It must be the case that the number private ruling sought from the ATO is on the rise. I don’t have any data that supports this view, but I think this must be so. Why do I say that? It’s because of the combined:
- Uncertainty of what the tax laws mean.
- Lack of knowledge by both taxpayers and tax agents of the myriad of laws, rulings, cases, administrative practices etc.
- Heavy sanctions for getting it wrong.
- The bewildering meaning of the “new” Part IVA.
- The ATO requiring disclosure of certain taxpayer’s activities far beyond what the annual tax return requires.
- Tax agents not wanting to have an issue with a client if the ATO disagrees with the treatment of an item. It’s easier to ask the ATO rather than put your own professional reputation on the line.
The power to make a private ruling
The Commissioner of Taxation is given the authority to issue a private (written) ruling under Division 359 of Schedule 1 to the Taxation Administration Act 1953 (“the Schedule”). The Commissioner may also make oral rulings under Division 360 of the Schedule, but that is not the subject of this article.
Section 359-5(1) simply states that the Commissioner may, on application, make a written ruling on the way in which the Commissioner considers a “relevant provision” applies or would apply to you in relation to a specified “scheme”. The private ruling can cover any matter involved with the particular provision whether you have asked for the comments or not.
It is important to understand that the Commissioner may only issue a private ruling in respect of a “relevant provision”. The relevant provisions are listed in section 357-55 of the Schedule. This includes income tax, fringe benefits tax, GST, excise duty and a number of other taxes.
Broadly, the Commissioner cannot rule on an issue that is not under the scope of his supervision. Also, should the Commissioner comment on a matter in a way that is outside the scope of a relevant provision, that part of the ruling will not be part of the private ruling. The taxpayer (and the Commissioner) may find such comments useful to include in a private ruling but they are not actually part of the ruling.
In relation to this point, you may be surprised to know that the Commissioner does not issue private binding rulings on matters related to the Superannuation Industry (Supervision) Act 1993, even though the Commissioner has the oversight of self managed superannuation funds. The Commissioner does issue what he refers to as “specific advice”. The ATO website states:
“SMSF specific advice
We [the ATO] provide SMSF written advice that applies to a specific transaction or arrangement that has been or might be entered into by the trustees of a SMSF. This advice is based on the facts provided in the trustees’ application. While similar in form to tax private rulings, SMSF specific advice is not binding on the Commissioner because the SIS Act does not allow us to issue advice that is legally binding.”
Other aspects of private rulings
Some other aspects of private rulings are:
- A private ruling given to the trustee of a trust that relates to the affairs the trust also applies to the beneficiaries of the trust if the ruling is not an indirect tax or excise ruling.
- There are situations where the Commissioner is permitted not to issue a private ruling.
- Some private ruling requests may require the determination of the value of something. If the Commissioner refers this to a valuer, the Commissioner may charge the applicant an amount in accordance with the regulations.
- Generally, if the Commissioner has not made a private ruling or advised the applicant that the Commissioner has declined to make a ruling within 60 days, the applicant can issue a notice to the Commissioner requiring him to make the ruling. Then, if the Commissioner does not make the ruling within 30 days of the notice having been given to the Commissioner, the applicant can object against the Commissioner’s failure to make the ruling. Interestingly, the applicant must lodge with this objection a draft of the private ruling the applicant wants the Commissioner to make.
- A private ruling binds the Commissioner if the private ruling applies to a taxpayer and the taxpayer relies on the private ruling. The Commissioner is required not to apply the provision that is covered by the private ruling, to the detriment of the taxpayer, in a way that is not consistent with how the Commissioner has ruled.
Taxation Ruling TR 2006/11 is about private rulings. This goes into much more detail than this article.
The above is not advice and is subject to the terms of the disclaimer. Click here to read the disclaimer.