2.1 The IGT's Review of the Tax Office's Administration of Public Binding Advice19 (Public Advice Review) arose from persistent representations to the IGT that the ATO's implementation of the recommendations in Treasury's 2004 Review of Aspects of Income Tax Self Assessment (ROSA review) had not resulted in the ATO making more legally binding advice for income tax publicly available. The IGT announced the terms of reference for his review on 12 October 2007.

2.2 The Public Advice Review examined whether the ATO met expectations by making its advice legally binding for a wider range of topics, while balancing appropriate risk management considerations with the aim of improving certainty. It also examined related concepts in the law such as 'general administrative practice' (GAP), 'general guidance' and 'legally binding advice'.

2.3 This review found that since the enactment of Tax Laws Amendment (Improvements to Self Assessment) Bill (No. 2) 2005 (2006 ROSA Law Changes), the ATO had taken a number of positive steps to implement the recommendations in the ROSA review. These steps included issuing Practice Statement Law Administration (PSLA) 2008/320 which provides detailed guidance on the level of protection against the payment of penalties and interest afforded where various ATO documents are relied upon by taxpayers. Other positive measures included the issue of detailed separate public binding rulings regarding the public and private ruling systems. However, the Public Advice Review concluded that some ATO practices in relation to its public advice did not give full effect to the changes envisaged by Treasury's ROSA review. The IGT identified a number of areas for improvement, including:

  • erroneous views that rulings could not be given on certain matters;
  • the level of non-binding advice the ATO had issued since the 2006 ROSA Law Changes; and
  • the ATO's views and approach on determining whether a GAP existed.

2.4 Importantly, the IGT observed that more certainty could be provided to taxpayers, with little risk to government revenue, if the ATO acknowledged that a considerable quantity of the ATO's high quality published non-binding advice represented a GAP. The IGT recommended that the ATO should acknowledge key examples of its published non-binding advice (such as the supplement to TaxPack and the annual guidebook on rental properties) represented a GAP under the law. By accepting that a GAP existed, the ATO would only apply a change to the practice prospectively, which amounted to giving the relevant document a legally binding status, unless it was exploited or had been the subject of tax avoidance. The ATO did not share this view. It should be noted that issue of GAPs was examined further, amongst other things, in a subsequent IGT review, namely the Review into Delayed or Changed Australian Taxation Office Views on Significant Issues (the so-called 'U-turns' review).

2.5 In the Public Advice Review, the IGT made four key and three subsidiary recommendations. The ATO fully agreed with two key recommendations, partially agreed with one key and three subsidiary recommendations and disagreed with one key recommendation, which is reproduced in Appendix 1.

2.6 The then Minister publicly released the IGT's report on 7 April 2009.

Implementation of agreed recommendations

2.7 The following section sets out the agreed recommendations and examines the ATO's implementation to that extent.

Key recommendation 1

The Inspector General recommends that the Tax Office should:

  • issue further guidance to its staff, which is made publicly available, on its ability to issue public rulings on the following issues:
    • risk management material;
    • safe harbours;
    • matters involving the A New Tax System (Australian Business Number) Act 1999 (the ABN Act); and
    • matters which are specific to a single entity; and
  • issue further guidance to its staff to explain that the rulings laws which came into effect on 1 January 2006 enable the Commissioner to make a ruling on the way in which a discretion will be exercised.

ATO position — implemented

2.8 The ATO agreed with this recommendation and acknowledged that its position in relation to these matters may not be sufficiently clear.

2.9 On 27 July 2011, the ATO updated Taxation Ruling (TR) 2006/10 Public Rulings21 to specifically reference each of the matters referred to in this recommendation. Similarly, TR 2006/11 Private Rulings,22 was updated on the same day to refer to discretions, safe harbours and tax risk management policies. It may be noted that the changes to TR 2006/11 do not directly comment on the ATO's ability to issue private rulings on matters involving the A New Tax System (Australian Business Number) Act 1999 (the ABN Act). However, private rulings were not within the scope of this IGT review.

2.10 The ATO also updated its staff guidance material to provide greater clarity on the use of public rulings:

A public ruling may cover any matter involved in the application of the provision. Such matters may also include matters relating to ultimate conclusions of fact, the Commissioner's approach to discretions, risk management material and practices authorised under the powers of general administration (sometimes called 'safe harbours'). Further information about public rulings under Division 358 of Schedule 1 to the TAA is available in TR 2006/10.23

IGT conclusion — implemented

2.11 The IGT considers that the ATO has implemented this recommendation.

Key recommendation 3

The Tax Office should enhance its systems to promptly inform the community of any material changes it makes to its practice statements, the nature of those changes and their date of effect. It should also consider making available to the community via its website the full text of the new and old versions of the relevant practice statements so that a full history is available.

ATO position — implemented

2.12 The ATO agreed with the recommendation, noting that it was already informing the community of changes to its practice statements through various other communication channels, including 'alerts' to subscribers and the Tax Agent Newsletter. The ATO also stated that it would inform the community when changes to its practice statements have been made and would explore how previous versions could be made readily available.

2.13 Since that time, the ATO has advised that it has employed the use of third party information service providers to disseminate this information to the community, including news and alert services maintained by a number of accounting and law firms as well as tax, accounting and legal professional bodies and practitioners.

2.14 The ATO has advised that from mid-October 2009, materially amended practice statements would contain details of their amendment histories. Those details include the date of amendment, the relevant part that has been amended, a comment to explain the change, links to previous versions and the date on which prior versions were superseded. A review of a sample of practice statements issued after October 2009 confirms this advice. Only prior versions published after July 2011 are available electronically, any versions published prior to this date will be provided by the ATO on request.

IGT conclusion — implemented

2.15 The IGT considers that the ATO has implemented this recommendation.

Key recommendation 4

The Inspector-General recommends that the Tax Office:

  • seeks independent legal advice on the meaning of the term 'general administrative practice';
  • ensures that this advice also deals directly with the types of documents the Inspector-General has raised with the Tax Office during the course of this review as being potential candidates for 'general administrative practice', as well as situations where no formal ATO document refers to the alleged practice;
  • issues further guidance to its staff on the meaning of the term 'general administrative practice' following the receipt of the independent legal advice; and
  • publicly confirms in this guidance that, subject to the independent legal advice, all documents which the Tax Office refers to as 'precedential ATO views' in PS LA 2003/3, together with all its publicly available practice statements, represent its 'general administrative practice' for the purposes of the income tax laws.

ATO position — implemented

2.16 The ATO agreed with the first three parts of this recommendation which relate to the ATO seeking independent legal advice on the meaning of the term GAP, ensuring that the advice deals directly with matters raised by the IGT and supplementing existing guidance on this matter, subject to the legal advice it has received. The ATO disagreed with the fourth part of the recommendation.

2.17 On 13 January 2010, the ATO received the requested legal advice on the meaning of the term GAP from the Australian Government Solicitor. As a result, the ATO publicly released Taxation Determination (TD) 2011/19 Tax Administration: What is a general administrative practice for the purposes of protection from administrative penalties and interest charges on 27 July 2011.

2.18 The IGT has viewed a copy of that legal advice and confirms that it dealt directly with the types of documents set out in the recommendation.

IGT conclusion — implemented

2.19 The IGT considers that the ATO has implemented this recommendation to the extent it agreed to do so.

2.20 It should be noted that the underlying issue leading to the recommendation, which concerned the degree to which ATO practice and guidance provides taxpayer certainty, has emerged in a number of subsequent IGT reviews, including the so called 'U-turns' Review24and the recent IGT Review into Improving the Self Assessment System25 (Self Assessment Review), with further recommendations made as a result.

Subsidiary recommendation 1

The Inspector General recommends that the Tax Office should:

  • take steps to advise taxpayers that the pdf versions of rulings on its website are the only authorised versions of rulings;
  • ensure that any other versions of rulings made available to the public always contain the full text of the pdf versions, including any material which indicates the binding status of the relevant rulings; and
  • ensure that the binding status of rulings is set out in the body of any ruling rather than in a preamble that may be overlooked by taxpayers.

ATO position — implemented

2.21 The ATO agreed with the first two parts of the recommendation and disagreed with the third.

2.22 With respect to the agreed parts of the recommendation, the ATO has advised that from August 2009 every public ruling now includes a notation that the 'pdf' version of the document is the only authorised version of that ruling as well as providing a hyperlink to the 'pdf' version of the ruling. The ATO has also advised that it ensures that the web (or other) version of the ruling contains the same text as the 'pdf' version. A review of a sample of public rulings issued between 1992 and 2012 confirms this advice.

IGT conclusion — implemented

2.23 The IGT considers that the ATO has implemented this recommendation to the extent it agreed.

Subsidiary recommendation 2

The Inspector General recommends that any 'commitment to you' (or similar statements in any of it publications) which set out the extent to which the Tax Office will be bound by the material set out in that publication:

  1. be identical for different versions of the same publication (for example, for the electronic and paper versions of TaxPack);
  2. clearly state the categories of taxpayers to which any such commitment applies (for example, that the Taxpack commitment statement only applies to self preparers, not individuals who use tax agents); and
  3. clearly state what material is covered by the commitment (for example, that the Taxpack commitment does not extend to material in the TaxPack supplement).

ATO position — implemented

2.24 The ATO disagreed with part (a) of this recommendation and commented that although it agreed with the IGT that commitment statements should be consistent in their application to different versions of the same material, the ATO considered that this may not necessarily be achieved by having identical commitment statements.

2.25 The ATO agreed in principle with parts (b) and (c), commenting that it considered commitment statements should be clear as to their application, both in terms of categories of taxpayers and the material which is covered by the statements. However, the ATO disagreed with the IGT's observation that it was not clear that TaxPack was a public ruling only for individual self-preparers. Notwithstanding this disagreement, the ATO agreed that it would seek feedback on the issues raised by the IGT in relation to part (b) and (c) through its normal user acceptance testing processes to determine whether any changes to TaxPack were warranted.

IGT conclusion — issue subsumed by subsequent IGT review

2.26 The scope of this recommendation has been subsumed by the IGT's Self Assessment Review which examined, amongst other issues, the protections afforded to taxpayers for relying on ATO advice and guidance. As a result the IGT has made recommendations for further improvement.26

Subsidiary recommendation 3

The Inspector General recommends that the Tax Office should ensure that its policy on the effect of misleading advice in a binding income tax ruling is applied consistently to all binding income tax rulings.

ATO position — implemented

2.27 The ATO agreed that its policy on the effect of misleading advice should apply consistently to all binding income tax rulings and noted that this was already being achieved. However, the ATO disagreed with the IGT's view that it had departed from this policy in two recently issued Miscellaneous Taxation Rulings (MT) dealing with administrative penalties (MT 2008/1 and MT 2008/3). Notwithstanding this disagreement, the ATO commented that it would endeavour to ensure protection statements provide the intended level of protection that is relevant to the material to which it relates, and that relevant parties would not suffer any detriment as a consequence. Since this recommendation was made, the IGT has not identified or been made aware of any further ATO departures from this policy.

IGT conclusion — implemented

2.28 The IGT concludes that the ATO has implemented this recommendation to the extent it agreed.

2.29 The IGT has also examined the broader issue of taxpayer protections where ATO advice and guidance is relied upon in a subsequent review, the IGT's Self Assessment Review, and has made recommendations for further improvement.27

19 IGT, 'Public Binding Advice Review', above n 7.

20 ATO, Provision of Advice and Guidance by the ATO, PS LA 2008/3, 20 February 2014.

21 ATO, Public Rulings, TR 2006/10, 11 July 2012.

22 ibid.

23 ATO, 'Public rulings', internal ATO document, undated.

24 IGT, 'So-called 'U-turns' Review', above n 8.

25 IGT, Review into Improving the Self Assessment System (2013).

26 See IGT, 'Self Assessment Review' above n 25, Chapter 2.

27 ibid.