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05 Jul 2010

A GST ruling system you can object to

by Andrew Sommer

The scope of the general tax rulings system is being broadened to include GST. While taxpayers will now be able to directly challenge public and private rulings, the scope of public rulings taxpayers can rely on will be reduced.

1 July 2010 marked the start of a legislative scheme for GST rulings. This represents a significant difference in the way in which GST rulings are issued and may be relied on by taxpayers. The changes impact not only new rulings sought from 1 July 2010 but public and private rulings issued under the previous system.

Recommendations from the Board of Taxation

Following on from the recommendations of the Board of Taxation review into the administration of the GST law, the Federal Government has announced a range of proposed amendments to the current tax laws to simplify the administration of the GST.

This has included amendments to harmonise the indirect tax rulings system with the general rulings system, contained in the Taxation Laws Amendment (2010 GST Administration Measures No. 2 ) Act, which only received Royal Assent on 28 June 2010 but takes effect from 1 July 2010.

The first 10 years

For the first decade of the GST, there was no express power given to the Commissioner for the issuance of indirect tax rulings and taxpayers had no formal objection or review rights in relation to either public or private rulings that were issued.

However, the Commissioner was able to use his power of general administration of indirect tax laws to justify the issuance of both public and private rulings regarding the operation of the GST law.

The absence of direct appeal rights has not prevented judicial review of the Commissioner's rulings. Taxpayers aggrieved by a GST ruling could test the Commissioner's interpretation of the GST law by objecting to an assessment that had been made in accordance with the Commissioner's views or could commence declaratory proceedings.

However, these indirect methods of challenge had procedural shortcomings and additional costs. It is intended that the direct challenge afforded by the new regime will simplify the process of directly challenging the Commissioner's interpretation of the GST law.

The new regime

As we enter the second decade of GST administration, the ruling system will be aligned with the income tax regime - in the name of administrative simplicity. This will be achieved by broadening the scope of the general rulings system to include GST as well as luxury car tax, wine equalisation tax and excise duty.

One of the unique features of the GST ruling system was the breadth of publications that were capable of being relied on by taxpayers as public rulings. This extended not only to GST Bulletins and GST Determinations but also to booklets, fact sheets and statements on issues registers.

The new amendments greatly restrict the types of documents that can be relied on as public rulings. In future, a document must state that it is intended to be a public ruling in order for it to operate as such. As a transitional measure, most material classified as "public rulings" under the existing regime will be gazetted as "public rulings" under the new regime, allowing taxpayers to continue to rely on that material - at least for the time being.

How will the new law apply to existing private rulings?

The new arrangements will apply to private indirect tax rulings that have been applied for, or are in operation, immediately before 1 July 2010. Taxpayers will be able to continue to rely on those private rulings, but will be able to object against such rulings in a manner previously only available for income tax and FBT rulings.

Reliance on private rulings by other parties to the transaction

One further recommendation that was made by the Board of Taxation (and supported by the Federal Government) was to enable both parties to a transaction to rely on a ruling issued to either one of those parties - thus eliminating duplication and the risk that the parties will receive conflicting rulings. The Board of Taxation's proposal also would have given one party the ability to object to a ruling issued by the Commissioner to the other party to that transaction.

This proposal has not found its way into the amending Act. Therefore, it remains the case that only the entity in receipt of the ruling from the Commissioner is entitled to rely on that ruling. In transactions where multiple parties need to rely on a ruling, a joint application (naming all the applicants) would need to be submitted to the Commissioner. This is a common approach which seems to be supported by the Commissioner.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.