The recent case of FCT v Hacon illustrates the practical difficulties in obtaining a private ruling that depends on assumptions about future events - in particular, in the context of the application of the anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936.
The Full Federal Court in Hacon upheld the Commissioner’s appeal against the decision of Logan J at first instance.
The Full Federal Court held that the Commissioner's decision to decline to issue a private ruling in respect of the application of Part IVA to a proposed transaction involving the restructure of an agribusiness was a valid decision. Sub-paragraph 357-110(1)(a) of Schedule 1 of the Taxation Administration Act 1953 (TAA) gives the Commissioner a discretion to decline to make a ruling if the Commissioner considers that the correctness of the ruling would depend on assumptions about a future event.
The Full Federal Court in Hacon distinguished between making a decision on facts outlined in a private binding ruling that depends on an assumption about a future event and those ruling requests where, if the Commissioner considers that further information is required to make a ruling, under section 357-105 of Schedule 1 of the TAA the Commissioner must request the information.
The Full Federal Court also noted the comments by Hill J in Bellinz v FCT (1998) 84 FCR 154 of the practical difficulties the Commissioner will face in some cases in giving a private ruling as to whether Part IVA applies to an arrangement.
A positive private ruling provides certainty to the relevant taxpayer that the Commissioner will not seek to apply the tax law in a way that is contrary to the approach indicated in the private ruling, provided that the taxpayer acts in accordance with the facts submitted in the private ruling application. A private ruling also protects the taxpayer from the potential application of penalties and interest charges.
The Hacon decision highlights the importance of obtaining appropriate advice in relation to seeking a private ruling from the Commissioner. Harwood Andrews’ taxation lawyers are highly experienced in preparing and applying for private rulings, including those relating to Part IVA. There will be an increased emphasis and necessity to apply for private rulings, particularly in the context of the ATO's scrutiny on the SME business sector.
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