Private rulings are legally binding written advices that taxpayers may obtain from the ATO under Australian tax law. The key taxpayer benefit is that the private ruling binds the ATO, such that no additional income tax, penalties and interest can be levied on the taxpayer even if that advice is wrong.
Private rulings are issued directly to taxpayers by the ATO. They are also published in an edited form on a register of private binding rulings that is publicly accessible via the ATO's website.
The Inspector-General's review looks at the ATO's administration of private rulings and the purpose, use and ongoing relevance of the edited private binding rulings register. It also examines the extent to which the ATO has implemented recommendations from the Inspector-General's 2008 review on the potential revenue bias in private rulings for large business taxpayers.
The review has been conducted both on the IGT's own initiative and in response to a specific request to review aspects of the private rulings system from the Commissioner of Taxation.
The Commissioner's request was made shortly after community concerns were voiced about a proposal of the Commissioner (which has since not been proceeded with) to remove the detailed content of private rulings from the register of private binding rulings. The ATO had planned to streamline this register so that it showed only the subject matter of any private ruling and its authorisation number. The request was also made against the background of a major change that the ATO was about to implement to its computer system for the management of private rulings. Implementation of this major system change occurred after the major fieldwork for this review had been completed.
In submissions made to this review, taxpayers and tax practitioners primarily focussed on the ATO's original proposal to alter the current content of the publicly accessible register of private binding rulings. These submissions all urged the Commissioner to retain the register in its current form.
Concerns that were raised in submissions about other aspects of the ATO's administration of private rulings were that private rulings take too long to issue, that private rulings on the same topic can be inconsistent and that private rulings cannot be obtained on certain topics.
During the review the ATO acknowledged that it needs to improve the timeliness of its responses to requests for private rulings.
However, overall, the review found that, up to the time when the ATO introduced a new computer system for the management of its private rulings, it had a strong performance in relation to the production of quality, timely and consistent private rulings. There is, though, an issue as to whether the new Siebel system which the ATO has introduced for the management of these rulings has already led or will lead to a deterioration in this previously strong performance.
The small sample of Siebel-generated cases to date that the IGT has reviewed in the final stages of this review is too small to come to a definitive conclusion on these issues.
The review led to six key recommendations, one of which (Recommendation 5) involves a recommendation to the Government to consider abolishing the oral rulings system given its continuing low level of useage.
Five key recommendations were directed to the ATO. Of these, the ATO has fully agreed or agreed in principle with three (Recommendations 1 to 3) and partly agreed with two (Recommendations 4 and 6).
One of the key recommendations the ATO has only partly agreed with concerns the register of private binding rulings. The ATO has agreed with the review's conclusion that this register should be retained, but it has not agreed with a number of suggestions that the review has made to enhance this register.
The second key recommendation which the ATO has only partly agreed with concerns the introduction of the new Siebel computer system for the management of private rulings. The ATO has agreed to a post-implementation review of this new system but it has not agreed to give priority to ensuring that this new system's search facility for locating other private rulings on a given topic matches the search facility for such rulings that was available under the old system.
The three recommendations the ATO has fully agreed (or agreed in principle) with involve the ATO taking steps to:
- identify, track and report publicly on the most frequently requested private ruling topics;
- notify private ruling applicants and the public of when rulings on particular topics may be delayed because of escalation arrangements put in place for such rulings; and
- address delays and productivity issues that may arise from having large teams from different areas of the ATO working on private rulings.
As part of this review, the Inspector-General also examined the extent to which the ATO has implemented recommendations from the IGT's 2008 Review of the potential revenue bias in private binding rulings involving large complex matters. The ten recommendations arising from this 2008 review suggested improvements in the areas of ATO transparency, communication and objectivity, the interactions between the ATO and Treasury and the time frames for private rulings.
The ATO fully agreed with six of the recommendations from this earlier 2008 review and partly agreed with the remaining four. The IGT has concluded that the ATO has implemented all of the recommendations (or parts thereof) that the ATO agreed to implement as a result of this earlier 2008 review.