1930s – 1985

A.2.1 From as early as the 1930s, the Commissioner of Taxation has issued advice on his interpretation of the tax laws.352 At this time, the administrator had developed a system of disseminating information within its organisation on interpretative matters as a means to assist officers to apply the law consistently — Income Tax Orders.

A.2.2 There have been calls for all of this information to be made publicly available, see for example, the 1975 Asprey Report of the Taxation Review Committee. However, it was not until the enactment of the Freedom of Information regime in 1982 that the taxation rulings system was formalised and rulings published. At this time, these rulings were issued under the Commissioner’s general power of administration and were only administratively binding on the Commissioner. 353

1986 – Self assessment

A.2.3 With the introduction of the self assessment system in 1986, taxpayers were also provided with an additional means to raise questions to be considered by the ATO at the time of lodgement of their tax returns — section 169A of the Income Tax Assessment Act 1936. This section was designed to facilitate self assessment by making it clear that the ATO may issue an assessment solely in reliance on the information in the taxpayer’s return.354 Although the ATO could also undertake a post-assessment review to amend the liability to reflect the amount of tax that should have been paid, it would consider itself administratively bound if it did not challenge the view on lodgement. The ATO reported significant usage of these requests, of up to 50,000 in any one year.355

A.2.4 By the early 1990s, concerns were raised with the balance of protections under the fledgling self assessment system and the need to provide greater taxpayer certainty. For example, concerns were raised with the extent of protection that these administratively binding rulings provided. For example, in one case the ATO departed from a 30-year old practice and successfully litigated the issue in the Federal Court (David Jones Finance v Commissioner of Taxation (1990) 12 ATR 1506).

1991 – Priority tasks

A.2.5 Following this, the government reviewed the self assessment system and published its intended action in the 1991 Priority Tasks information paper. In this paper, the Government proposed a system of rulings that would bind the Commissioner in law:

8.3 Although Taxation Rulings will be binding in law, they will not have the status of law. A Ruling gives the Commissioner’s interpretation of the law. Even if the interpretation is later found to be incorrect, the Commissioner will be estopped from increasing a taxpayer’s liability where it has been calculated in accordance with the Ruling. This is similar to the form of estoppel which operated before 1986 to prevent the Commissioner from increasing a tax liability where there had been a full and true disclosure. There have been some representations that Rulings should not be able to take the place of the law nor override the decisions of the courts. However, there is strong support on certainty grounds, for the notion that if the Tax Office has all the facts it should be to say what the tax liability is and the taxpayer should be able to rely on that advice.356

A.2.6 Pursuant to this proposal, the Taxation Laws Amendment (Self Assessment) Act 1992 was enacted. It introduced a legislative regime of two types of rulings: public and private. Both types of rulings were legally binding on the ATO with the result that the ATO could not levy additional primary tax, penalties and interest if the advice in the ruling was wrong and a taxpayer had followed that advice. Taxpayer rights of appeal to the Administrative Appeals Tribunal and the Federal Court were provided. Section 169A was also amended to prevent its usage where a private ruling could be requested.

A.2.7 Non-ruling forms of advice provided protection from penalties where taxpayers treated the law in a particular way that agreed with:

  1. advice given to the taxpayer or their agent on or behalf of the Commissioner; or
  2. general administrative practice under that law; or
  3. a statement in a publication approved in writing by the Commissioner.357

1993 – Joint Committee of Public Account’s review

A.2.8 The Joint Committee of Public Account’s (JCPA) 1993 review of the ATO examined a number of aspects of the self assessment system, including the Commissioner’s role as a rulings administrator. The JCPA observed that, notwithstanding the theoretical correctness of rulings being the Commissioner’s statement of the view of the law, they practically equated to quasi-law:

6.42 … The ATO urged the Committee to consider Rulings as statements of the Commissioner’s view of the law formed against the background of information from many sources. …

6.43 While acknowledging the theoretical accuracy of the ATO’s position, the Committee noted the general perception in the community that Rulings were in fact quasi-law. That is, Rulings had to be followed if taxpayers did not want to be penalised.358

A.2.9 As a result the JCPA recommended that not following rulings should not, of itself, be a basis of a penalty.359 The Government did not support these recommendations. However, as a result of a recommendation in a later report (recommendation 4.3 in the Report on aspects of income tax self assessment — discussed below), penalties for failing to follow private rulings were removed.

A.2.10 The JCPA recommended a number of other improvements to rulings which were supported by the ATO, including:

  • improving access to the public and private rulings’ databases (recommendations 34, para. 6.36, recommendation 36, para. 6.70); and
  • providing alternate views in public rulings (recommendations 28, 29, para. 6.26).

A.2.11 The JCPA also recommended that the ATO should refrain from ruling in circumstances where there are serious doubts of the validity of the ATO’s interpretation (recommendation 30, para. 6.26). The ATO responded that it would never adopt a position that is contrary to the law. However, it would seek clarification in Courts where the application of the law was unclear and different (but equally tenable positions) are taken. Where the policy of the law was unclear the ATO or the ATO view of the law was inconsistent with the policy intention, the ATO would bring that to the attention of Government.360

1998 – Product rulings, the Ralph review and the Government’s Tax reform — not a new tax, a new tax system policy

A.2.12 In response to increased mass-marketing of claimed tax effective investment products, the ATO introduced a particular type of public ruling — ‘product rulings’. Product rulings were introduced to focus ATO views on claimed tax benefits in ‘products’, such as an investment arrangement, a tax-effective arrangement, a financial arrangement, or an insurance arrangement. So long as the product was implemented as stated and there were no material omissions, taxpayers were protected from any additional tax, penalties or interest if the ATO’s view was wrong.

A.2.13 The Ralph review proposed a number of improvements to the advice framework, including expanding the scope of matters on which private rulings could be obtained, default issue of private rulings, and charging fees for selected private rulings. It also concluded that the rulings function should be retained within the ATO.361

A.2.14 Also in 1998, the government released its taxation policy document, Tax reform —not a new tax, a new tax system.362 In relation to the advice framework it proposed certain measures to improve the certainty and reliability of ATO advice. These included a system of oral binding rulings for taxpayers with simple affairs and expanding the scope of matters on which private rulings could be obtained. The document also proposed to charge for private rulings on complex matters.363

2001 – Sherman, class rulings and the Auditor-General’s performance audit

A.2.15 In continuing to use the power to issue public rulings in innovative ways, the ATO in 2001, started to issue public rulings to a specific class of persons, in relation to a particular matter — ‘class rulings’.

A.2.16 Following concerns with the private ruling system, the ATO commissioned a review of the private rulings system. A number of recommendations to improve the integrity and case management of the system arose from that review including the publication of edited private rulings and improved case management systems and internal scrutiny.364

A.2.17 The Auditor-General also completed a performance audit on the ATO’s management of the taxation rulings system. It observed room to improve in a number of areas and made twelve recommendations as a result.365

2004 – Treasury’s review of aspects of income tax self assessment (ROSA)

A.2.18 In 2004, the Treasury conducted a review of aspects of income tax self assessment (ROSA review). This review was carried out in response to community concerns that the self assessment system did not have the right balance between protecting the rights of individuals and protecting the revenue for the benefit of the Australian community.

A.2.19 The discussion paper for the ROSA review recognised that:

Tax Office rulings and other advice are important for taxpayer certainty. Taxpayers who self assess in line with the Tax Office’s interpretation of the law have confidence that they will not be liable to pay additional primary tax, interest or penalties. Taxpayers who do not follow Tax Office advice or do not know the Tax Office position, run the risk that the Tax Office will amend their assessments and they will be liable to pay additional amounts.366

A.2.20 The report to the ROSA review (ROSA report) also observed that:

[O]ne way to reduce the uncertainty faced by taxpayers under the self assessment system would be through taxpayers being confident that they were assessing their income tax liabilities in line with the Tax Office’s interpretation of the law (through rulings and other advice).367

A.2.21 To this end, the ROSA report made 25 recommendations relating to the framework for ATO advice. Broadly, the recommendations were aimed at:

improv[ing] certainty through providing a better framework for the provision of Tax Office advice and introducing ways to make that advice more accessible and timely, and binding in a wider range of cases.368

A.2.22 Upon release of the ROSA report, the Government agreed to all of the legislative recommendations (13 of which related to ATO advice and its framework). Accordingly, in 2005, two tranches of legislation were enacted to give effect to this agreement. In effect, the legislative provisions dealing with public and private rulings were completely replaced. With regards to advice, the new laws were intended to:

[make] advice in the form of rulings by the Commissioner available to many taxpayers on a wide range of matters;

[ensure] that the Commissioner provides rulings in a timely manner;

[enable] the Commissioner to obtain, and make rulings based on, relevant information;

[protect] taxpayers from increases in tax and from penalties and interest where they rely on rulings;

[limit] the ways the Commissioner can alter rulings to a taxpayer’s detriment; and

[give] protection from interest charges where a taxpayer relies on other advice from the Commissioner, or on the Commissioner’s general administrative practice.369

A.2.23 According to the Explanatory Memorandum to the Tax Laws Amendment (Improvements to Self Assessment) Bill (No. 2) 2005, the overall object of the new advice legislation was to:

provide improved ways for taxpayers to find out the Commissioner’s view about how certain laws apply to them, so that the risks of uncertainty when self assessing, or working out the tax obligations or entitlements, are reduced.370

A.2.24 Eleven of the remaining twelve advice recommendations were directed towards the ATO.371 The Commissioner of Taxation undertook to implement these recommendations as soon as practicable.

2006 – 2011 IGT reviews on the advice framework

A.2.25 The IGT has also previously reviewed a number of aspects of the advice framework:

  • Review of Tax Office management of Part IVC litigation, May 2006 — part of the review dealt with changes in the ATO view following adverse Tribunal and court decisions;
  • Review of the potential revenue bias in private binding rulings involving large complex matters, February 2008 — dealt with the underlying causes of perceptions of ATO revenue bias in interpretative matters, such as the ATO’s use of ‘policy intent’ in its approach to statutory interpretation, delays and costs of ruling applications and refusals to rule;
  • Review of the Tax Office’s administration of public binding rulings, April 2009 — dealt with the ATO’s implementation of aspects of the ROSA recommendations, such as those relating to public binding rulings, other guidance providing lower levels of protection and general administrative practice;
  • Review into the implications of any delayed or changed ATO advice on significant issues, March 2010 — dealt with issues such as the ATO’s approach to changes in view, retrospective application and the manner in which the ATO engages the community on technical issues;
  • Review of aspects of the Australian Taxation Office’s administration of private binding rulings, May 2010 — dealt with issues such as the quality, consistency and timeliness of private rulings; and
  • Review into the Australian Taxation Office’s administration of class rulings, September 2011 — dealt with issues such as the timeliness, communication and transparency of the ATO’s work in providing class rulings.

A.2.26 The overarching themes arising from these reviews were that, within the existing advice framework, there was scope for the ATO to reduce compliance costs, delays and taxpayer uncertainty.

2009 – Australia’s future tax system — the Henry review

A.2.27 The Henry review made a comprehensive examination of Australia’s tax and transfer system, including some issues arising in tax administration. In relation to ATO advice, the Henry review considered calls for the ruling function to be carried out by a separate organisation. It rejected those calls and concluded that:

the ATO should continue to execute that role in a way that builds community trust in the fairness of its approach. The ATO should continue to bring a practical administrative perspective to the purposive interpretation of tax laws. Greater transparency about the policy objective of the tax laws will support a purposive approach to interpretation. A principles-based design of the law will help make the policy objectives more explicit (see Recommendation 112). Transparency would also be enhanced by publishing information or advice provided by Treasury to assist the ATO in determining the purpose or object of the law, or materials used by the ATO to determine policy intent (see Recommendation 114).372


352 Australian National Audit Office (ANAO), The Australian Taxation Office’s Administration of Taxation Rulings, Audit Report No. 3 2001–02 (2001) p 174.

353 Joint Committee of Public Accounts, above n 27, pp 106–108.

354 Explanatory Memorandum, House of Representatives, Taxation Laws Amendment Bill 1986, cl 19.

355 Joint Committee of Public Accounts and Audit, above n 6, p 91.

356 Kerin, above n 324, p 44.

357 Taxation Administration Act 1953 sch 1 s 284-215.

358 Joint Committee of Public Accounts, above n 27, p 110.

359 Ibid 108, 114.

360 Minister for Finance, JCPA, Executive Minutes & Government Responses (1993) paras [20]–[21].

361 Review of Business Taxation, above n 28, pp 137–145.

362 Costello, above n 177.

363 Ibid pp 146–147.

364 Michael Carmody, ‘The Integrity of the Private Binding Rulings System’ (Speech delivered at Melbourne, 15 November 2000).

365 ANAO, above n 352.

366 The Treasury, above n 63, p 13.

367 The Treasury, above n 1, pp 3–4.

368 Ibid p 4.

369 Explanatory Memorandum, House of Representatives, Tax Laws Amendment (Improvements to Self Assessment) Bill (No 2) 2005, para [3.20].

370 Ibid para [3.19].

371 The remaining recommendation was directed at the IGT to review whether there was a potential revenue bias in ATO rulings. This review was completed in February 2008.

372 Australia’s Future Tax System, above n 6, Part 2 vol 2 p 659.