A3.1 The beginning of Australia's current public rulings system can be traced back to 1982. The first official taxation ruling of the Income Tax (IT) series (IT 1) was issued on 6 December 1982 to coincide with the commencement of the Freedom of Information Act 1982.

A3.2 IT 1 stated that a taxation ruling would be issued for any decision which satisfied the following three criteria:

  • it provides an interpretation, guideline, precedent, practice or procedure to be followed in making a decision that affects the rights or liabilities of taxpayers; and
  • it establishes a new or revised interpretation of the ATO's administration of the tax laws; and
  • it affects all taxpayers or a section of the tax-paying community, that is, not simply an individual instance.

A3.3 In 1986 section 169A of the Income Tax Assessment Act 1936 was introduced. This section allowed taxpayers to ask the Tax Office specific questions on their tax returns. Section 169A determinations were the precursor to a private rulings system.

A3.4 From 1982 to 1992 Tax Office public rulings were numbered as being part of either an 'IT' or 'MT' series. The legal basis for these public rulings was the Commissioner's general powers of administration. IT 1 said that rulings could be overruled by legislative amendment to the law or by decision of an appellate tribunal.

A3.5 In 1992 the Government introduced a full self assessment system for income tax. At this time, a specific legislative regime for both public and private rulings was introduced. This regime allowed the Commissioner to issue both public and private rulings which were legally binding on the Commissioner but not on taxpayers. This meant that the Commissioner could not levy additional primary tax, penalties and interest if the advice in the ruling was wrong and a taxpayer had followed that advice.

A3.6 From this time income tax rulings were numbered as being part of the 'TR' series to distinguish them from pre 1992 non‑binding rulings. Rulings which the Tax Office considered could not be made legally binding continued to be issued as part of a 'MT' series.

A3.7 The 1992 legislative regime for rulings only applied to Tax Office advice that met the legislative requirements of being either public or private rulings. The regime did not expressly deal with non-rulings forms of Tax Office advice. However, the regime did contain a provision (section 284-215 of Schedule 1 of the TAA 1953), located in the penalties provisions, which had the effect that no penalty would be payable to the extent that it resulted from a taxpayer or their agent treating the law in a particular way and:

  1. that way agrees with:
    1. advice given to you or your 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.

A3.8 In 1998 a system of product rulings was established. Product rulings are binding public rulings about a product such as an investment arrangement, a tax-effective arrangement, a financial arrangement, or an insurance arrangement. In 2001 a system of class rulings was established. Class rulings are binding public rulings issued to a specific class of persons, in relation to a particular matter.

A3.9 In 2001 the Tax Office, in response to the recommendations of an internal review conducted by Mr Tom Sherman36, also commenced a process of publishing on its website the content of private binding rulings. The published content of these rulings was edited to remove any material (such as names) which could identify the taxpayers to whom the relevant ruling had been issued.

A3.10 In 2006, following Treasury's 2004 Report of Aspects of Income Tax Self Assessment (RoSA), the legislative provisions dealing with public and private rulings were completely replaced. The new provisions aimed to:

improve certainty through providing a better framework for the provision of Tax Office advice and introducing ways to make that advice more timely, accessible and binding in a wide range of cases.37

A3.11 The new legislative regime for rulings expanded the circumstances in which the Commissioner could give legally binding advice in the form of a ruling to cover matters of administration, collection and ultimate conclusions of fact.

A3.12 The law was also amended to give protection to taxpayers from interest charges where they relied on Tax Office advice or a general administrative practice that was not a ruling.

A3.13 This protection is contained in the present section 361-5 of Schedule 1 of the TAA 1953. This section operates to prevent interest being levied where a tax shortfall is a result of:

  1. you reasonably relying in good faith on:
    1. advice (other than a ruling) given to you or your agent by the Commissioner; or
    2. a statement in a publication approved in writing by the Commissioner;
  2. unless the advice, or the statement or publication, is labelled as non‑binding; or

  3. you reasonably relying in good faith on the Commissioner's general administrative practice.

A3.14 The legislative provision which, under the former regime, gave protection to taxpayers from penalties if the advice was wrong, (section 284-215 of Schedule 1 of the TAA 1953) was not changed and therefore continues to apply under the new rulings regime.

A3.15 The new legislative rulings regime also contained a provision which, according to the RoSA review was designed to ensure that where the Tax Office changed a longstanding practice to the detriment of taxpayers that change should take effect from a future date. This was so as to allow affected taxpayers reasonable time to become aware of, and act upon, the change.38

A3.16 This new provision operates to give taxpayers protection against the payment of primary tax in situations where a general administrative practice of the Commissioner has been changed by a public ruling. It is contained in subsection 358 — 10(2) of the TAA 1953, which states that:

A public ruling that relates to a scheme does not apply to you if the scheme has begun to be carried out when the ruling is published and:

  • the ruling changes the Commissioner's general administrative practice; and
  • the ruling is less favourable to you than the practice.

A3.17 This provision replaced an administrative practice of the Tax Office that has applied since 1992 that any public ruling less favourable to taxpayers which contradicted or overruled a long standing Tax Office practice would usually only have future application.39

36 Sherman, Tom, Report of an Internal Review of the Systems and Procedures relating to Private Binding Rulings and Advance Opinions in the Australian Taxation Office, 7 August 2000, available at www.ato.gov.au.

37 Tax Laws Amendment (Improvements to Self Assessment) Bill (No. 2) 2005 — Second Reading Speech by Senator the Hon Chris Ellison, 7 December 2005.

38 The Treasury, Report on Aspects of Income Tax Self Assessment, August 2004, Commonwealth of Australia recommendation 2.6 at page 13.

39 This administrative practice is referred to in TR 92/20 at paragraph 16.