GST minutes, September 2010

Meeting details

Venue:	Australian Taxation Office 10th Floor Narellan Street Canberra
Date:	21 September 2010
Start:	10.00am	Finish:
Chair:	Paul Tregillis
Secretariat and contact:	Donald Lobo

Attendees

Paul Tregillis	Senior Assistant Commissioner, ATO
Andrew Orme (co-chair)	Senior Tax Counsel, ATO
Katie Welsh	Senior Assistant Commissioner, ATO
Les de Wind	Acting Assistant Commissioner, ATO
Adrian Preston-Loh	Assistant Commissioner, ATO
Steve Howlin	Assistant Commissioner, ATO
Pauline Zdjelar	Assistant Commissioner, ATO
Cathie Gee (item 3)	ATO
Michael Nielsen (item 5)	ATO
John Gleeson (item 7 by phone)	ATO
John Madelly (items 9 and 10)	ATO
Anita Carter (item 16 by phone)	ATO
Donald Lobo	ATO
Linda Hutton	ATO (minutes)
Rob Dalla-Costa	Treasury
Bill Benham	Association of Taxation & Management Accountants
Ken Claughton	CPA Australia
Michelle De Niese	Corporate Tax Association
Donna Bagnall	Institute of Chartered Accountants in Australia
Michael Evans	Institute of Chartered Accountants in Australia
Tony Greco	National Institute of Accountants
Peter McDonald (by phone)	National Institute of Accountants
Rod Wilson	National Tax & Accountants Association
Karl Wood	Property Council of Australia
Gina Lazanas	Taxation Institute of Australia
Deepti Paton	Taxation Institute of Australia
Roger Timms	Taxpayers Australia

Apologies

Mark Tomlinson	Senior Tax Counsel, ATO
Raj Srikhanta	Acting Assistant Commissioner, ATO
Angie Ananda	Taxation Institute of Australia
Paul Stacey	Law Council of Australia
Craig Milner	Law Council of Australia
Leigh Conlon	National Institute of Accountants
Mark Morris	CPA Australia
Karl Wood	Property Council Of Australia
Garry Addison	CPA Australia

Professional bodies represented at the sub-committee

Member representative comments are attributed to the organisation which they represent.

Association of Taxation and Management Accountants	ATMA
Corporate Tax Association	CTA
CPA Australia	CPAA
Institute of Chartered Accountants in Australia	ICAA
Law Council of Australia	LCA
National Institute of Accountants	NIA
National Tax and Accountants Association	NTAA
Taxation Institute of Australia	TIA
Taxpayers Australia	TA
Property Council of Australia	PCA

Acronyms and references in these minutes

TAA	Taxation Administration Act 1953
GIC	General Interest Charge
DIS	Decision Impact Statement
NTLG	National Tax Liaison Group
NTLG GST	Goods and Services Tax Sub-committee of the NTLG

References to provisions of an unidentified Act are to the A New Tax System (Goods and Services Tax) Act 1999.

^[H2]Action items listing

Action item

2010.09.01 - Taxpayer Alerts The ATO agreed that it would provide an updated response in relation to the members proposition that if there was full disclosure of the scheme, and the ruling was expressed in broad terms - for example, no GST payable on the transaction - it might be construed as sufficiently broad to cover Division 165.

Action item	2010.09.02 - Board of Taxation Review of the legal framework for the administration of the GST The ATO would provide information on the status of the various information and ruling products pre and post the law change and the compliance moratorium more clearly and graphically, in a table format, listing the various scenarios and the different outcomes. It would consult with Michelle DeNeise CTA and Michael Evans ICAA on the paper.
Action item	2010.09.03 - Board of Taxation Review of the legal framework for the administration of the GST The ATO to consider whether it is possible to develop a section in the ATO legal database that would be a single repository for all of the GST public rulings whether a GSTR, GSTD or GSTB.
Action item	2010.09.04 - Board of Taxation Review of the legal framework for the administration of the GST The ATO to confirm whether it the issues log/register of the industry partnerships that are now defunct (for example, Education Partnership register) were covered for transitioning into public rulings. The ATO will provide a response to members
Action item	2010.09.05 - ITSA Contribution amounts The ATO will consider clarifying: How the guidelines interact with the accounting standards and income tax.
Action item	2010.09.06 - Section 105-55 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA) False and Misleading Statements in Notifications re GST Refund Claims ATO to provide a response to the following: Whether a notification making a claim for a refund which is subject to the Commissioners discretion would be considered giving rise to a shortfall and thus a false and misleading statement.
Action item	2010.09.07 - GST implications on the High Court decision in the Spriggs case The ATO to provide a further update to the GST implications on the High Court decision in the Spriggs case with particular focus on section 9-20(2)(a) and the implications of the exclusion with the parentheses in that section.

^[H3]Agenda items

Disclaimer

NTLG GST Sub-committee agendas, minutes and related papers are not binding on the ATO or any of the other bodies referred to in these papers. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.

1.1 Introductory matters

The meeting opened at 10.00am. New and substitute attendees and apologies were provided in the agenda.

Draft minutes for the meeting of 24 June 2010 were ratified by the members. Meeting then proceeded to discuss an action item from that meeting.

13.34

Taxpayer Alerts The issue raised by the TIA appears in the GST minutes, June 2010 .

Action item 2010.06.4 ATO to advise members the process/steps undertaken by a rulings officer for a ruling request that has potential Division 165 implications.

Meeting discussion

Members were informed that the current processes undertaken by a rulings officer for GST ruling requests are aligned with the Income Tax rulings regime and consistent with the approach provided for Income Tax rulings. The ATO position is that taxpayers are required to ask the Commissioner if they wish Division 165 or Part IVA is to be considered in relation to their ruling requests.

Members raised concerns about Taxpayer Alert 2010/1 and the qualification attached therein requesting taxpayers who have received private rulings in relation to these arrangements to ask the Commissioner to rule on the application of Division 165 to those arrangements. Members contended that this had caused uncertainty for taxpayers who are in receipt of a private ruling in relation to these type of arrangement which they contended were driven by commercial considerations and were a widespread industry norm. The ATO re-iterated its position that taxpayers who have a private ruling in relation to this type of arrangement should seek a ruling on the application of Division 165 to get certainty. From a practical perspective, Division 165 was not considered as a matter of course because:

Schemes are generally fact specific and it is not normally apparent from a bland ruling request whether the circumstances involve scheming behaviour

Taxpayer alerts are issued in the context of an early warning of what may constitute a scheme and are issued when circumstances are identified as a potential scheme. Private binding rulings issued prior to the alert may not have contemplated the identified potential scheme

In our experience, scheming is an exception rather than a rule and so our finite resources do not focus on scheming as a matter of course. To do so would, we believe, divert resources from other more significant risks

Whilst a behaviour or circumstances might be widespread, that does not preclude the matter from consideration as a scheme

The ATO confirmed that if a ruling does not specifically address Division 165, it does not cover Division 165. Members suggested that might depend on how the ruling was framed. It was suggested that if there was full disclosure of the scheme, and the ruling was expressed in broad terms - for example, no GST payable on the transaction - it might be construed as sufficiently broad to cover Division 165. The ATO responded that it would consider the proposition.

Action item

2010.09.01 - Taxpayer Alerts The ATO agreed that it would provide an updated response in relation to the members proposition that if there was full disclosure of the scheme, and the ruling was expressed in broad terms - for example, no GST payable on the transaction - it might be construed as sufficiently broad to cover Division 165.

1.2 Removal of matters from current issues list

Paul asked members if they had any objections to the removal of the matters listed on page 5 of the agenda. No objection was made by members so the following matters were removed from the issues list.

Reason

No.	Issue
12.18	Differentiated Service Model for GST Issues

Update from Belvedere working group

Issue 6.10 Raised by Taxation Institute 8 May 2008

The issue raised by Taxation Institute appears in the GST minutes, June 2008 .

21 September 2010 - Meeting discussion

A meeting was held in July 2010 between the ATO and representatives from corporates and the associations to discuss the approach to input tax credit recovery and M&A.

Subsequently, a working group including representatives of the ICAA & CTA put forward a joint proposal to the ATO to replace the Belvedere example with an approach that allows recovery of some ITCs pending completion of a transaction, and then a 'true up' process to ensure that allows a safe harbour to claim ITC's and a period of time (for example, three months after the deal) for a 'true up' process to ensure ITC recovery follows the outcome of the transaction.

The ATO indicated it wants to provide practical guidance around the phases of M&A activity and how certain costs should be treated for GST purposes. The ATO has not yet provided a final response to the proposal around a safe harbour followed by a 'true-up'.

The ATO is looking at the suggested options including looking more closely at Division 129 and what role it might play. The ATO will be doing further work on Division 129 and will also go back to the sub-group with a response to their idea on the use of Division 11 and the 'true up' mechanism.

Treasury noted the Government in accepting the Board of Taxation recommendation on Division 129 was explicit of its scope (that is, fewer bands and broader limits) and the legislative changes being worked on are consistent with the government's decision. Treasury is working on different options of implementation after taking into consideration the recommendations it has received. Members provided feedback indicating that the use of the word 'apply' be considered as part of the amendments as it is relevant to this issue. Treasury re-iterated that the legislative amendments to Division 129 is separate to the Belvedere issue on which members and the ATO are working collaboratively towards an administrative solution to a complex issue to the extent that the legislation allows.

1.3 Board of Taxation Review of the legal framework for the administration of the GST

Issue 11.5 Raised by ATO on 17 June 2009

The issue raised by ATO appears in the GST minutes, June 2009 .

The purpose of this agenda item was for the ATO to provide an update to members in relation to the Board of Taxation review of the legal framework for the administration of the GST.

A) Industry association rulings

19 August 2010 - Issues raised by TIA

1. The TIA requests the ATO to explain what steps it has taken, if any, to notify industry associations that have obtained rulings from the ATO over the past 10 years, that such rulings are no longer binding on the ATO (because they are treated as public indirect tax rulings and not private indirect tax rulings) under the new rulings regime? If nothing has been done by the ATO to date, does it propose to do so? The TIA notes that the ATO undertook to attend to the transition of public rulings etc. but that in the ATO's 30 June 2010 media release the ATO states 'to minimise the impact on taxpayers, we will not undertake compliance activities…where the industry association, or members of that association, contact us about the advice by 30 June 2011'. Clarification is required from the ATO as to whether it is initiating contact with relevant industry associations regarding the approximately 1,000 affected 'other advices'.

2. The TIA notes that the ATO explained at the meeting on 24 June 2010 that 'the better position regarding these 'other advices' was that generally the ruling was not issued to a specific entity'. The TIA requests the ATO to reconsider the definition of 'private indirect tax ruling'. In particular, the TIA asks whether the definition of private indirect tax ruling which means 'an *indirect tax ruling given to a particular entity', allows greater flexibility than the ATO has been prepared to accept, particularly acknowledging, as the Commissioner does, that these advices were not published to the public. (cf. definition of 'indirect tax ruling'). In addition, the ATO is asked to comment on whether any industry association rulings have been held to be private indirect tax rulings either because on their face (or in combination with the application for the ruling request) it was clear that the ruling was being given to a particular entity or entities?

B) Consultation process on this reform - Board of Taxation review of the legal framework for the administration of the GST

24 August 2010 - Issues raised by ICAA

The submission relates to the shortcomings of the consultation process on this reform, and to seek clarification on the ATO's proposed practice and procedures to manage the risks of uncertainty and administrative issues following the withdrawal of thousands of public rulings, and pending the reinstatement.

C) Proposed topics for consideration by the rulings panel

8 September 2010 - Issues raised by TIA

Can the ATO please advise the list of proposed topics (including the relevant details of issues), for consideration as public indirect tax ruling products by the rulings panel which will be formed to consider these issues

ATO response

To view the ATO Response, please go to Appendices item 1 .

D) Section 357-60(3) of Schedule 1 to the TAA 1 - Reliance on Rulings

1. Can the ATO please explain its views as to how this subsection operates and what, in the ATO's view, is the policy and broader context of the amendments, including the interaction of the new 'Notes' being inserted to subsection 9-99 and 11-25 of the GST Act, which refer to section 357-60(3).

The TIA notes that there are statements in the EM which may not accurately describe the background and policy for this proposed provision (for example, paragraph 2.2, the table in paragraph 2.9, c.f. paragraphs 2.33, 2.38 and 2.44) particularly having regard to the submissions made by the Commissioner in Hornsby Shire Council v. Commissioner of Taxation [2008] AATA 1060 at [9], [19], [24]. The TIA notes that the AAT handed down its decision in the Hornsby Shire Council case on 26 November 2008 (the case was heard on 22 and 23 October 2008) whereas ATO ID 2008/16 in which the ATO appears to have adopted a different position was published by the ATO on 18 January 2008. There are significant differences in the ATO's views which the TIA requests the ATO to explain.

ATO response

Question 1

Subsection 357-60(3) of Schedule 1 to the TAA and the notes inserted into sections 9-99 and 11-25 of A New Tax System (Goods and Services) Act 1999 (GST Act) confirm that the GST payable on a supply may be affected by a ruling on which the supplier relies, which may in turn affect the entitlement of a recipient of the supply to input tax credits.

The ATO view is that if:

¦ there is an indirect tax ruling to the effect that a supply is GST-free or input taxed, or that an amount paid is 'out of scope' (this could be either a public ruling or a private ruling issued to the supplier), and

¦ the supplier relies on the ruling and treats the supply as non- taxable.

The recipient is not entitled to an input tax credit as, for the purposes of section 11-25 of the GST Act, no GST is payable on the supply. The supplier is protected by the ruling as it binds the Commissioner.

The ATO's view of section 11-25 is consistent with the Commissioner's existing view in respect of circumstances where a supply was originally treated as non-taxable, GST was not paid on the supply, and GST ceases to be payable because of the expiry of the four year time limit in section 105-50. The view is set out in ATO ID 2008/16.

This view supports the symmetry of the GST system and the intended policy outcome that in business to business transactions the input tax credits that a recipient claims will (subject to the normal exceptions) equal the GST payable.

With regards to the case of Hornsby Shire Council v. Commissioner of Taxation [2008] AATA 1060, the Commissioner did not seek to argue before the Tribunal that the taxpayer's input tax credit entitlement was affected by a ruling to the supplier. The peculiar circumstances of that case, not all of which were referred to in the Tribunal's decision, meant that, in the Commissioner's view, the issue did not clearly arise. As such, the Tribunal did not address the issue of how a ruling operates where it is relied on by the supplier in determining the tax treatment of the transaction as GST-free or input taxed.

2. Can the ATO please confirm that the effect of section 357-60(3) is to require a recipient to calculate its ITC entitlement with reference to a ruling relied upon by the supplier? If so, can the ATO explain how a recipient of a supply will know whether the supplier has obtained and relied on a ruling to work out the GST payable on a supply, for example, where the supplier has obtained a private ruling? Can the Commissioner disclose this information (about the private ruling issued to a supplier, including the application for private ruling) to the recipient in circumstances where, for example, the recipient is seeking to claim an input tax credit for a creditable acquisition and is asking the Commissioner to exercise his discretion to treat a document as a tax invoice?

ATO response

Question 2

It is the ATO view that the effect of subsection 357-60(3) is that the amount of GST payable on a supply is to be calculated in accordance with a ruling that the supplier has relied upon. Such reliance would ordinarily be demonstrated by the tax invoice issued by the supplier to the recipient, which the recipient will use as the basis for claiming any input tax credit entitlement.

As the supplier has relied on the ruling, they are protected under section 357-60 and the GST payable is the amount calculated in accordance with that ruling. As noted above, a recipient's entitlement to an input tax credit under section 11-25 of the GST Act (subject to the normal exceptions) will be equal to the GST payable by the supplier.

The ATO acknowledges that there will be times where a dispute over the tax treatment of a supply may arise between supplier and recipient and negotiations between a supplier and recipient do not resolve the issue.

We would ordinarily expect that if in such cases a supplier was relying on a ruling, it would communicate this to the recipient, including providing information necessary for the recipient to determine whether the ruling was applicable in the circumstances.

There may be cases, however, where the recipient is unable to obtain access to the ruling in this context, and reliance by a supplier on a private ruling is in a particular case relevant to input tax credit entitlement of the recipient. The ATO would, in the context of raising an assessment, or otherwise providing advice to the recipient concerning their entitlement, be entitled to provide such information related to the supplier's ruling as is necessary for the recipient to understand their tax position. We consider that this would extend to circumstances where the exercise of the Commissioner's discretion to treat a document as a tax invoice was being considered.

The amount of information provided to the recipient of the supply (for example, part of the ruling) would need to be decided on a case by case basis with consideration given to how much information was needed by the recipient to understand and potentially dispute their input tax credit entitlement.

Can the recipient object to the private ruling obtained by the supplier in circumstances where the supplier has relied on it? What is the position if the private ruling relied on by the supplier was given by the Commissioner in circumstances where the facts as presented by the supplier are selective, skewed or inaccurate? How does the recipient know or challenge the basis on which the ruling was provided to the supplier?

ATO response

Question 3

A recipient cannot lodge an objection to a private ruling obtained by a supplier. Under Part IVC of the TAA only the rulee is entitled to challenge the taxation decision contained in the ruling.

Subsection 359-60(1) provides that:

You may object against a *private ruling that applies to you in the manner set out in Part IVC if you are dissatisfied with it. [emphasis added]

Under subsection 359-60(2), a private ruling must identify the entity to whom it applies.

The question raises a concern about facts presented in a ruling application that are selective, skewed or inaccurate.

A private ruling only binds the Commissioner in respect of the relevant 'scheme' identified in the ruling. In TR 2006/11, the Commissioner states:

19. A private ruling binds the Commissioner if the private ruling applies to you and you rely on the private ruling. In such a case, the Commissioner must not apply the provision covered by the private ruling in a way that is inconsistent with the private ruling to your detriment. However, if the scheme is not implemented in the way set out in the private ruling, or material facts were omitted from the private ruling application, or misleadingly or inaccurately stated, the private ruling does not bind the Commissioner. [footnotes omitted]

Accordingly, if material facts on which the ruling is issued are omitted, misleading or inaccurate, the ruling will not bind the Commissioner and therefore a ruling to the effect that GST is not payable will not affect the entitlement of the recipient of the supply.

The question of how the recipient can know or challenge the basis on which a ruling was provided is set out in response to the question above.

Does the ATO take the view that where the supplier has relied on a ruling to treat a supply as non-taxable, the recipient cannot claim an input tax credit, in all circumstances? If the recipient argues successfully in legal proceedings that the supply is a taxable supply to it, what is the ATO's view as to the GST payable on the supply for the purpose of section 11-25? Would section 357-60(3) apply regardless of the outcome of the litigation? Is there a hierarchy issue when construing (a) and (b) of the 'Notes' to that subsection if each gives rise to a different outcome?

ATO response

Question 4

The ATO view is that where the GST payable on a supply is nil as a consequence of the supplier's reliance on a ruling stating that the supply is non-taxable, the recipient is not entitled to claim any input tax credit. Subsection 357-60(3) of Schedule 1 to the TAA would apply regardless of litigation that an acquisition would otherwise be a creditable acquisition in the hands of the recipient, as the entitlement to an input tax credit would continue to be nil.

Has the ATO received any opinions from Counsel in relation to the above issues and, if so, can the ATO please make those opinions available?

ATO Response

Question 5

The ATO has not received any Counsel opinions on the application of subsection 357-60(3).

Meeting discussion

The ATO indicated that there were a number of separate matters raised by members in the context of adopting the new rulings regime and that rather than responding separately it has grouped them together and provided an omnibus response.

The ATO wanted to firstly note and acknowledge the real concerns that have been raised by range of parties in relation to the consultation processes undertaken by the ATO for this change. The ATO acknowledged that the chronological history of consultation took into account all of ATO's procedural steps but not necessarily incorporated all the feedback received from external members. The ATO welcomed any feedback on how it could improve its consultation processes but wanted the main focus of discussions at the meeting today to focus on how the ATO could work with industry groups and member associations to move forward.

It was noted that members (and the Food Classification Working Party) have raised concerns about the status of documents relied on by taxpayers in the retail industry such as the detailed food list and in particular the changes in classification that were made just prior to the 30 June. The ATO stated a letter was issued to the members of the Food Classification Working Party after their meeting setting out what had been agreed to, what was still being considered and a timeline for further resolution of GS1 including an interim position. Members were also informed that there were issues in converting the GS1 Food List, a third party product, into a public ruling. The ATO is considering various options/solutions including the issuing of product and/or class rulings and practice statements that would provide the certainty to members. It was noted some of the changes made to the detailed food list were done with the intention of making the list more accurate and not to change the ATO view. The inadvertent error that took place is being rectified, however, now requires a formal process as the Detailed Food List has received public ruling status.

Another concern raised by members was the wording of the 2nd media release issued by the ATO inferring that industry associations were required to contact the ATO about the advice relied on by 30 June 2011 to ensure no compliance activities would be undertaken by the ATO on matters that were covered by those advices. The ATO clarified that the industry associations are encouraged to contact the ATO in respect to rulings their members rely on in particular where they consider the advice is precedential in nature or the source of the ATO view and not covered by an existing ATO product so that the advice could be converted to a public ruling. It was re-iterated that there is no link between the assurance that were would be no compliance activities by the ATO and the encouragement to contact the ATO as mentioned in the 2nd media release.

There was discussion in relation to the reliance on rulings and the level of protection afforded in circumstances such as a long term lease. The ATO re-assured members of the protection that will be afforded to those who relied on a ruling in good faith in the period covered by the press release about no compliance action. The ATO continues to encourage taxpayers to come forward with the advices they have received so that the ATO can work with them and provide them with the level of certainty they require.

The members indicated that there was a level of confusion around the extent of certainty provided by different products pre and post the law change and the nature of the compliance moratorium and suggested the ATO prepare a paper that provides a clear and concise summary of their current position

The ATO stated that if would try to provide the information more clearly and graphically, in a table format, listing the various scenarios and the different outcomes. The ATO indicated it would welcome input from members and asked for nominations to whom they could provide the draft for consideration and feedback. Michelle De Niese of CTA and Michael Evans of ICAA volunteered to assist in reviewing the document prior to broader circulation to members.

The CPA requested the ATO to consider establishing a section in the ATO legal database for GST or Indirect taxes which could be a single repository for all of the public rulings that can be relied upon whether it is a GSTR, GSTD, GSTB etc The ATO stated would have a conversation with the administrators of the database about this idea.

Members referred to two documents:

a) Precedential products not labelled as public ruling, and

b) Products labelled as public rulings issued by the ATO in July which looked at industry partnerships that are current and requested the ATO confirm if it also covered the issues register of the industry partnerships that are now defunct. The ATO agreed to provide a response to members on this issue.

There was discussion in relation to an example of a request for a ruling that had been made by an industry association on behalf of its members some years ago. In the advice given it stated it was a private ruling. The ATO has advised that it was not a private ruling to members of the association as it was not advice given to a particular member. The ATO indicated that it was possible that in certain situations a ruling provided to an industry association may be a private binding ruling for some members of the association, but that in most cases the better view is that it is a public ruling, because a member was not a 'particular entity' to whom the advice was provided. The ATO has also invited association members to put forward advice previously provided to them which are not covered by existing precedential advice products so they can be converted to binding public rulings such as GSTR, GSTD, product ruling or private ruling as appropriate.

Members noted that revised subsection 357-60(3) does not match with Recommendation 18 of the Board of Taxation review that two consenting parties, the supplier and recipient should be able to rely on each others rulings. The TIA explained that the ATO's response was to the effect that if a supplier procures a ruling in respect to the tax treatment of a supply, the recipient is bound by that if the supplier acts in accordance to the ruling. The TIA contended that this does not provide the recipient the rights of objection and therefore from the recipient's perspective puts the GST treatment of the transaction beyond contestability and judicial review. The ATO stated the response provided was a clarification of the Commissioner's view of the law as enacted, this was not an appropriate forum to debate the government policy and any concerns about the policy should be raised with Treasury.

Treasury informed members the government decided not to proceed with recommendation 18 of the Board of Taxation review.

Action item	2010.09.02 - Board of Taxation Review of the legal framework for the administration of the GST The ATO would provide information on the status of the various information and ruling products pre and post the law change and the compliance moratorium more clearly and graphically, in a table format, listing the various scenarios and the different outcomes. It would consult with Michelle De Neise CTA and Michael Evans ICAA on the paper.
Action item	2010.09.03 - Board of Taxation Review of the legal framework for the administration of the GST The ATO to consider whether it is possible to develop a section in the ATO legal database that would be a single repository for all of the GST public rulings whether a GSTR, GSTD or GSTB.
Action item	2010.09.04 - Board of Taxation Review of the legal framework for the administration of the GST The ATO to confirm whether the issues log/register of the industry partnerships that are now defunct (for example, Education Partnership Register) were covered for transitioning into public rulings. The ATO will provide a response to members.

1.4 GST litigation report - further information?

Issue 15.5 Raised by TIA on 19 August 2010

This is a new submission received from the TIA which is attached to the agenda papers together with the ATO response.

19 August 2010 - Issues raised by TIA

The TIA asks the ATO to explain whether it can provide further information in relation to the litigation report tabled at the NTLG GST Sub-committee meetings. The TIA is mindful of limitations imposed by the secrecy provisions, in respect of taxpayer's specific information, which the TIA also seeks to understand.

Specifically, the TIA asks whether, in circumstances where the information is in the public domain, for example, because it can be accessed from Federal Court searches (for example, eCourt) or can be witnessed in open Court, whether:

¦ It is acceptable for the taxpayer to be referred to in the report, and or in discussions at the sub-committee meeting, noting that the report currently lists the jurisdiction, place and issue in very general terms?

¦ It is acceptable for the discontinuance/ withdrawal or dismissal of proceedings to be confirmed in the report, and or in discussions at the sub-committee meeting?

¦ It is acceptable for questions to be asked about the reasons for a discontinuance or dismissal of the proceedings and, if a settlement has occurred, whether that is favourable, partly favourable etc to the ATO and or the basis of settlement?

¦ It is acceptable for copies of the submissions of the parties (filed in Federal Court proceedings) to be made available by the ATO upon request?

In case it is not clear from the questions above, the TIA is seeking to understand what are proper enquiries without causing any ATO officer conflicts as to their secrecy obligations or any other confidentiality undertakings in settlement agreements. The TIA is also noticing that a number of indirect tax cases commence and then disappear, even at the appeal stage (for example, Meridien Marinas) which the TIA seeks to understand on a properly informed basis.

ATO response

The ATO appreciates the TIA's questions, which are timely given a number of litigation related questions recently raised for consideration by the sub-committee.

The first of the specific questions asked by the TIA is whether:

3. It is acceptable for the taxpayer to be referred to in the report, and or in discussions at the sub-committee meeting, noting that the report currently lists the jurisdiction, place and issue in very general terms?

It is acceptable for the ATO to provide information that is general in nature about the existence of litigation on a particular issue provided that it does not reveal the identity of the taxpayer, or allow the identity of the taxpayer to be ascertained. Accordingly, the ATO is careful to ensure that the summary of the cases in the litigation report is at a high-level, and does not reveal the name or other identifying information about the taxpayer.

If the identity of the taxpayer is revealed by a judgment of the court or Tribunal, it is appropriate for the ATO to make reference to the public record in identifying the taxpayer. This includes informing members that an appeal being lodged, where this can be established from the public record (that is, through Federal Law Search on eCourt).

After carefully considering the TIA's questions, we have decided to make some changes to the litigation report for this meeting. This includes removing references to the state in which a matter is located and the scheduled date of hearing for first instance Federal Court matters.

We also have come to the view that it would be preferable not to include in the report the fact that a matter has been appealed from the AAT, where the taxpayer's name was not disclosed in the decision of the AAT.

We would welcome further discussion of the appropriate balance to strike with the litigation report

4. It is acceptable for the discontinuance/ withdrawal or dismissal of proceedings to be confirmed in the report, and or in discussions at the Sub-committee meeting?

The ATO is not convinced at this stage that there is sufficient relevance of this information to warrant the inclusion in the litigation report of a section on specific cases that have been discontinued or withdrawn. We note that more general statistics about the resolution of proceedings are provided in the report.

The ATO is also concerned as to whether in some cases revealing this information (even without naming the taxpayer) might give rise to the risk the relevant taxpayer could be identified. The ATO would welcome discussion of this issue in more depth with the sub-committee to get the appropriate balance with respect to information provided about withdrawn and discontinued cases.

However, consideration can be given on a case by case basis to providing limited information where it is relevant to an issue being considered by the sub-committee:

If a matter on appeal (where the taxpayer's identity has been revealed by the first instance decision) has been discontinued or withdrawn, and this is confirmed by eCourt, the ATO could make reference to that fact.

Where the ATO's litigation report has revealed general information about a case (that is, not the taxpayer identity), and the case is no longer continuing, the ATO could make reference to that fact provided that the ATO considers in the particular circumstances that the identity of the taxpayer would neither be known to members, nor revealed by confirming that the matter had been discontinued or withdrawn.

5. It is acceptable for questions to be asked about the reasons for a discontinuance or dismissal of the proceedings and, if a settlement has occurred, whether that is favourable, partly favourable etc to the ATO and or the basis of settlement?

The ATO could not generally answer these questions in any depth because they are taxpayer specific. Where there is a settlement, disclosure of this information may also be prohibited by the terms of settlement.

6. It is acceptable for copies of the submissions of the parties (filed in Federal Court proceedings) to be made available by the ATO upon request?

No. The submissions of Counsel for the Commissioner and Counsel for the taxpayer, relate to the specific details of the case and generally go beyond what is referred to directly in a judgment. They should not be made available by the ATO.

Meeting discussion

The TIA made a submission asking whether the ATO could provide further information in the Litigation report attached to the agenda papers.

The ATO indicated that it is mindful of its obligations under the secrecy provisions and takes the approach of providing members with information regarding the current litigation without revealing the identity of the taxpayer. It has therefore reviewed the information it is currently providing and from this meeting onwards certain information such as the State in which the matter is being heard will be removed from the report as it is considered not relevant for the purposes of the report and in some cases could disclose the identity of the taxpayer.

Members stated the Commissioner is not precluded from disclosing information in the course of administering the law, to which the ATO responded stating that only information that is relevant to the sub-committee should be disclosed

TIA noted that there was a Bill tabled in parliament, prior to the election, that relates to the secrecy provisions, and that an item in the Bill is a public information disclosure exception.

Members accepted that currently there is a strict prohibition and were not concerned by the changes made by the ATO. Members stated however if the Bill goes through parliament the ATO should revisit the provision of information in the litigation report to include information available in publicly accessible court records.

1.5 Contribution amounts under indirect tax sharing agreements

Issue 11.17 Raised by ICAA on 24 August 2010

This is a new submission received from the ICAA which is attached to the agenda papers together with the ATO response.

24 August 2010 - Issues raised by ICAA

Questions

1. Will an indirect tax sharing agreement (ITSA) that calculates a member's 'contribution amount', consistent with the manner in which GST liabilities are to be accounted under UIG 1031, be a 'reasonable allocation of the total amount of the indirect tax law liabilities' as required under section 444-90 of Schedule 1 of the TAA?

2. In the event that the calculation performed in accordance with the above is a nil amount for a period, is a nil amount a 'reasonable allocation of the total amount of the indirect tax law liabilities' as required under section 444-90 of Schedule 1 of the TAA?

Background

The TAA provides that members of a GST group or participants in a joint venture are jointly and severally liable 'to pay an amount that is payable under an *indirect tax law by the *representative member of the group' or joint venture operator 2 .

Amendments made by the Tax Laws Amendment (2010 GST Administration Measures No. 2) Act 2010 allow members of GST groups and participants in joint ventures to enter into ITSAs with the representative member and operator as follows:

¦ the ITSA must be entered into before the GST return is due to be lodged for a tax period

¦ under the ITSA the member or participant is liable to pay an amount to the representative member or joint venture operator in relation to that tax period

¦ the liability of the member or participant under the ITSA, must 'represent a reasonable allocation of their shares of the representative member's [or joint venture operator's] total amount payable under each *indirect tax law for which the member would become jointly and severally liable in relation to that tax period'.

The consequences for an exiting member or participant depend on whether the exit occurs during or after the GST return is required for the tax period in question:

if,

¦ the exit occurs before the GST return is due, and

¦ the entity that is leaving the group or joint venture pays its agreed contribution to the representative member or joint venture operator

¦ the entity is not liable for underpaid indirect tax amount of the representative member or joint venture operator relating to that tax period

¦ in any other case, the entity's liability in relation to that tax period does not exceed its agreed contribution.

Under UIG 1031, an entity will account for GST as follows:

6. Revenues, expenses and assets shall be recognised net of the amount of goods and services tax (GST), except where paragraphs 7 and 8 apply.

7. The amount of GST incurred by a purchaser that is not recoverable from the taxation authority shall be recognised as part of the cost of acquisition of an asset or as part of an item of expense.

8. Receivables and payables shall be stated with the amount of GST included.

9. The net amount of GST recoverable from, or payable to, the taxation authority shall be included as part of receivables or payables in the statement of financial position.

Where the entity is part of a GST Group, the representative member is entitled to ITCs of its members and is liable for the GST on supplies made by its members (Division 48 of the GST Act.

To give effect to paragraph 9 above, the representative member's accounts must reflect each member's net contribution to the GST group 'net amount' (This is required because it is a liability of the representative member.)

Equally, the individual member's accounts will disclose receivables and payables gross of GST in accordance with paragraph 9. Revenues, expenses and assets of the members will be recorded net of GST (paragraph 6).

As a consequence, it will generally be the case that members of a GST group will agree to pay to or receive from the representative member, their individual net amount of GST payable or recoverable for each tax period. In this way, their individual 'net amount' is cleared and replaced with a payable or receivable from the representative entity.

A member with a net amount refundable will be entitled to that refund from the representative member for that tax period.

This approach ensures that the representative member is indemnified for the GST liabilities of the supplies that its members make and repays to its members the entitlement to input tax credits that arise from the members' purchases. Importantly, the GST component of receivable and payables is reflected in the member's accounts and not the representative member's.

This general agreement (which may not be recorded in writing) is the generally accepted accounting basis for the net GST liability of a GST group.

If a different basis of contribution was required it is difficult to contemplate how it would relate to this logical and consistent method of accounting. Equally, how would it be accounted for under the accounting rules and income tax?

Industry view/suggested treatment

A contribution amount that reflects a member's actual contribution to the net GST liability (that is, from transactions external to the group) for a tax period represents a reasonable allocation of their share of the representative member's [or joint venture operator's] total amount payable under each *indirect tax law for which the member would become jointly and severally liable in relation to that tax period.

Where this amount is 'nil' or a refund for a period, the nil amount or the refund represents a reasonable allocation of their shares of the representative member's [or joint venture operator's] total amount payable under each *indirect tax law for which the member would become jointly and severally liable in relation to that tax period.

Impact on clients

A contribution in addition to or in conflict with the approach adopted in accordance with UIG 1031 represents an unreasonable burden, uncertainty and complexity.

Has previous advice been sought from the ATO?

Draft guidelines were issued to NTLG GST Sub-committee members for comment on 30 June 2010.

ATO response

The ATO issued draft guidelines (Chapter 34 : Collection of GST and Other Debts Arising from Indirect Tax Laws - Special Rules) on 30 June 2010 to explain the ATO policy concerning the collection of indirect tax law liabilities in instances in which the members of a GST group have an ITSA in place for the relevant period/s to which the liability relates.

In respect of what constitutes a 'reasonable allocation' of indirect tax law liabilities, the ATO has illustrated a number of methods of allocation that the Commissioner would generally consider to be reasonable. Amongst others, the draft guidelines explain at paragraph 144 that allocations based on each contributing member's actual or expected contribution to the total liability would generally be reasonable. The draft guidelines also explain that it is possible for a contributing member to have a 'nil' contribution amount under this or other allocations as long as this is reasonable.

In order to fully answer the question, it may be necessary to clarify how the ICAA considers a reasonable allocation of liabilities be performed in a manner consistent with UIG 1031. However, in the context, we assume that this means that each member of a GST group in respect of each tax period accounts to the representative member for its net amount of GST recoverable or payable. Calculation of a member's contribution amount on this basis is consistent with an allocation based on each contributing member's actual or expected contribution to the total liability as outlined in the draft guidelines at paragraph 144. Accordingly, this method of allocation would generally be regarded as being reasonable. However, we qualify this statement with the following points:

Much would depend on the particular facts and circumstances of each case. While this method would provide for reasonable allocation in many cases, a 'reasonable' allocation in one scenario may not be similarly regarded in another.

For example, consider the situation where each member of a GST group is part of a supply chain that involves the manufacture of a product at one end of the chain and the retail sale of the product at the other end. Intra-group supplies are not treated as taxable supplies under the GST law. If the application of this method meant that only one member of the GST group (the retailer member which makes supplies to entities outside of the GST group) has a GST liability, the 'reasonableness' of the allocation would need to be considered in the light of the particular circumstances of that case. Further, any arrangement involving a purpose to prejudice recovery by the Commissioner would negate an indirect tax sharing agreement.

Notwithstanding the application of, or an agreement of a GST group to adopt, this method, an ITSA must nonetheless be entered into and given to the Commissioner upon request in the approved form - it is not sufficient that the GST group can rely on the application of, or an agreement to apply, this method as constituting an ITSA. The information requirements for an ITSA are further explained in the draft guidelines at paragraphs 112 to 125.

The draft guidelines are in the process of being finalised taking into account comments received from the members of the sub-committee.

1.6 Section 105-65 of Schedule 1 to the TAA - Jurisdiction issue

Issue 11.17 Raised by ICAA on 24 August 2010

This is a new submission received from the ICAA which is attached to the agenda papers together with the ATO response.

19 August 2010 - Issues raised by TIA

A draft ruling has been released relating to section 105-65, MT 2009/D1, and the final ruling is expected to be released shortly. Consideration is being given to complementing the ruling with a practice statement.

The queries raised in this submission from the TIA, though not raised in comments on the draft ruling, have been referred to the authoring team for their consideration.

For this reason we are not providing a detailed response separately for each of the sub-questions.

However, we have prepared a general response on each of the five categories of questions.

Calculation of net amount, Commissioner's satisfaction and exercise of discretion

1. Does the ATO consider that in circumstances where a taxpayer has overpaid an amount of GST because, for example, the taxpayer has treated a supply as a taxable supply when in fact it was GST-free, that the Commissioner must be asked as to whether he is satisfied or not as to the reimbursement aspect in section 105-65(1)(i) before the calculation of the net amount? Also, must the taxpayer ask the Commissioner about how he would exercise his discretion in these circumstances, assuming that the amount is not reimbursed to the recipient? The TIA notes that in MT 2009/D1 paragraph [36] the Commissioner can recover a refund 'where the ATO's automated system processes that refund without regard to section 105-65' (although unclear as to what 'has regard to' means in the circumstances, including whether that is by the Commissioner or the taxpayer).

2. Alternatively, can the taxpayer proceed on the basis that they may self assess and, therefore, calculate their net amount and determine that the Commissioner should be satisfied, having regard to their view of the facts? In addition, if the taxpayer, having regard to their facts is undecided as to whether the Commissioner should be satisfied or not, may the taxpayer determine that on their facts the Commissioner should exercise the residual discretion to pay the refund (or not refuse the payment of the refund) ?

If there is any doubt, the intent of the above questions is to ask the ATO to explain how taxpayers should approach the application of section 105-65 in the calculation of the net amount. In particular, should the taxpayer be putting her/himself in the shoes of the Commissioner in potentially two different scenarios, the 'satisfaction' aspect and the 'discretion' aspect for the purposes of calculating the net amount?

3. Is the ATO's preferred approach that all GST refunds (contemplated by the terms of section 105-65) should be specifically brought to the Commissioner's attention? If so, what is the appropriate course for example, request for private indirect tax ruling or to whom are the requests addressed? What guidance will be provided, if any, by the ATO as to these issues (besides the final version of MT 2009/D1)? The TIA notes that some taxpayers may mistakenly proceed on the basis that they can self assess their net amount (without necessarily turning their minds to the application of section 105-65 (it is in another Act that ostensibly deals with collection and recovery of tax liabilities), or correct such errors in their next BAS or request a revision of the relevant BAS.

ATO response

Under the self-assessment or self actuating regime a taxpayer and their professional adviser lodge a return that is supposed to accurately reflect their income tax or GST liability or the GST refund.

Under the GST self actuating system the Commissioner generally has four years in which to review the return as lodged and make amendments or revisions. Where the amendment results in an increase in the taxpayer's liability both administrative penalties and GIC may be applied to the additional debt

The Commissioner has sought to assist taxpayers to comply with the law by issuing public rulings and other forms of advice. Where a taxpayer is uncertain how a particular law applies to their particular circumstance they can seek advice from the Commissioner on how the law applies to their particular circumstances.

The August 2004 paper by Treasury entitled 'Report on Aspects of Income Tax Self Assessment' at Chapter 6.4 noted the concerns around discretions in a self assessment environment and made certain recommendations.

It should be noted that only the Commissioner or an authorised delegate is able to exercise a discretionary power given to the Commissioner.

If a taxpayer makes the claim and the Commissioner subsequently ascertains that they were not entitled to the claim because of the restriction contained in section 105-65 then the Commissioner would seek to recover the debt and to impose the relevant penalties and general interest charge (GIC) as appropriate to the taxpayer's particular circumstances.

Given that the refund of overpaid GST requires the Commissioner to be satisfied that an amount has been reimbursed to a recipient who is not registered, or for the Commissioner to exercise a discretion it may be appropriate to seek his view before seeking to make a claim for a refund of overpaid GST.

This issue of whether the a taxpayer must ask the Commissioner to exercise his discretion was not raised during the consultation period for draft Miscellaneous Tax Ruling MT 2009/D1 and involves an analysis of how provisions concerning the satisfaction of the Commissioner, and involving a discretion, should be approached in a self-actuating system.

This issue will receive further consideration either in the ruling process or as part of any further practice statement that may issue on the topic of section 105-65.

In the meantime given a refund of overpaid GST occurs because you overpaid GST in an earlier tax period and therefore generally requires an amendment or revision request the Commissioner would encourage Taxpayer's as part of the process of seeking that amendment or revision that they ask the Commissioner's view on the operation of section 105-65 prior to actually making the claim.

Interaction with common law remedies for mistaken overpayments including restitution

1. What are the ATO's views on the common law remedies, including restitution, for the recovery of GST paid by mistake to the Commissioner? In addition, what are the ATO's views as to the application of section 8AAZLF(1) of the TAA in relation to amounts payable by the Commissioner to a taxpayer?

2. What is the ATO's view of the interaction between s.105-65 and the common law remedies and, in addition, section 8AAZLF? The TIA notes that the Commissioner is silent in MT 2009/ D1 as to the common law, although it is unclear whether this is included in the reference to the 'general rules'; see paragraphs [11], [12], [97] and [98] and Appendix 1 of MT 2009/D1.

3. If the ATO takes the view that section 105-65 is a statutory code for the payment of refunds, then the ATO is asked to explain its position, having regard to the similarities and differences with the former sales tax legislation and including cases such as Chippendale Printing Pty Ltd v. Federal Commissioner of Taxation 1996 ATC 4175, as well as the different current statutory regime for the payment of refunds for overpaid wine tax. To the extent relevant to this issue, the ATO should also explain its views of KAP Motors Pty Ltd v. Federal Commissioner of Taxation [2008] FCA 159 and the history of the amendments to section 105-65.

4. Can the ATO please also advise whether it has sought advice on the above issues (common law remedies, section 8AAZLF and section 105-65) and, if so, whether a copy of any written opinion can be provided to the members of the NTLG GST Sub-committee?

ATO response

Section 8AAZLF says the Commissioner must pay a refund of the running balance of account (RBA) surplus or a credit. Section 8AAZLF's operation is subject to the operation of section 105-65.

Section 105-65 restricts the payment of a refund of overpaid GST and the provision must accordingly be taken into account in determining if indeed a surplus exists.

It is the ATO preliminary view that where section 105-65 applies to restrict the payment of a refund the common law remedies including restitution are precluded from applying.

This issue was not raised during the consultation period for the draft ruling MT 2009/D1 but as it relates to the MT it will be considered as part of the finalisation process of MT 2009/D1.

Suffice to say the reasoning in Chippendale v. Commissioner of Taxation (1996) 62 FCR 347 provides a basis for the preliminary ATO view outlined above.

The ATO has received advice from Counsel in respect of common law remedies.

The ATO has not at this stage sought Counsel's views on the provision of their advice to the sub-committee. The ATO will give further consideration as to whether this advice can be provided.

Application to Commonwealth, states and territories

1. Can the ATO please confirm that, in its view, section 105-65 does not apply to payments (not necessarily being GST, as defined) that are made by government departments to the ATO in relation to supplies that are treated as taxable supplies? If so, what are the reasons for the ATO's position?

2. What are the ATO's views of the implications, if any, for the recipients of such taxable supplies?

ATO response

To the extent that government departments are liable for GST, rather than notional GST payable under directions of the Finance Minister, or under the intergovernmental agreement and supporting legislation, we do not think there is any doubt that section 105-65 applies where GST has been overpaid and the conditions of the section are otherwise met.

To the extent that a payment of notional equivalent GST by a State is said to be overpaid, there is a question of what the legal basis is for a refund of an overpaid amount. Accordingly, there is indirectly a question of whether and how section 105-65 applies in these circumstances. However, the ATO considers that section 105-65 is intended to apply equally in a governmental and non-governmental context.

The question about recipients of such supplies may need to be clarified. It is not clear to us that there are any implications.

Luxottica Decision Impact Statement

The TIA notes that amongst the explanations for the ATO's acceptance of the Tribunal's decision in relation to the exercise of the discretion to pay the refund in relation to the earlier period, the ATO states as follows: 'the exercise of the discretion based on the facts as found by the Tribunal is consistent with examples of arithmetic errors made in the preparation of the BAS contained in MT 2009/D1'. The TIA queries why, in these circumstances, the ATO disputed the refund for the earlier period in the proceedings as it appears that the Commissioner was arguing a position contrary to his views in a draft ruling? Relevantly, as to the timing, the TIA notes that the hearing of the case was 15-17 December 2009, the ATO issued MT 2009/D1 on 16 December 2009 and the Tribunal handed down its reasons on 15 January 2010.

If the ATO is of the view that if 'the particular facts of this case as found by the Tribunal' justify why the ATO disputed the refund for the earlier period in the proceedings, the ATO is asked to point out what those facts as found by the Tribunal were, as no disagreement as to any of the facts (other that in relation to the issue of penalties) is apparent on the Tribunal's judgment. Based on a reading of the judgment, it appears that the Tribunal in fact agreed with the facts as presented by the Commissioner.

ATO response

We are limited for secrecy reasons in the extent to which we can respond to these questions.

When the case was being heard, the ATO considered on its view of the facts that it was appropriate in accordance with its view of section 105-65 to argue that a refund should not be paid. When reflecting on the case, once the Tribunal decision had been handed down, and taking into account the way the Tribunal presented its factual and legal analysis, the ATO considered that a reasonable implication may be drawn that the 'overpayment' (if it be an overpayment) could be regarded as akin to an arithmetic error.

The Tribunal found as fact that it was held out to the customer that the frame was being sold to them at a discount price and the lenses were sold without any discount. The Tribunal also found the subsequent accounting entry apportioning the discount to both the frames and the lenses did not accord with what was held out to the customer.

In these circumstances, we did not think an appeal by the Commissioner on this aspect of the case was warranted.

Application to gambling supplies

Can the ATO explain precisely how it considers that section 105-65 applies to gambling supplies covered by Division 126 of the GST Act (refer discussion at NTLG GST Sub-committee meeting on 24 June 2010 ). The TIA considers that the special rules in that Division enable entities to adopt a margin basis in determining their GST liability for any gambling supplies made in a tax period such that GST is imposed on the profits from gambling that is, GST is calculated on the 'global GST amount', rather than on each gambling supply; see also TAB Ltd v. Federal Commissioner of Taxation [2005] NSWSC 552.

ATO response

The ATO's preliminary view is that section 105-65 applies to GST overpaid on gambling supplies. The phrase 'to any extent' are words of wide import that would cover GST overpaid as a result of a miscalculation under a margin formula.

This matter was not raised as part of the consultation process for MT 2009/D1. Section 105-65 is currently part of a ruling process and this matter will be fully considered in that process or if not dealt with directly in that process then a further response will be provided as part of the NTLG GST Sub-committee forum.

Number and nature of GST refund claims etc

8 September 2010 - Issues raised by TIA

The TIA asks the ATO to advise how many claims, approximately, were lodged for GST refunds pursuant to section 105-65 with the ATO in the following periods:

¦ 1 July 2007 - 30 June 2008

¦ 1 July 2008 - 30 June 2009 and

¦ 1 July 2009 - 30 June 2010.

The ATO is asked to explain the manner in which it has counted the claims for example, per taxpayer or per issue.

Has the ATO collated information as to the value of such GST refund claims? If so, approximately, what was the value of such claims for the respective periods?

The TIA asks the ATO to advise how many claims for GST refunds were allowed (either in full or part) by the ATO for the respective periods referred to above.

The TIA asks the ATO to advise how many claims for GST refunds referable to those periods remain unresolved and or in dispute. The ATO is invited to provide explanations as to when it regards claims for GST refunds unresolved and or in dispute. The ATO is asked to explain what is the predominant reason for such claims not being resolved.

The TIA asks the ATO to advise as to what sector or industry is predominantly represented by such GST refund claims that remain unresolved and or in dispute for example, retail, property.

The TIA asks the ATO to explain the predominant nature of such GST refund claims for example, section 13 GST Transition Act.

ATO response

As this was a late submission the response will be provided at the meeting

Meeting discussion

Members indicated that they were largely satisfied with the ATO responses to their submission.

Members were informed the section 105-65 draft ruling has not yet been signed off however one outcome from the discussions at the rulings panel was foreshadowing the development of a practice statement in addition to the draft ruling.

There was further discussion in the context of section 105-65 and its application to GST overpaid on gambling supplies. The ATO stated that it considered that the issue of whether section 105-65 applies to gambling supplies seems very similar to whether it applies to cases where too much GST has been paid under the margin scheme. Members disagreed.

Members posed the following questions:

A) If tax is paid on a non resident bet and all bets received are included in calculating the global GST amount and if the non resident bet is GST free which should not have been included in the calculation of a global GST amount, what needs to be refunded to comply with section 105-65 as the non resident bet maybe a winning bet therefore what was paid out is greater than what was received.

B) In the global accounting for gambling supplies the margin provides the value on which tax is paid. In the situation when bookmakers lose money on bets taken and in calculating the GST amount using the global amount there is a negative GST amount, how does one refund GST to comply with section 105-65.

The ATO stated that section 105-65 gives a discretion and in specific circumstances the Commissioner may choose to exercise that discretion. In expanding on it's response the ATO stated section 105-65 establishes the basic position that in the circumstances set out a section a refund need not be paid however the ATO view is that the Commissioner retains the residual discretion to pay it.

There was some discussion in relation to a member's query about whether section 105-65 applied to government payments. There was a discussion of the legal basis for the Commonwealth, state and territory governments to pay GST. The ICAA noted (in reference to item 15) that there is also a question of whether section 105-65 can apply to government entities because a government entity is not an entity as defined for the purposes of the TIA.

The Tribunal decision and the DIS for the Luxottica case as it related to section 105-65 were discussed. The ATO view is that the decision was specific to the facts and circumstances presented to the Tribunal. The ATO considered that the decision of the Tribunal should not be appealed because a decision that the discretion should be exercised in the taxpayer's favour, appeared to be a reasonable one in the circumstances, even though the ATO did not agree with all aspects of the Tribunal's reasons.

The ATO response to the submission of number and nature of GST refund claims was provided to members. An explanation of the figures provided in the response handed out (and distributed to members electronically on 29 September 2010) was provided to members. The response provides details of those claims where section 105-65 is at play however it was also stated that the ATO had received a large number of refund claims following the KAP motors decision and these are not included as in these cases section 105-65 is not at issue.

The ATO confirmed that there were at least two cases in the AAT that raised s 105-65 issues.

1.7 GIC on administrative overpayments, Deputy Commissioner of Taxation v. Price [2010] QSC 196 and new section 35-5(2) of GST Act

Issue 13.37 Raised by TIA 19 on August 2010

This is a new submission received from the TIA which is attached to the agenda papers together with the ATO response.

19 August 2010 - Issues raised by TIA

1. The TIA notes that in the Price case (judgment delivered on 9 June 2010) 'a question raised… on behalf of the plaintiff is whether GIC can be claimed in respect of an administrative overpayment unless a notice has been given to the person whom the overpayment was made, and the date for payment has been specified in the notice has passed' [1]. The TIA asks the ATO to explain, in broad terms, the nature of the submissions by the Commissioner 'on that question' [10], particularly as at [33], Lyons J finds that 'Mr Looney's (counsel for Commissioner) submission is….correct'.

ATO response

The Commissioner's submissions on this point were summarized by his Honour Justice Lyon (at paragraph 33) as follows:

'Mr Looney's submission is that in respect of an RBA deficit debt, the GIC is payable, notwithstanding that that debt is the consequence of an administrative overpayment, in respect of which the Commissioner has not given a notice specifying a due date for payment under section 8AAZN.'

The Commissioner's view of how the law applies is as follows:

¦ An 'administrative overpayment' is an amount that the Commissioner 'has paid to a person by mistake, being an amount to which the person is not entitled' - subsection 8AAZN(3). By subsection 8AAZN(1), such an amount 'is a debt due to the Commonwealth' which 'is payable to the Commissioner' and which 'may be recovered in a court of competent jurisdiction'. Hence an administrative overpayment debt is a 'primary tax debt' within the definition set out in section 8AAZA.

¦ That an administrative overpayment becomes due and payable and is therefore able to be allocated to an RBA occurs independently of the operation of subsection 8AAZN(2). Whether or not the Commissioner issues a relevant notice under subsection 8AAZN(2) in respect of a particular administrative overpayment has no effect on the entitlement of the Commissioner to recover the administrative overpayment itself. The consequence of issuing the relevant notice is to establish a date from which the general interest charge accrues pursuant to 8AAZN(2) only.

¦ By section 8AAZD of the TAA, the Commissioner may allocate a primary tax debt to a relevant RBA. If the allocation of the primary tax debt cause an RBA deficit debt to arise GIC may be imposed on that debt

¦ By its express terms, section 8AAZF operates to impose the general interest charge on the amount of an RBA deficit debt at the end of each day, without qualification. Moreover, under subsection 8AAZF(2) where the general interest charge is payable (by reason of subsection (1)) the balance of the RBA is altered accordingly. Thus the general interest charge is imposed on, and itself becomes a component of, the RBA deficit debt.

¦ On the proper construction of section 8AAZF, the general interest charge is imposed each day on the whole of an RBA deficit debt notwithstanding that some or all of the balance of the RBA deficit debt reflects an administrative overpayment in respect of which no notice pursuant to subsection 8AAZN(2) has been given.

¦ It is section 8AAZF, not subsection 8AAZN(2), that imposes the general interest charge on a RBA deficit debt and it is by reason of that section that the general interest charge is incorporated into and becomes a part of the RBA. As appears from its terms, section 8AAZF operates of its own force and without the necessity for the giving of any notice.

¦ Subsection 8AAZN(2) is not concerned with the computation or recovery of an RBA deficit debt. Subsection (1) of section 8AAZN provides for a debt that is due and payable to the Commissioner in respect of an administrative overpayment (as defined). Subsection (2) provides for the circumstances in which the general interest charge is payable in relation to such a debt. In contrast to the operation of section 8AAZF in relation to RBA deficit debts, subsection 8AAZN(2) requires the giving of a notice. Section 8AAZF does not.

2. The TIA notes that the only stated reason for the judgment given by Lyons J is 'the fact that there is a single GIC, liability for which may flow from one of a number of statutory provisions, though a liability under more than one provision does not create more than one charge' [33]. Does the ATO agree that that was the only reason given for the judgment?

ATO response

With respect, it appears to us that his Honour also relied upon the following findings in reaching his decision:

i. Each of the payments in question was made by mistake, to a person not entitled to them; and each was an 'administrative overpayment' for the purposes of section 8AAZN of TAA 53 (para 18 of the judgment).

ii. The liability for administrative overpayments is a primary tax debt for the purposes of s 8AAZC, and may be allocated to an RBA (para 25).

iii. In respect of an RBA deficit debt, the GIC is payable, notwithstanding that that debt is the consequence of an administrative overpayment, in respect of which the Commissioner has not given a notice specifying a due date for payment under section 8AAZN (para 33).

3. Can the ATO please confirm that the District Court cases on similar issues, namely, DeAngelis, Smith and Scitech were referred to in the plaintiff's submissions, noting that the defendant did not appear nor were any submissions filed on his behalf?

ATO response

In accordance with our obligation to act as a model litigant, our submissions in the Price case explicitly drew the Court's attention to the District Court decisions in Deputy Commissioner of Taxation v. DeAngelis [2008] SADC 103 and Deputy Commissioner of Taxation v. Smith [2008] NSWDC 219 in both written and oral submissions. The matter of Deputy Commissioner of Taxation v. Citech Research Pty Ltd [2009] SADC 140 was not referred to during the hearing of the Price matter, nor in the further written submissions made on 22 October 2009, as the decision in Citech was not handed down until 15 December 2009.

4. The TIA requests the ATO to advise as to the mechanics of the establishment of a RBA and, specifically, what notifications if any are sent by the ATO to the taxpayer about their RBA, how frequently etc. What notifications if any are sent by the ATO in circumstances where the ATO has made a mistake causing an administrative overpayment? Is there any best practice for notices about a taxpayer's RBA and or administrative overpayments? Can the ATO explain why in the Price case 'there is no indication in the materials that prior to the commencement of proceedings, notice was given to the defendant calling for repayment of the administrative overpayments'? - see [4] and [27]. (The TIA accepts that if the explanation involves the discussion of taxpayer specific information, then it is an inappropriate question.) The TIA is seeking to understand whether a RBA can be established by the Commissioner with a retrospective date and asks the ATO to explain this aspect. In the Price case, for example, it was noted that 'on a date not identified in the material, the Commissioner established an RBA for the defendant' [4]. From what date did the GIC actually run? See [7], [8], [31] and [32].

ATO response

The Commissioner has broad powers under section 8AAZC of the TAA to establish a system of running balance accounts. Under section 8AAZD of the TAA, the Commissioner may allocate primary tax debts to an RBA. For business taxpayers, the Commissioner will normally establish a running balance account when a taxpayer registers for obligations which need to be notified on an Activity Statement.

There are quite a number of business rules surrounding the production of RBA statements. Generally, on accounts dealing with BAS obligations, a GIC review is undertaken once a month and where GIC is going to be imposed (and not remitted) an RBA statement will issue to the taxpayer.

Where the ATO has made a mistake causing an administrative overpayment, the ATO will generally issue a notice of administrative overpayment under section 8AAZN(2) of the TAA, advising the taxpayer of the amount of the overpayment and the date by which it should be re-paid to avoid the imposition of general interest charge (the due date for payment will be at least 30 days after the notice is given). When this occurs, a separate posting is created in the taxpayer's account showing the amount and the prospective due date. This administrative overpayment posting also triggers the issue of a statement of account.

Where, following an audit, it is proposed to raise debts relating to an administrative overpayment because the taxpayer has overclaimed credits, the ATO will follow its normal practice and send a notification (previously called the finalisation letter, now called a position paper) to the taxpayer. This letter advises the taxpayer of all adjustments made and that GIC is calculated on any outstanding balance until the account is fully paid. A notice of assessment/amended assessment is also sent out to the taxpayer. In these circumstances, a notice under section 8AAZN(2) will not issue. Rather, the administrative overpayment debt will be allocated directly to the RBA which will cause GIC to be calculated from the date of the overpayment. The posting of the GIC to the account will generally trigger an RBA statement to be issued to the taxpayer at the next monthly review.

The question of 'best practice' for notices about a taxpayer's RBA and/or administrative overpayments is dealt with in our response to question 5 below where we set out the Commissioner's administrative policy approach to the recovery of administrative overpayments.

In the ATO's view, it is clear that primary tax debts can be allocated to an RBA even where the debts fell due for payment prior to the RBA itself being established. This appears to be consistent with the broad terms of the legislation dealing with establishment of RBAs and the allocation of debts and payments to an RBA.

5. How does the ATO reconcile, for the purposes of proper tax administration, that:

(1) under section 8AAZN, if the Commissioner has given a notice, GIC is payable as from the date specified in that notice for repayment (a specific rule), whereas

(2) under section 8AAZF, regardless of whether a notice is issued, GIC is payable in respect of any RBA deficit debt balance (a general rule which suggests that GIC runs from whatever date the deficit is posted to the RBA)? Is there a disincentive for the Commissioner to issue a notice under section 8AAZN?

ATO response

The Commissioner's administrative approach to the recovery of administrative overpayments is set out in Chapter 37 of the ATO Receivables Policy.

Because the giving of notice under subsection 8AAZN(2) is not a mandatory prerequisite to the cause of action under subsection 8AAZN(1), the Commissioner is able to commence proceedings for recovery of administrative overpayments as soon as the mistake is detected, without giving a notice under subsection 8AAZN(2).

The giving of a notice, which essentially establishes a due date for payment being at least thirty days after the notice is given, is only required where the Commissioner, in his discretion, wishes to claim GIC under subsection 8AAZN(2). Notwithstanding this, it is also open to the Commissioner to claim GIC in such cases where he allocates the administrative overpayment debt to an RBA.

The following extracts from the policy chapter explain the Commissioner's general approach to deciding which course of action is appropriate in any particular case.

The Commissioner is duty-bound by law to ensure that money mistakenly paid out of consolidated revenue, without authority, is recovered in the most effective and timely manner. In doing so, the Commissioner will use the appropriate option for recovery. In dealing with the recovery of an administrative overpayment, the treatment, timing and mode of recovery to be adopted in each type of case will depend on the amount involved and the circumstances or degree of mischief which gave rise to the overpayment.

Based on the principles of the compliance model, the measure and sanction that the Commissioner must implement on a case-by-case basis will be commensurate with the level of risk to the revenue associated with the particular case and the capacity and willingness of the overpayment recipient to repay the amount. As each case will turn on its own facts, the Commissioner will apply the level of sanction that the circumstances dictate (that is, the most severe sanction in the case where the highest level of risk is identified).

As a general principle, the Commissioner would regard administrative overpayments induced by taxpayers or their representatives as falling within a higher risk category than those which occurred as a result of a mistake by the Commissioner.

Accordingly, where the administrative overpayment is attributable to the recipient's (or their agent's) action or statement, the effect of giving a notice under subsection 8AAZN(2) of the TAA would be to forego part of the GIC accruing during the period in which the entity had the benefit of the administrative overpayment funds. In particular, GIC would not be recoverable during the period between the date the administrative overpayment was made until 30 days after issue of the notice, which would usually occur well after the Commissioner finally determined that the recipient was not entitled to the payment.

It is not considered an equitable outcome that a person who was responsible for the overpayment, should have the benefit of GIC-free funds during this period. For this reason, a notice under subsection 8AAZN(2) of the TAA should not be issued in these circumstances and the administrative overpayment will be taken to have been allocated to an RBA on the issue date of the overpayment/refund.

Accordingly, GIC will accrue on the overpayment/refund from its issue date.

Conversely, where an overpayment is solely the result of the Commissioner's mistake, for example, a keying error, a notice under subsection 8AAZN(2) of the TAA should generally be given to the recipient of the administrative overpayment. In such circumstances, GIC will not accrue until at least 30 days after the notice has been given to the taxpayer. This approach is in line with the Commissioner's policy to treat taxpayers fairly where the overpayment arises from circumstances beyond their control. The exception to this rule will be where the administrative overpayment falls within a high risk category because of one or more of the following factors:

ul>

¦ the amount refunded is in excess of $50,000

¦ the recipient has a poor compliance record

¦ evidence held (for example, where the recipient is a non-resident) suggests that there is a risk that the administrative overpayment may not be repaid.

In instances where the amount of the overpayment has resulted from a processing error, the Tax Office may contact the recipient and attempt to negotiate the return of the amount overpaid. Where appropriate, favourable consideration will be given to a repayment arrangement by instalments without the issue of a notice. Where a notice has been issued, remission in part or in full of the GIC incurred may be considered.

5. Following the amendments to section 35-5 of the GST Act (pursuant to Tax Laws Amendment (2009 GST Administration Measures) Act 2010 which received Royal Assent on 26 March 2010, the main consequence of which appears to be that GIC starts accruing from the date of overpayment under section 105-80), can the ATO please explain how it sees the various provisions (section 105-80; section 8AAZF; and section 8AAZN(3)) applying with respect to the imposition of GIC?

ATO response

We presume the TIA is asking about overpaid refunds under the GST Act.

Prior to the amendments to section 35-5 of the GST Act made by Tax Laws Amendment (2009 GST Administration Measures) Act 2010, the Commissioner could seek to recover an over paid GST refund as a self-contained cause of action in a court of competent jurisdiction.

The decisions in Smith, Citech and Price have now held clarified that an administrative overpayment, being a primary tax debt, could be allocated directly to an RBA without the issue of notice under subsection 8AAZN(2) and that, where this occurs, if the RBA is in deficit, GIC is payable pursuant to subsection 8AAZF(1) of the TAA.

The amendment to section 35-5 (applicable to tax periods commencing on after 24 March 2010) now makes it clear that an overpaid GST refund, is a debt specifically due and payable under section 35-5(2) of the GST act and whilst still a primary tax debt by virtue of section 8AAZN(1) the specific provision will operate to the exclusion of the general provision.

Overpayments under section 35-5 of the GST Act are subject to the GIC from the date of overpayment with GIC applying under section 105-80 in Schedule 1 to the TAA. The debt and the associated GIC could be sued for in a court of competent jurisdiction.

Alternatively the debt due and payable under section 35-5(2) is a primary tax debt that may be allocated to an RBA and to the extent is creates an RBA deficit debt GIC will accrue under s 8AAZF from date of the overpayment. The RBA deficit debt and the associated GIC could be sued for in a Court of competent jurisdiction.

Meeting discussion

Members indicated that they were satisfied with the response provided.

The ATO provided further clarification to the last three paragraphs of the response provided in the agenda papers. Members queried whether GIC is payable under section 105-80 in a situation of an administrative overpayment. The ATO stated that after 24 March 2010 the Commissioner applies the express provisions of section 35-5 and section 105-80 and therefore GIC applies to the whole amount from the date of overpayment.

In responding to members query whether the Commissioner has a choice to post the overpayments to the RBA, the ATO explained that the law allows the Commissioner to maintain more than one system of accounting and choose to allocate the debts to the RBA. The RBA was brought in to support the BAS and the accounting for the different liabilities on one form. Taking action to recover an RBA deficit debt is the preferred methodology because all debits and intervening credits would be taken into account in the calculation of GIC so that the taxpayer is not disadvantaged.

The TIA acknowledged that the written response provided was excellent.

1.8 Section 105-55 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA)

Issue 13.36 Raised by TIA on 08 September 2010

This is a new submission received from the TIA which is attached to the agenda papers.

08 September 2010 - Issues raised by TIA

False and Misleading Statements in Notifications re GST Refund Claims?

The TIA understands that asserting an entitlement to a refund as part of a notification by a taxpayer pursuant to section 105-55 is regarded by the ATO as a 'statement' for the purposes of determining whether taxpayers have made false and misleading statements to the ATO. The TIA asks the ATO to confirm whether the false and misleading statement provisions in Division 284 of Schedule 1 to the TAA apply to statements made in notifications regarding refund claims, notwithstanding that the Commissioner can exercise his discretion to refuse the payment of the refund. If so, can the ATO please explain the application of section 284-80 (shortfall amounts) and the meaning of 'tax-related liability' in section 255-1, in the context of a notification.

ATO response

As this was a late submission the response will be provided at the meeting

Meeting discussion

The ATO indicated that if a notification that does not make a claim of entitlement to a refund at the same time, is not an occasion that will give rise in itself to a shortfall. Penalties arise under shortfall provisions and it was unlikely there would be a shortfall arising out of a mere notification that is not staking a claim.

In context to the amendments to section 284-75 that has taken effect members stated that a penalty for false and misleading statement with a lack of reasonable care may arise even when there is no shortfall. The ATO stated it does not have a developed position on the circumstances when it could apply the provisions to a notification.

The question raised thereafter was in relation to the circumstances where there may be different types of notification and a notification did stake a refund claim for GST. If the claim is subject to the Commissioners discretion and not knowing if the amount will be refunded, would such a notification be considered as giving rise to a shortfall and thus potentially subject to penalty for a shortfall arising from a false and misleading statement.

The ATO stated it would provide a response to members at a later date.

Action item

2010.09.06 - Section 105-55 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA) False and Misleading Statements in Notifications re GST Refund Claims ATO to provide a response to the following: Whether a notification making a claim for a refund which is subject to the provisions of s105.65 would be considered giving rise to a shortfall and thus a false and misleading statement.

1.9 Tax Laws Amendment (Transfer of Provisions) Act 2010 - Security Deposits for GST Liabilities?

Issue 13.38 Raised by TIA on 19 August 2010

This is a new submission received from the TIA which is attached to the agenda papers together with the ATO response.

19 August 2010 - Issues raised by TIA

Does the ATO propose to apply these new laws to GST liabilities, as ways of addressing fraudulent phoenix activity? If so, which industries are most problematic and what specific measures are being considered? In addition, what information is being provided by the ATO about these measures to taxpayers and advisers generally?

ATO response

Does the ATO propose to apply these new laws to GST liabilities, as ways of addressing fraudulent phoenix activity?

The short answer to this is yes. It will be one of many treatments that we will consider to deal with entities that have a history of involvement with phoenix activities

If so, which industries are most problematic and what specific measures are being considered?

This will happen across a range of industries including property.

In addition, what information is being provided by the ATO about these measures to taxpayers and advisers generally?

At this stage, there have been targeted presentations from Nov 2009 to industry and tax/law professional conferences.

Around June of this year there was an interview with Financial Review

The ATO Receivables Policy - chapter 29 is being updated and will be available on www.ato.gov.au

Meeting discussion

The ATO informed members that the facility is available to use in particular situations where there is risk to revenue through phoenix arrangements of those entities who have shown a history of such activity. The property industry is one where this treatment may be applicable and would be one of the many treatment plans in our strategy.

Officers from the ATO Debt business line have conducted presentations across the country in relation to 'Security Deposits for GST Liabilities' and there has been an article published in the Financial Review. The ATO receivable policy is being updated and it is envisaged that it should be circulated for comment in the next month or so.

Members queried if the ATO was being more aggressive in debt recovery and in progressing 50/50 payment arrangements even in situations where the matter in question was still in dispute.

The ATO stated there has not been a deliberate change in policy in debt recovery or 50/50 payment arrangements. It was also stated the Commissioner continues to provide some leniency to assist small businesses particularly to cope with the continuing impacts of the GFC.

The ATO will however be firm in circumstances where there is suspicion of fraud /phoenix activity or potentially a serious evasion risk.

1.10 Compliance program - Federal Budget 2010 announcement

Issue 12.19 Raised by NIA on 24 June 2010

This is a new submission received from the NIA which is attached to the agenda papers together with the ATO response.

ATO response

ATO - working together to improve voluntary compliance - 2011 to 2014

The funding received enables the ATO to implement an integrated compliance program to deal with the linked issues of incorrect reporting and taxpayer disengagement. It deals with problems of inflated or fraudulent GST refunds, systematic under reporting of GST liabilities, non lodgment and non payment

The key imperatives involved are maintaining collection rates for an expanding pool of outstanding GST debts, reducing Activity Statement non lodgement rates and combating attempts to undermine the GST system.

In addition to forecast $1.56 billion GST revenue, the ATO expects a further $1.74 billion relating to other heads of revenue will be identified over the four year life of the program, primarily due to the lodgement component of the program.

Implementation of the program sees a quarantined pool of funding for the recruitment of additional compliance, lodgment and debt staff to manage the risks associated with net outflows from the GST system, systematic under reporting of GST liabilities, outstanding GST returns and outstanding GST debts.

The allocation of additional resources allows the ATO to change the mix of background GST risk management work and the range of case activities undertaken across the GST product.

Specific opportunities include:

¦ further refinements to the risk rating processes for GST refunds

¦ investigate under reporters before their behaviours escalate into refund fraud

¦ more direct contact with taxpayers who fail to lodge GST returns or pay GST debts

¦ address 'hot spots' such as the property and construction industry sectors, and

¦ raise the profile of the ATO compliance capability as a deterrent to non compliant taxpayers.

The key components for the program include:

¦ an enhanced modelling and risk rating capacity to detect GST evasion

¦ closer relationships with external agencies to identify deliberate evasion of GST

¦ increased use of data matching to identify inflated GST credit claims and under reporting of sales

¦ a coordinated strategy for obtaining lodgment of outstanding Business Activity Statements (BAS) involving a GST amount

¦ a program of debt collection focusing on the collection of unpaid GST, and

¦ a communication strategy to publicise the consequences of defrauding the GST system.

In addition to the revenue from an expanded GST compliance capability, the work program also includes investment in increased visibility for the GST Product and the measures taken by the ATO to safeguard the stream of revenue that relies on taxpayers' voluntary compliance with the GST law.

What are the key deliverables/outputs?

The program has four distinct focus areas:

7. Working together in defending our citizens' tax system against organised attacks and fraud; by applying additional resources to protect the integrity of the activity statement refund system

8. Promoting a level playing field for Australian businesses and investors; by responding to community concerns about serious evasion of GST obligations

9. Supporting citizens in their tax system; by increasing instances of contact with taxpayers, addressing rising rates of activity statement non-lodgment

10. Paying a fair share of tax - a hallmark of good citizenship; by maintaining funding for strategies which have proven effective in dealing with expanding levels of unpaid debt

Over four years the proposal will achieve:

¦ an additional 2,950 audits dealing with issue related to GST serious evasion, GST refund integrity and GST evasion in the property sector

¦ an additional 42,000 refund verifications leading to better integrity within the GST system itself

¦ 1,000,000 additional instances of contact with taxpayer about their lodgement obligations

¦ 368,000 additional instances of 'strong enforcement' to address rising rates of non lodgement

¦ an additional $1.56 billion in GST revenue and an additional $1.74 billion related to other heads of revenue.

¦ continued referral of 200,000 debts cases per year to external agencies

¦ a more active approach to the management of the pool of 91,800 'aged' tax debts which are expected to occur over the four years of the proposal

¦ the development of a unique property compliance capability within the ITX business line

¦ the development of new fraud detection models and the improvement of existing fraud detection models

¦ closer ties with other state and Commonwealth government agencies

¦ prosecution of the more flagrant non compliers and the related benefits to voluntary compliance flowing from publicity around these prosecutions.

How is the program being implemented?

A cross ATO team has been established to manage implementation of this measure together with a further budget measure; ATO Compliance program - Dealing with the cash economy.

This project is overseeing recruitment, accommodation, skilling, systems enhancement, work generation, planning, reporting, governance, effectiveness, and appropriate allocation of budget and tracking of costs against the additional funding

The combined GST Compliance and Cash Economy budget measures sees an addition of around 640 FTE for 2010-11 (year 1), with around a further 280 FTE added year 2.

Current status

¦ Recruitment of staff into the high volume areas of the work program for year 1 has been completed. This was achieved by a combination of work force shifts and recruitment from existing processes.

¦ Recruitment processes ranging from the APS5 to EL2 levels are currently in train and are expected to be completed around end of September 2010. These processes will fill the majority of new roles in the serious evasion and cash economy audit areas.

¦ The budget funds have been allocated across the ATO to areas delivering the expected outputs.

¦ Delivery plans and associated reporting on outputs have been completed with the new work able to be separated from our 'base' plans.

¦ System enhancements have been outlined and preparation of the business case / specifications is occurring.

Meeting discussion

In the budget papers the ATO was provided funds for the period 2011-14 to work with the community to improve voluntary compliance and on the basis of returning additional revenue on top of the 'Business as usual' work program. The ATO has noted some declining compliance issues in debt and lodgement, refund integrity and serious evasion.

The debt program is to achieve a lower level of debt and this work will probably be out sourced to mercantile agents. The lodgment program is to deal with the gradual decline of on time lodgments and an increase in late lodgments, actively seek lodgement and also looking at various ways that the ATO can identify if those businesses are still conducting businesses. The ATO will not only conduct the compliance activities but also create the infrastructure to better understand why businesses are failing to lodge on time and promote voluntary compliance.

The ATO Refund Integrity systems generate a large number of cases, the ATO is improving its capabilities to identify the positive positives and get rid of the false positives to achieve a higher strike rate. To do this information will be sought from other sources both within government agencies and other commercial bodies to get a better understand of the nature of the business and whether it constitutes a risk. The ATO is also looking more closely at new enterprises at the point of registration for GST and asking more questions including whether they are conducting an enterprise and whether they have a valid GST role

In Serious Evasion the ATO will be looking into two main areas, there is a general serious evasion component which involves doing more work with the ASIC, Austrac and others, using the information they obtain to identify risks and ascertain any systemic attacks on the revenue systems. The other area where some work has been undertaken to date is the property sector and there will be more work conducted in both developing business models to understand how we identify property issues and further understand the issues in the activity of property development.

1.11 ATO 2010-11 Compliance program - Large businesses and GST

Issue 12.19 Raised by TIA on 24 June 2010

This is a new submission received from the TIA which is attached to the agenda papers.

8 September 2010 - Issues raised by TIA

1. The TIA would like further information from the ATO as to the specifics of the program with respect to large businesses and the following areas earmarked for active compliance strategies: 'GST on financial supplies', 'GST integrity of business systems - governance reviews' and 'GST property transactions'.

2. Also, is the ATO still reviewing notifications from taxpayers regarding 'GST out-of-scope supplies - section 13 Transition Act and refund exploitation', as virtually identical comments appear in the 2010-11 program as appeared in the 2009-10 program? If so, what is the current status of those ATO actions?

ATO response

As this was a late submission the response will be provided at the meeting

Meeting discussion

Members were provided with a detailed response at the meeting (and in electronic form in an update dated 29 September 2010) in relation to the compliance program for large business. The ATO seeks to increase clarity and certainty in the complex area of financial supplies and the program is based on working collaboratively with industry.

In an update from Treasury it was stated the government conducted a review of financial supplies provisions and a decision was made to maintain the status quo.

The other areas highlighted where compliance work will be undertaken was integrated business systems, property transactions such as acquisition and sale of real property, application of the margin scheme, valuation, development and sale of retirement villages.

Section 13 and out of scope work is moving into the litigation stage but the ATO will continue to watch for situations where some taxpayers seek opportunities to exploit the asymmetry in the system to get refunds. The ATO is working towards finalizing the section 13 and out of scope cases.

1.12 Margin scheme agreements

Issue 1.45 Raised by ICAA on 20 August 2010

Issue

The ICAA seeks clarification of the rules surrounding the wording of agreements to use the margin scheme when making a taxable supply of real property for the purposes of section 75-5 of the GST Act.

In particular, is a signed statement by vendor and purchaser that 'the contract price of $xxxx is inclusive of GST calculated under the margin scheme' sufficient evidence that the parties 'have agreed in writing that the margin scheme is to apply'?

Background and further detail

An accountant has a client who is under GST audit. A taxable supply of real property was made at a GST-inclusive price. GST was calculated and paid under the margin scheme. However, there was no written agreement to use the margin scheme when the auditor asked for one to be provided.

PS LA 2005/15 sets out the circumstances in which the Commissioner may exercise his discretion to extend the time in which an agreement to apply the margin scheme may be obtained. When this practice statement was pointed out to the auditor, he accepted its application to the client's circumstances and an agreement that the contract price includes GST calculated under the margin scheme was made with the purchaser.

However, the auditor has rejected the wording of the agreement reached between the parties. He contends that it is not an agreement that the margin scheme is to apply.

It seems to the Institute that a specific acknowledgement by both parties that the contract price includes GST calculated under the margin scheme is 'an agreement in writing that the margin scheme is to apply' for the purposes of section 75-5(1). It is, in our view, an agreement that the margin scheme is to be used to determine the amount of GST included in the contract price and payable to the ATO.

Related issues and broader implications

This depends on whether our submission is accepted or rejected. The accountant has many property developer clients and he has advised these entities that the above wording is adequate. Several of these clients have been audited for GST and the auditors have never questioned the wording.

Suggested treatment

Further consideration of the issue together with a response on the particular example provided is requested. More broadly, we are also seeking a statement of principle as to what degree of specificity is required for the wording used in a contract to constitute an agreement that the margin scheme is to apply.

Impact on clients

See above

Priority of issue

High

Reason for priority

Audit in progress

Previous advice sought from the ATO?

No.

ATO response

It is not appropriate for the ATO to discuss individual cases in this forum. However, in relation to a written agreement to apply the margin scheme there is no set format, but there must be a written statement which makes it clear that the vendor and purchaser have agreed to use the margin scheme on the sale, and clearly identifies the property being sold. This statement may form part of the sale contract, or it may be a separate document. Generally an executed contract that indicates that the margin scheme has been applied to calculate the GST on the sale of the property would normally be sufficient for an agreement in writing. Whether a written statement meets the requirement will be determined on a case by case basis.

Meeting discussion

This issue was withdrawn.

1.13 Meaning of 'substantial renovations' and Gloxinia Investments Ltd as Trustee for Gloxinia Unit Trust v. FCT [2009] FCA 641; Federal Commissioner of Taxation (Cth) v. Gloxinia Investments (Trustee) [2010] FCAFC 46

Issue 1.60 Raised by TIA on 19 August 2010

This is a new submission received from the TIA which is attached to the agenda papers together with the ATO response.

19 August 2010 - Issues raised by TIA

Having reviewed the factual circumstances surrounding the Gloxinia matter, as described in the judgments at both first instance and on appeal, it seems curious that section 40-75(1)(b) was not raised in that case so as to squarely raise the meaning of 'substantial renovations' (refer discussions at the NTLG GST Sub-Committee meeting on 24 June 2010 about the limited number of cases re substantial renovations). The TIA asks the ATO to advise whether the Commissioner argued section 40-75(1)(b)?

The TIA notes that the matter was test case funded, presumably on the basis that section 40-75(1)(a) would be tested and, further, that the matter proceeded by way of declaratory proceedings. The TIA asks whether the Commissioner can choose not to apply a particular provision in the GST Act (for example, ignoring the potential application of section 40-75(1)(b)) for the purpose of testing an alternate provision (section 40-75(1)(a))? The ATO is asked to explain the basis for agreeing to provide test case funding in these circumstances, that is, canvassing one out of a number of potentially relevant issues? Does the ATO agree that it is bound to administer all the provisions of the GST Act?

ATO response

1. The Commissioner did not argue that paragraph 40-75(1)(b) of the GST Act applied with respect to the residential apartments in the Gloxinia case, either at first instance or on appeal.

An argument that paragraph 40-75(1)(b) applied so that the residential apartments in Gloxinia, when sold to third party purchasers, would be 'new residential premises' would entail a construction of paragraph 40-75(1)(b) that would result in the apartments continuing to be 'new residential premises' forever, regardless of how many times they were sold or the subject of a long term lease subsequent to their 'substantial renovation'. This would seemingly be an outcome not intended by the legislature. Therefore in Gloxinia, and other similar cases, the Commissioner adopts the view that paragraph 40-75(1)(b) is to be read subject to paragraph 40-75(1)(a), that is, 'new residential premises' created by way of 'substantial renovations' will cease to be new residential premises once they have been sold or the subject of a long term lease.

In Gloxinia, the strata lot leases in question were granted after the demolition of part of an existing building and completion of construction of the residential apartments. Therefore, notwithstanding that it may be argued that the residential apartments were created through substantial renovations, on the Commissioner's view that paragraph 40-75(1)(b) is to be read subject to paragraph 40-75(1)(a), the issue upon which the case turned was whether or not the grant of the strata lot leases meant that the apartments (regardless of whether or not they had been created through substantial renovations), had previously been the subject of a supply by way of long term lease.

2. The ATO agrees that it is required to administer all the provisions of the GST Act. As explained above, the Commissioner did not ignore the potential application of paragraph 40-75(1)(b) in favour of testing the application of paragraph 40-75(1)(a). On the Commissioner's view, the application of paragraph 40-75(1)(b) did not come into focus because the pivotal provision upon which the case turned was paragraph 40-75(1)(a).

Meeting discussion

This issue was not discussed at the meeting, ATO responses have been provided to the submission made by the tax professional bodies.

1.14 GST Implications of forestry MIS: ATO ID 2010/129

Issue 9.16 Raised by the ICAA on 20 August 2010

The issue raised by TIA appears in the GST minutes, June 2009 . A further submission received from the ICAA which is attached to the agenda papers together with the ATO response.

20 August 2010 - Issues raised by ICAA

Issue

Given the decision in ATO ID 2010/129, the ICAA seeks further consideration and explanation of the views expressed in the update dated 17 March 2010 to issue 9.16 (see March 2010 GST minutes).

In particular, the ICAA seeks clarification on the question of how it is the character of a supply determined where a payment is made under an MIS that allows the payer rights to a number of 'things' not all of which are input taxed supplies under the GST law.

Background and further detail

The ATO ID 2010/129 relates to whether payments made by the participants for acquiring units in a forestry Managed Investment Scheme constituted consideration for an input taxed supply by reason of item 10 in the table to sub-regulation 40-5.09(3) of the GST Regulations.

The ATO ID states that

¦ the consideration payable by the participants of the scheme is to acquire rights to the benefits produced by the scheme (whether the right is actual, prospective or contingent and whether it is enforceable or not)

¦ consideration payable by the participants includes the initial contribution (which can be paid as a single payment or as regular contributions), a harvest activities contribution, an after-harvest activities contribution, a deferred contribution and a carbon revenue contribution

¦ the additional contributions are calculated having regard to the participant's proportional interest in the scheme and are payable to the responsible entity (RE) by way of deduction from the product sale proceeds, insurance proceeds (if any) or other plantation income

¦ a participant will receive a proportional amount of the income of the Scheme, after deducting all amounts the RE is entitled to deduct from that income, by reason of the participant's interest in the scheme

¦ the participant has no interest in the product of the Scheme.

Therefore, the supply of a forestry interest under the scheme is the provision of an interest in or under a security for the purposes of item 10 in the table in sub regulation 40-5.09(3) of the GST Regulations.'

Questions

11. In the circumstances of ATO ID 2010/129, is the payment consideration for the supply of 'the proportional amount of the income of the Scheme'? If not, what are the 'rights to benefits under the scheme' referred to in the ATO ID for which the payments are consideration?

12. In the circumstances of ATO ID 2010/129, what rights are acquired in consideration of the payment? Are these rights the 'rights to benefits' referred to?

13. Is the Commissioner's view that if payments under an MIS are specified to be consideration for 'the rights to benefits under the scheme', then the supply is of an interest in an MIS? Is this consistent with the approach to the acquisition of shares in a company where the supply is an input taxed supply of securities that carries with it a range of rights as shareholder? (see Gulf Harbour)

14. Is it necessary to identify the character of the rights that are acquired for consideration and ascertain whether the rights so acquired are covered by an item in subregulation 40-5.09(3)? This is the approach taken for strata-title hotel room MIS; Investor directed portfolio service (IDPS)

15. Does the Commissioner consider that a payment under an MIS that secures rights to benefits under the scheme that are not input taxed (for example,, the right to management and custody of a share portfolio) is consideration for the acquisition of an interest in the MIS consistent with ATO ID 2010/129?

Further consideration of the issue is requested.

Technical references

Referred to above and previously

Impact on clients

See above

Priority of issue

High

Reason for priority

A significant period of time has elapsed since the Federal Court's decision in Hance v. FC of T; Hannebery v. FC of T [2008] FCAFC 196; 2008 ATC 20-085 (Hance).

Previous advice sought from the ATO?

Refer issue 9.16, in minutes to NTLG GST sub-committee meeting in March 2010.

ATO response

In summary, we understand the Institute is asking:

a. whether the approach taken by the ATO is:

¦ to identify the underlying rights that made up a supply, and then apply the GST law to each of those rights, to determine if each right was input taxed or taxable; or alternatively

¦ to determine what is acquired by reference to the specific language of the scheme documentation, and then apply the GST law to that thing acquired without breaking the supply down into its component parts; and

b. whether the approach taken by the ATO is consistent with the approach taken for strata title hotel room managed investment schemes and investor directed portfolio services.

a) ATO approach

Our approach is not to identify and isolate the various rights that make up the interest in the managed investment scheme, and then determine whether each one of those rights is mentioned in an item in the table in subregulation 40-5.09(3) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST regulations).

Our approach is to determine whether what is acquired by the recipient, is a right to benefits produced by the scheme (whether the right is actual, prospective or contingent on whether it is enforceable or not), mentioned in an item in the table in subregulation 40-5.09(3) of the GST regulations.

An important consideration in determining whether what is acquired is mentioned in an item in that table is determining whether the rights under the scheme should be construed as being supplied separately from any supply of an interest in a managed investment scheme for purposes of:

¦ determining the supply, or supplies, that have been made, and

¦ characterising the supply, or supplies, that have been made.

In determining whether the rights in question represent a separate supply for GST purposes it is noted:

¦ item 10 of the table in subregulation 40-5.09(3) of the GST Regulations mentions securities

¦ securities is defined in the Dictionary to the GST Regulations as having the meaning given by subsection 92(1) of the Corporations Act 2001

¦ subsection 92(1) of the Corporations Act 2001 provides that securities means (amongst other things) an interest in a managed investment scheme, and

¦ section 9 of the Corporations Act 2001 defines interest in the managed investment scheme as meaning the right to benefits produced by the scheme (whether the right is actual, prospective or contingent on whether it is enforceable or not).

On the facts of ATO ID 2010/129 as stated, we therefore concluded that the recipient had acquired an interest in an 'item 10 security' as defined and determined that interest represented the supply of a security and no more. Therefore the rights that exist do not represent a supply for GST purposes that is capable of being classified separately from the supply of the security pursuant to item 10 of subregulation 40-5.09(3) of the GST Regulations. This conclusion is similar to the approach taken with respect to shares at paragraph 26 of Taxation Ruling TR 94/30, which states:

26. Accordingly while shares are comprised of a bundle of rights, those rights are not separate pieces of property capable of being divided out and held separately.

We consider that there is an analogy with the treatment of shares. While there are clearly rights attaching to a supply of shares (including securities) for GST purposes, the rights in question cannot be separated out from the supply of a security for purposes of characterising the supply.

While the facts of ATO ID 2010/129 state that one of the things acquired was a right to receive a proportional amount of the net income of the scheme, and that the participant has no interest in the product of the scheme, we did this to provide context, given this ATO ID is just one of a suite of ATO IDs on several different types of schemes. The scheme at issue in ATO ID 2010/129 is where the investor acquires no interest in the product. Another ATO ID, which will issue shortly, addresses the GST treatment of facts akin to those in Hance v. Federal Commissioner of Taxation; Hannebery v. Federal Commissioner of Taxation 2008 ATC 20-085, where the investor acquires an interest in the product.

b) Consistency of ATO approach

We see the above approach as being consistent with the approach adopted for strata title hotel room managed investment schemes, and for investor directed portfolio services.

Broadly, the products dealing with those two types of managed investment schemes establish the legal and practical relationships and transactions that arise pursuant to the scheme documentation (including accompanying contracts), having regard to the language of the law to be applied to those relationships and transactions.

In conclusion, the GST treatment of these matters turns on the facts of each case. It is therefore difficult to extract one principal from one ATO ID, written on specific facts as stated, and meaningfully apply the principle in other contexts where the facts materially differ. For these reasons, we encourage taxpayers and advisors who are faced with these issues to request a private ruling.

Meeting discussion

This issue was not discussed at the meeting, ATO responses have been provided to the submission made by the tax professional bodies.

Members stated a further submission will be made for discussion at the next meeting on what is an Agricultural MIS and how does one determine what is supply and what is consideration, when is it a single supply which relate to the three ATO ID's issued.

1.15 Entities under GST Act, TAA and A New Tax System (Australian Business Number) Act 1999

Issue 9.21 Raised by ICAA on 25 August 2010

This is a new submission received from the ICAA which is attached to the agenda papers.

Below is a submission received from the ICAA

25 August 2010 - Issues raised by ICAA

Questions

Is a 'corporation sole', 'government entity' or a 'non-profit sub-entity' for the purposes of the GST Act an 'entity' for the purposes of the TAA and A New Tax System (Australian Business Number) Act 1999 (ABN Act)?

Background

A reference to 'you' in the GST Act applies to 'entities generally unless its application is expressly limited' (section 195-1).

'Entity' has the meaning given by section 184-1 of the GST Act which is substantially the same as that term is defined in section 960-100 of the Income Tax Assessment Act 1997 (1997 Act), except:

The 1997 Act includes an 'approved deposit fund' does not include a 'corporation sole'

Under the GST Act a 'government entity' and a 'non-profit sub-entity' are able elect to be treated as an 'entity' for the purposes of the GST Act (Divisions 149 and 63, respectively)

The TAA contains provisions relating to assessment and refund of 'indirect tax' (subdivision 105-A of Schedule 1), objection, review and appeal (Part IVC), withholding (Part 2-5) of Schedule 1) and rulings (Part 5-5 of Schedule 1) that apply to:

For assessment and refunds, withholding and rulings - 'you' and 'entity' as defined in section 960-100 of the 1997 Act. (section 3AA of the TAA states that an 'expression has the same meaning in Schedule 1' of the TAA as in the 1997 Act).

For objections and review - a 'person'.

The ABN Act applies to an 'entity' within the meaning of section 184-1 of the GST Act (section 41) but also applies to a 'government entity', 'non-profit sub-entity' and superannuation fund 'as if it were an *entity carrying on an *enterprise' (section 5).

It seems that the inconsistency in the description of 'entity' for the purposes of the GST Act, TAA, 1997 Act and ABN Act may mean that, for an 'entity' under the GST Act that is not an 'entity' under section 960-100 of the 1997 Act:

¦ The Commissioner is not able to make an assessment of a net amount (sections 105-5).

¦ The entity is not able to request an assessment (section 105-10).

¦ The Commissioner is not able to make rulings that apply to the entity or such entities as a class is not bound by rulings that would otherwise apply to the entity.

¦ The entity is not able to ask for a ruling that applies to it.

¦ The entity is not able to object against a ruling with which it disagrees.

¦ The entity is not required to withhold an amount in the absence of the quotation of an ABN under section 12-190 of Schedule 1 of the TAA.

Under the 'no ABN' withholding provisions in section 12-190 of Schedule 1 of the TAA, the quotation of an ABN by an 'entity' (under the GST Act and ABN Act) ) is not a valid quotation.

Industry view/suggested treatment

An 'entity' under the GST Act should be the same as an 'entity' for the purposes of the TAA.

Impact on clients

(business/industry affected, potential revenue)

All entities under the GST Act (or ABN Act) that are not also entities under section 960-100 of the 1997 Act

Priority of issue where ATO view is required:

(check box and outline reasons for priority)
High x Medium o Low o

Reasons

The apparent flaw in the interaction of the taxation laws has serious implications for consistency of application of the taxation laws.

Has previous advice been sought from the ATO?

(if yes, please provide details)

No

ATO response

The ATO appreciates the concern about the differences in definition of the term 'entity' for the purposes of the GST Act (contained in s 184-1 of the GST Act) and Schedule 1 of the TAA, the latter deriving from section 960-100 of the Income Tax Assessment Act 1997 (ITAA 1997).

However, in the ATO's view, a corporation sole, non profit sub-entity and a government entity for the purposes of the GST would each be treated as an entity for the purposes of the relevant provisions in the TAA so far as they relate to indirect tax and the ABN Act.

Corporations sole

The ATO considers that a corporation sole would be an entity for the purposes of the definition in s 960-100 of the ITAA97. This is because a corporation sole would also be a body politic and would likely also be regarded as a body corporate.

The decision of the Full Court of the Victorian Supreme Court in Hubbard Association of Scientologists International v. Attorney-General(Vic) [1976] VR 119 includes a lengthy discussion of corporations sole in the decision of Gowans J, with whom the other members of the court agreed. His Honour quotes the following from Grant on Corporations published in 1850:

A corporation sole is a body politic, having perpetual succession, and being constituted in a single person, who, in right of some office, or function, has a capacity to take, purchase, hold, and demise (and in some particular instances, under qualifications and restrictions introduced by statute, power to alien) lands, tenements, and hereditaments, to him and his successors in such office for ever, the succession being perpetual, but not always uninterruptedly continuous; that is, there may be, and mostly are, periods in the duration of a corporation sole, occurring irregularly, in which there is a vacancy, or no-one in existence in whom the corporation resides, and is visibly represented.

The case of Workcover Authority of New South Wales (Inspector Keelty) v. Crown in Right of the State of New South Wales (Police Service of New South Wales) [2000] NSWIRComm 234 also provides a helpful analysis on a similar basis.

Non-profit sub-entities

With respect to non-profit sub-entities, a choice under Division 63 of the GST Act applies 'for the purposes of the *GST law'.

The definition of GST law includes 'the Taxation Administration Act 1953, so far as it relates to' the GST Act. Accordingly, we consider that where a choice is made under Division 63 of the GST Act, it also has the effect that the non-profit sub-entity is treated as if it were an entity for the purposes of the TAA.

Government entity

Division 149 specifies that the government entity is treated as an entity for the purposes of the GST Act, rather than the GST law. Nevertheless, we think the better construction of Schedule 1 to the TAA is that it applies to government entities under the GST Act. There are two reasons for this.

Firstly, the definition of entity for the purposes of Schedule 1 to the TAA applies 'except so far as the contrary intention appears' (see the opening words of section 995-1). Arguably, the TAA may be read such that it applies to bodies that are entities within the GST Act, but not within the ITAA 1997 definition.

We consider that a contrary intention is implicit from a historical analysis of how the TAA has applied to indirect taxes, and having regard to the purpose of the TAA. See the discussion of contrary intention by Mahoney JA in Deputy Commissioner of Taxation v. Mutton (1998) 12 NSWLR 104 at 108-109.

Former Part VI of the TAA governed the administration of the GST, Wine Equalisation Tax and Luxury Car Tax. The terms used in Part VI adopted the meaning of defined terms and other expressions used in the GST Act. See former section 20. Former section 20(2) Part IV TAA stated that 'Other expressions in this Part have the same meaning as in the GST Act.'

When Pt VI was rewritten in Schedule 1 to the TAA 1953, the drafters adopted the definitions in section 995-1 ITAA 1997. However, it doesn't appear as though this was intended to change the application of the law in relation to GST entities. There is no suggestion in that EM to the Fuel Tax (Consequential and Transitional Provisions) Act 2006 that the rewritten provisions should apply only to certain registered GST entities. In fact the EM specifically states:

4.9 The amendments to the TAA 1953 incorporate a rewrite of Part VI (administration of GST, wine equalisation tax and luxury car tax) in the Tax Law Improvement Project drafting style. The rewritten version simplifies the expression of the law, making it easier to understand and comply with.

…

4.11 The administration rules for indirect taxes have been rewritten and relocated into Schedule 1 to the TAA 1953. The rewrite does not change the existing outcomes for indirect taxes. Therefore, this chapter does not explain the general operation of the rewritten provisions.

Further, confining the definition of 'entity' to those identities listed in section 960-100 would produce a result that was incongruous. It would have the result that after 2006, Sch 1 TAA would only apply to certain registered entities.

Secondly, even if our view about contrary intention is incorrect, a government entity is part of a larger body politic which is an entity under the TAA. It is considered that an assessment issued in the name of the government entity, would be applicable to the body politic. We note the Commissioner's ability to issue assessments for part of a net amount, which we consider would allow the Commissioner to make an assessment for the net amount of a part of the body politic, consisting of the government entity, even if the government entity is not recognised as an entity for the purposes of the Schedule 1 to the TAA.

Further, we consider that a ruling issued to a government entity, would (if a government entity is not regarded as capable of being an entity under Schedule 1 of the TAA) be construed as a ruling issued to the relevant body politic. It therefore would apply to the body politic (which includes the government entity) with respect to the relevant scheme.

ABN quotation

For similar reasons to those above, we do not consider that the quotation of an ABN held by a corporation sole, government entity, or non-profit sub-entity would be a failure to quote the entity's ABN for the purposes of section 12-190 of Schedule 1 of the TAA.

Meeting discussion

The submission from the ICAA raised the question about the definition of entities for the purposes of the GST Act. Members stated that there were approximately seven definitions of entities in the various Legislation and Acts.

Members were encouraged to raise the issue through TIES (The Tax Issues Entry System).

1.16 GST Implications of Spriggs High Court Decision - formerly issue 9.20

Issue 9.20 Raised by the ICAA on 20 August 2010

The issue raised by CPA appears in the minutes for the GST minutes, June 2009 . A further submission received from the ICAA which is attached to the agenda papers together with the ATO response.

20 August 2010 - Issues raised by ICAA

Issue

The ICAA seeks further consideration and explanation of the views expressed in the update of 17 March 2010 to issue 9.20 (see March 2010 GST minutes). The ICAA considers that the views expressed in the update adopt for GST a position that was specifically rejected by the High Court in relation to similarly worded income tax provisions.

Background and further detail

Before the High Court, the Commissioner submitted that expenses relating to the negotiation of a contract of employment were 'employee deductions' and as such were fully non-deductible under section 8-1 (1)(a) and (b). For present purposes we are concerned only with section 8-1(1)(b).

In rejecting the Commissioner's submission, the High Court found that where such expenses were incurred by a sportsperson who was conducting a business of turning their sporting prowess and associated celebrity to account for money the so-called employee deductions were deductible in full, see in particular paragraphs 76 and 77 of the judgment. The phrase 'to the extent that ' in section 8-1 was not relevant to the case. Even though the expenses related to an employment contract, they were deductible in full as business-related expenses.

Given that the definition of 'business' is identical for the purposes of income tax, GST and ABN registration, see in particular paragraphs 175 and 176 of MT2006/1, and the similarity in the wording of section 8-1 (income tax) and section 11-15 (GST), as recognised by Hill J (with the support of Stone and Allsopp JJ) in HP Mercantile at paragraph 21, the ICAA considers that further discussion is warranted.

In particular, the ICAA submits that if the GST included in the management expenses associated with the negotiation of an employment contract for Spriggs fell for consideration, the High Court may find that they were fully creditable because they were incurred in relation to his business enterprise of turning his sporting prowess and associated celebrity to account for money.

The High Court may find that the exclusion from the definition of 'business' for 'occupation as an employee' has no application for GST because 'that exclusion requires only that, for there to be business, there must be something more than occupation as an employee' (Spriggs, paragraph 760).

The ICAA acknowledges that a further consideration is the impact of paragraph 9-20(2)(a) of the GST Act which carves out activities done by a person as an employee or in connection with earning certain withholding payments from the definition of 'enterprise'. Whether or not this paragraph would have the effect of overriding the approach taken in Spriggs is, in the ICAA's view, worthy of further consideration and discussion. In this regard the ICAA notes that the exclusion of 'occupation as an employee' from the definition of 'business' is not discussed in MT 2006/1. The paragraph 9-20(2)(a) exclusion is discussed at some length. However, there is no discussion of the difference for GST and ABN purposes, if any exists, between a Maddalena type situation and a Spriggs type situation.

MT 2006/1 at paragraph 333 states that activities performed by an employee 'as an employee' are the activities of the entity to which that individual provides work or services. An individual who is an employee 'may operate a separate enterprise and be entitled to an ABN in respect of that enterprise.' This, it seems, is the Maddalena type situation. However, the ruling does not contemplate the possibility that, as the High Court confirmed in Spriggs at paragraph 65, 'it is possible to obtain and perform an employment contract as part of, and during the course of, running a business.'(see also paragraph 67).

The ICAA also notes that GSTD 2006/6 at paragraph 12 confirms the similarity between the income tax and GST definitions of 'business' and concludes that the meaning 'should be interpreted in a similar way.'

While there may be a case for apportionment in Maddalena type situations, apportionment may be unnecessary in Spriggs type situations.

Related issues and broader implications

The High Court's decision may have broader implications for all manner of individuals who, in addition to being employed, seek to turn their prowess and associated celebrity (or reputation) to account for money.

In addition to sportspersons, affected endeavours may include actors, entertainers, television and radio personalities, lawyers, accountants, university lecturers, authors, adventurers, models and the like.

The ICAA notes that in Spriggs the High Court found a link between the contract of employment and the ability to conduct a broader enterprise. It may be that such a link was integral to the decision and would be integral to any wider application of it.

Suggested treatment

Further consideration of the issue is requested.

Technical references

Referred to above and previously

Impact on clients

See above

Priority of issue

High

Reason for priority

A significant period of time has elapsed since the High Court's decision on 18 June 2009.

Previous advice sought from the ATO?

Was issue 9.20, deemed resolved in NTLG GST sub-committee meeting in March 2010

ATO response

The ATO has reviewed the ICAA submission seeking further consideration and explanation of the views expressed in the 17 March 2010 update.

The definition of enterprise in section 9-20(1) of the GST Act includes an activity, or series of activities, done in the form of a business. It is noted in paragraph 12 of GSTD 2006/6 that the definition of 'business' in section 195-1 is the same as that used in subsection 6(1) of the ITAA36 and section 995-1 of ITAA 1997. However, paragraph 18 of that ruling lists the statutory exclusions to the definition of enterprise which includes an activity done by a person as an employee or in connection with earning withholding payments (paragraph 9-20(2)(a) of the GST Act).

In the facts and circumstances of the Spriggs v. Federal Commissioner of Taxation and Riddell v. Federal Commissioner of Taxation cases, this statutory exclusion under the GST Act has the effect of excluding from the enterprise those activities for which playing income is received in the capacity of employment or is connected to withholding payments.

Therefore, where a player is registered for GST purposes, the acquisition of services for which management fees are paid need to be apportioned. As previously advised, input tax credits are not available under subsection 11-15(1) to the extent that they relate to those non-enterprise activities for which playing income is received in the capacity of employment or is connected to withholding payments. As subsection 11-15(1) uses the language of apportionment ('to the extent') then acquisitions (such as management services) need to be apportioned between the playing activities and the non-playing activities on a fair and reasonable basis.

If members nevertheless consider that an alternative view is open and should be preferred, the reasoning underpinning such an alternative view can be discussed further at the sub-committee meeting.

In relation to suggested changes to MT 2006/1 as outlined in the submission, our considered view is that the explanation provided at paragraphs 332 to 364 of that ruling on the exclusion provides appropriate guidance both in the facts and circumstances of the Spriggs and Riddell cases and in other factual scenarios.

Meeting discussion

The ATO was asked to re-consider its earlier response in relation to the GST implications of the High Court decision in the Spriggs case.

The ICAA put forward the contention that the management fees incurred in running a business equates to and satisfies the positive arm of section 11-5 in carrying on an enterprise. It was further stated the Commissioners arguments in the Spriggs case were dispensed with by the High Court.

In referring to the Green case it was stated there are a number of people who are in business who also take on positions of employment. It was further contended that in s9-20(2)(a) the section within parentheses gives effect to an exclusion from the exclusion.

The ICAA stated by taking a position of employment in the course of being in business does not exclude that person from the status of being in business and therefore carrying on of an enterprise. The employee exclusion, because of the words in parentheses does not operate.

The ATO in response stated it would consider the submission further with particular focus on s9-20(2)(a) and the exclusion within parentheses. The ATO will provide members with a further update.

Action item

2010.09.07- GST implications on the High Court decision in the Spriggs case The ATO to provide a further update to the GST implications on the High Court decision in the Spriggs case with particular focus on section 9-20(2)(a) and the implications of the exclusion with the parentheses in that section.

1.17 Tax invoices

Issue 7.2 Raised by CPA on 25 August 2010

This is a new submission received from the CPA which is attached to the agenda papers.

This is a new issue which we propose to discuss at the meeting

25 August 2010 - Issues raised by CPA

How do the amendments to subdivision 29-C of the GST Act impact on tax invoices that are issued by agents (where a supply is made through an agent) and by bare trustees?

The previous tax invoice provisions (subdivision 29-C of the GST Act subdivision 29-C of the GST Regulations) required the identification of the person that issued the tax invoice and the inclusion of the ABN of that person. Therefore, where a supply was made through an agent, those provisions plus section 153-15 of the GST Act enabled a tax invoice to be issued in the name of the agent and including the ABN of the agent.

Similarly, in GSTR 2008/3 the Commissioner ruled that a bare trustee could issue a tax invoice on behalf of the beneficiaries of that bare trust in circumstances where that tax invoice bore the name of the bare trustee rather than the name of the beneficiary of the bare trust. The authority for this ruling is given as the discretion in section 29-70 of the GST Act. The introduction to this ruling identifies that it will be necessary to make minor amendments to the ruling as a result of amendment of the tax invoice provisions.

The fact sheet Changes to tax invoices and recipient created tax invoices - overview indicates that the amendments also apply to tax invoices issued by agents acting for suppliers.

Can the ATO please explain how the amendments will impact on the details required to be included in tax invoices that are issued by agents and by bare trustees?

ATO response

The amendments resulting in the requirements for the content of tax invoices being more flexible also apply to tax invoices issued by agents and bare trustees.

A document may be considered to be a tax invoice if it is issued by an agent (where the supply is made through an agent) or bare trustee, if it is in the approved form and contains enough information to enable the agent's or bare trustee's identity and Australian business number (ABN) and other key items set out in subsection 29-70(1) of the GST Act, to be readily identified.

If a document issued by the agent or bare trustee is missing key information, the document may still be treated as a tax invoice by the recipient if:

¦ the document makes clear that it is intended to be a tax invoice, and

¦ the missing information can be obtained from other documents issued by the agent or bare trustee (or the supplier).

As noted in the submission, in GSTR 2008/3 the Commissioner exercised his discretion provided under the previous subsection 29-70(1) of the GST Act to form the view that a bare trustee could issue a tax invoice on behalf of the beneficiaries of that bare trust, where the tax invoice bore the name of the bare trustee. Under the amendments, the discretion for the Commissioner to treat a document as a tax invoice, where it would not otherwise be a tax invoice, is now provided for in subsection 29-70(1B).

As the amendments allow more flexibility in relation to tax invoice requirements, it would be the case that any tax invoices issued by agents or bare trustees that complied with the previous law (that is, the law before 1 July 2010) will continue to be tax invoices.

Meeting discussion

Members commented that a resolution was needed in respect to the tax invoice requirements and the law enacted as a result of the Board of Taxation review recommendation number 9 and in particular how that may apply in an agency situation. Members were relatively happy with ATO response provided and envisaged that the ATO will amend the rulings 2008/3 and 2000/37 accordingly.

1.18 GST treatment of earnout rights

Issue 10.11 Raised by ICAA on 25 August 2010

This is a new submission received from the ICAA which is attached to the agenda papers together with the ATO response.

25 August 2010 - Issues raised by ICAA

Questions

Is an earnout right as described in TR 2007/D10, consideration expressed as an amount of money for the purposes of the definition of 'price' in section 9-75(1) of the GST Act.

Background

TR 2007/D10 states that:

'2. A standard earnout arrangement is any transaction in which an income-earning asset (often a business asset) is sold for consideration that includes the creation of an 'earnout right' in the seller of the asset.

3. An earnout right is a right to an amount calculated by reference to the earnings generated by the asset for a defined period following the sale (generally a period of between one and five years). It is to be distinguished from a right to a sum in respect of that sale which is certain as to amount and as to receipt, as this is '...money you...are entitled to receive...' in terms of paragraph 116-20(1)(a) [of the Income Tax Assessment Act 1997 (1997 Act)]. …

12. Under section 116-20, the earnout right is not an entitlement to money for the purposes of calculating the seller's capital proceeds from CGT event A1. An earnout right is 'other property … received' by the seller in respect of the disposal of the original asset.

13. Accordingly, the seller's capital proceeds from that event includes the market value of that right (worked out at the time of the CGT event).

14. It is not possible for the seller to 'look-through' the earnout right and to treat any payments made in relation to it as the capital proceeds in respect of the disposal of the original asset.'

Arrangements under which mining assets are sold are examples of situations where the consideration for the sale is calculated by reference to and contingent upon future 'earnings'.

On 12 May 2010, the Assistant Treasurer, announced that the Government will provide 'look-through' treatment for qualifying earnout arrangements for CGT purposes.

Under subsection 116-20(5) of the 1997 Act, in calculating the capital proceeds, the GST on the supply is disregarded.

If the earnout right, is not consideration expressed as an amount of money, it is the 'market value' of the earnout right that will be taken to be consideration for the supply under section 9-75 of the GST Act.

If the treatment of earnout rights for income tax and CGT purposes is to be subject to legislative amendment, the GST position should also be made certain and its interaction with the income tax and CGT rules.

Industry view/suggested treatment

Under the present law, consideration that takes the form of a right to receive an amount contingent upon and calculated by reference to future events is not 'consideration expressed as an amount of money' and GST is payable only on the GST inclusive market value of the right.

The capital proceeds (which include the market value of the right) are reduced by any 'net GST'.

If the approach to the calculation of the capital proceeds is to be changed, consideration should be given to ensuring that the change to income tax and CGT do not have any adverse affect or compliance uncertainty for GST.

Impact on clients

The operation of the taxation law is to be changed. Clarification of the GST treatment is necessary

Has previous advice been sought from the ATO?

The question is not unrelated to that involved in GSTR 2010/D1

ATO response

An earnout in a standard earnout arrangement of the type provided in TR 2007/D10 is consideration expressed as an amount of money for the purposes of the definition of 'price' under paragraph 9-75(1)(a) of the GST Act.

The Commissioner has issued a determination under paragraph 29-25(2)(e) of the GST Act for circumstances like earnout arrangements where the total consideration is unknown in the tax period when GST would normally be payable. Under the determination, the GST is attributable on the additional payments under the earnout when those amounts are known. (See Schedule 5 of Goods and Services Tax Ruling GSTR 2000/29 for more information).

Reasons

Subsection 9-75(1) of the GST Act defines 'price' which is used to calculate the GST payable. It provides that price is the sum of

(a) so far as the * consideration for the supply is consideration expressed as an amount of * money - the amount (without any discount for the amount of GST (if any) payable on the supply), and

(b) so far as the consideration is not consideration expressed as an amount of money - the *GST inclusive market value of that consideration.

In short, price is the sum of monetary and non-monetary consideration.

Paragraph 8 of TR 2007/D10 provides a simplified example of a standard earnout arrangement for a sale of a business asset. In the example, the buyer agrees to pay the following consideration for the business asset:

¦ a lump sum of $400,000;

¦ 50% of the amount by which its gross annual turnover exceeds $250,000 in each of the next two years.

We consider the earnout arrangement in the above example is 'consideration expressed as an amount of money' under paragraph 9-75(1)(a) of the GST Act.

Our approach to subsection 9-75(1) is set out in GSTR 2001/6. At paragraph 32 we state:

32. For the purposes of subsection 9-75(1), we are of the view that 'consideration expressed as an amount of money' is consideration that finds expression in money. The distinction between paragraphs 9-75(1)(a) and 9-75(1)(b) is essentially between monetary consideration and what can be broadly described as 'in kind' consideration. [footnotes omitted]

Consideration expressed in the form of money, to be paid at a future time or contingent on future events, is still monetary consideration for the purposes of subsection 9-75(1).

In particular, see paragraphs 43 to 46 of the ruling. Example 7 of GSTR 2001/6 deals with earnout arrangement.

Example 7 - applying the determination where the final amount of consideration is unknown

45. Quentin, who does not account on a cash basis, supplies a business to Xanthe who agrees to pay a lump sum of $100,000 on completion of the transfer and 10% of the gross sales of the business in excess of $150,000 each year, for the next 2 years. The parties have not agreed in writing that the supply is of a going concern under paragraph 38-325(1 )( c ).

46. When the lump sum of $100,000 is received by Quentin, the final amount of consideration is not known. However, the consideration is expressed as an amount of money for the purposes of subsection 9-75(1 ). In these circumstances, the determination under paragraph 29-25(2 )( e) applies. GST is attributable on the $100,000 in the tax period in which it is received. Also, GST is attributable on the remaining amounts of consideration when those amounts are known. [footnotes omitted]

The GST payable on the additional payments will be attributable when those amounts are known. For more information on the attribution of such amounts, please refer to the determination issued under paragraph 29-25(2)(e) of the GST Act. For more information on what is monetary and non-monetary consideration, please refer to Goods and Services Tax Ruling 2001/6.

Meeting discussion

This issue was not discussed at the meeting, ATO responses have been provided to the submission made by the tax professional bodies.

1.19 Other updates and feedback

Members may wish to raise matters in this agenda item regarding updates provided with the meeting papers, or other matters of concern or general interest of members.

1.20 Meeting close

Meeting discussion

Paul confirmed the future meeting dates. He also thanked members for their attendance and participation and closed the meeting.

^[H24]Next meeting

The following dates and venues are proposed for meetings.

30 November 2010 - CPAA - Melbourne

^[H25]Appendices

Item 1

Board of Taxation's review of the legal framework for the administration of the goods and services tax - implementation of recommendation 17

The Institute Of Chartered Accountants in Australia (ICAA) and the Taxation Institute of Australia (TIA) presented the following agenda items to the NTLG GST Sub committee on 25 August 2010 and 19 August 2010 respectively:

1. 'We propose to submit an agenda item to the NTLG GST forum regarding the shortcomings of the consultation process on this reform, and to seek clarification on the ATO's proposed practice and procedures to manage the risks of uncertainty and administrative issues following the withdrawal of thousands of public rulings, and pending the reinstatement.' (ICAA)

2a. 'The TIA requests the ATO to explain what steps it has taken, if any, to notify industry associations that have obtained rulings from the ATO over the past 10 years, that such rulings are no longer binding on the ATO (because they are treated as public indirect tax rulings and not private indirect tax rulings) under the new rulings regime? If nothing has been done by the ATO to date, does it propose to do so? The TIA notes that the ATO undertook to attend to the transition of public rulings etc. but that in the ATO's 30 June 2010 media release the ATO states 'to minimise the impact on taxpayers, we will not undertake compliance activities…where the industry association, or members of that association, contact us about the advice by 30 June 2011'. Clarification is required from the ATO as to whether it is initiating contact with relevant industry associations regarding the approximately 1,000 affected 'other advices'.

2b: The TIA notes that the ATO explained at the meeting on 24 June 2010 that 'the better position regarding these 'other advices' was that generally the ruling was not issued to a specific entity'. The TIA requests the ATO to reconsider the definition of 'private indirect tax ruling'. In particular, the TIA asks whether the definition of private indirect tax ruling which means 'an *indirect tax ruling given to a particular entity', allows greater flexibility than the ATO has been prepared to accept, particularly acknowledging, as the Commissioner does, that these advices were not published to the public. (cf. definition of 'indirect tax ruling'). In addition, the ATO is asked to comment on whether any industry association rulings have been held to be private indirect tax rulings either because on their face (or in combination with the application for the ruling request) it was clear that the ruling was being given to a particular entity or entities?' (TIA)

ATO response

The ATO recognises that there are concerns among some taxpayers, their advisors and their industry associations about the way the changes to the GST rulings regime are being implemented. The ATO would welcome views and ideas from NTLG members as to how the ATO could improve our current approach to implementing this new regime. The following provides a general overview of that approach.

The issue of aligning the advice regimes was first discussed with the NTLG GST Sub-committee in June 2009 and ATO consultation with this forum and the various ATO industry forums has been ongoing. The implementation of the rulings regime has been a phased process commencing with the review of the entire contents of www.ato.gov.au (excluding GSTRs and GSTDs as these products automatically transitioned across as public rulings to the new regime) to ultimately determine what issues/ products would continue to be public rulings post 30 June 2010 and what issues products would require further consideration post 1 July 2010.

At each stage of the process the ATO has endeavoured to seek comments from the NTLG GST Sub-committee and industry forums regarding what issues and products should continue to be public rulings and what are the most significant issues/products for conversion to public rulings products. A chronological history of the consultation process can be located in appendix A at the end of the response.

The ATO has committed to an extensive communication strategy for the changes to the indirect tax ruling regime and established a priority escalation process to review 'other advice' rulings. This process will enable any risks and administrative issues to be addressed that result following the change in status of these rulings. Steps taken include:

Bulk mail leverage to all tax practitioners detailing the changes to the indirect tax ruling system and the process for addressing taxpayers concerns they may have about 'other advice' they are relying on. It also outlined what practitioners can do if they have concerns about this advice. This letter was also sent to all identifiable industry associations who had received this type of advice from the ATO. The letter issued on 30 August 2010 to approximately 31 000 tax practitioners and industry associations.

Frequently asked questions have been loaded on the ATO website detailing the changes to the ruling system and what to do if you have any concerns. The links to this page can be found at Adopting the general rulings system for indirect taxes and excise frequently asked questions .

A Learning and Development package for the changes to the ruling regime that has been circulated to relevant ATO officers will be made available on the ATO website.

Communication via Elink, the BAS provider's newsletter, BAS update newsletter, Large Business newsletter and SME newsletter.

NTLG updates and discussions with industry forums.

A process practice statement titled 'The Escalation process for GST Other Advice' will be released for external consultation shortly.

While there are 3,470 potential other advice cases on our systems, we undertook sampling exercises to determine how many of these cases are in fact the 'other advice' at issue. We identified that around two thirds of these advices had been classified incorrectly, such as because they were in fact general advice. For example the advice was provided to a tax agent and related to a taxpayer's affairs and would have been a private ruling however the name of the individual taxpayer was never provided.

We also know that over 70% (79% in our second sample) of the 'other advice' is covered by a public ruling. It should also be noted that the ATO has gazetted 91 public rulings since 2002 (six of which have been withdrawn). It is therefore probable that many of the issues are addressed in these subsequent publications.

Taking these matters into account it appears that the concerns raised are relevant to a far lesser number - about 350 advices from our analysis. Members of an industry association will be protected where they rely on that advice prior to 30 June 2010, with the Commissioner not taking compliance action if that reliance continues up until 30 June 2011. This will be the case even if compliance activities are undertaken in later years, such as 2013. Where the advice to an industry association is correct, there is no shortfall that would be determined should compliance activities be taken on that member.

Since 1 July 2010 the ATO has received requests to review 29 Other Advices that were all issued to the Banking and Finance sector, one application for a Class Ruling and one objection to a private indirect tax ruling. Additionally, there has been no spike in the number of private ruling applications.

Status of all GST Advice published at 1 July 2010

Updates to the NTLG GST sub-committee on 4 June 2010 provided details of all products to be labelled as public rulings prior to 1 July 2010 and comments invited on those issues not identified for labelling. In addition, the ATO strategy for GST 'other advice' was circulated in an update on the same day.

The process of labelling products was also discussed at the meeting on 24 June and comments were invited on issues members considered significant for conversion to a public ruling product. A copy of all the labelled and unlabelled products as at 30 June were provided to members on 2 August and comments sought on the prioritisation of issues for conversion.

Industry issue registers

There were 1,384 issues contained in industry issue registers that have been reviewed for the enactment of Schedule 2 of Tax Laws Amendment (2010 GST Administration Measures No. 2) Bill 2010. There are 879 issues or 64% that are not interpretative, 363 or 26% that are interpretative but are covered by another public ruling and 142 or 10% that are interpretative and being considered for whether they are to be labelled as a public ruling.

Since 4 June 2010, the number of precedential industry issues reduced to 126 as a result of updates to reflect legislative amendments. Of these 126 issues, 95 have been labelled as public indirect tax rulings with the remaining 31 issues being included in the panel review process.

GST Publications

There were 288 GST publications that have been reviewed for the enactment of Schedule 2 of Tax Laws Amendment (2010 GST Administration Measures No. 2) Bill 2010.

At 4 June 2010, there were 17 precedential GST publications and one of these (Detailed Food list) has been labelled as a public ruling. The remaining 16 issues being included in the panel review process.

Status of current Consultation/ Prioritisation process

An ATO panel consisting of representatives from the Centres of Expertise, GST Risk & Intelligence and Advice & Dispute Resolution and other subject experts reviewed the precedential products not labelled as public rulings as at 30 June 2010.

The aim of this phase of the review was to make recommendations regarding the prioritisation of these issues/products for conversion to a public ruling product or inclusion in an existing public ruling product. Comments from members of the NTLG GST Sub-committee and industry forums have been considered in making these recommendations and will also be considered in the next stage of this process.

The following recommendations have been made regarding the priority for considering issues for conversion to or inclusion in public rulings. Further detail regarding these recommendations and comments provided by forum members is provided in Appendix B. We will discuss this feedback at the meeting on 21 September 2010 so that we have a final list of recommendations, along with comments provided by forum members to be considered by the members of the Public Rulings Panel involved in this process.

GST and Serviced Apartments in retirement villages (NAT 12761)

Retirement Villages Issue Register issue 10: When is a supply of accommodation in privately funded facilities GST-free under subsection 38-25(4) of the GST Act?

Retirement Villages Issue Register issue 11: What is the GST treatment of deferred management fees in freehold situations?

GST and Medical Aids and Appliances (NAT 4651)

Tourism & Hospitality Issues Register issue 19: Frequent flyer points/loyalty programs

Primary production Issue Register issue 6.2.3: Is the sale of farm land GST-free if a farming business has been carried on for 5 years immediately prior to the sale, except for a break which occurs as a consequence of sale?

Correcting GST Mistakes (NAT 4700)

Telecommunication issue register issue 3: GST treatment of specific telecommunication supplies (GST-free supplies)

CCCRID Part 1 Q5: ABN and GST Registration

Please refer to Attachment B for further feedback - some of which needs to be clarified.

In relation to any food issues and products, the ATO is working with the industry to progress their concerns.

The remaining issues not shown on the highest priority list, remain important, however they are considered to have a lower priority than those listed above. The ATO is committed to working consultatively to best address these issues and remain open to suggestions about the conversion of these other items to public rulings and invite further submissions from members of the NTLG GST Sub-committee.

The next stage

The outstanding issues will be considered by members of the Public Rulings Panel and senior ATO representatives on 22 September 2010. The discussion will include considering:

the prioritisation of the most significant issues for conversion to or inclusion in a public ruling product, including whether those identified above should be the highest priority, or whether there are additional issues that should be regards as a priority

the form in which binding advice on these issues should be given (for example, an addendum to an existing public ruling, a new public ruling or determination)

the extent of any changes required to the information in order to be converted to new products or included in existing products.

The NTLG Public Rulings Steering Committee is taking an overseeing role and will be confirming the Panel's recommendations. It is anticipated that the recommendations arising from this process will be circulated to members of the NTLG GST Sub-Committee, after the NTLG Public Rulings Steering Committee confirms the priorities, which is expected by mid October.

In addition we would like to provide members with a copy of a Discussion Paper provided to the NTLG on 18 August. The aim of it is to facilitate consultation between the ATO and the community as part of the process of implementing Recommendations 2 and 4 from the Inspector-General of Taxation's report on the Review into delayed or changed ATO views on significant issues.

This paper takes the form of a Draft Law Administration Practice Statement (PSLA) and highlights issues for consultation.

Discussion paper
Matters the Commissioner considers when determining whether the ATO view of the law should only be applied prospectively.

To view the discussion, please go to Annexure item 1 , located at the end of Appendix Item 1

As this is an early draft, the document does not reflect a final view and should therefore not be widely distributed or published.

ATO response to TIA question regarding definition of 'a particular entity'

In addition to the discussion at the meeting of 24 June 2010, we refer to the ATO paper 'ATO Strategy for Other Advice after 1 July 2010', issued on 4 June 2010, and the written response in relation to Tax Institute questions of 28 June 2010, which we issued on 13 July 2010.

This matter was given careful consideration by senior officers within the ATO prior to the paper issued on 4 June 2010. It has subsequently been given further in-depth consideration by senior ATO officers since the last sub-committee meeting.

The TIA asks whether the definition of private indirect tax ruling allows greater flexibility than the ATO has been prepared to accept.

The ATO notes that the definitions of private indirect tax ruling and public indirect tax ruling as they applied before 1 July 2010 were mutually exclusive. A ruling was a private indirect tax ruling if it was 'given to a particular entity' and a public indirect tax ruling otherwise. Although in one sense an advice issued to an industry association was given to a particular entity, namely the industry association, we do not prefer the view that it is a private indirect tax ruling given to the industry association, because it was not for the industry association's use personally. In general, the ATO does not think that each member of the association could be construed as the particular entity to whom advice was given.

At least in most cases, the advice was provided for a class of entities to rely on, rather than a specific entity. Accordingly, in the ATO's view, the advice should not be regarded as a private ruling either to the industry association or to its members. The advice was not intended for use by the entity to which it was given (that is, an industry association or tax professional), but was intended as advice that, while not given to the entity's members or clients as a private ruling, could be relied on by them. As such, where the advice otherwise meets the definition of an indirect tax ruling, we consider that the advice would be a public indirect tax ruling.

The ATO acknowledges that there may be specific instances of industry association advice where, having regard to the particular features of the advice, it might be construed as a private indirect tax ruling given to one or more particular members of that association. For example, the naming of one or more particular members in the advice may be relevant. The ATO is prepared to consider and provide a view on any specific examples where an industry association or a member of the association considers that such an advice was a 'private indirect tax ruling'.

To date, the ATO has been asked to specifically comment in one case on whether an industry association advice was a private indirect tax ruling. To maintain confidentiality, we will not reveal our final response in respect of that advice.

^[H27]Appendix A

A chronological history of consultation

Date	Who	What
12 May 2009	Public Consultation by Treasury	Discussion paper on Rulings regime issued.
17 June 2009	ATO to NTLG	ATO commenced discussions with the NTLG GST Sub-committee and members were invited to consider any issues of concern for discussion at the following meeting.
16 September 2009	ATO consultation with ATO sponsored industry partnerships and the NTLG. Feedback requested by November however this was extended in many cases.	Details of the ATO approach to aligning the advice regimes were provided along with the outcomes of the initial phase of the review of GST publications and members were again invited to comment on issues of concern. The primary focus of this consultation was the industry issue registers, material published on ato.gov.au and a range of GST publications. The outcome of the review of the material on the ATO website meant that approximately 10 percent of the material was considered precedential at this time. Individual industries were provided with information pertaining to their particular industry only with general information about what was happening more broadly, unless they specifically asked for other information. In addition the ATO flagged the issue of 'Other Advice' at this meeting and advised that it would be useful for members to identify any of these advices they were concerned about so that they could be transitioned. No advices of this kind were brought to the ATO's attention.
4 November 2009	ATO attends Charities Consultative Committee (CCC)	ATO asked to attend CCC to provide overview of the BOT recommendation regarding rulings. No issues raised.
December 2009	ATO to NTLG and Industry forums	The meeting of the NTLG GST Sub-committee meeting was cancelled, however, an update was provided to members and industry forums. The update stated that while feedback from members of both that forum and the various industry forums had been requested by late November the only comments that had been provided regarding specific publications suggested that seven issues on one register, five GST Advices and three publications should be considered for inclusion in a formal ruling product.
22 January 2010	Treasury	The exposure draft addressing this measure was released by Treasury and the public consultation period closed on 22 February.
17 March 2010	ATO attends NTLG. Feedback requested within 4 weeks however extensions provided	ATO provided an update at the NTLG GST Sub-committee meeting on the next phase of the ATO review of all indirect tax products available on ato.gov.au and the legal database (other than the formal public rulings and determinations).
22 March 2010	Professional body raised concerns about 'Other Advice' with Treasury.	The ATO was made aware of the concerns raised by the professional body with Treasury regarding 'Other Advice'. The ATO considered options to progress these concerns given the transitional provisions in the draft law.
31 March 2010	ATO attends Telecommunications Industry Liaison Group	ATO attended TILG to explain ATO approach to implementation of rulings regime at specific request of industry. Members provided specific feedback and this was addressed as part of the ongoing review process of the issues registers.
29 April 2010	Tripartite meeting: professional body, Treasury and ATO	Tripartite meeting held to discuss concerns raised by a professional body regarding 'Other Advice'.
4 May 2010	ATO to NTLG and Industry forums	The outcomes of the second phase of the review of material were circulated to the NTLG GST Sub-committee and the industry forums at the beginning of May. The second phase of the review focussed on recommendations regarding the future of material reviewed.
4 May to 4 June	ATO undertakes third phase of the review of material impacted by the introduction of the new rulings regime.	Comments by the industry forums and tax practitioners were further considered. In particular, comments provided by the TIA were taken on board, and after further internal consideration, it was determined that we had taken too rigorous an approach to determining the suitability of products for conversion to public rulings, and that slightly different criteria should be considered. This different approach was accordingly adopted in the third phase of the review.
4 June 2010	ATO to NTLG and Industry forums. Response date by 30 July for comments on precedential issues not intended to be labelled as public ruling by 30 June. Comments requested for any urgent issues to be labelled by 30 June to meet transitional provisions of law.	Outcomes of the third phase of the review of material and the draft ATO strategy regarding 'Other Advice' were circulated to the NTLG GST Sub-committee and industry forums. At this time 152 issues/products from a total of 1800 issues/products were determined as being the primary source of ATO view. NTLG members and industry forum members were encouraged to work with the ATO and provide a list of issues of most significant concern to them and why they should be labelled as a public ruling product. ATO originally sought their feedback on these issues/products. 96 of these issues/products were labelled as public indirect tax rulings. The ATO acknowledged that the draft ATO strategy in relation to Other Advice could have been circulated earlier. However, it is also noted that the ATO first became aware of concerns in relation to Other Advice raised by a professional accounting body in late March 2010. The ATO participated in a meeting with Treasury and the professional body on 29 April and discussions continued from that time.
11 June 2010	Food Classification Working Group (FCWG)	ATO representatives met with FCWG members to discuss specific concerns raised regarding food classification products.
24 June 2010	ATO at NTLG meeting	Second Commissioner Bruce Quigley addressed the NTLG meeting. Second Commissioner Mr Quigley stated that the ATO was seeking an objective view on the most pressing issues to be resolved. The ATO updated the meeting with respect to: issue registers and other products on the ATO website confirming that approximately only 4 per cent of issues were both precedential and not labelled as a public ruling by 30 June outlined the ATO strategy regarding 'Other Advice' including the Commissioner's approach to compliance action, and flagged with members the ATO approach to the precedential issues not labelled as public rulings, that is, the priority process involving members of the Public Rulings Panel.
2 August 2010	ATO to NTLG and Industry forums. Comments requested in relation to precedential issues not labelled as public rulings by 30 June (also requested on 4 and 24 June) with a response date of 18 August and extensions provided.	Documents were provided in response to a request from industry and some NTLG GST Sub-committee members for a collated list of what was labelled and not labelled as a public ruling as at 30 June 2010 (separate lists were provided for issue register entries, GST Advices and other GST publications).. The ATO took the opportunity to again seek feedback from members as to the most significant issues for conversion to on inclusion in public rulings. Although the timeframe for this request was short there had already been an earlier 8 week period for comments.
17 August 2010	ATO attends TILG	ATO provides update to TILG regarding the Telecommunications industry register.
26 August 2010	Food Classification Working Group (FCWG)	ATO representatives met with FCWG to discuss specific concerns raised regarding food classification products.

^[H28]Appendix A - Steps involved in determining whether to only take action to apply the ATO view of the law prospectively

^[H29]Appendix B

Prioritisation recommended by ATO panel

Table 1: Priority products not currently subject to other processes

Issue	Description	Recommendation
1.Fact Sheet: GST and Serviced Apartments in retirement villages (NAT 12761)	This document is the primary source of the ATO view on this topic. It restates the law in part but provides additional explanations which are not evident in the legislation. Provides advice as to the requirements in relation to evidence required in substantiating the continuing need for services and the conditions required for a written agreement. Professional bodies rated Retirement Village (RV) issues as a priority.	It is recommended that the fact sheet and issue 10 on the RV issues register be combined in a GST public ruling. They are regarded as high priority because of the extent they are relied on by the industry and the fact that there is no alternate source for the ATO view.
2. Issues Register: Retirement Villages Issue 10:	When is a supply of accommodation in privately funded facilities GST-free under subsection 38-25(4) of the A New tax System (Goods and Services Tax) 1999 (GST Act).	See above.
3. Issues Register: Retirement Villages Issue 11:	What is the GST treatment of deferred management fees in freehold situations? Professional bodies rated Retirement Village (RV) issues as a priority.	It is recommended that this issue be converted into a GST Determination. The issues addressed in this item are considerably different from those in the above two items. In particular, this deals with a situation where freehold interests are sold. We do not think a combined product is warranted. We also think that if an attempt was made to combine the three issues in 1 product, it might slow the conversion process down.
4. Issues Register: Tourism & Hospitality 19: what is the GST treatment of travel booked using frequent flyer points	The issues register item explains the approach to frequent flyer programs. The broader ATO view about loyalty programs comes from a media release issued in March 2000. Rated by professional bodies as a priority.	The question of the GST treatment of loyalty programs more generally has been raised by the professional bodies at the NTLG Public Rulings Steering Committee, with a suggestion that we deal with the issue via a public ruling. The ATO is not convinced that there is sufficient risk in respect of this issue to prepare a public ruling that applies generally to loyalty programs. We note that aspects of the relevant issues are covered in different rulings. However, it may be appropriate to prepare a Determination on the frequent flyer program issue.
5. Issues Register: Primary Production 6.2.3: Is the sale of farm land GST-free if a farming business has been carried on for 5 years immediately prior to the sale, except for a break which occurs as a consequence of sale?	There is some ambiguity in the wording of section 38-480 of the GST Act which is clarified by this issue	The issue concerns whether you can have a temporary break in the carrying on of a farming business due to the sale of farm land without precluding the operation of section 38-480 of the GST Act. It is noted that this issue is similar to that addressed in item 6.2.1(b) of the Primary Production Partnership Issues register, which deals with temporary cessation of farming activities such as due to holidays being taken, or land left fallow. That item has been labelled as a 'public ruling' and as such continues to have effect. Arguably, the reasoning in 6.2.1(b) can be applied to this issue. However, it appears to us that it may be better to produce a Determination that covers the issue in 6.2.3, and possibly the determination could extent to the more general issue about breaks in activity in 6.2.1(b).
6. Issues Register: CCCRID Part 1 Q5: ABN and GST Registration.	No other existing ATO view on: 'an independent system of accounting for Division 63'.	It is recommended this issue be replaced with a GST Determination.
7. Fact Sheet: GST Medical aids and appliances (NAT 4651)	This document provides guidance on section 38-45 of the GST Act for suppliers of medical aids and appliances. The GST Pharmaceutical Health Forum Issues Register and the Health Issues Register also provide detailed explanation. Health generally was rated as a priority by professional bodies.	We consider that this issue is suited to the development of a GST public ruling.

Table 2: Priority products currently subject to other processes

Issue	Description	Recommendation
1. Fact Sheet: Correcting GST Mistakes (NAT 4700)	Applies the power of general administration and explains policy, practices and procedures. Links to MT 2008/1 on penalties and meaning of 'reasonable care', etc. Rated as a priority by professional bodies.	We agree this is an important product. It explains the exercise of the Commissioner's powers of general administration in relation to a specific issue. In addition the discussion paper on the Board of Taxation self assessment measure, issued on 11 September 2009, indicated potential changes to correcting mistakes. Consequently, the preferred approach is to await the progression of this proposal before considering the content and status of any new product. It does not appear that this product is capable of being converted to a public ruling because it is not interpretative.
2. Issues Register: Telecommunication 3: GST treatment of specific telecommunication supplies (GST-free supplies)	Rated as a priority by professional bodies.	A minor number of unresolved issues have been considered as part of a separate process. There is no recommendation for a GST public ruling or Determination as part of this prioritisation exercise. Recent legislative changes relating to global roaming have impacted this issue and these issues are being progressed by the ATO in consultation with the telecommunication industry.
3. Food classification products	Rated as a priority by industry bodies.	The ATO is continuing to work with the Food Classification Working Group to address their concerns.

Prioritisation recommended by members of the NTLG GST-Sub-committee and industry forums

External comments were received from three professional bodies in response to the ATO's request for comments and suggestions in relation to whether the products should be included in a new or existing public ruling and the priority for developing new public rulings and amending existing public rulings.

The comments received were:

One body would like to table the following topics for consideration as priority issues for public rulings, by the relevant panel to be formed:

1.Charities (including, if possible, or as a separate document guidance on market value rules)

2.Health

3.Mining and Energy (including coverage of despatch, demurrage, over/underlifts).

The second comments received were not specific and expressed a request to be involved in any future discussions on possible replacement products for the retirement village industry.

The third comments were as follows:

1. Based on the review that we have done, however, we recommend that the following documents, as a minimum, be converted into public ruling products:

¦ Correcting GST mistakes

¦ Treatment of travel booked using frequent flyer points (Tourism and Hospitality Issues Register, Issue 19)

¦ Treatment of specific telecommunication supplies (Telco Industry Partnership Issues Register, Issue 3)

¦ Retirement village issues (Retirement Village Industry Partnership Issues Register, Issues 2, 7, 9.2, 10, 11 and 12) 

Many of the external bodies priorities were consistent with those identified by the internal process and were taken into account in arriving at the recommendations regarding the priority of each issue.

The feedback received from one of the external bodies indicated that the prioritisation process was difficult to undertake, given the broad range of issues and the unfamiliarity with some of the issues.

Prioritisation recommended by members of the NTLG GST-sub-committee and industry forums

1. Charities (including, if possible, or as separate document guidance on market value rules)

Please note:

¦ high priority recommended by ATO: CCCRID Part 1 Q5: ABN and GST Registration.

¦ lower priority recommended by ATO: CCCRID Part 1 Q14 and Part 4 Q5

¦ the following issues in the Charities Consultative Committee Resolved Issues Document were labelled as public indirect tax rulings.

Part 1: ABN and GST Registration

Question 6: Can a non-profit sub-entity of an entity that is endorsed as a tax concession charity apply the GST concessions that the parent entity has access to?

Part 3: Non-commercial activities of charities, cost of supply and market value tests

Issue 1: How does an entity make a distinction between 'commercial' and 'non-commercial' activities using the 'cost of supply' and 'market value tests'?

Part 6: Second-hand goods

Question 5: Where an endorsed charity receives donated second hand clothing, removes the buttons and/or lace, and sells them, do the buttons and lace retain their original character?

2. Health

Please note:

¦ high priority recommended by ATO: GST and medical aids and appliances (NAT 4651).

¦ lower priority recommended by ATO: Health Issue Register issue 4.a.18 and 3.a.

¦ the following issues in the Health Issue Register were labelled as public indirect tax rulings.

Question 1.a: 'Medical services'

Question 1.a.5: At what point does a new procedure become 'generally accepted' in the definition of '*medical service' in section 195-1? Is it at the time of publication in a reputed medical journal, when recommended by the relevant Australasian medical college or when adopted by MSAC for incorporation in the Medicare Benefit Schedule?

Question 1.b: *Medical services rendered for cosmetic reasons

Question 1.b.1: What is the GST status where a doctor provides an item number for a cosmetic procedure, however the health fund disallows the claim and states that it is cosmetic. Does the health funds determination of whether a procedure is cosmetic override the doctor's determination for GST purposes?

Question 1.b.2: What is the GST status of anaesthetic services rendered to patients undergoing procedures for cosmetic reasons for which a Medicare benefit is not payable?

Question 1.c: Goods supplied 'in the course of supplying' a GST-free *medical service

Question 2.a: Section 38-10 Other health services

Question 2.a.1: Are the services of psychotherapists and psychoanalysts GST-free?

Question 2.a.2: Is the service of a hypnotherapist GST-free?

Question 2.a.11: Section 38-10(1) (b) of the GST Act requires that the supplier of other health services be a recognised professional. In many instances the supplier of the service is a practice company or partnership which is not itself a recognised professional. Will GST apply in this scenario?

Question 2.a.13: What is the GST status of health services provided to more than one person at the same time?

Question 2.a.13.i: Are antenatal classes GST-free?

Question 2.a.13.ii: Are breast-feeding classes GST-free?

Question 2.a.13.iii: Are the activities of psychologists and other allied health professionals that are primarily directed at illness prevention and health promotion GST-free? Specifically, does the GST-free status of psychological health services cover prevention for all psychological conditions or will it only apply in circumstances where there is a predictable or high likelihood of the development of a psychological condition such as stress?

Question 2.a.15: Are denture repairs or relines GST-free?

Question 2.b.4: A person is qualified as a recognised professional in both Acupuncture and Naturopathy (or Chinese herbal medicine). The patient is treated with a range of approaches, sometimes involving the use of acupuncture and sometimes not. A herbal formulae is usually customised and dispensed at each treatment. Herbal medicine is part of the scope of practice of acupuncture, but this practitioner has further skills and is recognised in their own right as a herbalist/naturopath as well. Is the herbal formulae always GST-free by virtue of the recognised professional being an acupuncturist?

Question 2.c: Additional requirement for goods supplied 'in the course of supplying' a GST-free 'other health service' (herbal medicine and naturopathy only)

Question 4.a.8: Is a personal alarm unit a 'medical alert device' for the purposes of Item 33 of Schedule 3?

Question 4.a.9: Is the charge for the ongoing monitoring of a 'medical alert device' GST-free?

Question 4.a.11: What is the meaning of 'artificial teeth' for the purposes of section 38-45 and Schedule 3 - Item 30?

Question 4.a.13: Is the installation of medical aids and appliances GST-free under section 38-45?

Question 4.a.15: When does a lens become a 'lens for prescription spectacles' for the purposes of subsection 38-45(1) and Item 155 of Schedule 3 of the GST Act?

Question 4.a.16: Are lens treatments including coatings/tints (hard coat, multicoat, tints, UV filter, mirror coat) subject to GST?

Question 6.a.3: Private health insurance is GST-free. Does this include Overseas Student Health Cover policies?

Mining and Energy (including coverage of despatch, demurrage, over/underlifts).

Please note:

¦ lower priority recommended by ATO: Mining & Energy Issue Register - Refinery exchange and borrow and loan transactions.

¦ the following issues in the Mining & Energy Issue Register were labelled as public indirect tax rulings.

Chapter 1: Demurrage and dispatch

Chapter 3: Underlifts/overlifts within a GST joint venture

Chapter 5: Coal loans and borrows

Chapter 8: Precious metal refining

Correcting GST mistakes: also rated as a high priority by the ATO, however, please refer to comments in table 2 regarding this product.

Treatment of travel booked using frequent flyer points (Tourism and Hospitality Issues Register, Issue 19): also rated as a high priority by the ATO

Treatment of specific telecommunication supplies (Telco Industry Partnership Issues Register, Issue 3): also rated as a high priority by the ATO

Retirement village issues (Retirement Village Industry Partnership Issues Register, Issues 2, 7, 9.2, 10, 11 and 12) 

Please note:

¦ high priority recommended by ATO: issues 10 and 11.

¦ lower priority recommended by ATO: issues 2, 7, 9.2 and 12. Issue 12 is related to the draft public ruling regarding retirement villages.

^[H30]Annexure 1

When the Australian Taxation Office will not take action to apply its view of the law in past years or periods

Purpose of this discussion paper

The purpose of this paper is to facilitate consultation between the Australian Taxation Office

(ATO) and the community as part of the process of implementing Recommendations 2 and 4 from the Inspector-General of Taxation's report on the Review into delayed or changed Australian Taxation Office views on significant issues.

Status of this discussion paper

This paper takes the form of a draft law administration practice statement and highlights issues for consultation.

This paper is prepared solely for the purpose of obtaining comments from interested parties. All views in this paper are therefore preliminary in nature and should not be taken as representing either an ATO view or that the ATO will take a particular view.

This paper is not a publication that allows you to rely on it for any purpose and is not intended to provide you with advice or guidance, nor does it set out the ATO's general administrative practice. Therefore, this paper does not provide protection from primary tax, penalties or interest for any taxpayer that purports to rely on any views expressed in it.

Consultation process

The ATO invites comments on the paper and particularly the issues specifically highlighted for consultation.

We consider that the examples provided at the end of the document may be of particular assistance to taxpayers and therefore we are most interested in receiving feedback on these.

We would also like to receive details of additional situations you consider would be appropriate to include as examples.

Comments are due by 30 September 2010 and should be sent to the contact officer listed at the end of this paper.

Once we have considered these comments, a revised version of the practice statement will be published for external consultation in accordance with the ATO's usual procedure for the publication of Law Administration Practice Statements.

Kevin Fitzpatrick
Chief Tax Counsel
Daft Law Administration Practice Statement

Subject:	Matters the Commissioner considers when determining whether the ATO view of the law should only be applied prospectively
Purpose:	To explain the procedures for ATO officers to follow and the matters to take into account in determining whether the ATO should not take action to apply its view of the law in past years or periods.

1. Scope

This draft practice statement:

¦ outlines procedures to be followed and the factors to be considered by ATO officers in relation to any circumstance in which the ATO is considering applying its view of the law

¦ must be followed in any circumstance where an ATO officer applies the ATO view of the law. In this context, applying the ATO view of the law includes undertaking compliance activities, providing interpretative advice or guidance or deciding the date of effect of a precedential ATO view document, such as a public ruling or ATO interpretative decision.

2. Background

This draft practice statement has been developed in response to the recommendations of the Inspector-General of Taxation (IGoT) in the report Review into delayed or changed Australian Taxation Office views on significant issues released in March 2010. 3

Legal framework

In considering the circumstances when the ATO will not take action to apply its view of the law in past years or periods, it is important to have regard to the legal framework under which the ATO administers the taxation and superannuation laws. As a starting point, the law operates from the date of effect of the relevant provision and, accordingly, the ATO would usually apply its view from this date. The legal framework does provide exceptions to this general rule and this is explained below.

Under the current self-assessment regime (or self-actuating basis for the indirect tax laws 4 ), taxpayers' returns (including activity statements) are generally accepted at face value, subject to post-assessment audit or other verification by the ATO. Under this system, a taxpayer's statement in their return is taken to represent their view of how the law applies to their circumstances. 5

Rulings regime

In order to reduce the risks of uncertainty for taxpayers the current legislative framework provides protection to taxpayers through the public, private and oral rulings regimes. For example, the private rulings regime offers a taxpayer the opportunity to obtain certainty about the application of the tax laws in relation to their specific tax affairs.

A taxpayer who follows a ruling that applies to them can be assured that the Commissioner is bound to assess them as set out in the ruling in relation to a particular matter. 6 When the Commissioner is bound by the ruling and the correct application of the law is less favourable to a taxpayer than the ruling provides, the ruling protects the taxpayer against the law being applied by the Commissioner in that less favourable way.

The application date for a public ruling is generally from the time it is published or from the earlier or later time specified in the ruling. 7 In addition, a public ruling that is withdrawn continues to apply to schemes that had begun to be carried out before the withdrawal. 8 However, this rule does not apply to an indirect tax public ruling or an excise public ruling and therefore provides the Commissioner with greater flexibility in relation to these types of rulings.

Even if a taxpayer does follow a ruling, the Commissioner may apply a relevant provision of the law in a way that is more favourable for them than is set out in the ruling if the Commissioner subsequently comes to the view that the ruling is incorrect and it disadvantages the taxpayer (provided the Commissioner is not prevented from doing so by a time limit imposed by the law). 9

The ATO's approach for determining the date of effect of public rulings is set out in Taxation Ruling TR 2006/10. 10 The procedures outlined in this practice statement are consistent with this approach.

Administratively binding advice

PS LA 2008/3 provides that, in the interests of sound administration, the ATO's practice has been to provide administratively binding advice in a limited range of circumstances. 11

PS LA 2008/3 explains that administratively binding advice is not legally binding on the Commissioner. When the time comes to assess liability to tax, the law as it then exists must be applied to the facts as established at that time. 12 However, the ATO will stand by what is said in such advice and will not depart from it unless:

¦ there have been legislative changes since the advice was given

¦ a tribunal or court decision has affected our interpretation of the law since the advice was given, or

¦ for other reasons, the advice is no longer considered appropriate - for example, if commercial practice has changed, the advice has been exploited in an unintended way, or the advice is found on reconsideration to be wrong in law.

PS LA 2008/3 states that where the ATO departs from its earlier administratively binding advice because of a legislative change, it will apply the change from the date of effect of the amending legislation.

PS LA 2008/3 also states that if the ATO departs from its earlier advice for other reasons, normally departure from that advice would be on a prospective basis only, unless particular circumstances warrant another approach (for example, if the advice has been exploited in an unintended way). The procedures in this practice statement are consistent with this approach.

Other circumstances

In other circumstances the law will apply to both past and future transactions. The existence of uncertainty in the interpretation or application of the taxation laws is a matter that may affect the amount of penalty imposed or remitted.

The law also provides protection for taxpayers from penalties and interest charges where a taxpayer self assesses in accordance with ATO guidance or a general administrative practice. 13

[Need to give further consideration to how this practice statement applies to advice provided in respect of the Superannuation Industry (Supervision) Act 1993.]

Powers of general administration

The Commissioner has powers of general administration which can be exercised in relation to management and administrative decisions. Section 44 of the Financial Management and Accountability Act 1997 (FMAA) also imposes a general obligation on the Commissioner to manage the affairs of the ATO in a way that promotes proper use of the Commonwealth resources for which the Commissioner is responsible. In this context, 'proper use' means that the Commissioner needs to make decisions about the allocation of ATO resources to compliance and other activities which promote the efficient, effective and ethical use of those resources. However, in doing so he must still comply with the law. 14

The Commissioner cannot use his powers of general administration to accept non-compliance with the law. 15 However, as part of his duty of good management, the Commissioner can decide not to undertake compliance action on a particular issue for prior years or periods. Law Administration Practice Statement PS LA 2009/4 discusses the exercise of the Commissioner's powers of general administration. It includes a range of factors 16 the Commissioner will take into account in deciding whether to undertake compliance action in relation to prior years or periods.

This practice statement does not replace or modify PS LA 2009/4. One of the factors in PS LA 2009/4 mentioned at paragraph 23 of Appendix B is whether the ATO has contributed to non-compliance. This practice statement amplifies and clarifies this specific factor and explains the practices and procedures to be followed.

The ATO will not take action to apply its view of the law in past years or periods where it is considered appropriate not to do so after having regard to the approach and factors outlined in this practice statement.

3. Statement

Before finalising or applying any product, position, opinion or view of the law, ATO officers are required to determine whether there are circumstances which would make it appropriate to only take action to apply the ATO view of the law on a prospective basis.

To do this ATO officers must:

¦ form an opinion on whether previous ATO publications or conduct could have reasonably conveyed a different view on a particular issue, and

¦ consider the factors outlined at paragraph 31 below.

Appendix A illustrates this process diagrammatically.

The factors outlined at paragraph 31 below are not exhaustive and are not intended to limit the Commissioner's powers. No one factor by itself is conclusive. ATO officers should consider all the factors and any other relevant circumstances relating to their particular case and weigh these up in reaching an overall conclusion. The weight to be given to individual factors will differ depending on the facts and circumstances of the particular case.

If the ATO view is to apply only on a prospective basis, this must clearly be stated in the document, advice to, or communication with, the taxpayer and the reasons for this decision provided.

If the issue of whether the ATO view should apply only on a prospective basis was specifically raised for consideration during the preparation of the document or raised in the course of conducting compliance activities (for example it was specifically addressed in correspondence between the taxpayer and the ATO or raised as an issue as part of a consultation process), then the taxpayer should be advised of the ATO's decision and reasons for the decision in relation to this matter.

However, if the issue was not raised for such consideration and ATO research does not uncover any evidence of previous ATO publications or conduct conveying a different view, then in most circumstances, there would be no need for ATO officers to provide a written explanation of why the ATO view will apply in past years or periods. When preparing an ATO ID that will have application both before and after its date of issue there is no requirement for the ATO ID to specifically state this. It is only considered necessary to make a statement regarding the application date of the new view if the view is to be applied only on a prospective basis.

EXPLANATION

Consider previous ATO publications and conduct

Before finalising or applying any new product, position, opinion or view of the law, ATO officers are required to conduct their own research (at a minimum, by searching ATOlaw and the ATO external website) and form an opinion whether previous ATO publications or conduct could have reasonably conveyed a different view on a particular issue. Forming this opinion may involve external consultation in appropriate cases, for example, where it is unclear whether specific industry practices exist. 17

Where ATO officers consider 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, this issue must be escalated to the relevant Centre of Expertise or Tax Counsel Network in accordance with the process outlined in PS LA 2003/3. 18

If an ATO officer proposes to change an existing precedential ATO view or an existing general administrative practice this matter must be brought to the attention of the Chief Tax Counsel (CTC) or a Deputy Chief Tax Counsel (DCTC) for a decision. Any new precedential ATO view cannot be published without clearance from a DCTC 19 (or the CTC where appropriate).

The results of this research and the factors outlined below are all matters that are taken into account as part of the process for determining whether the ATO view of the law should only be applied prospectively.

Relevant factors

In considering whether the ATO view of the law should only be applied prospectively, ATO officers must have regard to:

(a) The extent to which the ATO has facilitated or contributed to taxpayers' adopting a view of the law (which may result from an industry practice or position), including whether:

¦ the ATO became aware of the taxpayer or industry practice or position (eg. through compliance activity) but did not challenge it within a reasonable timeframe

¦ the taxpayer or industry practice and position can be reasonably understood from ATO statements on how to apply the law

¦ a general administrative practice 20 supporting the taxpayer or industry practice or position can be deduced from other ATO conduct

¦ the time that has elapsed since the ATO's first awareness of the issue, publicly announcing it would challenge the practice and the time taken to finalise its new view.

¦ The extent to which affected taxpayers have taken reasonable care in adopting their view of the law and whether such a view is not devoid of legal merit.

¦ Whether in a particular case there is evidence of fraud or evasion.

¦ Whether tax avoidance is involved, for example, where a general anti-avoidance provision would apply.

Issue for consultation - Issue 1

In Recommendation 2 of his report, the IGOT suggested that an additional criterion that should be considered in determining whether to only take action to apply the ATO's view of the law prospectively is 'the extent to which the ATO has relied on material not available to taxpayers generally (for example Treasury files and discussions) with respect to its new/clarified view' (see Recommendation 2(c)(iii)).

The ATO has reservations about the relevance of this criterion. Where more than one interpretation is open in respect of an issue the ATO may consult with Treasury in seeking to understand the purpose or object of the particular provision. However, the ATO's view is not determined by any such advice received. The ATO applies legally accepted principles of statutory interpretation which means taking a purposive approach to the interpretation of the law which has regard primarily to the words of the relevant provisions read in the light of the scheme of the Act and the objects of the provisions. Accordingly, the ATO does not consider that this is a matter that is relevant in determining whether to only take action to apply its view of the law on a prospective basis.

Do you consider that this is a relevant criterion for the Commissioner to consider in these circumstances? If so, please outline the reasons for your view.

(a) Taxpayer views and industry practices

In some instances, industry practices or views adopted by taxpayers may develop in relation to particular technical issues. Taxpayers may have adopted a practice that has existed for a number of years in the absence of any specific ATO advice or guidance on the issue. What needs to be considered is whether the ATO has contributed to such a view or practice.

Facilitating or contributing to the development of taxpayer views or an industry practice or position requires more than merely either providing a view in, for example, a private ruling or not publishing a view on the issue. It also involves more than conducting compliance activities in relation to a taxpayer who has adopted a particular approach and deciding not to take action in relation to that issue for that particular taxpayer. A decision in relation to a single private ruling or audit would not be sufficient of itself but may be indicative of a wider practice.

Taxpayers and representatives may sometimes conclude that the ATO has a position on an issue based on comments in speeches or at conferences or meetings. In order to minimise any misunderstanding of an ATO position, ATO officers should ensure as far as possible, that their comments are accurately recorded, for example, in records of meetings or conferences.

Whether an industry practice exists would need to be determined by evaluating any relevant evidence to support the practice. This could include published documents on an industry website, academic or conference papers, speeches or minutes from industry forums, ATO publications referring to the industry practice etc. The publication of a single document of itself may not be sufficient to establish an industry practice. However, the publication of a document on the ATO's website that accepts the industry practice would be evidence that the ATO has facilitated or contributed to the establishment of the industry practice.

If it is unclear in a particular case whether an industry practice exists or there is a perception that the ATO has facilitated or contributed to an industry practice then ATO officers should consult with relevant industry stakeholders, usually through the relevant ATO forum for the industry concerned.

In the context of self assessment, simply issuing assessments consistent with the information returned by taxpayers in a particular industry would not by itself amount to an acceptance by the ATO of any industry practice. However, where the ATO:

¦ was aware of the practice

¦ had conducted a series of audits in that industry and determined not to take compliance action in relation to that issue, and

¦ had discussed the issue with relevant stakeholders

¦ then it would be more likely that the ATO would be considered to have facilitated or contributed to the practice.

Where after having conducted research, it is considered that no taxpayer or industry practice exists or that the ATO has not facilitated or contributed to any practice, the onus will then be on taxpayers or their representatives to provide evidence to the contrary.

When is the ATO considered not to have challenged a taxpayer or industry practice within a reasonable timeframe?

What is considered to be a reasonable timeframe for the ATO to challenge a practice will depend on the facts and circumstances of the particular case. If there was evidence of the ATO being aware of a particular industry practice and it did not alert taxpayers or the industry of its contrary view and it did not finalise its view for a lengthy period of time, then this would be a case in which it would be expected that the ATO would apply its view only on a prospective basis.

(b) Taxpayer has taken reasonable care in adopting their view of the law and whether such a view is not devoid of legal merit

Officers should refer to the principles established in Miscellaneous Taxation Ruling MT 2008/1 21 in determining whether a taxpayer has taken reasonable care in adopting their view of the law. Taking 'reasonable care' means giving appropriately serious attention to complying with the obligations imposed under a taxation law.

A taxpayer's or an industry's position or practice is devoid of legal merit if it is very weak, improbable, or has no legal basis. Determining whether the position taken by the taxpayer is devoid of legal merit involves an objective analysis. 22

If the position or practice adopted is devoid of legal merit then it could be expected that the ATO would take action to apply its view of the law in past years or periods.

(c) and (d) Whether there is evidence of fraud, evasion or tax avoidance

In determining whether any anti-avoidance provisions apply, officers should have regard to relevant ATO policy documents for example Law Administration Practice Statement PS LA 2005/24 which is about the application of the general anti-avoidance rules or Law Administration Practice Statement PS LA 2008/10 which is about the application of section 45B of the Income Tax Assessment Act 1936 to share capital reductions.

Law Administration Practice Statement PS LA 2008/6 provides guidance in determining whether there has been fraud or evasion.

In cases where there is evidence of fraud, evasion or tax avoidance then it could be expected that the ATO would take action to apply its view of the law in past years or periods.

Approval process for deciding not to apply the ATO view of the law in past years or periods

In a public ruling (other than a class or product ruling) or a determination a DCTC (or the CTC if appropriate) will decide whether the view should only be applied on a prospective basis. The ATO's Rulings Panel will consider date of effect issues as part of its advice on proposed rulings.

[For class and product rulings, ATO IDs and compliance activities further consideration needs to be given to the appropriate level to approve decisions not to take action to apply the ATO view in past years or periods.]

Examples

The following sets out some examples of how the Commissioner would apply the factors outlined at paragraph 31. The examples are not intended to be exhaustive or prescriptive.

Each decision must be made based on all the relevant circumstances relating to the particular issue.

In all of the examples it is assumed that the view or practice was not devoid of legal merit, and there was no evidence of tax avoidance, fraud or evasion.

Examples of cases where it may be appropriate to only take action to apply the ATO's view of the law on a prospective basis.

Example 1 - ATO aware of existing practice through compliance activity

The Commissioner became aware that taxpayers were taking a particular approach to the application of a provision of the tax law through compliance activities undertaken in relation to a particular industry. The Commissioner agreed that the approach adopted by the industry had some legal merit and was open to taxpayers to adopt. However, the risk associated with this issue was not considered to be high and so the Commissioner, in exercising his duty of good management, determined not to undertake any compliance action in relation to the issue. The practice was referred to in some guidance material that was available on the ATO website.

Some years later, the Commissioner decided to issue a public ruling outlining the Commissioner's views on the application of that provision. The views in the draft and final public ruling were contrary to the existing practice that the Commissioner was aware of through prior compliance activity in that industry.

In these circumstances, it would be appropriate for the Commissioner to not take action to apply the ATO view of the law in past years or periods. The ruling would apply prospectively. This is because the ATO was aware of the existing practice through audit activity and contributed to the continuation of the practice by referring to it in guidance material on the website.

Example 2 - General industry practice established

The ATO issued a draft public ruling in relation to a particular issue.

Prior to the publication of the draft ruling, the ATO made public statements in a fact sheet which was published on the ATO website which contained a view contrary to that in the draft ruling. In addition, contrary views were also expressed and recorded in the minutes of previous National Tax Liaison Group meetings. The taxpayer industry adopted the view made public by the ATO.

As a result of the statements and publication of documents, it would be appropriate for the Commissioner to not take action to apply the ATO view of the law in past years or periods. This is because the ATO contributed to and facilitated the development of the prior industry practice.

Example 3 - Prior ATO view, tax implications of the arrangement entered into by the taxpayer will not take effect for several years after the view is published

The ATO identified a need to issue a public ruling in relation to the application of a provision of tax law to arrangements undertaken by taxpayers that involved long term commitments. In these circumstances taxpayers would enter into a contract in Year 1 but the tax implications of the arrangement, which are to be addressed in the ruling, would not apply until Year 5. There was a previous ATO ruling addressing a more general principle which led to the taxpayer taking a different view in relation to the issues involved in the particular arrangements which were the subject of the new ruling.

Due to the nature of the arrangements involved, when the final ruling was issued, it was determined that the views expressed should be applied only for arrangements entered into after the date of publication of the ruling. It would not apply to arrangements that had already been entered into even though the tax implications of those arrangements would arise after the new view was published.

This approach was adopted because it was considered that if taxpayers had entered into these contracts before the ATO view was expressed they would have had a reasonable argument that the tax implications of the arrangement would have been different based on the previous ATO ruling. Taxpayers may not have entered into the arrangements had they known that there would be different tax implications. This is despite the fact that the tax implications would not arise until some time after the new view was published.

This approach was considered to be appropriate in these circumstances because the ATO facilitated or contributed to the taxpayer's view of the law in relation to the contracts that had already been entered into. Specifically, the ATO accepted that because of the way the earlier, more general ruling was worded, it could be interpreted in a manner consistent with the approach taken by taxpayers. As a result the ATO determined that the most appropriate approach to adopt in these circumstances would be to ensure that the views expressed in the more specific ruling applied only in relation to arrangements entered into after the publication of the ruling.

Example 4 - Existing industry practice not challenged within a reasonable timeframe

In 2010, the ATO published an ATO ID on a GST issue in which the view was contrary to a practice that had been developed by the industry and had existed since the introduction of the GST in 2000. The ATO became aware of the existing practice across the industry through compliance activities conducted in 2005 but did not take steps to challenge or express a contrary view or any concerns about the practice.

In this case it would be appropriate for the Commissioner to not take action to apply his view of the law in past years or periods because the ATO contributed to the industry practice. This is because the ATO became aware of the practice several years earlier but did not challenge it within a reasonable timeframe.

Examples of cases where it would be appropriate to take action to apply the ATO view of the law in past years or periods

Example 5 - Law unclear, no ATO view

The ATO decides to issue a public ruling in relation to an issue. The ATO is not aware of any existing taxpayer practices in relation to the issue. There are two alternative interpretative views in relation to this issue. The ATO issues a discussion paper which sets out both views and identifies a preferred view. It is made clear in the discussion paper that the views expressed are not binding and are for discussion purposes only.

As part of preparing the public ruling, the matter is considered by the Public Rulings Panel. At the panel both views are carefully considered, however it is decided that the alternative view in the discussion paper (that is, the view other than that which the ATO initially preferred) should now be the better view. The draft public ruling is issued and the alternative view becomes the ATO view.

In these circumstances it would be appropriate for the Commissioner to determine that the view should apply both prospectively and in relation to past years or periods because the ATO was not aware of any existing industry practices and the ATO did not contribute to the adoption of any such practices. The views in the discussion paper are not binding on the Commissioner and were outlined in order to facilitate resolution of the issue. The fact that the ATO had not previously publicly stated a view on the issue and the ruling has been issued to clarify uncertainty means that the ruling can have both a past and future application.

Example 6 - Audit issue, no existing practice

The ATO conducts an audit of a taxpayer and identifies that the taxpayer has taken a particular approach to the application of the law in relation to a specific issue that in the ATO's view is incorrect. The ATO amended the taxpayer's return in accordance with the ATO's view. At the time the issue was identified it was not considered that there was a risk of the approach being adopted by taxpayers more generally and so no further compliance action is taken in relation to this issue across the relevant industry.

A year later, the ATO has gathered evidence that the approach adopted by the taxpayer is being applied more broadly across the industry. The ATO decides to undertake compliance activity in relation to high risk taxpayers in the industry. The Commissioner publishes a document on the ATO website indicating that compliance activity in relation to this issue is being undertaken. As a result of the audits it was discovered that there was a common misunderstanding across the sector and the views that taxpayers were adopting were contrary to the ATO view.

In this case it would be appropriate for the ATO to apply its view both prospectively and in relation to past years or periods. The fact that the ATO identified the issue in relation to a particular taxpayer but took no specific compliance activity in relation to the industry at the time or published an ATO view does not mean that the ATO can be considered to have facilitated or contributed to the development of the practice by taxpayers more generally.

Example 7 - ATO view of an arrangement sought to be applied to different set of facts

A promoter applied for a product ruling on the way in which the tax laws applied to a particular investment scheme (Scheme 1). After the product ruling was issued, the ATO conducted compliance activities in relation to a particular industry. It was discovered that a different investment scheme (Scheme 2) was being marketed to taxpayers on the basis of the product ruling for Scheme 1. The ATO did not agree with this view and considered that Scheme 2 was materially different to Scheme 1.

The ATO discovered that a large number of taxpayers had invested in Scheme 2. It was decided that it would be appropriate to undertake compliance activity in relation to the investors in Scheme 2.

In these circumstances, it is appropriate for the Commissioner to apply his view of the law in relation to past years or periods. This is because the ATO did not contribute to the taxpayer's view of the law in relation to Scheme 2. The product ruling only applies in relation to Scheme 1 but had been used inappropriately by the promoter to encourage taxpayers to enter into Scheme 2 which the ATO considered was different.

Example 8 - No ATO view, taxpayer attempting to establish industry practice

A taxpayer was selected for audit in relation to a particular issue. There was no existing document setting out the ATO's view on this issue.

The taxpayer advised that they had been applying their view of the law for several years and their returns had not been challenged. The taxpayer also advised that they understood that the ATO accepted the taxpayer's view because they had spoken to an officer from the ATO on one occasion several years ago and the ATO officer did not identify that the ATO would have any concerns if this approach was adopted. The taxpayer did not apply for a private ruling in relation to this issue.

In these circumstances, it is not considered that the taxpayer provided sufficient evidence to establish that the ATO contributed to or facilitated the taxpayer's view. A single discussion with an ATO officer and the fact that the taxpayer's prior years returns were not subject to audit is not sufficient. As a result, in this case it would be appropriate for the ATO's view of the law to be applied in relation to past years or periods.

Issue for consultation - Issue 2

Are there other examples, including in respect of the superannuation laws, that you consider should be included to help clarify when the ATO should only take action to apply its view of the law on a prospective basis.

4. Consultation process

We invite you to provide comments in relation to this proposed draft law administration practice statement including your views on the issues for consultation highlighted in the paper.

Please provide your comments by 30 September 2010 to:

Rajitha Srikhanta
Email: rajitha.srikhanta@ato.gov.au

^[H31]Digest of updates

Overview

Prior to each meeting, members are sent papers which provide updates on a wide range of GST issues.

These updates will be of interest to tax practitioners and are now published prior to the publishing of the minutes from the meeting of the same date.

Disclaimer

NTLG GST Sub-committee agendas, minutes and related papers are not binding on the ATO or any of the other bodies referred to in these papers. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.

Digest of updates on current sub-committee issues

This document records the current position with member issues and for new issues the ATO response to the issue which forms a basis for discussion of the issue at the meeting.

^[H32]General GST issues

Issue 9.16 - Payments to a responsible entity in connection with a managed investment scheme

The issue raised by ICAA appears in the minutes for the 19 March 2009 meeting.

Raised by

ICAA

Date raised

18 March 2009

Update 21 September 2010

Action item 2010.06.9:

ATO to provide a response as why ATO ID's were/are being issued for the MIS issue instead of public rulings given the ATO ID's have been receiving sign off from the DCTC.

ATO response

These products are being produced as ATO IDs as they are to be a series of examples of conclusions in respect of MISs with different features, rather than expressions of the Commissioner's view regarding the interpretation of the GST legislation. Further, it is not anticipated that all of the ATO IDs will be cleared by the DCTCs.

A further submission has been received from the ICAA and is included as an agenda item with the ATO response.

Property issues

Issue 1.42 - PTI 1088 - Clarification of GSTR 2002/5 in light of the decision in Debonne Holdings v. FCT (2006) ATC 2467

The issue raised by ICAA appears in the minutes for the 14 May 2007 meeting .

Raised by

ICAA and TIA

Date raised

May 2007

Update 21 September 2010

As previously advised in an update to members on 28 May 2010, the ATO is developing an addendum to GSTR 2002/5 to clarify the views expressed in that ruling with respect to the interpretation of subsection 38-325(2) of the GST Act and the meaning of the term 'supply of a going concern'. The proposed addendum was considered by the Public Rulings Panel on 29 July 2010. Representatives from the ICAA, CPA and TIA attended a subsequent meeting of the Public Rulings Panel on 27 August 2010 to further discuss the issues arising in relation to the proposed addendum and the interpretation of subsection 38-325(2) of the GST Act.

The ATO is giving further consideration to the various issues raised at the 27 August 2010 Public Rulings Panel meeting and will keep members informed as to the progress of this matter.

^[H34]Issue 1.45 Margin Scheme Agreements

This is a new issue raised by the ICAA on 20 August 2010

Raised by

ICAA

Date raised

20 August 2010

This is a new issue received from the ICAA which is included as an agenda item with the ATO response

Issue 1.46 - PTI 1029 - Residential premises - revision of GSTR 2000/20 Commercial Residential Premises

The issue raised by ICAA appears in the minutes for the 14 November 2007 meeting . The issue was originally titled 'Residential premises - factors other than physical characteristics'.

Raised by

ICAA

Date raised

24 October 2007

Update 21 September 2010

The Public Rulings Program has been updated to reflect a planned issue date of 9 March 2011 for the draft GSTR.

Issue 1.59 - Tribunal decision in GXCX v. FCT (2009) AATA 569

This issue raised by the TIA appears in the minutes for the 16 September 2009 meeting .

Raised by

TIA

Date raised

26 August 2009

Update September 2010

1. The purpose of the new law administrative practice statement (PS) is to explain:

¦ how the Commissioner administers subdivision 284-B shortfall penalties, and

¦ factors to consider when deciding whether an assessed penalty should be remitted.

The 'safe harbour' - assessment of the exemption to false or misleading statement penalty will be included.

Work is continuing and consultation will begin in the next couple of weeks.

The PS is intended to replace:

TR 94/3 Income tax: tax shortfall penalties: calculation of a tax shortfall and allocation of additional tax

TR 94/7 Income tax: tax shortfall penalties: guidelines for the exercise of the Commissioner's discretion to remit penalty otherwise attracted, and

TR 2001/3 Income tax: penalty tax and trusts.

The new PS is expected to issue in late December/early January, 2011.

2. A separate 'Failure to provide a document' PS is also being prepared and will be circulated soon for external consultation.

3. Once preliminary work has been completed, a PS to cover a false or misleading statement penalty which does not lead to a shortfall amount will be progressed.

^[H35]Issue 1.60 Meaning of 'Substantial Renovations' and Gloxinia Investments Ltd as Trustee for Gloxinia Unit Trust v. FCT [2009] FCA 641; Federal Commissioner of Taxation (Cth) v. Gloxinia Investments (Trustee)[2010] FCAFC 46

This is a new issue raised by the TIA on 19 August 2010

Raised by

TIA

Date raised

19 August 2010

This is a new issue received from the TIA which is included as an agenda item with the ATO response

^[H36]Financial supplies and similar issues

Issue 6.10 - Changes to 'Belvedere' example in Financial Supplies Ruling GSTR 2002/2

The issue raised by TIA appears in the minutes for the 4 June 2008 meeting .

Raised by

TIA

Date raised

8 May 2008

Update 21 September 2010

The ATO prepared a joint workshop paper and sent it to workshop participants on 25 June. A joint workshop was held on 28 July in Sydney with ATO, NTLG and industry representatives.

Some of the key outcomes were:

A range of indicators will be developed to provide practical assistance in determining the point at which M&A acquisitions relate to input taxed supplies.

Develop some suggested apportionment approaches for the different phases of a typical M&A transaction that involves both input taxed and non input taxed options.

Recognition of the practical difficulties that are involved in making an assessment of creditable purpose in 'real time' in the M&A context, and the need to accommodate this issue in developing practical guidance.

In implementing apportionment methods entities that carry out isolated M&A transactions may face different issues to those that undertake more regular M&A/investment activities (for example, merchant banks).

Some possible solutions regarding the above were discussed at the workshop, the agreed outcome was that a smaller sub-group of ATO and NTLG members will prepare a joint paper expanding on the outcomes and solutions discussed at the workshop.

^[H37]Tax invoices, RCTIs and adjustment notes

Issue 7.2 Tax invoices

This is a new issue raised by the CPA on 25 August 2010

Raised by

CPA

Date raised

25 Aug 2010

Update 21 September 2010

This is a new submission received from the CPA which is included as an agenda item with the ATO response

^[H38]Other technical issues

Issue 9.20 Spriggs' case - GST position in relation to IT decision

This issue was originally raised by the ICAA on 19 June 2009 and finalised on 24 June 2010

Raised by

ICAA

Date raised

19 June 2009

Update 21 September 2010

This is a new submission received from the ICAA which is included as an agenda item with the ATO response

Issue 9.21 Definition of entity for the purposes of the TAA and ABN Act

This is a new issue raised by the ICAA on 25 August 2010

Raised by

ICAA

Date raised

25 August 2009

Update 21 September 2010

This is a new issue received from the ICAA which is included as an agenda item with the ATO response

^[H39]GST and other taxes

Issue 10.11: GST Treatment of earn out rights

This is a new issue raised by the ICAA on 25 August 2010.

Raised by

ICAA

Date raised

25 Aug 2009

Update 21 September 2010

This is a new issue received from the ICAA which is included as an agenda item with the ATO response

^[H40]GST rulings

Issue 11.15: Board of Taxation Review of the legal framework for the administration of GST

This issue raised by the ATO appears in the minutes for the 19 June 2009 meeting .

Raised by

ATO

Date raised

17 June 2009

Update 21 September 2010

Action item 2010.06.1:

ATO to escalate to Second Commissioners (Jenny Grainger and Bruce Quigley) the suggestion that the moratorium be extended to unlabelled issue logs.

ATO response is covered in the update dated 12 July 2010:

Copy of the update has been incorporate as Annexure 1 below

Further submissions have been received from the ICAA and TIA which is included as an agenda item with the ATO response.

Issue 11.16: GST Public Ruling request - Loyalty Programs

This is a new issue raised by the ATO on 17 June 2010.

Raised by

ATO

Date raised

17 June 2009

Update 21 September 2010

Action item 2010.06

Members to provide guidance to the ATO in relation to Loyalty Programs and in particular the NTLG GST Sub-committee seeks advice regarding:

a) the matter generally and in particular whether there are priority issues.

b) whether arrangements that are sufficiently generic for a public ruling can be identified.

c) whether there would be a preference for an omnibus product or shorter rulings dealing with particular issues.

d) whether guiding principles might be identified.

ATO response

Members have provided feedback in relation to the Loyalty programs. The ATO has considered the feedback and does not think loyalty programs as a topic in itself should be the subject of a public ruling. The ATO has listed as a priority conversion issue, for consideration by the panel, the issues register item related to frequent flyer programs.

Issue 11.17: Contribution amounts under indirect tax sharing agreements (ITSA's)

This is a new issue raised by the ICAA on 25 August 2010.

Raised by

ICAA

Date raised

25 August 2010

Update 21 September 2010

This is a new issue received from the ICAA which is included as an agenda item with the ATO response.

^[H41]General compliance issues

Issue 12.19: Compliance program - Federal Budget 2010 announcement

This is a new issue raised by the NIA on 24 June 2010.

Raised by

NIA

Date raised

24 June 2010

This is a new issue received from the NIA which is included as an agenda item with the ATO response.

Issue 12.20: ATO 2010-11 Compliance program - Large Businesses and GST

This is a new issue raised by the TIA on 8 September 2010

Raised by

TIA

Date raised

8 September 2010

This is a new issue received from the TIA which is included as an agenda item; The ATO response will be provided at the meeting

Lodgment, payment refunds, audit issues

Issue 13.33: Section 105-65 of schedule 1 to the TAA 1953 (Cth) - Jurisdiction issue

This is a new issue raised by the TIA on 9 June 2010

Raised by

TIA

Date raised

9 June 2010

Updated 21 September 2010

Action item 2010.06.2: ATO to provide to members a copy of counsels opinion sought by the ATO on the operation of section 105-65 Schedule 1 TAA 1953

ATO response

Copy of the response has been incorporate as Annexure 2 below

Further submissions have been received from the TIA which is included as an agenda item with the ATO response.

Issue 13.34: Taxpayer Alerts

This is a new issue raised by the TIA on 9 June 2010

Raised by

TIA

Date raised

9 June 2010

Updated 21 September 2010

Action item 2010.06.4:

ATO to advise members the process/steps undertaken by a rulings officer for a ruling request that has potential Division 165 implications.

ATO response

To be provided at the 21st September 2010 meeting

Issue 13.36: Section 105-55 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA)

This is a new issue raised by the TIA on 8 September 2010

Raised by

TIA

Date raised

8 September 2010

This is a new issue received from the TIA which is included as an agenda item; The ATO response will be provided at the meeting

Issue 13.37: GIC on Administrative Overpayments, Deputy Commissioner of Taxation v. Price [2010] QSC 196 and new section 35-5(2) of GST Act

This is a new issue raised by the TIA on 19 August 2010

Raised by

TIA

Date raised

19 August 2010

This is a new issue received from the TIA which is included as an agenda item; The ATO response will be provided at the meeting

Issue 13.38: Tax Laws Amendment (Transfer of Provisions) Act 2010 - Security Deposits for GST Liabilities]

This is a new issue raised by the TIA on 19 August 2010

Raised by

TIA

Date raised

19 August 2010

This is a new issue received from the TIA which is included as an agenda item; The ATO response will be provided at the meeting

^[H43]ATO updates

Issue 15.5: Litigation Report

The issue raised by TIA on 19 August 2010

Raised by

TIA

Date raised

19 August 2010

This is a new issue received from the TIA which is included as an agenda item; The ATO response will be provided at the meeting.

^[H44]Other updates for members

15.1 - Public rulings program GST update

Below is a GST extract from the public rulings program which was published on 9 September 2010.

Topic: GST: residential premises and commercial residential premises

Planned issue draft

09-Mar-11

Draft reference

GSTR

Planned final date

TBA

PTI reference

1029

Comments

Draft now being progressed. Publication of final ruling will be dependent upon the outcome of the appeal of the Sunchen decision.

Reason for inclusion

To clarify the ATO view.

Author

Stephen Iselin

App-roving Officer

Alex Affleck

BSL Sign Off

Adrian Preston-Loh

Topic: GST: grants

Planned issue draft

TBA

Draft reference

GSTR

Planned final date

TBA

PTI reference

1018

Comments

Awaiting outcome of litigation in Amex case and special leave application to the High Court in Dept of Transport case.

Reason for inclusion

Redevelopment of the grants ruling and associated information products to ensure consistency.

Author

Grant Murphy

Approving Officer

TBA

BSL Sign Off

Steve Howlin

Topic: GST: application of subsection 11-15(5) of the A New Tax System (Goods and Services Tax) Act 1999 to acquisitions relating to the provision of accounts by Australian authorised deposit taking institutions

Planned issue draft

15-Jul-10

Draft reference

GSTR 2009/D1

Planned final date

TBA

PTI reference

1129

Comments

Further external consultation to be undertaken.

Reason for inclusion

To provide clarity on whether paragraph 11-15(5)(a) of the GST Act applies to acquisitions that relate

Author

Donald Lester

Approving Officer

Alex Affleck

BSL Sign Off

Steve Howlin

Topic: GST: are there GST consequences where a land owner engages the services of an associate to arrange construction of residential premises for lease under an arrangement described in Taxpayer Alert TA 2009/5?

Planned issue draft

16-Dec-09

Draft reference

GSTD 2009/D2

Planned final date

29-Sep-10

PTI reference

1122

Comments

Scheduled to issue 29 September 2010

Reason for inclusion

To address issues raised in Taxpayer Alert TA 2009/5.

Author

Patrick Giovannelli

Approving Officer

Trevor Jones

BSL Sign Off

Steve Howlin

Topic: GST: interest-free loans received by the developer of a retirement village

Planned issue draft

09-Jun-10

Draft reference

GSTR 2010/D1

Planned final date

08-Dec-10

PTI reference

1080

Comments

Considering and incorporating comments received following release of the draft.

Reason for inclusion

To provide certainty as to the interpretation of the GST Act for Retirement Villages

Author

Cheryl D'Amico

Approving Officer

Simon Haines (Andrew Orme SES TCN)

BSL Sign Off

Adrian Preston-Loh

Topic: Miscellaneous tax: restrictions on GST refunds under section 105 65 of Schedule 1 to the Taxation Administration Act 1953

Planned issue draft

16-Dec-09

Draft reference

MT 2009/D1

Planned final date

06-Oct-10

PTI reference

1146

Comments

Final being written and reviewed.

Reason for inclusion

To provide ATO view on section 105-65 Schedule 1 TAA as to when GST refunds may be paid or denied

Author

Noelene Riikonen

Approving Officer

Mark Tomlinson

BSL Sign Off

Steve Howlin

Topic: Addenda: GSTR 2006/7 Goods and services tax: how the margin scheme applies to a supply of real property made on or after 1 December 2005 that was acquired or held before 1 July 2000

Planned issue draft

TBA

PTI reference

1208

Comments

Awaiting outcome of litigation in Aurora Developments

Reason for inclusion

To reflect the reasoning of the Full Federal Court in Brady King Pty Ltd v. Commissioner of Taxation

BSL Sign Off

Adrian Preston-Loh

Topic: GSTR 2006/8 Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000

Planned issue draft

TBA

PTI reference

1208

Comments

Awaiting outcome of litigation in Aurora Developments

Reason for inclusion

To reflect the reasoning of the Full Federal Court in Brady King Pty Ltd v. Commissioner of Taxation

BSL Sign Off

Adrian Preston-Loh

Topic: GSTR 2006/11 Goods and services tax: appropriations

Planned issue draft

15-Dec-10

PTI reference

1222

Comments

Scheduled for consideration at the September 2010 Public Rulings Panel. Draft scheduled to issue 13 October 2010.

Reason for inclusion

To reflect the decision of the Full Federal Court in TT Line Company Ltd v. Commissioner of Taxation

BSL Sign Off

Stephen Howlin

Topic: GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST free?

Planned issue draft

27-Oct-10

PTI reference

1225

Comments

Reviewing and incorporating comments following consideration at the August 2010 Rulings Panel.

Reason for inclusion

To clarify the ATO view in light of the Debonne Holdings decision

BSL Sign Off

Adrian Preston-Loh

15.2 - Practice statement program GST update

There were no practice statements in progress from the practice statement program relevant to GST as at 16 August 2010.

15.3 - ATO ID GST report

A list of the GST ATO IDs which have been released and withdrawn from 24 June 2010 is included below. In summary, three GST ATO IDs have been released and five GST ATO IDs have been withdrawn.

The ATO is continuing to review the currency and accuracy of ATO IDs greater than 12 months old on a 'business as usual' basis.

ATO ID released

ATO ID 2010/144 GST and tax invoice for multiple recipients

ATO ID 2010/145 GST and dip with biscuits

ATO ID 2010/146 GST and tax invoices issued by another entity on behalf of a supplier

ATO ID Withdrawn

ATO ID 2001/653 GST and the date of effect of approval of an additional member of a GST group

ATO ID 2004/692 GST and date of effect of revocation of GST group membership approval when member sold one minute before midnight on the last day of a tax period applying to all group members

ATO ID 2001/245 GST and tax invoice for multiple recipients

ATO ID 2002/684 GST and dip with biscuits

ATO ID 2006/110 GST and tax invoices issued by another entity on behalf of a supplier

15.4 - NTLG and ATPF meetings - GST matters

NTLG

Issues were raised as part of Agenda item 21 - GST sub-committee reports. These were the Belvedere issue and the correction of the action item recorded in relation to the 'Board of Taxation Review of the legal framework for the administration of the GST.

ATPF

There were no GST specific matters discussed at the ATPF meeting held on 6 August 2010.

15.5 - Test Case Litigation Funding Report

Five applications for test case funding were submitted and considered by the Panel at its meeting on 26 July 2010. Of these, one application concerned the GST. The chair accepted the recommendation of the panel and funding was declined in that matter.

Case summary	Trim File Reference No.: on order The applicants sought funding for proposed declaratory proceedings in the Federal Court concerning the question of whether supplies of student accommodation are GST input taxed supplies of residential premises to be used for residential accommodation or taxable supplies of commercial residential premises.
Funding decision	Funding declined
Panel reasons	The panel considered that there was doubt that this case would be productive of a decision which could have wide application. It was considered to be a high probability that drawing the distinction between what is a 'commercial residential' or 'residential' premises will not provide general assistance on the application of the law, but will depend on the facts of each case.

15.6 - GST Litigation update

Current GST Litigation - Case Analysis - Market Segment

(as at 31 July 2010)

Market segment	Cases on hand	% of total
Government/Non-Profit	2	1.5%
Large Business (Annual turnover over $100m)	13	9.7%
Small/Medium Enterprise (SME) (Annual turnover $2m - $100m)	27	20.1%
Micro (Annual turnover under $2m)	67	50.0%
Individual	25	18.7%
Other	0	0.0%
Total	134	100.0%

Current GST Litigation - Case Analysis - Venue Basis

(as at 31 July 2010)

Venue	Cases on hand	% of total
Small Taxation Claims Tribunal (STCT)	11	8.2%
Administrative Appeals Tribunal (AAT)	112	83.6%
Federal Court (Single Judge)	8	6.0%
Full Federal Court	2	1.5%
High Court	1	0.7%
State Supreme Courts and Appeal Courts	0	0.0%
State Local/Magistrates Courts Tribunals	0	0.0%
Other - Reasons for Decision Application/FOI	0	0.0%
Total	134	100.0%

GST Litigation Cases - Table of Priority Litigation Cases

(as at 31 July 2010)

Venue	Case issue
Administrative Appeals Tribunal	Margin scheme issues: Is the taxpayer entitled to adopt the margin scheme in relation to its supplies of real property? Four year rule issues. Penalty issue.
Administrative Appeals Tribunal	Going concern issue - sale of real property: Was the supply by the taxpayer of certain real property a GST-free supply of a going concern? Penalty issue.
Administrative Appeals Tribunal	GST treatment of forfeited payments for services: What is the correct GST characterisation of amounts retained by the taxpayer as forfeited in respect of pre-payments for services? Are the amounts considerations for a supply? Is the taxpayer entitled to refunds of GST?
Federal Court	Application for declarations/injunctions issue: Applications in the Federal Court for declaratory and injunctive relief. Was a tax agent correctly authorised to deal with the ATO? Was the ATO entitled to raise assessments? Can the ATO seek to recover amounts owing under the assessments?
Full Federal Court (Commissioner's appeal)	Luxottica Retail Australia Pty Ltd Apportionment issues - mixed supplies: Supply of spectacles with lenses, mixed supplies. Apportionment issues when discounting.
Full Federal Court (taxpayer's appeal)	Sunchen Pty Ltd atf Sunchen Family Trust - 'Toyama' issues: Meaning of 'to be used predominately for residential accommodation' in section 40-65 of the GST Act.
Full Federal Court (taxpayer's appeal)	Dreamtech International Pty Ltd Luxury Car Tax issue: Is the taxpayer liable to LCT on the importation of a 'Hummer' vehicle? Note: decision handed down on 25 August - Decision favourable to the Commissioner
Federal Court	Four Year Rule - Notice issues: Is the notice of assessment capable of constituting a notice under section 105-50(3)(a) of Schedule 1 to TAA? (Interlocutory matter)
Federal Court	Margin Scheme Valuation issue - GST refund under section 105-65 of Schedule 1 to TAA: Declaratory proceedings - has the taxpayer overpaid GST on the sale of real property? Does section 105-65 of Schedule 1 to the TAA preclude any relevant refunds being paid to the taxpayer?
Full Federal Court (taxpayer's appeal)	Lansell House Pty Ltd & Perfek Pty Ltd Food issue - bread-styled products: Is the supply of products styled as bread but having features of crackers GST-free under section 38-2 of the GST Act?
Federal Court	Input tax credit entitlements - litigation funding arrangement: Is the taxpayer entitled to input tax credits? Penalty issues.
Administrative Appeals Tribunal	When is real property supplied? When did the supplier complete the sale of real property? Four year rule issues. GST refund issues.

GST Litigation - Calendar of scheduled hearing dates

(as at 31 July 2010)

Note: In the interests of best protecting taxpayer privacy, first instance Federal Court appeals under Division 5 of Part IVC of the TAA, and appeals to the Federal Court from decisions of the AAT where the taxpayer's identity has been suppressed, are not included in this list.

Venue	Issue	Hearing date/s
Administrative Appeals Tribunal	Input tax credit entitlements: Is the taxpayer entitled to claim input tax credits on creditable importations. Note: decision handed down on 20 August 2010 - Decision favourable to the Commissioner. [Australian Leisure Marine Pty Ltd v. CoT]	5 August 2010
Full Federal Court (taxpayer's appeal)	Dreamtech International Pty Ltd Luxury Car Tax issue: Is the taxpayer liable to LCT on the importation of a 'Hummer' vehicle Note: decision handed down on 25 August 2010 - Decision favourable to the Commissioner	11 August 2010
Administrative Appeals Tribunal	Enterprise issue: Validity of input tax credit claims. Was the taxpayer carrying on an enterprise? Penalty issue.	12 August 2010
Administrative Appeals Tribunal	Input tax entitlements - are supplies financial supplies? Are the supplies made by the taxpayer financial supplies and therefore input taxed? Is the taxpayer entitled to input tax credits? Note: Case was heard and awaiting further submission from taxpayer.	26 August 2010
Administrative Appeals Tribunal	Margin scheme issues: Is the taxpayer entitled to adopt the margin scheme in relation to its supplies of real property? Four year rule issues. Penalty issue. [Hearing now re-scheduled for 7 December 2010]
Administrative Appeals Tribunal	Penalty issue: Is the taxpayer liable to an administrative penalty under section 284-75 of Schedule 1 to the Taxation Administration Act 1953? [Note - there is a related income tax case that includes income tax penalty issues]	8 September 2010
Administrative Appeals Tribunal	Extent of taxable supplies/Penalty issue: Extent of taxable supplies. Validity of input tax credit claims. Penalty issue.	13-15 September 2010
Administrative Appeals Tribunal	Extent of taxable supplies/Penalty issue: Extent of taxable supplies. Is taxpayer entitled to input tax credits? Penalty issue.	29-30 September 2010
Administrative Appeals Tribunal	Export issue: Extent of taxable supplies. Is the taxpayer entitled to input tax credits?	11-12 October 2010
Administrative Appeals Tribunal	Input tax credit entitlements - importations: Is the taxpayer entitled to input tax credits?	21 October 2010
Administrative Appeals Tribunal	Extent of taxable supplies: Extent of taxable supplies. Four year rule issue. 'Fraud or evasion'. Penalty issue.	25-29 October 2010 (part heard)
Administrative Appeals Tribunal	Extent of taxable supplies: Extent of taxable supplies. Four year rule issue. 'Fraud or evasion'. Penalty issue.	25-29 October 2010 (part heard)
Administrative Appeals Tribunal	Extent of taxable supplies: Is taxpayer entitled to input tax credits?	10 November 2010
Administrative Appeals Tribunal	Supply issue - was consideration provided? Whether the taxpayers are liable for GST on supplies of consultancy regarding providers?	6-10 December 2010

Recently listed cases

Full Federal Court (taxpayer appeal)	Sunchen Pty Ltd atf Sunchen Family Trust Section 40-65 of the GST Act: Meaning of 'to be used predominantly for residential accommodation'. Toyama issue.	1-2 November 2010
Full Federal Court (taxpayer appeal)	Lansell House Pty Ltd and Perfek Pty Ltd Food classification issue.	15-16 November 2010
Full Federal Court (Commissioner appeal)	Luxottica Retail Australia Pty Ltd: Mixed supplies. GST implications of discounting of mixed supplies.	23-24 November 2010

GST Cases Heard - Awaiting Decision

(as at 31 July 2010)

Note: In the interests of best protecting taxpayer privacy, first instance Federal Court appeals under Division 5 of Part IVC of the Taxation Administration Act 1953, and appeals to the Federal Court from decisions of the AAT where the taxpayer's identity has been suppressed, are not included in this list.

Venue Judge/member Date heard	Case issue
Full Federal Court Dowsett, Kenny & Middleton JJ 26 November 2009 (Commissioner's appeal)	American Express International Inc. & American Express Wholesale Currency Services Pty Ltd - Charge and credit card issues: Characterisation of liquidated damages and late payment fees. Consideration and financial supply issues.
Full Federal Court Dowsett, Edmonds & Gordon JJ 12 May 2010 (taxpayer's appeal)	Anthony Russell Enterprise issue: Is the taxpayer carrying on an enterprise? Income tax issues. Double tax agreement. Penalty issues.
High Court, French CJ, Crennan, Hayne, Heydon & Bell JJ 21 May 2010	Travelex Ltd Sale of foreign currency issue: GST treatment of the sale of foreign currency on departure side of Customer's barriers at international airports - is it a GST-free supply?
Administrative Appeals Tribunal (three cases)	Input tax credit entitlements: Validity of input tax credit claims. Penalty issue.
Administrative Appeals Tribunal	Extent of supplies issue: Validity of input tax credits - nightclub services. [Note - there are two related income tax cases]

Recent GST Court and Tribunal Decisions

(as at 31 July 2010)

Venue/date Outcome	Cases names	Recent decision
Administrative Appeals Tribunal Deputy President Hack and Senior Member O'Loughlin 2 July 2010 Partly favourable and partly unfavourable to the Commissioner	The Taxpayer (confidential case - taxpayer's name suppressed)	Grouping issues - Margin Scheme issues. Division 165 and Penalty issue: Intra group supplies - going concern and margin scheme issues. Margin scheme valuation issues. Application of Division 165. Penalty issues.
Full Federal Court Kenny & Dodds-Streeton JJ (Jessup J in dissent) 9 July 2010 (Commissioner's appeal) Unfavourable to the Commissioner	Secretary to the Department of Transport (Victoria)	Input tax credit entitlement: Whether the respondent made a creditable acquisition in accordance with section 11-5 of the GST Act in respect of the payments made under the multi purpose taxi program. Note: Commissioner is seeking special leave to appeal to the High Court.
Practice and Procedure Decisions (not included in statistics)
Administrative Appeals Tribunal, Senior Member Sweiden 30 July 2010 Favourable to the Commissioner (taxpayer's application dismissed for failure to comply with AAT directions)	CZ Holdings Pty Ltd	Extent of taxable supplies issues - Entity issue: Which entity is making taxable supplies of real property? Entity issue. Penalty issue.
Administrative Appeals Tribunal, Senior Member Sweiden 30 July 2010 Favourable to the Commissioner (taxpayer's application dismissed for failure to comply with AAT directions)	LVR (WA) Pty Ltd	Extent of taxable supplies issues - Entity issue: Which entity is making taxable supplies of real property? Entity issue. Penalty issue.

GST Litigation - Finalised Case Analysis

(as at 31 July 2010)

How finalised?	Number of cases	% of total
Court /Tribunal Decision - favourable to the Commissioner	102	11.3%
Court / Tribunal Decision - favourable to the taxpayer	27	3.0%
Court / Tribunal Decision - favourable to the Commissioner in part, favourable to the taxpayer in part	18	2.0%
Cases heard - awaiting decision	10	1.1%
Settled before Hearing	231	25.6%
Case withdrawn by Taxpayer/Major concession by taxpayer	184	20.4%
Case conceded by ATO (whole or part)	202	22.3%
Taxpayer's case struck out/dismissed	86	9.5%
Other (including FOI, ABN, ADJR & 'watching brief' matters)	43	4.8%
Total	903	100.0%

GST Litigation - Current Litigation - 'Fact/Law' Classification

(as at 31 July 2010)

Fact: The parties to the proceedings agree as to the law but disagree only on the facts of the case in respect of which the law is to be applied.

Law: The parties to the proceedings agree as to all material facts but disagree as to how the law applies to those facts.

Fact and Law: The parties to the proceedings are in dispute in respect of both the facts and the application of the law.

Category	Number of current cases	% of current cases
Fact	37	27.6%
Law	11	8.2%
Fact and Law	86	64.2%
Total current cases	134	100.0%

Note: Some cases are difficult to categorise. Classification of cases is carried out with a common sense approach in order to give a clearer picture of litigation patterns. Penalty-only cases usually involve remission applications and, as a result, these cases have been classified as 'Fact & Law'.

GST Litigation - Industry Based Summary of Current GST Litigation cases

(as at 31 July 2010)

Case issue (key issue) industry focus	Number of cases	% of total
Property & Construction (and related issues)	45	33.6%
Financial supplies	1	0.7%
Food & other Division 38 classification issues	1	0.7%
Penalty cases only	10	7.5%
Transitional issues	0	0.0%
Enterprise/Business issues	4	3.0%
Insolvency	0	0.0%
Government & Community Sector - retirement villages, non-profits etc.	0	0.0%
Primary Production	0	0.0%
Export Issues	2	1.5%
Second-hand goods	0	0.0%
Overseas Issues - connected with Australia	1	0.7%
Division 165 Cases	0	0.0%
TAA issues (section 105-50, 105-55 and 105-65 of Schedule 1 of TAA) - 'asymmetry' issues	17	12.7%
Extent of taxable supplies, validity of input tax credit claims, general substantiation matters, default assessments (across all industry types)	37	27.7%
Luxury Car Tax (LCT) and other motor vehicle cases	5	3.7%
Income Tax Issues Only (arising from GST audits)	9	6.7%
Miscellaneous matters [for example, TAA issues, WET issues, going concerns (not real property), nature of supplies, consideration issues]	2	1.5%
Total	134	100.0%

Current Property Litigation Cases - Issues Analysis

(as at 31 July 2010)

Issue	Number of cases	% of total
Margin Scheme - timing of choice/evidence of choice	2	4.5%
Margin Scheme - valuation issues	3	6.7%
Margin Scheme - when acquisition made	1	2.2%
Margin Scheme - method of calculation/general	2	4.5%
Residential Premises - hotel/motel rooms/ caretakers premises	2	4.5%
Residential Premises (general)	1	2.2%
Residential premises/Commercial Residential Premises	1	2.2%
Residential Premises (retirement village & related issues)	3	6.7%
Residential premises - 'Toyama' issue	1	2.2%
Commercial accommodation (Division 87)	0	0.0%
New residential premises	2	4.5%
Insolvency issues: Division 105	1	2.2%
Enterprise issues: land subdivisions and other issues: mere disposal of capital assets?	1	2.2%
Going Concern/Division 135 issues:	4	8.9%
Division 129 issues (change in extent of creditable purpose)	1	2.2%
Entity issues	10	22.1%
Extent of taxable supplies, validity of input tax credit claims	6	13.3%
Construction and related issues	1	2.2%
Going concern issues (general)	3	6.7%
Total	45	100%

^[H45]Annexures

Annexure 1 (copy of the update provided to members on 12 July 2010)

Transition to the new rulings regime from 1 July 2010

Issues raised by the ICAA on 29 June 2010

Scope of moratorium - the Institute raised concerns that the moratorium (or amnesty) was limited to rulings issued to industry associations, and said that the Institute was surprised by this as we had understood that it was to be across the Board for all rulings.  We noted that the Institute discussed the 12 month period with the Government in the context of there being a need for a further period of consultation to do a comprehensive review of all existing rulings (which we wanted as a legislative amendment but obtained as an administrative measure). As such, the 12 month 'transitional' moratorium specifically included the materials on the ATO website which the profession had not had adequate opportunity to consult on.  We therefore formally asked the ATO to consider and advise whether the moratorium could be extended to all rulings which was our understanding based on our discussions with the government. Robert Olding agreed to do this and report back to us.  In light of Bruce Quigley's assurances at the meeting about the intended ATO approach not to go back on a view that it has taken for example, in industry registers, our expectation is that it is entirely consistent with those assurances and appropriate for the moratorium to be extended to all rulings.

ATO response

1. The Commissioner's communications about not undertaking compliance action have been limited to ruling issued to industry associations that are not published on the ATO website. Please refer to the attached link: Legislation expands tax rulings regime . Further information can also be found on the ATO website External FAQs for Recommendation 17 (Rulings) .

At the recent NTLG GST Sub-committee meeting on 24 June the ATO advised that we would be establishing a priority process to review the precedential issues not labelled as public rulings in the registers along with precedential GST Advices and GST publications. In total this amounts to 85 issues. We will be looking to prioritise these issues for conversion to a public product and as advised that the meeting will be engaging members of the public rulings panel in that process. We expect to have this prioritisation completed with draft recommendations made by September 2010.

The ATO has considered whether it is appropriate to extend no compliance action to published precedential products that have not been labelled as a public ruling before 30 June 2010. Given the extensive consultation process regarding the issues registers and other publications on the ATO website and the undertakings made by Bruce Quigley at the recent NTLG GST Sub-committee, the ATO does not consider any further commitments are required in terms of the Commissioner not taking compliance action. The matter has been discussed with Second Commissioner, Bruce Quigley who reiterated the undertaking given at the recent meeting. That is, where a taxpayer relies on published ATO advice, in good faith, the ATO would not assess contrary to that advice.

We encourage you to provide any feedback as requested on 4 June in relation to the issues in the registers (and other precedential material not labelled as a public ruling - an update list of these products will be provide to members shortly) and outline as indicated the significance of the issues, whether they should be included in a new public ruling or an existing GSTR, GSTD, WETR etc and what the priority for those issues.

Retrospectivity issue - the Institute advised that we believe the rulings amendments operate retrospectively (as the protection applies for 'underpayments' which will occur post 1 July 2010 when the provision will be repealed). However, we noted that we understood Treasury had advised the Government that their view is the amendments apply prospectively (because reliance occurs when the tax invoice is issued). We requested the ATO to provide their view on this. Andrew Orme said that he believed the ATO could provide a view on this, and he agreed to do so.

ATO response

2. You have raised a concern as to the application of section 105-60 protection continues in relation to tax periods ending before 1 July 2010. We understand that the practical context of the concern is the protection provided by documents that were public rulings under section 105-60, but are no longer public rulings under Division 358.

We advise that the Commissioner would not raise an assessment contrary to such a (former) public ruling where either (i) there is an underpayment of a net amount or an amount of indirect tax prior to 1 July 2010 in reliance on that ruling, or (ii) that ruling was relied on in the conduct of a transaction that was carried out before 1 July 2010 and the net amount or amount of indirect tax is accordingly (under)paid in respect of that period after 1 July 2010 - for example, payment in July 2010 for tax periods ending on 30 June 2010.

To understand the effect of the repeal of section 105-60, it is necessary to have regard to the Acts Interpretation Act 1901, section 8.

8 Effect of repeal

Where an Act repeals in the whole or in part a former Act, then unless the contrary intention appears the repeal shall not:

(a) revive anything not in force or existing at the time at which the repeal takes effect; or

(b) affect the previous operation of any Act so repealed, or anything duly done or suffered under any Act so repealed; or

(c) affect any right privilege obligation or liability acquired accrued or incurred under any Act so repealed; or

(d) affect any penalty forfeiture or punishment incurred in respect of any offence committed against any Act so repealed; or

(e) affect any investigation legal proceeding or remedy in respect of any such right privilege obligation liability penalty forfeiture or punishment as aforesaid;

and any such investigation legal proceeding or remedy may be instituted continued or enforced, and any such penalty forfeiture or

punishment may be imposed, as if the repealing Act had not been passed.

The reference to 'right' in section 8(c) has been construed by the courts as extending to rights that are inchoate or contingent.

Pursuant to the operation of section 8, the ATO considers that section 105-60 would continue to provide protection after 1 July 2010 where an underpayment has occurred prior to 1 July 2010. The more difficult question is whether section 105-60 continues to provide protection where it has been relied on prior to 1 July 2010 but the relevant underpayment occurs afterward, for example, because the relevant tax period ends on 30 June 2010.

An inference about how the repeal of section 105-60 takes effect can be drawn from the focus of the amending legislation on reliance on a ruling in the conduct of a transaction. See, example 3 in subsection 357-60(1), which refers to relying on in the ruling when issuing a tax invoice, and paragraphs 2.43 and example 2.6 in the Explanatory Memorandum. We therefore consider it consistent with the amending legislation to take the view that the repeal of section 105-60 is not intended to affect transactions carried out with reliance on a ruling before 1 July 2010.

Accordingly, the Commissioner would not seek to raise an assessment for a tax period prior to 1 July 2010 that is contrary to a document that was a public ruling under section 105-60 where the ruling was relied upon in the conduct of transactions carried out before 1 July 2010.

Annexure 2

NTLG GST Sub-committee meeting 24 June 2010

Issue 13.33: section 105-65 of schedule 1 to the TAA 1953 (Cth) - Jurisdiction issue

The following action item was recorded at the NTLG GST sub-committee meeting on 24 June 2010-09-13.

Action item 2010.06.2: ATO to provide to members a copy of counsels opinion sought by the ATO on the operation of section 105-65 Schedule 1 TAA 1953.

ATO response

In response to the request that we provide Counsel advice in respect to the view that section 105-65 is taken into account in determining the net amount, our response is:

Attached is an excerpt of advice provided by J. Daryl Davies QC in July 2005 related to taking the GST administration provisions into account in assessing the net amount. Mr Davies QC also provided the ATO with other similar advices.

Davies refund advice is attached below as Annexure 3 .

The advice was provided directly to the ATO, and was not written with dissemination outside the ATO in mind. It should not be relied upon by taxpayers or tax practitioners. Nor should the advice be taken as the ATO view, or as a substitute for the ATO view.

The opinion of Counsel is one of the influential matters that the ATO considers in forming its view, but it should not be assumed that the ATO will necessarily agree with Counsel's advice in all cases, or that even where the ATO is in broad agreement that it will necessarily agree with all aspects of Counsel's reasoning.

For completeness, we note that the ATO also has advice from other Counsel in relation to this issue, and members should not assume that all of that other advice expresses the same views.

In addition to the matters addressed in Mr Davies advice, the ATO has had regard to a number of other considerations in forming its view that section 105-65 should be taken into account in assessing the net amount. These include the following:

GST is defined as the tax that is payable under the GST law. GST law is in turn defined such as to include the TAA so far as it relates to the GST Act (or certain other legislation).

Section 105-50 states that an unpaid net amount or amount of indirect tax ceases to be payable. GST is an amount of indirect tax and is a component of the net amount. Therefore, the ATO considers that there are strong grounds for considering that section 105-50, and sections with similar language (for example, the old section 105-60) are relevant to the net amount calculation. It would be an odd outcome if section 105-65 is treated differently.

The High Court's decision in McAndrew v. FCT (1956) 98 CLR 263, which accepts that at least in that particular context, provisions relating to time limits for assessments were relevant to determining whether the assessment was excessive.

The matters addressed subdivision 105-C are not reviewable indirect tax decisions, or reviewable GST decisions, and accordingly if they are not relevant to the calculation of the net amount, and thus reviewable in that context, there is no express statutory mechanism for their review. This outcome would seem to be contrary to the scheme of the legislation to provide for objection rights through Part IVC processes.

We would also make reference to the reasons of decision of the AAT in Australian Leisure Marine v. FCT at paragraphs 16 to 17, which considered the position so far as it related to section 105-55.

Annexure 3 - Davies Refund Advice

Refunds under a New Tax System

(Goods and Services) Tax Act 1999

Supplementary Advice

I have been asked to reconsider the advice I gave on this subject on 21 September 2004.

Having taken into account the matters raised in my brief, I adhere to my advice and to words in which it was expressed. The substance of the advice was set out in these concluding passages:

'Net amount must be calculated in accordance with the effect of any decision made under sections 37 and 39. Both sections make it clear that they are dealing with matters of legal entitlement and obligation. Insofar as a decision is made which affects the net amount payable by an entity, it must be given effect.

Paragraph 53 of my brief suggests that, that in a case where a smaller amount of tax was payable because of a private ruling but, absent the private ruling, the amount of tax payable would have been higher, then the Commissioner should raise an assessment for the higher amount and indicate that he would only seek to recover the smaller sum because of the operation of section 37. I think it is clear that any assessment must be an assessment for the amount that is actually due and owing. Therefore, the assessment must accord with any decision made under section 37 or under section 39. These sections have operative legal effect.

Paragraph 54 of my brief raises the same issue in relation to an objection. I consider that any decisions made under section 37 or under section 39 must be taken into account when determining an objection.

In expressing those views, I have taken into account the fact that section 37 and section 39 appear in Division 3 of Part VI, a division which is headed 'Recovery'. The two sections are concerned with more than recovery. They affect legal obligations and entitlements.'

It is unnecessary for me now to set out the underlying considerations which were mentioned earlier in the Advice.

Part A

My brief puts forward the alternative view that the term 'net amount' relates to the calculations required to be made under the GST Act 1999 and is not affected by subsection 35, 36, 37 and 39 of the TAA.

Section 17-1 of the GST Act indicates what the GST Act has in mind with respect to amounts of GST payable to or by the Commonwealth. It states:

'17-1 What this Division is about

A net amount is worked out for each tax period that applies to you. This is the amount payable by you to the Commonwealth, or payable to you by the Commonwealth, for the tax period.

Adjustments can be made to the net amount. Increasing adjustments increase your net amount, and decreasing adjustments decrease your net amount.'

Section 17-5 of the GST Act provides:

'17-5 Net amounts

(1) The net amount for a tax period applying to you is worked out using the following formula:

GST - Input tax credits

where:

GST is the sum of all of the GST for which you are liable on the taxable supplies that are attributable to the tax period.

Input tax credits is the sum of all of the input tax credits to which you are entitled for the creditable acquisition and creditable importations that are attributable to the tax period.

(2) However, the net amount for the tax period may be increased or decreased if you have any adjustments for the tax period.'

It should be noted that the term 'adjustments' is defined generally in section 195-1 as follows:

'adjustment means an increasing adjustment or a decreasing adjustment.'

There are many specific provisions which relate to adjustments including subsections 17-99, 19-10 and 69-40.

The crucial question is whether the GST Act requires that the net amount payable by a supplier to the Commonwealth or the net amount recoverable by a supplier from the Commonwealth be calculated solely in accordance with the provisions of the GST Act or encompasses all statutory provisions which affect the amount payable or the amount recoverable.

The alternative view considers that the net amount payable or the net amount recoverable is the amount worked out in accordance with the provisions of the GST Act, not the amount which is legally payable or recoverable. My view is that subsections 17-1 and 17-5 are concerned with the net amount that is legally payable by a supplier to the Commonwealth or the net amount that is legally recoverable by a supplier from the Commonwealth. There is nothing in those sections which requires that they be given the constrained interpretation which the alternative view requires.

It follows, in my view, that if, in reliance upon a ruling, a supplier has underpaid an amount of GST or has claimed and been overpaid by the Commissioner an amount of GST, then the amount that was paid or overpaid will constitute the relevant net amount unless the Commissioner forms a view to the contrary in accordance with section 37(2). It would be quite wrong for the Commissioner to calculate a different net amount disregarding the effect of section 37 of the Administration Act. Section 37 operates to determine the net amount payable or the net amount recoverable, when reliance has been placed upon a ruling.

Similarly, if a supplier has overpaid an amount to the Commonwealth because a supply was treated as a taxable supplier to any extent, that amount is not recoverable unless the supplier makes a reimbursement in accordance with section 39(3) of the Administration Act.. The net amount payable or recoverable for the tax period must be determined in accordance with that section.

My brief states:

'41 The alternative view would argue that the process is complete when the Commissioner has determined the net amount in accordance with section 17-5 as modified by those provisions referred to in section 17-99 of the GST Act and therefore precludes sections 35, 36, 37 or 39 of the TAA from having any effect on the taxpayer's liability to tax. This would be the taxpayer's one true net amount and is determined either by lodgement of the BAS or by the Commissioner issuing an assessment. Division 33 of the GST Act then makes that amount due and payable and sections 35, 36, 37 and 39 of the TAA may only operate to determine whether the Commissioner is entitled to recover or refund the net amount already determined.

Under this interpretation the net amount advised to the taxpayer would not necessarily represent the final amount collected or refunded and any discrepancy resulting from an application of sections 37 or 39 of the TAA, for instance, would be dealt with by internal accounting adjustments to the taxpayers account and the taxpayer advised separately.'

These paragraphs may not accurately express the alternative view for section 17-99 simply sets out some special rules relating to net amounts and adjustments and Divisions 33 and 35 simply deal with payments and refunds. Division 19 more particularly deals with adjustment events.

However, the crux of the issue is this: Does the GST Act require the net amount payable or recoverable to be ascertained only in accordance with the provisions of the GST Act or does it permit the net amount payable or recoverable to be calculated in accordance with all the statutory provisions which affect the amount payable or recoverable?

In my view, the GST Act should be given a sensible interpretation, which achieves its purpose and facilitates its administration. It should be read as taking account of all statutory provisions which affect the net amount payable or recoverable.

My brief supports that view by pointing out that the GST Transition Act could affect the net amount payable or recoverable.

The problems which the alternative view encounters is demonstrated by the following example given in my brief.

TAA provision	Counsel's view	Alternative view
Section 37: BAS based on private Ruling $50. BAS based on actual law $100	Net amount = $50 Allow an objection in full or do not raise an assessment as section 37 operated to change the net amount to the amount payable	Net amount = 100 Disallow objection or raise assessment as correct amount under section 17-5 of the GST Act and section 22 of the TAA. But advise the taxpayer that we will not seek to recover the amount because of the protection provided by section 37

It clearly would be wrong to disallow an objection or raise an assessment when the taxpayer had paid all the GST that was payable, because of the taxpayer's reliance upon the Ruling.

J. Daryl Davies, Q.C.

29 July, 2005.

^[P280_14506]1 It is assumed that the Tax Laws Amendment (2010 GST Administration Measures No.2) Bill 2010 containing this proposed provision will receive Royal Assent before the date of the NTLG GST Subgroup meeting on 24 June 2010.

^[P415_41338]2 Sections 444-80 and 44-90 of the TAA .

^{[P1422_194687]}3 In particular see Recommendations 2 and 4.

^{[P1426_195339]}4 The GST, luxury car tax, wine equalisation tax and fuel tax credits systems currently operate on a self-actuating basis. Under this system, a taxpayer is automatically liable for tax or entitled to a refund based on the liabilities and entitlements attributable to a tax period.

^{[P1427_195916]}5 Explanatory Memorandum to the Tax Laws Amendment (Improvements to Self Assessment) Act (No.2) 2005. See also paragraph 37 of Taxation Ruling TR 2006/10.

^{[P1431_196616]}6 See section 357-60 of Schedule 1 to the TAA.

^{[P1433_197061]}7 See subsection 358-10(1) of Schedule 1 to the TAA.

^{[P1434_197247]}8 See subsection 358-20(3) of Schedule 1 to the TAA.

^{[P1436_197879]}9 See section 357-70 of Schedule 1 to the TAA.

^{[P1438_198042]}10 See paragraphs 59 to 77 of TR 2006/10. A similar approach was also adopted by the ATO prior to the publication of this ruling - see Taxation Ruling TR 92/20.

^{[P1441_198500]}11 Attachment B to PS LA 2008/3 contains an exhaustive list of those circumstances in which the ATO can provide administratively binding advice to a taxpayer.

^{[P1443_198894]}12Federal Commissioner of Taxation v. Wade (1951) 84 CLR 105 at 117.

^{[P1452_200481]}13 See sections 284-215, 298-20, 361-5 of Schedule 1 to the TAA and section 8AAG of the TAA. For statements made on or after 4 June 2010 see also subsection 284-75(5) and section 284-224 of Schedule 1 to the TAA.

^{[P1456_201573]}14 See subsection 44(2) of the FMAA. For more information on the scope of the Commissioner's powers of general administration see Law Administration Practice Statement PS LA 2009/4.

^{[P1458_201858]}15 The courts have held that although the powers of general administration conferred on the Commissioner are very broad, they cannot be used to extend, confine or undermine Parliament's intentions.

^{[P1459_202384]}16 See paragraphs 21 and 23 of Appendix B of PS LA 2009/4.

^{[P1475_205998]}17 Paragraph 6 of PS LA 2003/3 provides that tax officers must identify and apply the precedential ATO view. [PS LA 2003/3 is to be updated to reflect this additional requirement to consider whether previous ATO publications or conduct could have reasonably conveyed a different view on a particular issue].

^{[P1477_206671]}18 See paragraphs 31 and 32 of PS LA 2003/3.

^{[P1479_207044]}19 See paragraph 35 of PS LA 2003/3.

^{[P1487_207965]}20 For further information about general administrative practice refer to TR 2006/10.

^{[P1514_213953]}21 MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard.

^{[P1516_214542]}22 It is a different test than that imposed under subsection 284-75(2) of Schedule 1 to the Taxation Administration Act 1953 where the taxpayer does not have a reasonably arguable position.