ATO Practice Statement Law Administration

PS LA 2003/3

SUBJECT:

Precedential ATO view

PURPOSE:

To advise: • what is a precedential ATO view • when tax officers must identify and apply a precedential ATO view • when tax officers are not required to identify and apply a precedential ATO view • when tax officers must escalate interpretative issues for creation or review of the precedential ATO view • who is responsible for maintaining the currency, accuracy and consistency of precedential ATO view documents • what protection do taxpayers who rely on precedential ATO views have

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FOI status: may be released

STATEMENT

What is a precedential ATO view?

1. A precedential ATO view is the Tax Office's documented interpretation of any of the laws administered by the Commissioner in relation to a particular interpretative issue. Paragraphs 10 to 12 of this practice statement explain interpretative issues.

2. Precedential ATO views are the linchpin of the Tax Office's approach to interpretative decision-making. The requirement for tax officers to search for and apply them ensures that Tax Office decisions on interpretative issues are accurate and consistent. Tax officers must use relevant information technology systems in use in the Tax Office for research, including searching for precedential ATO views.^[1]

3. Precedential ATO views are set out in the following documents:

•

public rulings within Division 358 of Schedule 1 to the Taxation Administration Act 1953 (TAA)^[2] or section 105-60 of Schedule 1 to the TAA^[3]

•

other publicly issued rulings^[4]

•

draft public rulings and other publicly issued draft rulings

•

ATO Interpretative Decisions (ATO IDs)^[5]

•

decision impact statements, and

•

documents listed in the Schedule of documents containing precedential ATO views.

A hyperlink to the Schedule of documents containing precedential ATO views is contained in the Other References section at the conclusion of this document.

4. All of these documents are available on ATOlaw. They are also made publicly available on the Legal Database on the Tax Office website at www.ato.gov.au.

5. A legislative provision^[6] does not constitute a precedential ATO view and, therefore, should not be cited by tax officers as a precedential ATO view. However, a legislative provision may be cited as authority for a decision if it involves a straightforward application of the legislative provision (see paragraph 15 of this practice statement).

When tax officers must identify and apply the precedential ATO view

6. In making decisions about interpretative issues, such as those which arise in requests for private rulings, tax officers must:

•

search for and identify the relevant precedential ATO view, and

•

apply the precedential ATO view if there is no material difference^[7] between the facts of the particular case and the facts outlined in the precedential ATO view document, or

•

escalate the issue if:

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there is no precedential ATO view, or

-

the application of the existing precedential ATO view is considered to result in an incorrect decision or unintended outcome.

7. Tax officers who authorise or approve decisions on interpretative issues arising from advice requests, audits or disputes must check that the precedential ATO view cited by the case officer is appropriate. Tax officers must follow the procedures outlined in the Online Resource Centre for Legal Administration (ORCLA) for recording in the relevant case management system the source of the precedential ATO view (or relevant Tax Office guidelines) that they have applied in making a decision.

8. Where a tax officer is unable to decide whether or not a precedential ATO view applies in a factual situation under consideration, assistance must be sought from technical leaders within the business line. If the matter cannot be resolved, it must be escalated to the relevant Centre of Expertise (CoE) using the business line's escalation processes (See Law Administration Practice Statement PS LA 2004/4 Referral of issues to Centres of Expertise for the creation of precedential ATO view).

9. If there is no precedential ATO view for a particular interpretative issue, a precedential ATO view must be created by the relevant CoE. However, there are some decisions that do not require a precedential ATO view to be identified and applied. This is explained at paragraphs 13 to 30 of this practice statement.

Interpretative issues

10. An interpretative issue is one that arises because:

•

the meaning of the words of the legislation are not clearly evident from a plain reading of the relevant provision

•

there is more than one possible interpretation of the law, or

•

an interpretation based on the ordinary meaning of the legislation produces a result that is obviously absurd or unreasonable and does not promote the purpose of the legislation.

11. Resolution of an interpretative issue requires that the meaning of the words of the legislation be determined so that the legislation can be applied to a set of facts. Tax officers should adopt a purposive approach to the interpretation of legislation, to ensure that, to the extent that it is possible to do so, the underlying policy intent of the legislation is achieved.^[8]

12. Interpretative issues may involve the interpretation of any provisions of the laws administered by the Commissioner. This includes provisions about:

•

income tax and its administration and collection

•

goods and services tax and other indirect taxes

•

excise, and

•

superannuation.

When tax officers are not required to identify and apply a precedential ATO view

13. Tax officers do not have to identify and apply a precedential ATO view where the decision:

•

involves a straightforward application of the law

•

involves the exercise of a discretion

•

involves making an ultimate conclusion of fact, or

•

involves determining the value of something.

14. However, when making a decision that involves the exercise of a discretion or making an ultimate conclusion of fact tax officers are required to take into account any relevant Tax Office guidelines.

Decisions that involve a straightforward application of the law

15. Tax officers do not have to identify and apply a precedential ATO view where the decision involves a straightforward application of clear and unambiguous law to a particular set of facts.

16. Example 1

A private ruling request raises the following issue:

Can I claim a tax deduction for a gift of $20 to Amnesty International?

Section 30-15 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a gift of money to a fund, authority or institution listed in a relevant table is deductible. Amnesty International is listed in the table in subsection 30-45(2) of the ITAA 1997. As the application of the law is straightforward, it is not necessary for the tax officer dealing with the issue to identify a precedential ATO view and the relevant legislative provision can be cited as authority for the decision.

17. Example 2

The following issue arises in the course of an audit:

Is an amount of family tax benefit paid to the taxpayer included in their assessable income?

Under subsection 52-150(1) of the ITAA 1997, 'A payment of ... family tax benefit ... is exempt from income tax.' Subsection 6-15(2) of the ITAA 1997 states that 'If an amount is exempt income, it is not assessable income.' As the application of the law is straightforward, it is not necessary for the tax officer dealing with the issue to identify a precedential ATO view and the relevant legislative provisions can be cited as authority for the decision.

Exercise of a discretion

18. Tax officers are not required to identify and apply a precedential ATO view for a decision (or that part of a decision) involving the exercise of a discretion. However tax officers are required to take into account any relevant Tax Office guidelines.

19. An example of a decision involving the exercise of a discretion is a decision about whether or not to exercise a power; for example, whether or not to allow an extension of time for the lodgment of an objection (see subsection 14ZX(1) of the TAA). Another example is a decision in response to a private ruling request asking the Commissioner to exercise a particular discretion.

20. Exercising a discretion requires a decision-maker to choose between alternative courses of action. It involves the exercise of the decision-maker's own judgment in coming to an appropriate decision and the decision must not be made at the direction of another person. Generally, it is a decision-making process in which no one consideration and no combination of considerations is necessarily determinative of the result.^[9] It requires the decision-maker to consider the merits of the particular case by:

•

taking into account the individual circumstances of the case

•

weighing the relevant evidence, and

•

taking into account any relevant guidelines.

21. Accordingly, a decision involving the exercise of a discretion is not one for which a precedential ATO view should be created or applied.

22. However, tax officers must take into account any Tax Office guidelines developed for the exercise of the particular discretion. These guidelines may be contained in publicly issued rulings. For example, Taxation Ruling TR 2001/14 provides guidance on exercising the discretion under section 35-55 of the ITAA 1997 to not defer the deduction of a loss.

23. Tax Office guidelines for the exercise of a discretion may also be contained in other documents such as practice statements. For example, Law Administration Practice Statement PS LA 2003/7 provides guidance for tax officers who are required to make decisions in response to requests by taxpayers that the Commissioner treat late taxation objections as if they were lodged within time.

24. In some limited circumstances, guidelines may be clear about particular circumstances in which a discretion should be exercised in favour of a taxpayer. For example, Goods and Services Tax Ruling GSTR 2000/17 sets out, in paragraphs 25 to 38, particular circumstances in which the Commissioner will treat certain documents as tax invoices. Paragraphs 39 and 40 of GSTR 2000/17 explain that there may be other special circumstances in which the Commissioner will treat a document as a tax invoice. Further Tax Office guidelines on the exercise of this discretion are contained in Law Administration Practice Statement PS LA 2004/11.

25. Where tax officers are required to make a decision involving the exercise of a discretion regarding the application of a general anti-avoidance provision such as Part IVA, they should follow the decision-making process outlined in Law Administration Practice Statement PS LA 2005/24.

Ultimate conclusion of fact

26. Under section 359-5 of Schedule 1 to the TAA, the Commissioner may make a private ruling about any matter involved in the application of a relevant provision.^[10] This means that a private ruling can be made about an ultimate conclusion of fact for the purposes of the application of a relevant provision.^[11]

27. Tax officers are not required to identify and apply a precedential ATO view for a decision (or that part of a decision) that involves making an ultimate conclusion of fact. However, tax officers are required to take into account any relevant Tax Office guidelines. These guidelines may be contained in publicly issued rulings or other Tax Office documents including, for example, practice statements.

28. An ultimate conclusion of fact involves ascertaining the relevant primary facts and drawing a conclusion from those facts. It may also involve the application of appropriate guidelines or indicators. For example, an ultimate conclusion of fact that a taxpayer is carrying on a business of primary production involves ascertaining the primary facts. These facts relate to the basic circumstances and may include that the taxpayer owns a property of a certain size on which there are a certain number of livestock. It is also necessary to identify and apply any relevant Tax Office guidelines. The relevant Tax Office guidelines are in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? All the relevant facts need to be taken into account having regard to the indicators set out in TR 97/11 that are relevant to making a decision about whether or not a person is carrying on a business of primary production.

29. No two cases will be exactly the same as different facts and indicators may need to be considered in reaching a conclusion. Accordingly, these are decisions that must be made on the facts of each case, having regard to any relevant Tax Office guidelines rather than by applying a precedential ATO view.

Valuations

30. When making a decision in a private ruling about the application of a relevant provision^[12] that requires the determination of the value of something, it is not necessary for the tax officer to apply a precedential ATO view for that part of the decision related to the valuation. Tax officers should follow the procedures in ORCLA that deal with valuation matters.

When tax officers must escalate interpretative issues for creation or review of the precedential ATO view

31. Tax officers must escalate interpretative issues where:

•

there is no precedential ATO view

•

the precedential ATO view is not current (for example, it does not take into account a material law change or a final court decision), or

•

the tax officer considers that:

-

the application of the existing precedential ATO view would result in an outcome that is incorrect or unintended, or

-

there is a significant alternative view to the precedential ATO view.

32. In these circumstances, and before a decision on the issue is made, the matter must be escalated in accordance with the relevant business line's escalation rules^[13] to the relevant CoE for:

•

creation of a precedential ATO view, or

•

review of the precedential ATO view (a documented explanation of the need for the review must be provided).

33. Only CoEs and the Tax Counsel Network (TCN) are authorised to create precedential ATO views.^[14]

34. It is not appropriate to refer an issue to a CoE simply because of the complexity of the factual situation to which an existing precedential ATO view is to be applied. However, an issue can be referred to a CoE if, after proper escalation of the issue within the business line, it is not clear that there is an existing precedential ATO view that applies to the factual situation being considered.

Change in precedential ATO view

35. If it is proposed to publish a new precedential ATO view that will overturn an existing precedential ATO view or an existing general administrative practice^[15] this matter must be brought to the attention of the relevant Deputy Chief Tax Counsel (DCTC).^[16] The new precedential ATO view cannot be published without clearance from the Deputy Chief Tax Counsel.

Who is responsible for maintaining the currency, accuracy and consistency of precedential ATO view documents?

36. Business lines and CoEs have responsibility for maintaining the currency, accuracy and consistency of precedential ATO view documents. They must have in place processes and procedures for ensuring that precedential ATO view documents are reviewed and updated in a timely manner.

37. CoEs have primary responsibility for the maintenance of public rulings. CoE authors of new public rulings must check the currency, accuracy and consistency of related precedential ATO view documents. They must withdraw any of these documents identified as being outdated, specifying the reason for their withdrawal, and link them, where appropriate, to the new rulings.

38. CoEs are also responsible for the maintenance of ATO IDs to ensure that they accurately reflect the precedential ATO view in the most appropriate form. This may involve converting them into public rulings, where appropriate.

39. Business lines are responsible for the maintenance of precedential ATO view documents in the 'Schedule of documents containing precedential ATO views'.^[17] They must regularly review these documents for currency, accuracy, and consistency.

40. Tax officers who consider that a particular precedential ATO view document is no longer current, accurate or is inconsistent with another precedential ATO view document must escalate the matter to either the relevant business line or CoE to consider what, if any, action should be taken.

What protection do taxpayers who rely on precedential ATO views have?

41. The following table sets out the protection taxpayers have where all the conditions set out below are met:

•

a taxpayer relies on a precedential ATO view set out in a document listed in the table

•

the taxpayer's scheme^[18] or transaction is not materially different^[19] from that described in the precedential ATO view document, and

•

that precedential ATO view as stated in the document is subsequently found to be incorrect.

Note: all legislative references in the table are references to provisions in Schedule 1 to the TAA, unless otherwise stated.

Amendment history

Date of Issue: 8 June 2007

Date of Effect: 8 June 2007

File 2001/7447

Related Rulings/Determinations:
GSTR 2000/17
TR 97/11
TR 2001/14
TR 2006/10

Related Practice Statements:
PS LA 1998/1
PS LA 2001/8
PS LA 2002/16
PS LA 2003/3
PS LA 2003/7
PS LA 2004/4
PS LA 2004/11
PS LA 2005/24
PS LA 2008/3

Other References:
Explanatory Memorandum to the Tax Laws Amendment (Improvements to Self Assessment) Bill (No. 2) 2005
Schedule of documents containing precedential ATO views

Subject References:
ATO Interpretative decisions
Commissioner' discretion
precedential ATO views
private rulings
public rulings
Schedule of documents containing precedential ATO views

Legislative References:
TAA 1953 8(1)
TAA 1953 8AAB
TAA 1953 14ZX(1)
TAA 1953 37
TAA 1953 Sch 1 105-60
TAA 1953 Sch 1 280-100(1)
TAA 1953 Sch 1 Div 284
TAA 1953 Sch 1 284-215(1)(b)(iii)
TAA 1953 Sch 1 357-55
TAA 1953 Sch 1 Div 358
TAA 1953 Sch 1 358-10(2)
TAA 1953 Sch 1 359-5
TAA 1953 Sch 1 361-5(1)
ITAA 1936 177A(1)
ITAA 1997 6-15(2)
ITAA 1997 30-15
ITAA 1997 30-45(2)
ITAA 1997 Div 35
ITAA 1997 35-55
ITAA 1997 52-150(1)
ITAA 1997 995-1(1)
AIA 1901 15AA
Excise Act 1901
Excise Tariff Act 1921
Fuel Tax Act 2006
PGBA Act 2000 8
Superannuation Guarantee (Administration) Act 1992 Pt 7
Superannuation Guarantee (Administration) Act 1992 31

Case References:

Coal and Allied Operations Pty Limited v. Australian Industrial Relations Commission and Others
(2000) 203 CLR 194

Jago v. The District of New South Wales and Others
(1989) 168 CLR 23

Authorised by:
Bruce Quigley
Second Commissioner (Law)