Sometimes it’s nice to be able to say “I told you so”… sometimes not.
Early in the history of Australia’s ruling system I had made a few (read loud and frequent) comments about the value of rulings. One particular aspect of discussion was that the then law had the effect that rulings were binding not in relation to the principles they contained but were only binding as to their comments about how the tax law applied to a person in relation to a specified arrangement. Essentially, the ruling was only as good as the description of the facts contained in them.
Merkel J at first instance in the Federal Court decision in Bellinz case put it as follows:
“Relevantly, a public ruling will only be binding in the sense that the Commissioner cannot depart from it in making an assessment where the ruling relates to ‘an arrangement’ and the tax law relates to ‘that arrangement’ in a different way. The ruling is binding as to the way in which a tax law applies to a person or class of persons in relation to an arrangement or class of arrangements. It is not binding in relation to the principles or reasoning stated in it. This distinction is significant in the present case.”
On appeal, the Full Court said:
“The binding quality which the legislation gives to a public ruling applies to the tax consequences of the arrangement or class of arrangements to which the ruling relates, and not, as the appellants contends, to the underlying philosophy behind the ruling.”
These comments were directed at the then statutory regime contained in section 170BA of the 1936 Act and Parts IVAAA and IVAA of the Tax Administration Act. These were superseded under the ROSA amendments and the rulings regime is now contained in Part 5-5 of Schedule 1 the Administration Act.
However, as the AAT observed in Buggins case – a decision handed down on 10 October 2011 concerning whether a Cathay Pacific Pilot was engaged in “foreign service” – the language in Part 5-5 of Schedule 1 of the Administration Act is similar to that contained in the previous provisions in that the Commissioner makes a ruling about how a provision applies to an entity in relation to a particular scheme.
In Buggins case, the AAT said the question of the binding charcter of the ruling:
“depends on the proper characterisation of the ruling. Is it, as Mr Buggins suggests, a ruling about the way in which the Commissioner considered that s 23AG of the ITAA 1936 applied to a specific class of taxpayers, namely, international pilots who reside in Australia employed by a foreign airline on an ongoing basis. Or is it, as the Commissioner contends, a ruling about the way in which the Commissioner consider that s 23AG of the ITAA 1936 applied to a specific class of taxpayers, those engaged in foreign service. …
The ruling contemplates that an international pilot, resident in Australia, and returning to Australia on breaks might be engaged in foreign service. But it does not determine that the pilot is so engaged. We are satisfied that the ruling did not apply to Mr Buggins and that the Commissioner was not bound to treat Mr Buggins as having been engaged in foreign service.
In the circumstances we do not find it necessary to consider the interesting question whether a taxpayer may rely on part only of a ruling while rejecting, as Mr Buggins did, another part of the same ruling. That question can be left for another day.”
Of interest is the advent of the indirect tax law in 1 July 2000 to which Parts IVAA and IVAAA did not apply. There was no statutory scheme for indirect tax rulings other than the recognition (originally in section 37 of the Administration Act) that there could be such things and that they might be relied upon.
Perhaps because the statue did not direct the Commissioner to identify how a provision applied to an entity in relation to particular facts, many of the rulings that were issued between 1999 and 1 July 2010, when indirect tax rulings came within Part 5-5, were “principle” rather than “factually” based. Given that there was no statutory scheme limiting the binding character to provisions, entities and facts, one would be forgiven for contending that reliance could be placed on principles contained in rulings.
But, since 1 July 2010, one must act in accordance with a ruling that applies to you for it to be binding. A ruling applies to you for both direct and indirect taxes if the ruling expresses the Commissioner’s view about how a particular provision applies to you (or a class of entities of which you are a member) in relation to a particular factual circumstance.
So, has the transportation of “principle based” indirect tax rulings to the more rigorous Part 5-5 removed the binding nature they had before 1 July 2010?
What, for example, do we make of this “principle” in GSTR 2006/4:
“32. You may choose your own apportionment method, but the method you choose needs to be fair and reasonable in the circumstances of your enterprise. It needs to appropriately reflect the intended or actual use of your acquisitions or importations.
33. The ‘fair and reasonable’ principle was used by the High Court in Ronpibon Tin v. FC of T, in the context of the apportionment of expenditure serving more than one object ‘indifferently’. The High Court did not, in that case, apply this principle in relation to the allocation of specific acquisitions wholly to specific ends, or to apportioning items of expenditure ‘distinct and severable parts of which’ can be identified as being devoted to such specific ends. The Commissioner’s view is that the ‘fair and reasonable’ principle applies equally to the choice of method for allocating or apportioning acquisitions in all circumstances.
34. Following the principles set out by the High Court, the apportionment method you choose needs to:
- be fair and reasonable;
- reflect the planned use of that acquisition (or in the case of an adjustment, the
actual use); and- be appropriately documented in your individual circumstances .”