Public Binding Advice Review To Benefit Australian Taxpayers

by Mary Swire, Tax-News.com, Hong Kong

13 August 2009

The Assistant Treasurer, Nick Sherry, has said that the recommendations of the Inspector-General of Taxation's review of the tax office's administration of public binding advice will provide greater certainty for Australian taxpayers.

Australia is unique in having both a binding public rulings system and a system of publishing, in an edited form, the content of binding private rulings. The Australian Taxation Office (ATO) has the power to make its published advice on income tax matters "legally binding" in the way in which particular provisions in the tax law will apply generally, or on any matter involved in the application of the provisions. Advice which is legally binding means that the ATO cannot assess and collect additional primary tax, penalties and interest if the advice is wrong and a taxpayer has followed that advice.

It was made possible for the ATO’s advice to be legally binding for a wider range of matters in 2006, after which there were concerns that the aim of greater certainty may not have been realized in all cases. In particular, published private rulings, issued by the ATO and not binding in respect of taxpayers generally, were still being widely relied upon by taxpayers and tax advisors, sometimes to their detriment. The Inspector-General’s review was then undertaken.

The review makes four key recommendations to give further effect to the widened public binding system. All but one recommendation has been accepted by the ATO.

The recommendations the ATO has agreed to are as follows:

• Further publicly available guidance should be provided to ATO staff on the full powers of the ATO to issue public binding advice on any matter involved in the application of the tax law;
• Systems should be established to allow more immediate communication from the ATO to the wider community of any changes to practice statements; and
• The ATO should seek independent legal advice on the meaning of "general administrative practice" (where penalties are not payable if the taxpayer can demonstrate that the prior ATO view amounted to its usual practice).

“Australia has a unique tax system with both public and private rulings – these work together to provide important community and business certainty," said the Assistant Treasurer. "I am very pleased with the Inspector-General's Report and also very pleased that the ATO has accepted most of its recommendations."

"ATO devotes considerable attention to the preparation of its guidance products to ensure taxpayers are not misled when following its advice," he continued. "Providing certainty to taxpayers in our system is a high priority and I firmly believe the work of the Inspector-General and the ATO will further enhance our tax administration."

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