Taxation Law – Private Rulings

This article sets out the procedures to be followed by taxpayers who wish to challenge Private Rulings for taxation assessments made by the Commissioner of Taxation.

Private Rulings are issued by the Commissioner of Taxation under the Taxation Administration Act (Cth.) 1953. A Private Ruling states the Commissioner’s opinion on the way that the tax law applies to a taxpayer’s arrangement for the particular years that are described in the application for the Private Ruling. Private Rulings are an effective way of determining whether a taxpayer’s arrangements will be successful in legitimately minimising liability to income taxation, capital gains taxation, or goods and services taxation. The taxpayer can assess in advance what the potential taxation liability may be if the arrangement were to proceed. If the Ruling is unfavourable to the taxpayer, then the taxpayer has an opportunity of adopting alternative taxation arrangements without necessarily attracting taxation liabilities.

A Private Ruling should be distinguished from an assessment made by the Commissioner of Taxation pursuant to an income tax return. An assessment of a taxpayer’s taxation liability is made by the Commissioner of Taxation after a review of the information provided by the taxpayer in the taxation return for the particular financial year together with any additional information obtained by the Australian Taxation Office pursuant to an audit or investigation of the taxpayer’s affairs pursuant to the Income Tax Assessment Act (Cth.) 1936.

In layman’s terms, a Private Ruling enables a dry-run without necessarily attracting a taxation liability in the form of an assessment.

A taxpayer may, however, apply for a Private Ruling either before or after the taxpayer lodges the return for the year in which the taxpayer’s arrangement took place. It is preferable to apply for the Private Ruling prior to the lodgment of the return for the year in which the arrangement is to take place in order to obtain the full benefit of the process. However, Private Ruling applications are still possible after a return is lodged, provided they are issued before the Commissioner determines an assessment based on the relevant return. A Private Ruling cannot be obtained after this time. The relevant arrangements disclosed in the return are binding on the taxpayer as and from the date of the assessment.

A Private Ruling is binding on the Commissioner of Taxation so that even if the tax law is ultimately found to apply to the arrangement in a different way to that set out in the Ruling, the taxpayer will not be liable for any more tax than that which would have been payable under the Private Ruling. However, Private Rulings are not binding on the Commissioner of Taxation if the law is changed or if the arrangement actually carried out by the taxpayer was materially different from that which was described in the application. Furthermore, the Private Ruling is only binding on the Commissioner in respect of the particular taxpayer (the Rulee) as named in the Private Ruling.

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