Wolters Kluwer customers tell us they love the private binding rulings (PBRs) published on the ATO website but hate the experience of trying to find one that’s relevant. But how useful, and how risky, are they? Edited and anonymised versions of PBRs are available on ato.gov.au. However, each PBR carries this ominous warning: “Do not use the register to predict ATO policy or decisions”.
If PBRs are publicly available, why is the ATO saying they carry so little value? And what have we done to make finding the treasure among the trash so much easier?
Any taxpayer or their advisor can ask for a private ruling from the Commissioner (under Taxation Administration Act 1953 Sch 1 s 359-10). A private ruling is the Commissioner’s opinion on how a tax law would apply to a specified scheme or transaction. Private rulings are different to public rulings which are for the information of taxpayers generally, or a class of taxpayers.
Private rulings are binding on the Commissioner only in respect of the taxpayer who asked for it and only if the taxpayer actually relies on it.
PBRs on the ATO website
Private rulings are published in the ATO’s Register of Private Binding Rulings, after being edited to protect taxpayer privacy and remove any sensitive commercial information.
Each PBR has a fairly heavy disclaimer that includes: “you cannot rely on the rulings in the register”. Rulings are not updated to reflect law changes or court decisions or changes in ATO policies. They may not contain all the factual details relevant to each decision. If a private ruling is later amended, no notice or comment to that effect is added to the published version of the ruling. The ATO believes the register is just a historic public record of written binding advice and the Commissioner is not bound, in relation to anyone, by what is found there.
Then why publish?
The PBR register was created in response to the Sherman review conducted in 2000 following media criticisms of the integrity of the private binding rulings system[i]. The ATO publishes the PBRs to enhance the integrity and transparency of the tax system. It is fundamentally a transparent historical record of ATO advice that has been provided to taxpayers.
Why aren’t they withdrawn or updated?
The ATO’s view is that the PBR as published in the register is not affected by the creation of a revised ruling, change in the law or discovery that an error has been made as it is an historical record and does not need to be altered or withdrawn. [ii]
Should you rely on a PBR?
Despite the warnings, many taxpayers and their advisers use the PBRs to help them predict how the ATO may apply the law in a similar situation.
In a recent survey we conducted, 49% of CCH iKnow responders use PBRs on a monthly or weekly basis. Of our IntelliConnect customers, 32% refer to PBRs on a daily or weekly basis and 47% access them on a monthly basis.
Why are they being used? Sometimes, the law in a particular area may not be clear and a PBR can demonstrate the ATO’s approach. Perhaps the adviser wants to see how similar arrangements have been treated by the ATO before advising a client on a course of action. Or seeing how the ATO views particular transactions can be used as the basis for deciding whether or not to apply for a private ruling as a taxpayer may feel more confident in lodging their own private ruling request if they find a favourable PBR that fits the bill or may be dissuaded from applying if unfavourable PBRs are found.
How safe is this?
On one hand, a PBR is the considered view of the ATO about the application of tax laws in a real situation. The ATO stands behind a private ruling, if only in respect of the taxpayer who asked for it. Someone may search for a PBR on the same tax issue with similar facts. That might give them some confidence that the ATO will adopt the same view.
But the risks are clear. The facts in a PBR are usually scanty and the edited version may contain even fewer.
At best, PBRs are rough indicators of ATO views. They could be incorrect or the law may have changed and so taxpayers would be unwise to base a decision about a transaction solely on PBRs. They should be seen as a kind of reality check or back-up, after the law, public rulings and case law have been taken into account.
What’s our solution?
Demand in the tax community for access to PBRs is high and the ATO register is not the most user-friendly experience. In fact, the ATO only introduced a search engine for the register in January 2005 in response to requests by the professional bodies.
Following our customers’ lead, we’ve created a PBR Finder within CCH iKnow which contains 130,000 plus ATO PBRs. However, our search engine and filters guarantee you a quicker, easier way to find the relevant PBRs that you need, saving you and your clients time and money.
It’s built in to the CCH iKnow platform so you can seamlessly access all the other practical CCH iKnow content and tools as part of your workflow to work through your client issues.
Want to know more? CCH iKnow PBR Finder
[i] Inspector-General of Taxation’s Review of Aspects of the Australian Taxation Office’s Administration of Private Binding Rulings, Ch 4
[ii] Inspector-General of Taxation’s Review of Aspects of the Australian Taxation Office’s Administration of Private Binding Rulings Ch 4