Tax rulings form an important part of Australia’s tax framework. They plug the holes that our tax laws leave behind.
Tax rulings are to remove uncertainty within our taxation laws. Only the Commissioner can issue a ruling.
Taxpayers who rely on tax rulings receive particular rights. They receive penalty protection. And when the Commissioner alters a ruling, it can’t increase the taxpayer’s obligation.
There are three different types of rulings. And each has its own division in Schedule 1 of the Taxation Administration Act 1999 (TAA).
Division 358 – Public rulings sit in Div 358. Private rulings in Div 359. And oral rulings in Div 360.
The common rules for tax rulings live in Division 357.
The Commissioner publicly issues public rulings. They can take on a number of forms. The most common ones are Taxation Ruling (TR), Taxation Determination (TD), Class Ruling (CR) and Product Ruling (PR).
Taxpayers can’t object against a public ruling. But when a taxpayer disagrees with a public ruling and wants to take steps against this ruling, there are ways to do that.
To avoid exposure to penalties for the failure to take reasonable care, a taxpayer can apply for a private ruling on the same matter. And then subsequently object against this private ruling.
Or a taxpayer can prepare a return in accordance with the public ruling and then object against the assessment.
To obtain a private ruling a taxpayer formally asks a question of the Commissioner. And the Commissioner then replies in writing. When requesting a private ruling from the Commissioner, a taxpayer must set out all relevant facts and circumstances of the issue.
Where a scheme is not implemented in the manner as set out in the private ruling request, the ruling will not constitute a private ruling and cannot be relied upon. The decision in Mount Pritchard & District Community Club Ltd v FCT (2011) 196 FCR 549; FCAFC 129 confirmed this approach.
Where the implementation of a scheme differs from the facts set out in a private ruling requests, it is advisable to apply for a new private ruling on the basis of the facts as they now stand.
To assist individuals with relatively simple tax affairs the Commissioner might provide advice verbally. Taxpayers apply for oral rulings verbally and receive a verbal response. No written answer is provided with respect to oral rulings. A request for an oral ruling can be refused where the Commissioner considers the advice sought relates to a business or complex matter.
Section 357-55 of Schedule 1 to the TAA lists the areas that allow a tax ruling.
These are income tax, withholding tax, franking tax, FBT, medicare levy and excise duty as well as indirect taxes such as GST, wine equalisation tax, luxury car tax and fuel tax. In addition tax rulings are possible for mining withholding tax and petroleum resource rent tax.
Section 357-60 of Schedule 1 to the TAA states that a ruling binds the Commissioner where a ruling applies to a certain taxpayer. And the taxpayer relies upon the ruling by acting (or omitting to act) in accordance with the ruling.
A taxpayer need not be aware of a ruling’s existence for it to be binding on the Commissioner.
A taxpayer may choose to rely upon a ruling at any time and not necessarily at the first opportunity. However a taxpayer cannot rely upon a ruling when prevented by a time limit.
Section 357-65 of Schedule 1 to the TAA states a taxpayer may cease to rely upon a ruling at any time by ceasing to act (or omitting to act) in a manner contrary to the ruling.
A taxpayer may choose to resume relying upon a ruling any time, unless prevented by time limits.
There are penalties for failing to follow a ruling.
However, the Commissioner may consider the ignorance of a ruling as a failure to take reasonable care.
When two rulings are inconsistent, s 357-75 of Schedule 1 to the TAA applies a tiebreaker. This tiebreaker does not apply to indirect tax or excise rulings, but to all other rulings.
If the earlier ruling is a public ruling, the taxpayer can rely upon either ruling.
It gets more complicated when the earlier ruling is a private or oral ruling. What happens next will depend on whether the later ruling is a priate/oral ruling or a public one.
When the later ruling is a private or oral ruling and the taxpayer didn’t inform the Commissioner of the earlier ruling, then the later ruling is treated as not having been made. So the earlier ruling applies.
If the taxpayer did inform the Commissioner of the earlier ruling, then the earlier ruling is treated as not having been made. So the later ruling applies.
When the later ruling is a public ruling, then everything depends on timing. If the relevant year or particular scheme had already started when the later public ruling was issued, then the taxpayer can rely on either ruling.
If the relevant year or particular scheme hadn’t started yet when the public ruling was made, then the earlier ruling is treated as not having been made. So the later ruling applies.
Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 23 March 2020