In 2015, the Government released its tax White paper titled ‘Re:think Tax discussion paper’. As part of the discussion on complexity, the paper noted:
In the 1950s Australia had a tax system made up of around 1,080 pages of tax law. … Now we have more than 14,000 pages of tax law dealing with countless specific scenarios.
As a new entrant into the tax world, or even an experienced practitioner with numerous years’ experience, navigating this can be overwhelming.
That is why the first module of our Tax Fundamentals course starts with a ‘What advice can I rely on?’ overview.
However, before we get to what advice is available, it is important to note that not all advice is created equal. Different advice has differing levels of protection, and reliance on some advice over others may leave us exposed if we get it wrong. This risk or exposure consists of three aspects:
- the tax shortfall (i.e. the difference between the amount of tax we have paid, versus what we should have paid);
- a penalty (which varies depending on the taxpayer’s culpability from, say, a 25 per cent shortfall due to a lack of reasonable care to a 75 per cent shortfall for intentional disregard of the law); and
- an interest component known as the general interest charge (GIC).
Where do I look?
While the starting point of course is the law, which is spread over both the Income Tax Assessment Acts 1997 and 1936, it is the explanation to this law that is usually more helpful. Each piece of new or amending law is contained in a bill that is introduced into Parliament, and the bill is accompanied by an explanatory memorandum (EM). An EM is a separate document presenting the legislative intent of the bill in more simplified terms. Section 15AB of the Acts Interpretation Act 1901 gives specific authority for the use of EMs in interpreting tax laws.
EMs are particularly useful for new law, where there is little other available information, but they are also useful for determining Parliament’s intended effect of a piece of law and what mischief the new law is trying to address. Examples contained in EMs may help taxpayers to understand how the new law should be applied in practical scenarios to achieve the intended policy outcome.
The ATO Legal Database is also an extremely valuable resource as it contains a multitude of interpretive advice including:
- Public Rulings;
- Practical Compliance Guidelines;
- Decision Impact Statements;
- ATO Interpretative Decisions;
- Law Administration Practice Statements;
- Taxpayer Alerts; and
- Other ATO documents.
The general ATO website also contains a wealth of information, with fact sheets, guides and instruction booklets.
What protection is available?
As mentioned already, not all advice is created equal. As such, ATO advice broadly falls into two general categories:
1. legally binding ATO advice; or
2. non-binding ATO advice.
Legally binding ATO advice
Legally binding ATO advice provides protection to a taxpayer, or your client, by ensuring that the Commissioner cannot depart from what is stated in the legally binding advice. This means that the Commissioner cannot apply the law in a way that is different from the ruling, unless it is more favourable to the taxpayer. The legally binding nature of the advice means that:
- no shortfall amount will arise;
- no general penalties will be imposed; and
- no interest charges will apply.
It is important to note that the ATO advice is only legally binding on the ATO if the relevant facts and circumstances of the taxpayer are consistent with the ATO advice.
A good example of legally binding advice is a public ruling.
Other ATO advice
In addition to legally binding advice, there are some types of advice that the ATO will administratively stand behind. Administratively binding advice protects taxpayers from a shortfall of tax as well as interest and penalties thereby providing a similar level of protection as legally binding advice.
The ATO notes in PS LA 2008/3 that while it will stand by what is said in such advice, it will depart from it where:
- there have been legislative changes since the advice was given;
- a tribunal or court decision has affected the interpretation of the law since the advice was given; or
- for other reasons where the advice is no longer considered appropriate (e.g. where commercial practice has changed, the advice has been exploited in an abusive and unintended way, or the advice is found on reconsideration to be wrong in law).
Administratively binding advice is very limited in nature.
ATO advice provided in other forms is also available to help practitioners and taxpayers understand the law and their obligations. While this guidance is not binding on the Commissioner, applying it can result in reduced penalties for a taxpayer, should they get it wrong.
Specifically, which ATO documents offer what protection?
TR 2006/10 provides that the following are public rulings and therefore reliance on them provides protection from the shortfall, penalties and interest:
- Taxation Rulings (TR)
- Taxation Determinations (TD)
- Law Companion Rulings (LCR)
- Miscellaneous Tax Rulings (MT) that are labelled as ‘legally binding’
- Class Rulings (CR)
- Product Rulings (PR)
- Goods and Services Tax Rulings (GSTR)
- Goods and Services Tax Determinations (GSTD)
- Superannuation Guarantee Rulings (SGR)
- Self Managed Superannuation Funds Rulings (SMSFR)
- Superannuation Contributions Rulings (SCR)
- Product Grants and Benefits Rulings (PGBR)
- Excise Rulings (ER)
- Fuel Tax Rulings (FTR)
- Fuel Tax Determinations (FTD)
- Wine Equalisation Tax Rulings (WETR)
- Wine Equalisation Tax Determinations (WETD)
- Luxury Car Tax Determinations (LCTD).
Other types of publications that may be made into public rulings include:
- return form guides;
- information booklets;
- media releases;
- speeches of senior ATO officers; and
- law administration practice statements.
However, to be a public ruling, the relevant publication must clearly state that it is a public ruling. As such, an ATO publication will not be a public ruling unless it is stated to be one and only with respect to the specifically identified parts.
Other ATO advice, with the level of protection afforded, is set out in the following table:
|Advice||Type of protection||Protection offered|
|Administratively binding advice(e.g. rulings which are in the IT and MT series)||Not legally binding on the Commissioner but the Commissioner will not depart from it except in limited listed circumstances||Protects the taxpayer from a shortfall amount, interest and penalties|
|Commissioner’s general administrative practice(e.g. Practice Statements)||Not legally binding on the Commissioner but must be taken into account when issuing a public ruling to determine if it can have a retrospective impact||Protects the taxpayer from penalties and interest|
|Publications approved in writing(including ATO Interpretative Decisions)||Not legally binding on the Commissioner||Protects the taxpayer from penalties and interest|
|Other ATO documents(e.g. ATO Fact Sheets)||Not legally binding on the Commissioner||Protection from penalties if document followed and an honest mistake is made. Interest may apply.If the advice is misleading or incorrect, protection from penalties will apply. Interest protection will apply where the document is reasonably relied on in good faith unless clearly labelled non-binding.|
Sources: PS LA 2008/3 (Provision of advice and guidance by the ATO),
TR 2006/10 (public rulings), PS LA 2003/3 (precedential ATO view),
PS LA 2012/5 (Administration of penalties for making false
or misleading statements that result in shortfall amounts)
As you can see, there is a vast array of tax technical advice available to help navigate through the ever increasing volume of tax laws. While only the legally binding ATO advice provides protection from a tax shortfall, reliance on other types of ATO advice ensures that no penalties or interest will apply. By starting with the legally binding ATO advice, such as Taxation Rulings and Law Companion Rulings before looking for more specific ATO Interpretive Decisions (which are based on specific fact scenarios) and ATO guides, you will provide the best protection for your clients and be able to solve those trickier tax problems.
This article only discusses public advice and guidance products. Tax agents may also apply for a Private Binding Ruling tailored for their client’s specific circumstances and which is legally binding on the Commissioner.
If this is a topic that interests you, our upcoming Tax Fundamentals courses are open for registration. Click here to learn more.
- Re:think A tax discussion paper, Complexity – a sketch in five slides http://bettertax.gov.au/publications/multimedia/five-slide/complexity-a-sketch-in-five-slides/
- House of Representatives Practice (6th Ed.)
Lee-Ann Hayes | TaxBanter