwithstanding that they have chosen to ask a question on another matter. Where the Commissioner considers that other aspects of the tax law could affect the accuracy of the private ruling response, the ruling should contain appropriate caveats or statements that the advice is issued subject to certain assumptions or limitations.

Example 3.4 Nan asks for a ruling about whether a receipt from an asset sale is ordinary income but in examining the ruling the ATO considers that there would also be capital gains tax implications. The ruling should address the income tax question, noting that there may be capital gains tax implications, but not addressing them.

Determining private rulings in a reasonable time

3.94 Once an applicant has lodged an application for a private ruling, it is important that the Commissioner rules within a reasonable time. The Report concluded that there ought to be a mechanism by which a taxpayer could crystallise the Commissioner's decision, in order to be able to decide whether or not to challenge it. As a result, if 60 days have passed since the ruling request was lodged and the Commissioner has not made the ruling or declined to rule, the applicant can give a written notice requiring the Commissioner to make the private ruling. [Schedule 2, item 1, subsection 359-50(1) of Schedule 1 to the TAA 1953]

3.95 If, 30 days after being given that written notice, the Commissioner has not made the ruling, or has not declined to make the ruling, then the applicant will have the right to object in the manner set out in Part IVC of the TAA 1953 and, as part of their objection, they must lodge their own draft private ruling. (This ruling will have no status at law apart from its role in the objection proceedings, and the applicant may not rely on it until and unless confirmed on objection or appeal.) [Schedule 2, item 1, subsections 359-50(3) and (4) of Schedule 1 to the TAA 1953]

3.96 However, if during the 60-day period the Commissioner requests that the applicant provide further information, tells the applicant about assumptions or information provided by a third party that the Commissioner proposes to take into account, or refers a valuation to a valuer, the 60-day period is extended as detailed in the table in subsection 359-50(2). Where two or more circumstances detailed in the table apply, any overlap between the periods of extension is ignored. [Schedule 2, item 1, subsection 359-50(2) of Schedule 1 to the TAA 1953]

Example 3.5 Victoria requests a private ruling. The Commissioner requests further information (under section 357-105) from Victoria 20 days after she lodges her application. Ten days later the Commissioner informs Victoria that he or she proposes to take into account information provided by a third party. Victoria responds to the Commissioner on both issues 25 days later.The 60 -day period mentioned in subsection 359 -50(1) is extended by 25 days. The period of overlap between the Commissioner's request for further information and the Commissioner informing Victoria that the Commissioner proposes to take into account information provided by a third party is ignored.

Making revised private rulings

3.97 The Commissioner may revise a private ruling if a private ruling was previously made and neither the scheme to which the earlier ruling relates, nor the income year or other accounting period, has begun. Where the scheme or the period to which the earlier private ruling related has begun, the ruling is not revised and the applicant would still be able to rely on it. The Commissioner may make a revised private ruling whether or not there is an application for the revised ruling. [Schedule 2, item 1, subsections 359-55(1) and (3) of Schedule 1 to the TAA 1953]

3.98 Where a revised private ruling is properly made, the private ruling in its initial form will stop applying to the applicant, and they will no longer be able to rely on it. [Schedule 2, item 1, subsection 359-55(4) of Schedule 1 to the TAA 1953]

3.99 Revised rulings must be copied to the applicant in the same way as other private rulings. [Schedule 2, item 1, subsection 359-55(2) of Schedule 1 to the TAA 1953]

Objection, review and appeal rights

3.100 There are two distinct avenues of objection, review and appeal rights in relation to private rulings:

·
a person may object against a private ruling that applies to that person [Schedule 2, item 1, subsections 359-60(1) and (2) of Schedule 1 to the TAA 1953] ; or
·
a person may object against the Commissioner's failure to make a ruling after being given a notice to make the ruling [Schedule 2, item 1, subsections 359-50(3) and (4) of Schedule 1 to the TAA 1953] .

Objection against private ruling

3.101 Where a person to whom a private ruling applies is dissatisfied with it, they may object against it in the manner set out in Part IVC of the TAA 1953, and the ruling will be a taxation decision for the purposes of that Part. [Schedule 2, item 1, subsections 359-60(1) and (2) of Schedule 1 to the TAA 1953]

3.102 A person cannot object against a private ruling if:

·
there is an assessment for them for the income year or other accounting period to which the ruling relates; or
·
the ruling relates to withholding tax or mining withholding tax that has become due and payable.

[Schedule 2, item 1, subsection 359-60(3) of Schedule 1 to the TAA 1953]

3.103 Where a taxpayer has received an assessment from the Commissioner and wishes to object against aspects of that assessment, that taxpayer must object against the assessment and not the private ruling. [Schedule 2, item 1, subsection 359-60(3) of Schedule 1 to the TAA 1953]

3.104 Having received the taxpayer's objection against a private ruling, the Commissioner is obliged under Part IVC of the TAA 1953 to consider it and either allow it in whole or part, or disallow it. This decision will constitute an objection decision that may be considered by the Administrative Appeals Tribunal or the Federal Court.

3.105 Where a taxpayer receives a private ruling which covers a number of income years or accounting periods there is nothing to prevent the taxpayer relying on the ruling for certain income years or accounting periods, and objecting against the others. A taxpayer may choose not to rely on the ruling instead of objecting against it.

Example 3.6 Ian receives a private ruling which covers 3 income years. Ian relies on the ruling for the first 2 income years, and then decides to object against the ruling for the 3rd income year before lodging his return for that year.

The Commissioner may consider new matters on objection

3.106 In deciding whether to allow an objection under Part IVC of the TAA 1953 against a private ruling, the Commissioner may consider any additional information that the Commissioner did not originally consider when making the ruling. For information which does not come from the taxpayer but which the Commissioner proposes to consider at the objection stage, the Commissioner must tell the taxpayer what this information is and give the applicant a reasonable opportunity to respond before allowing or disallowing the objection. [Schedule 2, item 1, subsections 359-65(1) and (2) of Schedule 1 to the TAA 1953]

3.107 However, if the Commissioner considers that the additional information is such that the scheme to which the application related is materially different from the scheme revealed by the additional information, the Commissioner must request the applicant to make an application for another private ruling and the taxpayer's objection is taken not to have been made. [Schedule 2, item 1, subsection 359-65(3) of Schedule 1 to the TAA 1953]

A successful objection decision will alter a ruling

3.108 A private ruling has effect as altered by an objection decision. [Schedule 2, item 1, section 359-70 of Schedule 1 to the TAA 1953]

Objection against Commissioner's failure to make a private ruling

3.109 If the Commissioner has not issued a ruling or declined to make the ruling within 60 days of the application being lodged, the applicant may give the Commissioner a notice requiring him or her to make the ruling. The 60-day period for the Commissioner to make the ruling before the applicant has a right to serve a notice can be extended by a range of actions the Commissioner takes, provided those actions are taken within 60 days of the application being made. The actions by the Commissioner that can extend the 60 days by the time it takes to receive a response are:

·
requesting further information from the applicant;
·
telling the applicant about assumptions that the Commissioner proposes to make;
·
telling the applicant about third party information that the Commissioner proposes to take into account; or
·
telling the applicant that the Commissioner has referred a valuation to a valuer.

3.110 If the Commissioner has not made the ruling or declined to make the ruling within 30 days of the notice requiring him or her to rule, the applicant may object against the failure to make the ruling. In lodging an objection an applicant is required to lodge a draft private ruling. [Schedule 2, item 1, subsections 359-50(3) and (4) of Schedule 1 to the TAA 1953]

3.111 Having received the taxpayer's objection against the failure to make a ruling, including their draft private ruling, the Commissioner must make a ruling in the same terms as the draft ruling lodged with the objection, or make a different private ruling. [Schedule 2, item 22, subsection 14ZY(1) of the TAA 1953]

3.112 If the Commissioner has not issued a ruling within 60 days of the objection against the failure to make a ruling being lodged, the Commissioner is taken to have disallowed the objection. [Schedule 2, item 24, subsection 14ZYB of the TAA 1953]

Example 3.7 Karen requests a ruling and, after 60 days have passed, requests the Commissioner to make the ruling. The ruling is not made within 30 days. Karen objects to the Commissioner's failure to make the ruling and lodges her own draft private ruling with the objection.

Oral rulings

What is an oral ruling?

3.113 An oral ruling is a form of binding advice that the ATO can provide in response to an individual's oral application. An individual or their legal personal representative (but not their tax agent), may apply to the Commissioner for an oral ruling on how, in the Commissioner's opinion, the tax law applies, or would apply, to them. As with public and private rulings, the ATO is legally bound by an oral ruling if the individual relies on that advice. [Schedule 2, item 1, section 360-5 of Schedule 1 to the TAA 1953]

3.114 Oral rulings differ from general advice given to taxpayers through services such as call centres. Oral rulings provide the individual with protection from additional primary tax and any penalties or interest that would otherwise be payable. Reliance on other oral advice given by the ATO provides protection only from penalties and interest. [Schedule 2, item 1, sections 357-60 and 361-5 of Schedule 1 to the TAA 1953]

Applying for an oral ruling

3.115 Any individual taxpayer may apply to the Commissioner for an oral ruling on how the Commissioner considers the law applies to them. A tax agent cannot apply for an oral ruling on a taxpayer's behalf. [Schedule 2, item 1, subsection 360-5(1) of Schedule 1 to the TAA 1953]

3.116 A taxpayer must apply for an oral ruling orally, in the manner the Commissioner has approved. [Schedule 2, item 1, subsection 360-5(2) of Schedule 1 to the TAA 1953]

3.117 The Commissioner will give the taxpayer or their legal personal representative the ruling orally, in a manner approved by the Commissioner. The Commissioner must provide the taxpayer with a registration identifier to distinguish oral rulings from other oral advice. [Schedule 2, item 1, subsections 360-5(3) and (4) of Schedule 1 to the TAA 1953]

3.118 A taxpayer is not entitled to receive a written record of the oral ruling. However, the taxpayer can later apply for a written private ruling on the same issue which can be binding if the prior ruling is disclosed (see paragraph 3.31). [Schedule 2, item 1, subsection 360-5(5) of Schedule 1 to the TAA 1953]

Making an oral ruling

Circumstances in which the Commissioner may decide not to make an oral ruling

3.119 The Commissioner must give the ruling unless the advice the taxpayer seeks relates to a business matter, is complex, or the matter to be ruled on is being, or has already been, considered by the Commissioner. [Schedule 2, item 1, subsection 360-5(3) of Schedule 1 to the TAA 1953]

3.120 Business is defined in the ITAA 1997 as including any profession, trade, employment, vocation or calling, but does not include occupation as an employee.

3.121 Examples of circumstances where the Commissioner might consider that an oral ruling relates to a complex matter include where:

·
the answer turns on the interpretation of facts that require examination of documents;
·
the facts and circumstances on which the answer is to be based are open to a number of possible interpretations;
·
the answer turns on a chain of decisions or conclusions to reach the final decision; or
·
the relevant law is complex and would require significant research or analysis.

3.122 The Commissioner may decide not to give an oral ruling if the matter sought to be ruled on is already being, or has been, considered for the person to whom the ruling would apply. This would include where an audit on the taxpayer's affairs is being undertaken or where the taxpayer has already been given a ruling on the matter. [Schedule 2, item 1, paragraph 360-5(3)(b) of Schedule 1 to the TAA 1953]

3.123 The Commissioner may give an oral ruling on matters of liability, administration, procedure, collection and ultimate conclusions of fact involved in the application of a tax law.

3.124 Paragraphs 3.38 to 3.45 discuss the ways in which the Commissioner can obtain information on which to base the ruling.

Withdrawal of an oral ruling

3.125 A taxpayer or their legal personal representative can withdraw an application for an oral ruling before the Commissioner makes the ruling. [Schedule 2, item 1, section 360-10 of Schedule 1 to the TAA 1953]

3.126 The rules set out in paragraph 3.31 apply where an oral ruling is inconsistent with a public ruling or a private ruling.

Commissioner determinations

3.127 The manner in which oral applications are made or withdrawn under section 360 -5 must be determined by the Commissioner in writing.

Other advice and general administrative practice

3.128 ATO advice and practice that does not fall into any category of ruling may also protect taxpayers from certain adverse consequences. At present, taxpayers are protected from certain shortfall penalties if they follow:

·
advice given to the taxpayer or their agent by the Commissioner;
·
the Commissioner's general administrative practice under the law; or
·
a statement in a publication approved in writing by the Commissioner.

3.129 The new provisions ensure that taxpayers will also be protected from both the shortfall interest charge and the general interest charge if:

·
they reasonably rely in good faith on non-ruling advice given to them or their agent by the Commissioner or a statement in a publication by the Commissioner, unless the advice or the statement or publication is labelled as non-binding; or
·
they reasonably rely in good faith on the Commissioner's general administrative practice.

[Schedule 2, item 1, subsection 361-5(1) of Schedule 1 to the TAA 1953]

3.130 General administrative practice will usually be established by the ATO having communicated consistently to a wide range of taxpayers on a particular issue. A general administrative practice is usually adopted for the efficient administration of the taxation system and will often be documented in a Law Administration Practice Statement, General Administration Law Administration Practice Statement, an ATO policy document (eg, the ATO Receivables Policy ), or other precedential material (such as an ATO Interpretive Decision). An example is Law Administration Practice Statement PS LA 2003/8 which sets out the rules developed to lessen the cost of accounting for low cost assets for taxpayers carrying on a business. Where a draft public ruling represents the Commissioner's only public statement on an issue, the draft ruling will usually represent the Commissioner's general administrative practice.

3.131 A general administrative practice is not established merely because there are several similar private rulings on a matter, although evidence of a significant number of uncontradicted private rulings on a matter over time will tend to support such a conclusion. Similarly, a bare failure by the Commissioner to take some action within his power does not establish a general administrative practice, but a repeated failure to exercise that power after the issue is drawn to the Commissioner's attention will tend to do so. Again, mere silence or failure to issue a public ruling on a matter does not constitute general administrative practice, but it will be established where, following identification of an issue, ATO officers have accepted it as the basis on which taxpayers should treat the issue in a range of situations.

3.132 Although the provisions referred to in paragraphs 3.128 and 3.129 refer to penalty and interest being foregone, the Commissioner's acceptance that there has been a general administrative practice can also result in no further primary tax being payable. Where the Commissioner changes a general administrative practice in a way that is less favourable for taxpayers, he is not obliged to amend assessments that were raised consistently with a practice in place at a particular time. The Bill needs no special provision to bring this about because it is an inherent part of the Commissioner's general power to administer the tax laws to make judgments about what returns to review and amend. Accordingly, the Commissioner would commonly decide to make a change in general practice prospective where the new practice is less favourable for taxpayers. Furthermore, in some cases it would be appropriate for the new practice to start at a future date (eg, because taxpayers need time to adjust their accounting systems). However, consistent with the Report at page 13, the Commissioner would generally not take this approach where tax avoidance is involved or the previous practice has been exploited in an unintended way.

3.133 A taxpayer's protection from the general interest charge under subsection 361-5(1) will cease 21 days after the Commissioner notifies the taxpayer of the correct amount of tax payable under the law. This is consistent with the normal position under income tax that an amended assessment is due and payable 21 days after the Commissioner gives it to the taxpayer and general interest charge starts to accrue if it is not paid. If circumstances warrant (eg, if the liability is substantial and unexpected and the taxpayer has to significantly restructure their financial affairs to meet the payment), the Commissioner can defer the payment date (which also defers the date when the general interest charge can start to accrue). The Commissioner also has the power to remit the interest charge in whole or in part, particularly if the Commissioner contributed to the delay in payment and the taxpayer took reasonable action to mitigate the effects of the Commissioner's actions. [Schedule 2, item 1, subsection 361-5(2) of Schedule 1 to the TAA 1953]

3.134 Further, section 284 -215 to Schedule 1 of the TAA 1953 should be ignored in applying subsection 361-5(1) of this Bill. Section 284-215 treats you, for the shortfall penalty provisions, as having no shortfall if the shortfall is caused by you relying on ATO general administrative practice or certain ATO advice. If that section were not ignored, taxpayers may not obtain the intended interest protection because the protection mechanism refers to there being a shortfall amount (or scheme shortfall amount). [Schedule 2, item 1, subsection 361-5(3) of Schedule 1 to the TAA 1953]

Consequential amendments

Provisions in the current law that are no longer necessary

3.135 As a consequence of implementing the new framework for advice and rulings in Schedule 1 to the TAA 1953, the old tax rulings regime and the rulings provisions in a selected number of Acts will be repealed. Further flow on consequential amendments to a number of Acts are required to update or amend definitions and references to the old rulings regimes, so the law operates as intended. [Schedule 2, items 2 to 16, 18, 26 and 27 of Schedule 1 to the TAA 1953]

Objection periods to reflect changes to the advice and rulings regime

3.136 There have been some alterations and inserts to Part IVC of the TAA 1953 to correspond with the new advice and rulings regime. The consequential amendments allow taxpayers to object where the Commissioner fails to make a private ruling, and allow the taxpayer to lodge a draft private ruling with the objection. These changes are discussed in detail in earlier paragraphs (see paragraph 3.100 to 3.112). [Schedule 2, items 17 and 19 to 25 of Schedule 1 to the TAA 1953]

3.137 Where there is a taxation objection against the Commissioner failing to make a private ruling, and the Commissioner at the end of the relevant objection period does not make a private ruling in the same terms as the draft ruling lodged or make a different private ruling, the Commissioner is taken to have disallowed the objection. In this case, the taxpayer can apply to the Administration Appeals Tribunal or appeal to the Federal Court against the Commissioner's deemed disallowance of the objection. [Schedule 2, items 22, 24 and 25 of Schedule 1 to the TAA 1953]


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