Anyone with a concern that their circumstances may put them in an unusual position tax-wise or that a particular transaction or event doesn’t fit any known approach for tax purposes can apply for a “private ruling” from the ATO.
Private rulings are one-off decisions, made about a singular set of circumstances, which set out how the ATO will approach that situation and its view of the likely tax outcome.
Asking for a private ruling can be a good way to “test-drive” a tax arrangement you may be considering, especially where the already existing information from the ATO doesn’t seem to adequately cover all the bases.
Each ruling is specific to whoever applies for it, and only applies to the situation considered by the ruling — and therefore cannot be picked up as a standard by any other taxpayer.
By the same token, if you read a private ruling (publicly accessible on the ATO website) and decide to rely on it because your circumstances sound very similar, you will not get any protection from the fact that there is such a ruling if the ATO eventually decides that your situation should have a different outcome. This could happen, for instance, if the ATO thinks that your circumstances are not sufficiently similar to those considered in the ruling that you used as a basis.
Private rulings are binding on the ATO once issued, provided the arrangement is implemented in accordance with the facts upon which the ruling was based. If a taxpayer does successfully get a private ruling, and bases their tax affairs on that advice, the ATO is bound to administer the tax law as set out in that ruling. The situation gets more interesting if the ATO issues a public ruling. The ATO can issue a public ruling (which is like a private ruling but applies to any taxpayer if their situation fits those circumstances) and the tax outcome conflicts with the one in your private ruling, you generally have the choice of which one to apply.
The other side of that coin however is that if the arrangement you enter into differs materially in any way from the situation spelled out in your application for a ruling, the ATO is not generally compelled to have to stand by its initial ruling (although minor variations that don’t affect the way the law applies are generally permissible).
Private rulings can cover indirect taxes such as the luxury car or goods and services tax, but also can cover whether an activity is a hobby or a business, or decide the value of any item (which can have an influence on someone’s tax liabilities).
A ruling made in respect of a particular tax law will be changed if that law is altered by legislation or by the result of a court decision. But it’s worthwhile remembering that if you follow a ruling’s advice, and that ruling is later found to not have applied the law correctly, that you are protected from having to repay any tax that would have otherwise been owed, as well as interest and penalties.
If a private ruling affects one of your earlier tax assessments, the ATO will not automatically amend it unless you make a point of submitting a written request for an amendment.
You can apply for a private ruling yourself (click here for the private ruling application form, plus some calculators). For companies, a public officer can apply, or a partner of a partnership or a trustee of a trust estate. Learn more about how to apply by checking here.
But just because you apply for a private ruling doesn’t mean you are going to get one. The ATO can refuse if it thinks a ruling would prejudice or restrict the law, if you are being audited over the same issue, or if it deems your application to be “frivolous” or “vexatious”.
