5.1 The Inspector-General's findings set out in Chapters 3 and 4 above indicate that current Tax Office practices on what public advice it will and will not issue in a binding form do not give full effect to the apparent intent of the 2006 RoSA legislative changes to the rulings regime. These legislative changes were, as the Tax Office acknowledged, meant:
to improve certainty for taxpayers by making Tax Office advice more reliable, accessible, timely, and legally binding on the Commissioner for a wider range of topics.29
5.2 However, under the post 2006 rulings regime some Tax Office public advice has become more 'limited, cautious and conditional'. This was a possible consequence which Treasury's initial RoSA discussion paper flagged may occur.
5.3 This problem could be addressed by legislative and/or administrative means.
A possible administrative approach
5.4 During this review, the Inspector-General suggested to the Tax Office that it could achieve the apparent intent of the 2006 rulings law changes that more of its advice would be legally binding through the following administrative process. This process is one where the Tax Office clearly sets out, for the benefit of the community, what types of material it will regard as constituting its 'general administrative practice'.
5.5 The Inspector-General considers that the post 2006 rulings law changes which refer to the concept of a 'general administrative practice' offer considerable opportunity for increasing certainty, efficiency and community confidence in the tax system.
5.6 Acknowledgement by the Tax Office that a particular document embodies its general administrative practice (GAP) will have the following effects under the present rulings regime:
- any change to that practice will protect taxpayers who have relied on the Tax Office's previous practice against the levy of any penalty for prior tax periods;
- any change to that practice will protect taxpayers who have reasonably relied in good faith on the Tax Office's previous practice against the levy of interest on tax that was not paid for prior periods; and
- any change to that practice that is made by a public ruling, will practically operate on a prospective basis only.30
5.7 In addition, under the Tax Office's current administrative practice, any change to such a practice that is made otherwise than by a public ruling will, under the Tax Office's Practice Statement PS LA 2008/3 (paragraph 32), generally operate on a prospective basis, unless the practice has been exploited or been the subject of tax avoidance.
5.8 These consequences are largely equivalent to giving the relevant document legally binding status. The only difference is that where a document is a general administrative practice the Tax Office will be able to change that with retrospective effect where the practice has been exploited or been the subject of tax avoidance.
5.9 During this review the Tax Office has not issued comprehensive guidance to its staff or to the public on the meaning of the term 'general administrative practice' (with practical examples).
5.10 The issue of such guidance was one of the key recommendations from the IGT's January 2007 service entities case study review and was a recommendation which the Inspector-General understood, at the time of that review, the Tax Office had agreed to implement.
5.11 The Tax Office has since asserted it has addressed this recommendation by issuing TR 2006/10. However, this document was issued prior to the IGT's service entities report which specifically deals with TR 2006/10 and states that the material in this ruling on this issue is not adequate.
Adequacy of existing material on the meaning of 'general administrative practice'
5.12 During this review the Tax Office has asserted the publicly available material on the meaning of the term 'general administrative practice' is adequate and that there is no need for additional Tax Office guidance on this topic.
5.13 However, current publicly available material on the meaning of this term is widely considered to be limited.
5.14 The IGT's previous review on the Tax Office's administration of service entity arrangements examined in some detail the available public material on the meaning of this term and considered that it was inadequate.
5.15 At the time of this previous review it was noted that the only public statements on this term have been those made in one court case, in an explanatory memorandum and (from March 2006) in two Tax Office practice statements and one Tax Office ruling. Since that time only one further Tax Office practice statement (PS LA 2008/3) has been issued which refers to this matter. This new practice statement has not added any new material on the issue.
5.16 The following eight paragraphs are essentially a repeat of the material contained in the IGT's previous service entities review, with an update to reflect the issue of PS LA 2008/3.
5.17 The court case where the term 'general administrative practice' was considered is Prebble v F C of T (2002) 51 ATR 459. In this case, at page 470 Justice Cooper noted that, although there was some evidence of a general administrative practice of the Commissioner in the circumstances of the case, that practice must still exist at the time a taxpayer makes a statement in a tax return for it to be a ground for the non-application of any penalty.
5.18 The term was also discussed in the explanatory memorandum which accompanied Tax Laws Amendment (Improvements to Self Assessment) Bill (No. 2) 2005 (TLAB (No. 2) 2005). This Bill introduced the new legislative regime for Tax Office rulings and also introduced changes in the extent to which reliance by a taxpayer on a Tax Office general administrative practice would protect that taxpayer from the imposition of interest (and also possibly of primary tax).
5.19 The explanatory memorandum makes the following points on the meaning of the term 'general administrative practice':31
- 'General administrative practice' will usually be established by the Tax Office having communicated consistently to a wide range of taxpayers on a particular issue.
- It will often be documented in a Tax Office practice statement, a Tax Office policy document or other precedential material (such as an ATO Interpretative Decision).
- Where a draft public ruling represents the Commissioner's only public statement on an issue, the draft ruling will usually represent the Commissioner's general administrative practice.
- A 'general administrative practice' is not established merely because there are several similar private rulings on a matter, although evidence of a significant number of uncontradicted private rulings on a matter over time will tend to support such a conclusion.
- A bare failure by the Commissioner to take some action within his power does not establish a general administrative practice, but a repeated failure by the Commissioner to exercise that power after the issue is drawn to the Commissioner's attention will tend to do so.
- Mere silence or failure to issue a public ruling on a matter does not constitute general administrative practice but it will be established where, following identification of an issue, ATO officers have accepted it as the basis on which taxpayers should treat the issue in a range of situations.
5.20 The only guidance which the Tax Office has issued on the meaning of the term 'general administrative practice' is contained in:
- three practice statements that were issued after 1 January 2006. These are PS LA 2006/2 (which deals with penalties for false and misleading statements), PS LA 2006/8 (which deals with the remission of interest), and PS LA 2008/3 (which deals with the provision of advice); and
- Tax Office ruling TR 2006/10 which was also released after 1 January 2006. This ruling contains comments on the non-application of primary tax to arrangements entered into prior to a change in the Commissioner's general administrative practice. It only applies however where a change in practice has been made by the issue of a binding public ruling and not where that change has been made by other means.
5.21 None of these Tax Office statements contain a comprehensive statement of the meaning of the term 'general administrative practice'.
5.22 TR 2006/10 contains the most comprehensive commentary on this term. This ruling essentially repeats what is already set out in the Explanatory Memorandum to TLAB (No. 2) 2005. However, it appears to contain an additional statement which contradicts the Explanatory Memorandum. As noted above, the Explanatory Memorandum states that:
A general administrative practice … will often be documented. … in other precedential material (such as an ATO Interpretative Decision).
5.23 However, TR 2006/10 states that:
… not all precedential material (such as ATO Interpretative Decisions (ATO IDs)) indicate a general administrative practice. An ATO ID will only be accepted by the Tax Office as representing general administrative practice where the view contained therein is supported by other evidence of a pattern of Tax Office treatment of the issue consistent with the view expressed in the ATO ID (for example, a significant number of private rulings on the same matter which reach the same conclusion).
5.24 Neither this ruling, nor any of the three practice statements referred to above, contains practical examples to guide tax officers and taxpayers on the meaning and application of this term.
Effects of absence of detailed Tax Office guidance on 'general administrative practice'
5.25 The absence of detailed guidance on the meaning of the term 'general administrative practice' has the following adverse results.
5.26 First and foremost it creates uncertainty and additional compliance costs for taxpayers.
5.27 In particular, it creates uncertainty and additional compliance costs in the situation where a taxpayer is in the process of weighing up whether or not they should seek a private binding ruling on a particular tax issue. This is because, if there is a Tax Office document dealing with this issue which is not a public ruling but is something which amounts to a 'general administrative practice', this document will give the taxpayer benefits (in the form of protection against the payment of penalties, interest and possibly prior year tax) that will in many cases be almost as good as that of a private binding ruling. Hence the taxpayer may not actually need to incur the costs in terms of time and money of obtaining a private binding ruling on the relevant topic.
5.28 Secondly, the absence of such guidance creates uncertainty and additional administrative costs for Tax Office staff. This is because the existence of a 'general administrative practice' on a particular matter, and whether the taxpayer has relied on that practice, are now of critical importance in determining, under the current legislative regime, the level of penalties, interest and back taxes that a taxpayer may be required to pay in any Tax Office audit.
5.29 Without clear guidance on what is a 'general administrative practice', there is a risk that decisions made by Tax Office auditors on whether a particular document may be regarded as embodying a 'general administrative practice' will be wrong, inconsistent with decisions made for other taxpayers in similar circumstances or subject to delays as the relevant matter is escalated to more senior personnel inside the Tax Office.
5.30 The effect of the absence of clear guidance from the Tax Office is evident in the responses which the Inspector-General obtained from the Tax Office to direct questions on whether certain specific Tax Office documents and other general categories of Tax Office documents embodied its 'general administrative practice'.
5.31 The results of these inquiries are set out in the following table:
|Specific Tax Office document||Tax Office written responses provided during the course of the review||Tax Office written responses provided to final IGT report|
|1: Annual TaxPack and its supplement||'While some of the material could evidence a general administrative practice, the most appropriate time to consider whether guidance material documents a general administrative practice is at the time the Commissioner becomes aware that a change in that material may be warranted, either through internal or external channels.'||No change.|
|2: Annual Tax Office guidebook on rental properties||'It's difficult to conclude that the document itself represents or describes general administrative practices'. The Tax Office later supplemented this written response by stating verbally to staff of the Inspector-General that this document did not represent its general administrative practice.||To the extent that the document describes a practice, determining whether that practice is a GAP can only be determined after considering the actions of the Commissioner in an appropriate number of instances at the relevant time.|
|3: Guide to service entity arrangements||Does not represent the Tax Office's general administrative practice.||The service trusts booklet provides some general qualified guidance but remains subject to the principles set out in the underlying service trusts rulings. The booklet cannot be represented as providing, in itself, a definitive practice which is somehow different to the view set out in the rulings and which could provide the protection asserted. While the booklet could evidence a GAP, it is the actions of the Commissioner in an appropriate number of instances over time that also needs to be taken into account in finally determining the existence of a GAP. Each situation would need to be considered at the appropriate time to determine the existence of a GAP.|
|4: MT 2006/1||Does not represent the Tax Office's general administrative practice.||The document provides advice and a GAP is not 'advice' but is a 'practice' which may be evidenced in a document. GAP can only be determined after considering the actions of the Commissioner in an appropriate number of instances at the relevant time. The preamble to MT 2006/1 clearly indicates it is administratively binding. Administratively binding advice and the protection that applies to it are described in PS LA 2008/3 at paragraphs 205-216.|
|5: PS LA 2007/9 on share buybacks||Represents the Tax Office's general administrative practice.||While each situation needs to be considered at the appropriate time to determine the existence of a GAP, it would be expected that this LAPS evidences a GAP.|
|6: PS LA 2007/21 on substituted accounting periods||Represents the Tax Office's general administrative practice.||While each situation needs to be considered at the appropriate time to determine the existence of a GAP, it would be expected that this LAPS evidences a GAP.|
|7: PS LA 2007/22 on penalties for failing to make PAYG withholdings||Represents the Tax Office's general administrative practice.||While each situation needs to be considered at the appropriate time to determine the existence of a GAP, it would be expected that this LAPS evidences a GAP.|
|8: PS LA 2006/1(GA) on cost base calculations for CGT purposes||The Tax Office's response did not indicate whether or not this document amounted to its general administrative practice.|
|9: ATO ID 2007/106 and ATO ID 2007/165 on consolidation issues||Do not represent the Tax Office's general administrative practice 'as this is the first occasion on which the Tax Office has been asked to provide advice on this particular issue'.||An ATO ID will only be accepted by the Tax Office as representing a GAP where the view contained therein is supported by other evidence of a pattern of Tax Office treatment of the issue consistent with the view expressed in the ATO ID. Each situation would need to be considered at the appropriate time to determine the existence of a GAP.|
|General categories of Tax Office document||Tax Office response during the course of the review||Tax Office written response provided to IGT's final report|
|1: Those parts of binding public rulings which are non-binding||'Would only represent the Commissioner's general administrative practice to the extent that it describes an administrative practice adopted for the efficient administration of the tax system.||'The Explanation part of a formal series ruling could evidence a GAP. However, each situation would need to be considered at the appropriate time to determine the existence of a GAP, having regard to the Commissioner's actions. More commonly however, the Explanation provides the technical reasoning behind the view of the law expressed in the binding part of the ruling.|
|2: Rulings which are only administratively binding||The Tax Office's response did not indicate whether or not these documents amounted to its general administrative practice.||GAP is not 'advice' but is a 'practice' which may be evidenced in a document. GAP can only be determined after considering the actions of the Commissioner in an appropriate number of instances at the relevant time. Administratively binding advice and the protection that applies to it are described in PS LA 2008/3 at paragraphs 205-216.|
|3: ATO IDs that are withdrawn (during the period of time when there is no ATO document which replaces them)||'As the ATO ID has been withdrawn and consequently has no status, it cannot evidence any general administrative practice for the post withdrawal period.'||As the ATO ID has been withdrawn and consequently has no status, it cannot support the existence of any general administrative practice for the post withdrawal period.|
Inspector-General's Comments on Tax Office responses provided during the course of the review
5.32 As can be seen from the above table, the Tax Office provided two sets of written comments to the case studies listed in the above table — one during the review itself and the second in response to the Inspector-General's final report on the review.
5.33 In the first set of comments provided during the course of the review the Tax Office was prepared to state in writing that all the specific practice statement examples raised by the Inspector-General amounted to its general administrative practice.
5.34 However, it advised in writing that the following did not represent its general administrative practice:
- a miscellaneous tax ruling;
- two ATO IDs;
- a guidebook; and
- withdrawn ATO IDs (when there was no replacement Tax Office document).
5.35 The Tax Office has not confirmed in writing whether TaxPack, a practice statement in the general administration series or a second guidebook represented its general administrative practice. It also did not state whether rulings which are only administratively binding embody its general administrative practice.
5.36 It is notable that most of these documents qualify as 'precedential ATO views' which Tax Office staff must generally apply in dealing with the relevant issue, in accordance with a publicly available practice statement.32
Non-binding parts of rulings
5.37 The Tax Office did not state categorically that the non-binding sections of binding rulings represented its general administrative practice. Its complete response on this issue was as follows:
The Explanation part of a formal series ruling would only represent the Commissioner's general administrative practice to the extent that it describes an administrative practice adopted for the efficient administration of the tax system. More commonly however, the Explanation part contains a detailed explanation of the technical reasoning behind the view of the law expressed in the binding part of the ruling (that is, the part that is a 'public ruling' under Div 358).
It is more likely that any general administrative practice adopted by the Commissioner for the purpose of practical and efficient administration would be described elsewhere, such as in a Practice Statement. The reason being that a ruling (including any explanation part) will set out the Commissioner's view of the technically correct meaning of the law, whereas a general administrative practice is adopted for efficient administration of the law as an inherent part of the Commissioner's general power to administer the tax laws.
An illustrative example of this is TD 2005/47 which describes the Commissioner's technical view of the law with respect to the meaning of 'can deduct' in the CGT provisions. While this Determination sets out the technically correct view of the law, the Commissioner has necessarily adopted a general administrative practice as described in PS LA 2006/1 (GA) for the purposes of practical administration. This practice represents a more concessionary position for required recordkeeping as compared to the technically correct view set out in the Determination. However, the taxpayer can choose to rely on the Determination if they wish to do so. Should the Commissioner ever consider changing the general administrative practice set out in PS LA 2006/1 (GA), he would only do so prospectively unless tax avoidance was involved or the practice was being exploited in an unintended way (consistent with paragraph 32 of PS LA 2008/3 and paragraph 3.132 of the EM to the RoSA Bill).
Service entities booklet
5.38 The Tax Office did not consider that the service entities guidebook represented its general administrative practice. The full text of the Tax Office's response to this issue is as follows:
The booklet is a guide only and the guidance contained therein does not represent the Tax Office's general administrative practice for the following reasons:
- The Tax Office's current compliance approach to service entity arrangements is consistent with the established and widely understood principles on the relevant issues involved. The central tax issue is that fees under a related-party service entity arrangement must be commercial. This has at all times been identified by the Tax Office as the tax compliance issue on which appropriate advice has been published. The answer to this issue is a question of fact which means that the correct amount deductible under the law can only be determined in relation to the circumstances of each particular arrangement. Whether a particular arrangement is commercial is a business issue and is not a tax issue.
- Nevertheless, the Tax Office responded to uncertainty on these matters of ordinary business judgment and indicated what, in its opinion, would reflect commercial conditions in the type of conventional service entity arrangements described in the booklet. Taxpayers can choose to adopt these arrangements and manage the risk of audit of their tax affairs. Legally binding advice can be sought on an individual arrangement.
5.39 The Tax Office did not consider that MT 2006/1 represented its general administrative practice. The full text of its response to this issue is as follows.
We do not consider that MT 2006/1 represents the Tax Office's general administrative practice. This is because the ruling is primarily a document which discusses the technical meaning of key words and phrases used to define the terms 'entity' and 'enterprise'.
As previously advised in question 3 above, MT 2006/1 is administratively binding on the Commissioner. The level of protection provided by publicly issued rulings that are not legally binding is set out in paragraphs 68 to 74 in PSLA 2008/3. The basic administrative policy of the Tax Office is to stand by what is said in these types of rulings and to depart from them only if there are good and substantial reasons.33
5.40 The Inspector-General notes that the non-binding parts of binding rulings are subject to the highest level of internal quality control by the Tax Office prior to their public release.
5.41 He also notes that both MT 2006/1 and the service entities booklet were subject to high quality control standards prior to their issue. In both cases, this consisted of extensive public consultation. Furthermore, because MT 2006/1 was treated as a 'ruling', it was subject to the same very high level of internal Tax Office quality control that is applied to the non-binding parts of binding rulings.
5.42 It is difficult, on this basis, to understand why the Tax Office is not prepared to state unequivocally that all these documents represent its 'general administrative practice'.
5.43 The Tax Office's view that MT 2006/1 does not represent its general administrative practice appears to be contradicted by its statement that this document is administratively binding. If a document is administratively binding, a taxpayer who relies on such a document appears to achieve essentially the same protection against the payment of back tax, penalties and interest as if the document were a general administrative practice.
5.44 The Inspector-General considers that the responses that the Tax Office has given to him on whether or not particular documents represent its general administrative practice, together with the other material in this chapter setting out the existing state of guidance on this topic, underscore the need for further guidance on this issue to both tax officers and taxpayers.
5.45 The GAP provisions offer the Tax Office a clear opportunity to provide more certainty to taxpayers and to increase community confidence in their administration. If the Tax Office were to use the GAP concept, the issue and complexity of how much of its advice was legally binding might largely disappear.
5.46 Use of the GAP provisions would also avoid the Tax Office's major concern that it must apply its legally binding advice even where it is exploited.
5.47 The Explanatory Memorandum to the Bill which introduced the 2006 changes to the rulings laws concerning general administrative practice also indicates that Parliament clearly intended that any certainty afforded by the GAP provisions would not apply where exploitation or tax avoidance was involved.34
5.48 There are also advantages for the Tax Office in pre-determining which of its documented approaches embody its GAP. The GAP provisions therefore provide the Tax Office with a low risk opportunity to improve its administration.
Inspector-General's Comments on Tax Office response to the IGT's final report
5.49 When providing the second set of responses to the above cases studies the Tax Office said:
We acknowledge that the words in the table are based on responses provided by us. However, we consider that the current text represents an incomplete picture of our position on GAP and may be misleading to a reader. For example, some of the previous discussion as to whether particular documents set out a GAP may have turned on whether the relevant document described a practice at all (let alone a general administrative practice). Moreover, we query the merits of this listing given that it would be ineffective since GAP is not established or refuted by describing the document as GAP or not. While some of the material could evidence a GAP, the practice can only be determined after considering the actions of the Commissioner in an appropriate number of instances at the relevant time. The suggested text below provides a more comprehensive answer as to whether the relevant may set out a GAP. We would ask that it be substituted for the current wording.
5.50 In this revised set of responses the Tax Office has essentially replaced all of the responses which it previously provided to each case study with words to the effect that the presence or otherwise of a pre-existing general administrative practice can only be assessed at the relevant time, for example, where it might be considering a change in that practice.
5.51 Accordingly it no longer asserts that its practice statements definitely represent its general administrative practice, only that it could be expected that they would (that is, that they may embody a general administrative practice). Similarly, it no longer categorically asserts that its guidebook on rental properties, the service entitles booklet, MT 2006/1 or two ATO IDs do not represent its general administrative practice. In all cases the Tax Office again asserts that the relevant documents could evidence a general administrative practice.
5.52 The effect of the Tax Office's replacement responses is that it has not indicated, for the benefit of the Inspector-General, taxpayers generally or its own staff whether any of its approaches that are embodied in the case studies nominated by the Inspector-General (some of which are key, public Tax Office documents) represent its general administrative practice.
5.53 This response provides less certainty than the Tax Office's original set of responses. This original set of responses stated definitely that some ATO documents represented its general administrative practice while some documents did not.
5.54 Neither set of Tax Office responses takes into account a fundamental principle of Australia's self assessment system. This principle is that it is taxpayers — not the Tax Office — who must, year by year, determine the extent of their income tax liability. As part of this self assessment process taxpayers need to know, on an ongoing basis, if a particular tax matter is covered by a Tax Office general administrative practice, as this will significantly affect the approach they adopt to the relevant issue.
5.55 The Inspector-General considers that a change in Tax Office approach on this matter is required.
5.56 Firstly, the Tax Office should seek independent legal advice on the meaning of the term 'general administrative practice'. This advice should cover all documents that are potential candidates for the Tax Office's 'general administrative practice'.
5.57 The uncertainty on the issue of what constitutes a 'general administrative practice' that arises from the Tax Office's second set of comments on the case studies examined during this review appears to reinforce the need for such advice.
5.58 Once this advice is obtained it should then issue further guidance for its staff and publish its views on how it will generally interpret and apply the term 'general administrative practice'.
5.59 In this guidance the Tax Office should, subject to the independent legal advice, publicly confirm that at least 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.
5.60 This will mean that at least all the following types of documents will represent the Tax Office's 'general administrative practice':
- publicly issued practice statements;
- publicly issued binding rulings;
- draft public rulings and other publicly issued rulings;
- ATO Interpretative Decisions (ATO IDs);
- decision impact statements; and
- documents listed in the Tax Office's Schedule of documents containing precedential ATO views (these documents include the Tax Office's guidebook on the research and development concession, the Tax Office's annual rental guidance booklet, as well as other major annual publications).
5.61 The Inspector-General has therefore made the following key 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.
Tax Office response
5.62 The Tax Office agrees with the first three dot points and disagrees with the fourth dot point of this recommendation.
5.63 Our position is that the existence of a general administrative practice (GAP) is a question of fact to be determined having regard to all the facts and circumstances at the relevant time. While a Tax Office publication may evidence a GAP, and be one of the circumstances taken into account in determining whether a GAP exists, it is the consistent actions of the Commissioner in an appropriate number of instances that determine the existence or otherwise of a GAP, not the existence of a particular document. This view is supported by the explanation of GAP in the Explanatory Memorandum (EM) to the ROSA legislation and is reflected in our discussion of this issue in TR 2006/10, our public ruling on the post-ROSA public rulings system.
5.64 Consequently, simply declaring a publication as representing a GAP cannot of itself confer GAP status on a particular practice or course of action; nor can the absence of such a declaration effectively deny GAP status to a practice described therein. Rather, the existence of a GAP is an objective matter of fact in each specific instance, to be considered on a case by case basis as and when the question might arise.
5.65 In addition, we consider that to declare publications as GAP runs counter to the intent of ROSA. We consider that the thrust of ROSA is that we be clear about the level of protection that applies to taxpayers who reasonably rely in good faith on information contained in our publications. We consider that this has been achieved by specifying the level of protection on each publication. We also consider that the framework established by ROSA identified a public ruling as the vehicle for the Commissioner to provide legally binding public advice.
5.66 The Tax Office has publicly expressed its view of how the ROSA law applies, including an explanation on GAP, in Taxation Ruling TR 2006/10. A further explanation of the post-ROSA framework, for the provision of Tax Office advice and guidance, including public rulings, is provided for Tax Office staff in Law Administration Practice Statement PS LA 2008/3, Provision of advice and guidance by the Tax Office, which is publicly available. We note the very positive comments in the Inspector-General's report at paragraphs 2.25 to 2.27 in reference to these publications.
5.67 Notwithstanding our position, we agree to seek independent legal advice on the meaning of GAP.
5.68 In the course of the review, your officers asked Tax Office staff a series of questions about particular documents, including whether the document evidenced a GAP in relation to the matters dealt with in that document. Your report sets out a summary based on the responses to this question. In some instances, we considered that the summarised responses needed clarification. Consequently, we provided supplementary material to ensure that our position is clear.
5.69 Given this, we accept that there is room to further clarify the nature of GAP for our staff and accordingly will supplement our existing guidance on this matter, as you have recommended, subject to the legal advice received.
Inspector-General's comments on Tax Office response
5.70 The Tax Office has partly agreed with this key recommendation. If the Tax Office were to acknowledge that key examples of its non-binding published advice (such as the supplement to TaxPack and the annual guidebook on rental properties) represent its 'general administrative practice' under the law, any changes to this advice would only have a retrospective impact on taxpayers in cases where the advice has been exploited or has been the subject of tax avoidance. The Inspector-General considers that such an acknowledgement would increase certainty, efficiency and community confidence in the tax system.
5.71 Whilst the Tax Office has not made this acknowledgement, it has agreed to seek independent legal advice on the meaning of the term 'general administrative practice'. This may lead to closer alignment between the respective views of the Tax Office and the Inspector-General. The Tax Office has also agreed to issue further guidance to its staff on the meaning of this term after receiving this advice.
Possible legislative approaches
5.72 Further legislative changes to the rulings regime are one way to bring current Tax Office practices more into line with the aim of the RoSA review changes.
5.73 The IGT has not, at this stage, explored this option in detail, but notes that this could be a matter explored at a later time, in the light of the Tax Office's response to this review.
5.74 In this context, one possible legislative option to address the Tax Office's reluctance to define what is or is not GAP has been raised by one tax professional body in a submission they made to the original exposure draft legislation which introduced the 2006 rulings regime. This would be to introduce into the rulings law an objective set of criteria of what is/is not a 'general administrative practice'.35
5.75 Another option would be to amend the law so that the Tax Office is obliged to forego prior period tax, penalties and interest in cases where a taxpayer has relied on advice to the public that has been published by the Tax Office.
29 Australian Taxation Office, Review of self assessment — provision of advice, downloaded from the Tax Office's website at: www.ato.gov.au/taxprofessionals/content.asp?doc=/content/59678.htm on 12 October 2007.
30 The practical prospective operation of a change in a general administrative practice is explained in: Commonwealth of Australia, Explanatory Memorandum to Tax Laws Amendment (Improvements to Self Assessment) Bill (No. 2) 2005 at paragraph 3.132.
31 Commonwealth of Australia, Explanatory Memorandum to Tax Laws Amendment (Improvements to Self Assessment) Bill (No. 2) 2005 at paragraph 3.130 to 3.132.
32 See PS LA 2003/3.
33 See paragraph 72 of PS LA 2008/3.
34 Commonwealth of Australia, Explanatory Memorandum to Tax Laws Amendment (Improvements to Self Assessment) Bill (No. 2) 2005 at paragraph 3.132.
35 Taxation Institute of Australia, submission to the Department of Treasury on Exposure Draft of Taxation Laws Amendment (Improvements to Self Assessment) Bill (No. 2), 29 June 2005.