What happens when the ATO does not want to give a private ruling?

The Commissioner can decline to make a private ruling only in certain specific circumstances. A number of our clients have recently been told that the Commissioner will not rule on the set of facts presented in their private ruling applications.

The recent decision of Hacon Pty Ltd v Commissioner of Taxation [2017] FCA 659 confirmed that the ATO cannot simply decline to rule. Cooper Grace Ward acted for the successful taxpayers.

What happened in Hacon?

The taxpayers applied for a private ruling as to whether the anti-avoidance provisions applied to a proposed restructure of their family’s grazing business.

The Commissioner declined to rule on their private ruling application. The Commissioner said this was because he had to make assumptions that he was not prepared to make.

Instead, the Commissioner described the information that he needed, but then explicitly stated he was not requesting that information, and declined to make the private ruling.

Logan J quashed the Commissioner’s decision and ordered the Commissioner to request the information that he considered was needed to issue the private ruling.

Logan J stated that decisions to decline to rule should be regarded as ‘safe havens after a long voyage, not ports of first call’.

In other words, where the Commissioner considers that he needs more information in relation to aspects of the private ruling scheme, he should request that additional information.

What does this mean for you?

The private ruling system requires the Commissioner to provide his view on how the law applies to a particular set of circumstances – called the private ruling ‘scheme’. This is regardless of whether the ‘scheme’ has commenced.

For many years, the ATO has issued private rulings prior to the commencement of activities actually occurring. This has provided taxpayers with certainty as to the ATO’s position, an important aspect of the self-assessment scheme.

Provided a taxpayer’s actual circumstances are not ‘materially different’ to the private ruling ‘scheme’, they will be able to rely on this ruling.

We have recently received a number of calls from the ATO where as a ‘first port of call’ it has sought to decline to rule on the basis that it will be required to make assumptions in order to rule. This has included private ruling applications concerning whether:

• the sale of lots following a proposed land subdivision will be on capital account;
• a taxpayer will continue to be a resident of Australia if they move overseas permanently; and
• as in Hacon, the anti-avoidance provisions apply to a proposed transaction.

Often in these circumstances, the taxpayer needs to be certain of the ATO position – as this will affect the commercial decision as to whether to proceed.

Hacon makes it clear that the ATO cannot, as a first ‘port of call’, decline to rule on the basis that it is required to make assumptions. The ATO must request further information if it decides that there is any uncertainty about the scheme.

Please contact us if you would like to discuss.