Private rulings: What they are, and how they can help

Taxpayers with a concern that a particular transaction they intend on undertaking (or have undertaken) may give rise to an unanticipated tax outcome can apply for a “private ruling” from the Tax Office.

These are rulings made by the Commissioner of Taxation in relation to the application of a provision in the tax law to a certain set of circumstances of the taxpayer.

Asking for a private ruling can be a good way to “test-drive” an arrangement you may be considering, especially where current information from the Tax Office (such as public rulings) doesn’t seem to adequately cover all the bases.

Each private ruling is specific to the taxpayer who applied for it, and only to the situation and income years considered by the ruling, and can’t be picked up as a standard by any other taxpayer.

Some important considerations in respect of applying for a private ruling are follows:

• Once issued, private rulings are binding on the Commissioner of Taxation. In other words, if you have obtained a private ruling, and base your tax affairs on that advice, the Tax Office is bound to administer the tax law as set out in that ruling. But if in due course the Tax Office issues a public ruling (that is, a ruling which applies to any taxpayer if their situation fits the ruling) and the tax outcome conflicts with the one in your private ruling, you may be able to have the choice of which ruling you deem should apply.
• If the arrangement you enter into differs materially in any way from the situation spelled out in your application for a private ruling, the Commissioner of Taxation isn’t bound by the ruling (although minor variations that don’t affect the way the law applies could be considered acceptable).
• Private rulings cover questions as to how the tax law should be applied.  For example, whether an activity is a “hobby” or a “business” for income tax purposes. Besides income tax matters, private rulings can cover indirect taxes such as the luxury car or GST.  It also extends to valuation matters.
• A private ruling made in respect of a particular tax law will be changed if that law is altered by legislation or by the result of a court decision. But it’s worthwhile remembering that if you follow a private ruling’s advice, and that ruling is later found to have applied the law incorrectly, you are generally protected from having to repay any tax that would have otherwise been owed, as well as interest and penalties.
• If the outcome from a ruling is not in your favour, you can normally object to a private ruling in the same way as a tax assessment.

It is also worth noting that if a private ruling affects one of your earlier tax assessments, the Tax Office will not

automatically amend it unless you make a point of submitting a written request for an amendment.

Edited private rulings

Edited versions of private rulings are publicly accessible on the Tax Office website in the Register of Private Binding Rulings.  These edited private rulings are to enhance the integrity and transparency of the Tax Office’s decision making processes.

Note that:

• they are non-binding and do not provide you with protection (including from any penalty or interest)
• in addition, a record on the register is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances.

How to apply for a private ruling

You can apply for a private ruling yourself (click here for the private ruling application form, plus some calculators) but a much safer and surer option is to ask this office for help and guidance. For companies, a public officer can apply, or a partner of a partnership or a trustee of a trust estate. You can find out more information by checking here, or ask this office.

And just because you apply for a private ruling doesn’t mean you are going to get one. The Tax Office can refuse if it thinks (i) a ruling would prejudice or restrict the law, (ii) if you are being audited over the same issue, or (iii) if it deems your application to be “frivolous” or “vexatious”.

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