Unbeknownst to many a taxpayer, the ATO issues public rulings that provide advice on the interpretation of various tax laws. Public rulings deal with priority issues that require clarification, so you may find that many of your concerns are shared by others and may have already been addressed.
Public rulings provide taxpayers with certainty and protection if they follow the ruling as it applies to them. However, taxpayers who ignore public rulings may face severe penalties unless they can demonstrate that the ATO incorrectly interpreted how the law would apply to circumstances covered by the ruling.
Tip: As a general rule, only public and private rulings are binding. In other words, they offer some protection against having to pay a tax shortfall in the event that the ruling is found to be incorrect. The ATO will not impose penalties where the taxpayer has drawn upon and relied on incorrect information contained in other publications – such as booklets and pamphlets. However where these booklets and pamphlets are not classed as publically binding rulings, a tax shortfall resulting from a taxpayer relying on them when they may be incorrect would still need to be paid.
Type of public rulings
Public rulings can sometimes include:
- tax determinations and tax rulings
- return form guides, including TaxPack
- information booklets
- ATO media releases, and
- speeches or statements by senior officers of the ATO which must say that it or selected parts of it constitute a public ruling.
Public rulings can cover a number of taxes which may include any of the following:
- income tax
- Medicare levy
- fringe benefits tax (FBT)
- franking tax
- withholding taxes
- petroleum resource rent tax
- mineral resource rent tax (MRRT)
- indirect tax – including goods and services tax (GST), wine tax and luxury car tax
- excise duty
- the administration or collection of the above taxes, levies and duties; certain product grants or benefits
- a net fuel amount, or the administration, collection or payment of a net fuel amount
- a net amount or the administration, collection or payment of a net amount; and
- a wine tax credit, or the administration or payment of a wine tax credit.
Rulings are treated as binding public rulings when they are made available to the public (through Freedom of Information units located at each branch and the ATO website) and they explicitly state that they are public rulings.
Date of effect of a public ruling
Public rulings state the ATO’s interpretation of tax laws (which is binding) and is taken to have always applied unless:
- the ruling states that it applies only after a particular date, or
- the ATO feels it is unfair to disturb arrangements existing before that ruling.
What happens if you disregard a public ruling?
There is no compulsion on a taxpayer to follow a public ruling. However, if a taxpayer is subject to a tax shortfall penalty, a public ruling is a relevant authority in determining whether the taxpayer has a reasonably arguable position and if reasonable care was exercised. If there is a tax shortfall because a ruling was not followed, penalties can be imposed unless the taxpayer can demonstrate reasonable care was taken and they had a reasonably arguable position.
Tip: If in doubt, follow the public ruling and then lodge an objection against the assessment or seek a private ruling. By using either of these two strategies, the taxpayer protects their rights and avoids the possibilities of tax shortfall penalties.
What if there are conflicting rulings?
If two public rulings are issued on the same topic, the earlier ruling still applies to arrangements which started before the issue of the new ruling.
Rulings under each tax type (for example, income tax) are treated separately and there can be no conflict between them. If there is any conflict in interpretation of the law between two public rulings, the taxpayer can rely on either ruling.
Tip: If an arrangement had started when a public ruling was issued, the taxpayer can usually adopt whichever ruling gives greatest benefit. Be careful however, as a new public ruling can overturn that earlier favourable interpretation.
Warning: A conflicting public ruling issued before a scheme commences will override any private ruling issued to the taxpayer.
What happens when a ruling is withdrawn?
In the case of withdrawal of part of a public ruling, the portion which was not withdrawn continues to hold effect for both past and future arrangements. For any arrangement that started before the withdrawal, the former ruling will apply – provided it is favourable to the taxpayer.
Example: A public ruling dealing with expenditure incurred by an employer-sponsored super fund says deductions are allowed if the expenses are incurred on behalf of the fund by trustees of the super fund or the sponsoring employee. A further public ruling is issued, withdrawing the previous ruling as it affects trustees. In that case, the earlier ruling continues to apply to expenditure incurred by sponsoring employers.
When should I use a tax determination?
A tax determination (TD) is a type of ruling regarding a very specific point of law and has the same status as a public binding ruling. The difference between a TD and a public ruling is that a TD deals with single issues whereas a public ruling looks at all of the tax implications that might be involved in an arrangement or transaction. For example, a TD might deal with the assessability of a receipt to advise whether that receipt is income under ordinary concepts. A public ruling, on the other hand, would also consider whether the receipt was a capital receipt and subject to capital gains tax.
Do TaxPacks and information booklets constitute a public ruling?
As a general rule, a published booklet or other information issued does not become binding on the ATO unless the document or information specifically states that it is a public ruling.
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