Tag Archives: administrative issues

Avoiding the igloo – land sold for a GST-inclusive or GST-exclusive price?

AvoidIgloo

A local sale of goods or a supply of services by a GST-registered business will usually be:

for a GST-inclusive price/fee; and
accompanied by a tax invoice confirming the GST-inclusive price and the 10% (1/11th) GST included in the price/fee.

When to look out for GST on land sales

The price and GST on a sale of real estate in Australia can be far less clear. Although a majority of sales of residential property are not subject to GST, sales broadly of:

new residential premises (where not tenanted for at least five years);
vacant land that can be used for residential development; and
commercial residential premises;

are generally (GST) taxable supplies at settlement where the sale is by a seller who is either registered or required to be registered (perhaps solely required to register due to the sale). There are some exceptions.

Unanticipated GST and reducing GST with the margin scheme

Sometimes the parties can be caught unaware of a GST liability on the land sale or of an opportunity to apply the margin scheme to a sale of residential land under Division 75 of the A New Tax System (Goods And Services Tax) Act 1999 so a GST rate lower than 10% can be applied. A margin scheme rate lower than the 10% rate (or 1/11th of the GST inclusive price) will suit:

a purchaser:
- not entitled to claim a GST credit (purchaser credits are not available when the margin scheme is applied to the purchase) ; and
- liable for stamp duty calculated ad valorem based on the (lower) purchase price plus GST; and

the vendor who receives a higher nett price.

GST-inclusive or GST-exclusive price in the contract?

Normally a price for land is GST-inclusive under a contract in NSW.

Still, a purchaser should be vigilant when purchasing real estate where GST could apply. The current 2019 Law Society NSW and Real Estate Institute NSW contract of sale of land (the NSW contract) now has a number of checkboxes and GST residential withholding details which should indicate if GST is to apply when a proposed contract is received from the vendor. However where vendor agents and conveyancers are unaware or unsure about whether GST applies these can be left unchecked or incomplete when they should be proposed checked and completed.

The general conditions in the NSW Contract state that:

Normally, if a party must pay the price or any other amount to the other party under this contract, GST is not to be added to the price or amount. (Emphasis added)
General condition 13.2

That normal case thus matches a GST-inclusive price one is used to seeing on a tax invoice for goods or services from a supplier. However beware a contract which reveals that the purchaser must pay the price “plus GST” (so the price is GST-exclusive and general condition 13.2 is thus overridden) in a special condition even where less than obviously so: see Booth v Cityrose Trading Pty Ltd [2011] VCAT 278.

The importance of the terms of the contract, and the imperative to pick up an exceptional GST-exclusive special condition, is apparent from the NSW Court of Appeal decision in Igloo Homes Pty Ltd v Sammut Constructions Pty Ltd [2005] NSWCA 280. In that case a price plus GST (GST exclusive) provision in a 2000 edition NSW contract permitted the vendor to recover an additional amount of $250,000 on account of GST even though a series of misunderstandings (or worse) indicated that:

the vendor had put the properties on the market at a price inclusive of GST;
the purchaser had intended the price it offered to be inclusive of GST;
the selling estate agent had intended the price agreed upon to be inclusive of GST;
the selling estate agent was the vendor’s agent for the purpose of negotiating the sale and the price;
the selling estate agent had given written advice to the vendor of the terms agreed;
the vendor’s directors had intended the price to be the price agreed plus $90,909 on account of GST applying the margin scheme;
neither party had intended the price to be the price agreed plus $250,000 on account of GST;
the vendor had settled the sale even though GST of any amount and other amounts due at settlement hadn’t been paid by the purchaser;
at settlement the vendor had accepted the price agreed and undertook to provide a tax invoice; and
the purchaser’s mistake as to the effect of the contract was induced by the vendor’s agent who knew of and intended that outcome.

Contract could not be rectified

The evidence in the case showed that the purchaser did not understand GST and the margin scheme and had not examined the contract to identify the GST-exclusive special condition. It was found that the vendor’s conveyancer’s and the agent’s conduct described above was not so wrongful that the “rectification” of the contract sought on appeal was justified: a rewriting of the contract by the courts to reset the price as GST-inclusive.

Add the GST inclusive amount in the box to avoid an “Igloo”

The 2019 NSW contract includes a box on the front page:

The price includes GST of: $ _________

however the box is marked “optional”. It is in a purchaser’s interests to ensure this box is completed before contracts are exchanged so a purchaser’s liability for a “plus GST” amount above the agreed contract price can be countered for whatever reason.

The margin scheme and the price

One reason the parties may not complete this box is that the parties do or would seek to apply the margin scheme where GST must be charged. Eligibility for the margin scheme and thus a GST rate lower than 1/11th of the sale price is limited – see Eligibility to use the margin scheme at the ATO website. A GST liability under the margin scheme needs to be calculated by the vendor and the vendor may not have performed the calculation in time for the exchange of contracts. A further requirement of using the margin scheme is that the parties must agree to apply it under their contract (another checkbox on the NSW contract).

Under the consideration method for applying the margin scheme, which will usually be the only method applicable to property acquired on or after 1 July 2000, a margin scheme GST is 1/11^th of the margin viz. the margin is the difference between the property’s selling price and the original purchase price. That is, the sale price less the purchase price equals the margin.

The GST residential withholding amount when the margin scheme applies

The margin scheme GST and rate differs from the flat 7% GST residential withholding amount which a purchaser must usually withhold at settlement based on the vendor’s notification that margin scheme GST applies on the contract. GST residential withholding was introduced in 2018 to require a purchaser to withhold an amount to meet the GST on the sale (taxable supply) of residential land at settlement. The GSTRW amount is paid by the purchaser to the Australian Taxation Office at settlement as an approximation of the margin scheme GST with credit given to the vendor for the payment.

The 7% GST residential withholding amount is presently set by sub-sections 14-250(6)-(8) of Schedule 1 to the Taxation Administration Act 1953. Under sub-section 14-250(7) the 7% rate is applied to the “contract price” to determine the amount that must be withheld. It is to be remembered that the 7% is not the GST payable by the purchaser so a calculation treating a notionally GST-exclusive price as the price in the 7% calculation viz.

viz. 6.542056075% of the contract price on a supposed GST-inclusive basis withheld as GST residential withholding is not compliant either with this author’s understanding of sub-sections 14-250(6)-(8) or with the ATO website guidance on withholding on GST at Settlement. It should be 7% x Price.

Etmekdjian – the disqualified are out of the SMSF system

In an Administrative Appeals Tribunal decision this month in Etmekdjian v. Commissioner of Taxation [2020] AATA 3821 (1 October 2020), the AAT refused to extend a waiver of disqualification to the applicant so the applicant could manage his own self managed superannuation fund (SMSF). The applicant had been disqualified under Part 15 of the Superannuation Industry (Supervision) Act 1993 (SIS Act).

Automatic disqualification and its waiver

There are a thin 14 days following disqualification to apply for a waiver of the disqualification once a person is disqualified: section 126B. In this case the applicant had been disqualified automatically under sub-section 120(3) of the SIS Act on conviction, by a NSW Local Court, for Commonwealth Criminal Code offences. The offences were for dishonestly backdating employee share scheme elections under former section 139E of the Income Tax Assessment Act 1936.

The applicant was outside of the 14 days allowed to seek the waiver so the applicant sought an extension of time to do so from the AAT.

AAT decision

The AAT refused:

to accept that the applicant’s unsuccessful appeal to the District Court against the conviction stayed the conviction by the Local Court and thus the date of automatic disqualification for section 120 purposes; and
to allow the extension of time as there was an absence of exceptional circumstances explaining the failure to lodge the application for waiver against disqualification within 14 days.

Context of the AAT decision and Part 15 disqualifications

Deputy President Bernard McCabe observed at the outset in paragraph 1 of the AAT decision:

Managing a superannuation fund – even a small, self-managed fund – is a big responsibility. There is a public interest in managing these funds properly given the tax advantages they enjoy. To that end, the Superannuation Industry (Supervision) Act 1993 (Cth) (SISA) establishes rules designed to ensure prudent management. Part 15 of SISA includes rules regarding disqualified persons. A disqualified person may not be a trustee, investment manager or custodian of a superannuation entity, or be a responsible officer (such as a director) of a corporation that performs those roles: s 126K. A person can be disqualified by the Commissioner of Taxation (where the Commissioner is the regulator) or the Federal Court (where the Australian Prudential Regulatory Authority is the regulator) on a variety of grounds, but a person will be automatically disqualified in circumstances set out in s 120. .…
[2020] AATA 3821 at paragraph 1

The AAT found that it only had power to extend the 14 day period strictly when exceptional circumstances warranted that extension. Deputy President McCabe concluded:

….The law requires that I identify exceptional circumstances that prevented the applicant from complying with the 14 day time limit. It is not enough to establish the applicant had a good excuse, or that non-compliance does not result in any harm, or that the applicant has a good case in relation to the substantive issue. This is not a standard ‘extension of time’ case.
21. The applicant has failed to identify any ‘exceptional circumstances’ that prevented him from making the application within the time frame contemplated in s 126B(3). In those circumstances, the decision under review must be affirmed.
[2020] AATA 3821 at paragraphs 20 and 21

The AAT’s strict approach is no surprise when it comes to the disqualification rules in Part 15. Part 15 reflects a low tolerance approach in the SIS Act to persons designated unfit to manage a superannuation fund.

Difficulties – SMSFs with a disqualified trustee/director/member

The author has seen Part 15 disqualifications happen on bankruptcy by operation of sub-section 120(1) of the SIS Act.

A person disqualified on bankruptcy, or any other disqualified person such as Mr. Etmekdjian, can’t be a trustee, a director of the trustee or a member of a SMSF. A fund with a disqualified participant falls off the register of superannuation funds as a SMSF regulated by the Commissioner of Taxation. The fund becomes (at least notionally) regulated by the Australian Prudential Regulatory Authority (APRA) instead.

So the Australian Taxation Office won’t and can’t assist once the fund is no longer a SMSF.

Unless a deactivated SMSF, on a participant becoming Part 15 disqualified, can nimbly:

convert to an APRA regulated fund; and
appoint an approved trustee;

based on a power in the trust deed of the fund to do so, or disqualified persons promptly vacate the fund to prevent deactivation, the fund reverts to an administrative no man’s land. Even arranging a roll out of benefits to another fund is fraught following deactivation. The fund won’t be practically manageable or administrable.

Time for a SMSF deed upgrade?

Lack of capability in a SMSF trust deed to convert a SMSF to an APRA fund is one of a number of indicators that SMSF trust deed may need of an upgrade to comply with today’s SIS Act requirements.

Deep pockets couldn’t overturn tax resident and evasion decision

Plenty was spent by Malaysian multinational timber tycoon Yii Ann Hii unsuccessfully fighting $A 64m in income tax. This tax litigation looks like it has just ended with Hii v Commissioner of Taxation (No 2) [2020] FCA 345 in March 2020.

The litigation

Although the litigation with the Commissioner of Taxation was about whether the taxpayer was a resident of Australia between 30 June 2001 to 30 June 2009 (the relevant years), this issue never came to be decided in the litigation with the Commissioner which included:

a tax appeal to the Federal Court from objection decisions;
an appeal to the Administrative Appeals Tribunal for administrative review in relation to penalty assessments for the relevant years;
proceedings under section 39B of Judiciary Act 1903 collaterally taken in the Federal Court: Hii v Commissioner of Taxation [2015] FCA 375 before Collier J.;
an original proceeding in the High Court under sub-section 75(5) of the Constitution seeking writs of certiorari and mandamus; and
further proceedings under section 39B of Judiciary Act taken in the Federal Court seeking to quash an audit decision and an objection decision: Hii v Commissioner of Taxation (No 2) [2020] FCA 345 before Logan J.

An insight into the Australian tax system

Although the litigation never came to decide whether the Commissioner was correct in finding that the taxpayer was a resident taxable on worldwide income during the relevant years there is something to be drawn from these cases about the operation of Australia’s tax system.

Forum to fight the Commissioner

As we have said before on this blog in Is an objection needed to amend a tax assessment?, proceedings against the Commissioner other than under Part IVC (of the Taxation Administration Act 1953) where taxpayers can object against assessments of tax and appeal against the objection decisions arising, are expensive and are prone to failure. In Hii No. 1 Collier J. applied the High Court’s decision in Federal Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 where it was held, by virtue of section 175 and section 177 of the Income Tax Assessment Act (ITAA) 1936, that judicial review under section 39B of the Judiciary Act 1903 is limited to where:

an assessment is tentative or provisional; or
where conscious maladministration by the Commissioner has occurred.

There were no allegations of tentativeness or bad faith of the Commissioner amounting to maladministration by the taxpayer in Hii No. 1; the taxpayer’s counsel instead sought to establish that the principles from Futuris did not apply to the taxpayer.

The taxpayer did not succeed. The Federal Courts in Hii No. 1 and in Hii No. 2 applied the principles from Futuris and decided for the Commissioner.

Getting advice or legal help in tax disputes

It would appear that the taxpayer was selective about taking or, alternatively, following counsel. It appears that the taxpayer conducted the section 39B proceedings in Hii No. 2 from Malaysia seemingly without Australian legal representation. The Federal Court found his action in Hii No. 2 to be an abuse of process. Moreover a vexatious proceedings order was made against the taxpayer preventing the taxpayer taking further action in the court in relation to these disputes.

In contrast, through the earlier litigation, the taxpayer engaged experienced senior and other counsel. In the appeal against the objection decisions the Commissioner obtained an order for security for costs in the Federal Court against the taxpayer who is a citizen of Malaysia and who had, by then, left Australia. The taxpayer never complied with the order nor sought any extension of time to do so. One can only assume his counsel would have advised him of the risk that he would lose his rights to contest the tax bills by not engaging with the security for costs order.

The subsequent litigation shows that is what happened. The Part IVC appeal was struck out because security for costs was not given to the Commissioner. From then the taxpayer was unable to get his tax residence issue, or any review of the Commissioner’s decisions to treat him as a resident, before the courts at all despite his numerous and expensive efforts to do so.

Commissioner’s residency findings

As stated the courts were never able to get to the residence issue in the litigation. In the transcript of the High Court refusing an extension of time to apply to the High Court to the taxpayer the Commissioner’s findings of fact about the taxpayer nonetheless appear:

(i) the plaintiff was granted a permanent residency visa on 20 March 1992;
(ii) the plaintiff was granted a five year resident return visa on 27 February 1995, which allows current or former Australian permanent residents to re-enter Australia after travelling overseas and to maintain status as a permanent resident on return to Australia;
(iii) the plaintiff was issued a Queensland Drivers Licence on 6 February 1996, and his most recent Queensland Drivers Licence had effective dates of 23 December 2005 to 30 January 2011, with a Queensland address listed by the plaintiff;
(iv) the plaintiff applied on 6 September 2005 to alter his credit card limit with the National Australia Bank, listing the same Queensland address for his contact details;
(v) the plaintiff and his wife purchased the property at that Queensland address on 2 April 2001 for $6.5 million and more than six gigabytes of documents pertaining to the plaintiff’s business interests were found at that Queensland address and another property owned by companies controlled by the plaintiff;
(vi) the plaintiff’s immediate family, his wife and six children, resided in Australia as permanent residents of Australia, the plaintiff’s extended family lived in Brisbane, and his brothers lived in Victoria;
(vii) all the plaintiff’s children undertook their schooling at Queensland schools, and several children attended the University of Queensland and Queensland University of Technology; (viii) the plaintiff held in his own name 15 separate Australian bank accounts in the relevant years;
(ix) the plaintiff stayed at seven different hotels between 2002 and 2007 on his visits to Malaysia, but there was no evidence of any hotel stays when he was in Brisbane;
(x) As at 21 January 2009, the plaintiff had a number of vehicles registered to him or his wife in Australia for which insurance was obtained listing either him or his wife, or both, as the main driver, including a Lamborghini Murcielago, a Rolls Royce Phantom, a Ferrari Coupe, and a Bentley Continental;
(xi) in the relevant years, the plaintiff departed Australia 85 times, of which 84 departure cards were located on each of which the plaintiff indicated that he was an “Australian resident departing temporarily”;
(xii) the plaintiff spent between 65 and 189 days in Australia in each of the relevant years with 6 to 125 in Malaysia for the years known;
(xiii) the plaintiff was a director of seven Australian companies with registered offices in Queensland (in six of which the plaintiff held between 35% and 90% of the shares) during the relevant income years; and
(xiv) the plaintiff wrote a letter dated 12 March 2009 to the Australian Department of Immigration which he signed on behalf of one of the companies in which he was a director, which included his statement that “My family currently resides permanently in Brisbane since our first landing in 1993 … Due to the nature of my business I am forced to regularly travel overseas, because of other business interests”.

Did the taxpayer get advice about tax residency?

If these findings are plausible then, without even expressing a view on whether the Commissioner should have determined that the taxpayer was a tax resident of Australia as no Australian tribunal or court did, it can be inferred that the taxpayer was desultory in either taking or, if he took it, following advice on how to avoid being treated by the Commissioner as a tax resident of Australia.

A journalist’s report https://is.gd/KWH9jj suggests that the taxpayer may have over relied on the 183 day test (in the definition of “resident” or “resident of Australia” in sub-section 6(1) of the ITAA1936) but that report is unconfirmed. Could it be that the taxpayer did not take advice during the relevant years about the risks of his activities and circumstances possibly leading to him being treated as a tax resident of Australia either:

under ordinary concepts?; or
due to adopting Australia as a domicile of choice?

(See our blog from February 2020 When 183 days is not enough to make you an Australian tax resident )

It is through the relevant years in particular that advice or legal assistance to the taxpayer acted on by the taxpayer may have really counted.

Evasion and the resident determination

A further grievance of the taxpayer in the litigation was that in those years of the relevant years where the Commissioner raised original assessments based on the taxpayer’s non-resident returns, the Commissioner was out of time to amend the assessments raised under section 170 of the ITAA 1936.

Amended assessments were there raised by the Commissioner on a footing of evasion under Item 5 of sub-section 170(1).

Is getting tax residence wrong evasion?

One would think that an error by a taxpayer on the frequently nuanced and complex question of whether or not the taxpayer is a resident of Australia does not amount to evasion. However once the question of tax residence is investigated under audit by the Commissioner it is then more awkward to hide behind that simple proposition. In Hii No. 1 it is stated that the Commissioner justified his evasion determination on the following acts of the taxpayer:

a.           Listing a Singapore business address on his Australian tax return as his residential address
b.           Providing different reasons as to why various addresses are used in each country [during the course of the audit]
    c.           Not providing details of his offshore income and assets when requested [during the course of the audit]
    d.           Failing to provide full and complete details of foreign entities he controls [during the course of the audit]
    e.           Omitting foreign source income from his Australian tax returns; and
    f.            Failing to pay appropriate tax in Australia.
(see paragraphs 12 and 28)

Viewed skeptically one could suggest that facts e. and f. could happen when a taxpayer innocently believes they are a tax non-resident and may not be evasion. Facts a. to b. more strongly can support an evasion finding.

Evasion & co-operating with an audit

From c. and d. it can be inferred that full co-operation with the Commissioner in the course of an audit is an imperative where a taxpayer is contesting an amended assessment which would be out of time in the absence of fraud or evasion.

The question again arises, did the taxpayer get or follow advice this time about what information to provide to the Commissioner’s auditors? Based on c. and d. the withholding of information from the auditors prejudiced the taxpayer’s position on the evasion issue.

The odd way disputes over PAYG deducted from salary are resolved

A recent Federal Court case Price v. Commissioner of Taxation [2019] FCA 543 demonstrates the divergent way a taxpayer must go about contesting a dispute with the Commissioner of Taxation over pay as you go (PAYG) tax withholding amounts taken from salary or wages received by the taxpayer.

Right to object about PAYG credits not available

Although the credit for PAYG withholding amounts is notified on a notice of assessment of income tax the PAYG credit is not one of the matters that can be disputed by objection, or more specifically, an objection under Part IVC of the Taxation Administration Act (C’th) 1953 (“TAA”) as discussed on this blog in: Is an objection needed to amend a tax assessment? https://wp.me/p6T4vg-k.

To formally dispute a PAYG credit, especially where the salary and wages from which the withholding is made are not disputed, court action may need to be taken instead. The proceeding that can be taken by a taxpayer is further limited as the Commissioner’s refusal to allow PAYG credits cannot be challenged under the Administrative Decisions (Judicial Review) Act (C’th) 1977: Perdikaris v Deputy Commissioner of Taxation [2008] FCAFC 186. So in Price, the taxpayer (Robert) sought a declaration from the Federal Court of his entitlement to credit for PAYG withheld by his employers under section 39B of the Judiciary Act (C’th) 1903.

Price v. Commissioner of Taxation

In paragraphs 6 to 8 of the Federal Court decision in Price, Thawley J. outlined the legislative basis of the PAYG withholding regime including in the context of the predecessor PAYE (pay as you earn) regime which operated until 2000. In paragraph 2 Thawley J. confirmed that the taxpayer’s proceeding under section 39B of the Judiciary Act, rather than under Part IVC of the TAA, was correctly instigated.

Why the taxpayer risked heavy costs in the Federal Court

Action in the Federal Court is expensive, and an unsuccessful litigant in the court is generally liable for the legal costs of the successful litigant. Those legal costs are significantly more than the costs of lodging an objection or appealing against an objection decision with which the objector is dissatisfied in the Administrative Appeals Tribunal (AAT) which are costs risked in Part IVC of the TAA disputes. The AAT does not award legal costs.

It follows that considerable PAYG credits need to be in dispute before action against the Commissioner in the Federal Court is worth the risk of legal costs at stake.

In Price, Robert was employed as a truck driver by four entities controlled by his brother Jim from the 2001 to the 2016 income years. Robert claimed PAYG credits for the entire period so considerable PAYG credit entitlements were at stake. Robert hadn’t lodged tax returns returning his salary and wages income until 26 September 2016 when all sixteen income tax returns were lodged together. Robert sought all sixteen years’ worth of tax credits then.

The employer and not the Commissioner is tested

One would think that the Commissioner could easily ascertain PAYG credit from amounts remitted by an employer for a recipient of salary and wages. If amounts withheld from salary and wages haven’t been remitted to the Australian Taxation Office (ATO) then that would seemingly be conclusive or near conclusive.

But the point of remittance of PAYG credits to the ATO is not the point at which the TAA operates to confer a PAYG credit entitlement to a taxpayer. Sub-section 18-15(1) of Schedule 1 of the TAA allows PAYG credit to a taxpayer where there has been withholding by the party with the withholding obligation, viz. the employer in the case of an employer who pays salary and wages, of the amount withheld. Sub-section 18-15(1) necessitates an enquiry into whether or not the amounts claimed for PAYG credit were “withheld” by the employer whether or not the amounts “withheld” were ever remitted to the Commissioner. In the Federal Court, in its original (non-appellate) jurisdiction, whether amounts have been withheld is a matter of fact to be established to the court on the balance of probabilities.

In another Federal Court decision cited with approval in Price, David Cassaniti v Commissioner of Taxation [2010] FCA 641 at paragraphs 163 to 165 Edmonds J. thus focussed on the actions of the employer. Edmonds J. explained and contrasted the evidential value of an employer’s apparent withholding to a (its own) bank account which, on the one hand, “clearly demonstrates” a withholding and an employer’s apparent withholding by book entry, which may be insufficient to demonstrate withholding by the employer depending on the surrounding circumstances, on the other. It was also relevant in David Cassaniti, as it was in Price, that the employer had been a company enabling Edmonds J to accept the books of account of the company as first instance evidence of what the books of account contained in accordance with section 1305 of the Corporations Act 2001.

Employers were wound up companies

In the Cassaniti line of cases, which also included the Full Federal Court decision in Commissioner of Taxation v Cassaniti [2018] FCAFC 212, relevant company records of the employers were thus sufficient to establish to the Federal Court that amounts had been withheld by the party with the withholding obligation. As in Price, in which the Cassanitis were also involved, the relevant employer companies had been wound up but nevertheless, by virtue of section 1305 of the Corporations Act 2001, the financial records of these companies in the (earlier) Cassaniti cases were sufficient evidence to show that the companies had made the relevant withholdings despite no record of remittance to the ATO. Robert’s case in Price relied on PAYG payment summaries produced from accounting records of the employer companies being accepted as financial records of the companies.

Robert was unsuccessful. The tax returns and PAYG payment summaries were produced from MYOB in September 2016 after the employers were wound up so the court refused to accept the PAYG payment summaries as financial records of the wound up companies. Thus the PAYG payment summaries were not first instance evidence of the PAYG withholdings asserted in them. In paragraph 87 Thawley J. listed findings showing that withholdings were not made for Robert:

the absence of any records from the ATO to that effect or supporting inferences of withholding;
the absence of any contemporaneous record of any person or entity who paid Robert evidencing withholding;
the fact that every year or thereabouts Robert asked for but was not provided any PAYG payment summary;
the fact that no superannuation was paid by any of the employer companies for Robert;
the fact that Allyma Transport Services did prepare PAYG payment summaries for other employees; and
the fact that the bank records suggest a number of different entities paid the weekly amounts into Robert’s account (including NT TPT Pty Ltd, PMG Transport, CJN Transport) and that at least one of those entities (PMG Transport) probably treated the payments to Robert on the basis that he (or a partnership of which he was a partner) was a subcontractor rather than an employee.

The unremitted PAYG no man’s land

Cases such as the Cassaniti cases and Price are relatively rare. In that context we can observe that it is precarious to be in the position of an employer, or of a director of an employer, obligated to withhold PAYG amounts from employees’ salary and wages where those amounts have not been remitted to the ATO. The employer and, in the case of a company, its directors personally where director penalty notices issue to the directors and trigger personal liability under Division 269 of Schedule 1 of the TAA, are liable to the Commissioner for these amounts. Further failure to remit PAYG withholding on salary and wages is a strict liability offence under Division 16 of Schedule 1 of the TAA.

The pursuit of unremitted salary and wage PAYG withholdings from the Commissioner can potentially be a fraud against the revenue where employers and their directors have overtly arranged their affairs so that they are not exposed to the above liabilities and prosecution for failure to remit. Confinement of salary and wage earner remedy to proceedings under section 39B of the Judiciary Act does operate as a bulwark against that type of fraud.

It is to be hoped that reporting of and liability for PAYG withholding on salary and wages can be reformed and streamlined so that employees can better monitor withholding for them in real time and opportunities for “phoenix” PAYG credit frauds on the revenue can be reduced.

Getting tax advice to take the 50% recklessness penalty out of play

Self-assessment

Under Australia’s self-assessment system taxes including, notably, income tax and the goods and services tax, are based on returns by each taxpayer where responsibility is on the taxpayer to ensure statements and representations made to the Australian Taxation Office (ATO) reflected in those returns are true and correct.

Penalties when returns are not true and correct

When a taxpayer departs from true and correct disclosure to the ATO, penalties, including base penalties, for false and misleading statements to the ATO, unarguable tax positions and tax schemes are imposed by Division 284 of Schedule 1 of the Taxation Administration Act (C’th) 1953.

To understand the base penalty regime in Division 284 it is helpful to consider simplified categories of a taxpayer’s disclosures relevant to their return viz:

those items that are straight forward where the taxpayer understands how the item should be returned and its impact on the taxpayer’s tax liability, and
those items which are more complex or difficult where the taxpayer does not fully understand how the item should be returned and its impact on the taxpayer’s tax liability.

It is expected, or at least hoped, that matters in the first category will greatly outnumber matters in the second category. Still an item in the second category may involve a large liability and there may be a need for the taxpayer to resolve the complexity or difficulty, by taking tax advice or perhaps by obtaining a binding private ruling from the Commissioner of Taxation about that item to ensure the item is correctly returned.

As a general proposition it can be said that, unless other mitigating factors apply, failure to correctly return an item in the first category attracts the 75% “intentional disregard” base penalty and that failure to correctly return an item in the second category attracts the 50% “recklessness” base penalty based on the reasoning below:

Deceptively understating assessable income or overstating allowable deductions etc.

If a taxpayer omits an item in the first category from an income tax return which understates true and correct taxable income then the highest base penalty of 75% for intentional disregard of a taxation law under the table in section 284-90 can be imposed. This isn’t the only liability that follows from a tax review, audit or investigation of a tax return. In addition to section 284-90 base penalties, the taxpayer will be held separately liable for the tax on the taxable income that should have been returned, medicare levy, and, to reflect the time value of taxes outstanding to the ATO, the shortfall interest charge and the general interest charge, etc when an amended assessment is raised to amend the original assessment which was not true and correct.

Base penalties, including the 75% intentional disregard base penalty, are imposed on a case by case basis. Thus the ATO will infer from the way the return was completed and surrounding facts whether there was intentional disregard of taxation law justifying imposition of a 75% intentional disregard base penalty. Similar considerations as arise as to whether there was fraud or evasion (which impacts on when an amended assessment can be raised) including whether the conduct giving rise to the omission of assessable income or the overstatement of allowable deductions or offsets etc. was deceptive or calculated, or whether the conduct could be explained as some sort of mistake, which attracts a lesser penalty, are relevant.

50% “recklessness” base penalty applied in PSI cases

The recent personal services income (PSI) cases of Douglass v. Commissioner of Taxation [2018] AATA 3729 (3 October 2018) and Fortunatow v. Commissioner of Taxation [2018] AATA 4621 (14 December 2018) illustrate how the 50% “recklessness” base penalty under the table in section 284-90, one rung down from the highest 75% intentional disregard base penalty, can be applied to a taxpayer who fails to correctly apply taxation law to matters in the second category.

Both cases involved the application of the personal services income measures in Part 2-42 of Income Tax Assessment Act (ITAA) 1997 to the income of professionals (an engineer and a business analyst respectively) which was alienated from the respective individual professionals by arrangements using related companies reducing their overall income tax liabilities.

Complex or difficult?

The personal services income measures in Part 2-42 are relatively complex involving multi-tiered considerations of various tests even though the Commissioner of Taxation expressed this view in the objection decision in Douglass (from para 110 of the AAT decision):

The attribution rule of the PSI is not an overly complex area of the relevant law. There was readily available information on the operation of the PSI rules set out on the ATO website. It was also explained in the Partnership tax return instruction and in the Personal Services income schedule instruction that accompanied the tax return guide for company, partnerships and trusts. You did not make further enquiries to check the correct tax treatment of your PSI.

In both cases, the taxpayers primarily relied on the “results test” in section 87-18 of the Income Tax Assessment Act 1997 to establish that, in each case, a personal service business was being carried on so that alienated income for the personal services of the individuals would not be attributed to the individuals under Part 2-42. On the facts of each case, each AAT found that the individual was not engaged to produce a result in accord with section 87-18 and so could not satisfy the “results test”.

Recklessness

Also, in both cases, the AAT was critical of the way in which each taxpayer tried to ascertain their respective liabilities under the personal services income measures. In Douglass the taxpayer did not take a cogent advice on how the PSI measures can apply. In Fortunatow the taxpayer had received an advice on asset protection considerations from a tax lawyer which inferred that PSI advice should be taken. But that PSI tax advice was not taken by the taxpayer in Fortunatow.

In each case the AAT referred to BRK (Bris) Pty Ltd v Commissioner of Taxation (2001) ATC 4111 where Cooper J. at p.4129 considered “recklessness”:

Recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to a fanciful risk, that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and that a reasonable person in the position of the statement-maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood, the proscribed conduct is more than mere negligence and must amount to gross carelessness.

It was unhelpful to the case of the taxpayer in Fortunatow that the taxpayer had been made aware by his tax advice that the PSI measures had potential application to him and that there was a real risk that he was not correctly complying with tax laws. The tax advice he received went no further than saying that income would not be attributed under the PSI measures if there was a personal services business but the taxpayer could not show that he had been advised that he had been carrying on a personal services business.

Obligation on the taxpayer to be correct

These AAT decisions leave little doubt that the responsibility on a taxpayer to correctly address and resolve complex or difficult tax questions in completing their tax returns is serious and far reaching. Ordinarily this means that a taxpayer will need a cogent tax advice or will need to take other steps to demonstrate that the taxpayer has adequately addressed each question to mitigate the “real risk” that the taxpayer’s position on a complex question in a tax return is incorrect to avoid “recklessness”.

Interaction with other base penalties and where taking cogent tax advice is desirable

This removes the opportunity to shirk a complex question or issue in a tax return and to rely on the difficulty or character of the question or issue to assert that some lesser base penalty, such as the 25% base penalties under Division 284 either for failure:

to take reasonable care; or
to take a reasonably arguable position;

is applicable.

Base penalties under Division 284 of Schedule 1 of the Taxation Administration Act (C’th) 1953 apply on the basis that the highest base penalty applies to the exclusion of the other applicable base penalties.

Complex PSI cases demonstrate how self-assessment works

The above personal service income cases provide good case studies of how base penalties under Division 284 are likely to apply in cases where a category 2 complex issue arises and a taxpayer fails to adequately address the issue in their return to the ATO.

Although the ATO cannot apply a 75% intentional disregard base penalty where the taxpayer was without intent to disregard taxation law which was or may have been too complex for the taxpayer to appreciate; the 50% recklessness base penalty, on the next rung down, can nevertheless be applied because of the taxpayer’s failure to deal with that complexity. Complexity is dealt with by taking cogent tax advice from a professional tax adviser for example. It can be seen that the 50% recklessness base penalty is thus integral to taxpayers taking responsibility for true and correct disclosure to the ATO under the self-assessment system.

Be wary of constitutional fails by your private company

Administering a private company requires sound business skill and judgment. Since the Commonwealth has substantially taken legislative responsibility for companies and securities from the states, regulatory reform has been introduced so that numerous compliance obligations have been streamlined in a practical way.

It is not always understood that the reforms were only to the regulatory framework of companies. They do not necessarily extend to the differing regimes in place for each company. Conduct of a private company still very much remains the responsibility of the directors of the company who are required to observe the constitution of the company (COTC). A number of the regulatory reforms have no affect on the regime that applies to a company unless the company takes the necessary action to enliven them.

From 1998 – the “replaceable rules”

Reform to the framework in the Company Law Review Act 1998 (CLRA 1998) introduced “replaceable rules” that apply to a proprietary (private) company other than a company with a sole director/shareholder. Unlike “Table A” in the former states’ Companies Acts, which could be adopted as articles of association optionally by a private company, the “replaceable rules” take effect by default. In other words a company, which does not adopt a custom divergent COTC, is taken to adopt and can rely on the “replaceable rules” in the Corporations Act 2001. Nevertheless a majority of private companies, including companies established prior to 1998, have adopted a COTC which overrides the replaceable rules and their impact. So the reforms reflected in the “replaceable rules” don’t apply to those companies.

This post highlights some of the difficulties this causes to private companies that we notice in practice.

Directors meetings

When private companies take significant actions resolutions need to be passed by the directors. As a standard, resolutions of directors need to be passed or agreed to at a directors meeting. It is a common alternative practice for directors of a company to complete a “circulated” resolution of directors signed by all directors of the company without formally holding a directors meeting. For most private companies that is fine as their COTC permits this procedure as an alternative to the company holding a directors meeting. The alternative procedure is authorised both in:

model “Table A” type COTCs which pre-date the reforms; and
section 248A of the Corporations Act 2001 where section 248A applies to the company as a replaceable rule.

However there is a minority of companies with old or inadequately drafted COTCs where the “circulated” resolution of directors capability is not available to the company either under the COTC, or under the replaceable rule in section 248A where the provisions in the COTC replace the replaceable rules including section 248A.

Invalid directors’ resolutions

Thus directors of private companies may be completing “circulated” directors’ resolutions on the mistaken assumption that their COTC, or the replaceable rule in section 248A, authorises the resolution without the holding of a directors meeting. The impugning of all of the resolutions of the directors of a company done in this way could have far reaching consequences for the company particularly if the activity of the company comes under the close scrutiny of government or lawyers. For instance, say a company in this predicament is a trustee of family discretionary trust: It is open for the Commissioner of Taxation to treat a resolution to distribute income to beneficiaries done in a way unauthorised by the COTC as invalid and not made in time to prevent the income being assessed for income tax to the trustee of the trust at the highest marginal rate under s99A of the Income Tax Assessment Act 1936.

If a COTC displaces the replaceable rules it is prudent to identify the capability in the COTC that permits the directors to use a circulated resolution instead of holding a directors meeting and to cite the reference to the capability in the circulated resolution. Look for wording in your COTC similar to section 248A. It is often the last article under the DIRECTORS PROCEEDINGS part of a COTC.

A COTC without the circulated resolution capability frequently has other shortcomings such as no capability for a director to attend a directors’ meeting by telephone or online over the internet. This is another case where inadequacy of the COTC can lead to invalidity of attempted directors resolutions done with this capability assumed by the directors.

Directors resolutions can also fail due to other procedural misunderstandings such as:

failure to give notice of a directors’ meeting to all directors;
a meeting may have a quorum requirement under a COTC which is not met; and
a proceeding by a single director is not a meeting.

Single director companies

The CLRA 1998 also changed the regulatory framework to allow for single director companies. Prior to the CLRA 1998 the minimum number of individual shareholders of a private company was two and so many memorandums and articles of association of private companies then in place, which became their COTCs from 1998, entrenched the two individual director minimum to comply with the pre-CLRA 1998 law. These COTCs required alteration to remove the minimum of two individual director stipulations and to allow the company to have a single director. This is a more obvious case of where a pre-CLRA 1998 COTC, in particular, needs alteration should the private company seek to have only one director.

Common seals

The obligation of a company to use a common seal to execute documents was also removed from the regulatory framework by the CLRA 1998. Still a private company which was established before 1998, or any private company that has otherwise adopted a common seal, may need to act to dispense with its obligation to use the common seal.

Ordinarily this action would be:

The COTC is altered to:
- provide that the company need not have a common seal; and
- support the execution of documents by the company without a common seal.
The directors resolve to dispense with the common seal.

Execution of deeds and other documents, including, for example, an election by a company as trustee to become a regulated superannuation fund, can be invalidated if the private company must use a common seal that remains adopted by the company but executes the deed or documents without that common seal.

Special purpose superannuation companies – reduced ASIC annual fee

The reforms allowed for a company that has been set up to act solely as the trustee of a regulated superannuation fund, or for other designated special purposes, to apply a substantially reduced ASIC annual fee of $40 rather than $226.50. Entitlement to the reduced fee for a company that has been set up to act solely as the trustee of a regulated superannuation fund turns on the limit on the purposes for which the company can act being effectively included in the COTC.

It’s a fail for the directors to complete the declaration to claim the reduced fee without understanding whether the provisions of the COTC support the entitlement to a reduced fee.

Summary

Directors of a private company are expected to understand and to take responsibility for what is in the COTC.

Although the company regulatory framework has been reformed:

to more readily allow circulated directors’ resolutions as an alternative to holding directors’ meetings;
to allow private companies to have a single director;
to make common seals optional; and
to extend a reduced ASIC annual fee to dedicated superannuation trustee companies;

among other reforms, the COTC of the company and the standing resolutions of the directors are a regime which constrains how the reforms may apply to a private company. Directors of companies should check COTCs and their records to ensure that they support the company using capabilities supported by the reforms.

Trouble objecting to a tax assessment again

In an earlier blog post we observed that the practical way and thus the only way to challenge Federal and State tax assessments is by objecting against the assessment with an objection.

The Taxation Office raises the tax assessment & decides the objection!

Like the decision to issue a tax assessment, the objection to that assessment, if any, is decided by the (office of the) relevant Federal or State Commissioner of Taxation too. The Commissioner will usually require that the objection is decided by an objections officer other than the officer who raised the tax assessment.

Still, even if that process is followed, an objections officer will be inclined to support the position of their colleague unless the taxpayer can show, with the objection, that the assessment is wrong. The burden of showing it is wrong is on the taxpayer. So the objection needs to make out a convincing case before the tax liability in the tax assessment raised by a colleague will be reduced by the objections officer.

Objection – a one off chance

Where the taxpayer has given the Taxation Office a hastily prepared document objecting against an assessment, the objection right is used up. If the objections officer disallows the objection then the tax law doesn’t give the taxpayer any further right to object against that assessment again.

After an objection against an income tax assessment is disallowed the taxpayer faces the generally expensive option of appeal to the Administrative Appeals Tribunal or the always expensive option of appeal to the Federal Court. Either way the taxpayer is usually required to appeal within sixty days of the disallowance and will generally be limited to the grounds and arguments raised in the objection unless the taxpayer can convince the tribunal or the court that there are reasons why further grounds not set out in the objection that should be taken into account.

Had the taxpayer known this then he or she may have been more wary about rushing to lodge an objection – in the case of a disputed original income tax assessment, the taxpayer will have either two years or four years following the original notice of assessment to lodge an objection.

It is important that the taxpayer uses this time advisedly to ensure an objection (only one per disputed tax assessment) is prepared which:

demonstates that the tax assessment is wrong; and
establishes grounds of objection rigorous and comprehensive enough to be used in a tribunal or court appeal should the objection be disallowed.

Withdrawal

Sometimes a hastily or inadequately drawn objection doesn’t raise valid grounds at all. The Australian Taxation Office has been known to invite taxpayers to withdraw their objection in these cases. Then they no longer have to decide to disallow the objection. In that situation it may be possible to object again, with better grounds, but it is open to the ATO to contend that the taxpayer has used up their right to object.

It’s clearly best objecting with rigour first time.

Commissioner pushed too far to rule on private ruling – Hacon

Efforts by a $35 million pastoral dynasty to get tax certainty over their plans to restructure its farming holdings have come to an end with the Full Federal Court upholding the Commissioner of Taxation’s appeal and allowing the Commissioner to decline to rule on the applicants’ private ruling application.

Must the Commissioner rule on anything?

In theory, with enough information, the Commissioner can provide any private ruling on the way in which the Commissioner considers a tax law applies or would apply to any set of current or future facts and circumstances to a private ruling applicant. Does this afford scope for a determined taxpayer to base an extravagant application for a private ruling on a favourable but not necessarily realistic matrix of circumstances, which are yet to occur, particularly in an anti-avoidance context? Is this matrix really “information” which the private ruling must reflect?

Under the private ruling regime in Schedule 1 of the Taxation Administration Act 1953 (“Sch 1 TAA”) there are two competing limitations on the issue of private rulings:

If the Commissioner finds that further information is needed to make a private ruling then the Commissioner must request the applicant for that information – the Commissioner can only decline to rule if the applicant does not provide the information requested within a reasonable time: section 357-105 of Sch 1 TAA.
If correctness of a private ruling depends on an assumptions about a future event or other matter the Commissioner may either decline to rule or make assumptions that the Commissioner considers most appropriate: section 357-110 of Sch 1 TAA.

Commissioner of Taxation v Hacon Pty. Ltd.

In Commissioner of Taxation v Hacon Pty. Ltd. [2017] FCAFC 181 the applicants sought a private ruling over whether the general anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936 would apply to a proposed demerger of assets in their farming group which included a routing of the assets, by way of dividends on redeemable preference shares, to a new series of trusts.

The applicants asserted that the matters on which the Commissioner declined to rule, which were expressly listed as assumptions about future events, could have been satiated by information which the Commissioner could and should have sought from the applicants as required by section 357-105. The applicants successfully contended this at first instance in the Federal Court. However the Full Federal Court on appeal by the Commissioner, comprising Robertson, Pagone and Derrington JJ., took a different view. The Court, at paragraph 8 of the joint judgment, observed that:

The word “information” is an ordinary English word apt to cover a large range of facts and circumstances including events yet to occur and assumptions about future events.

and found that the matters set out in the Commissioner’s letter, although satiable by information, did indeed require assumptions about future events or other matters so that declining to rule, without seeking explanation by way of information from the applicant, was an option available to the Commissioner under section 357-110.

Assumptions give scope to the Commissioner to opt out

It follows from the decision of the Full Federal Court in Commissioner of Taxation v Hacon Pty. Ltd. that, if the Commissioner needs to make assumptions about future events in order to rule in a private ruling application, the Commissioner can opt not to rule rather than being obliged to make assumptions which are not appropriate in the Commissioner’s estimation. That view can be apposite for future events where the information an applicant provides about them may not be convincing.

A new statutory remedial power for the Commissioner of Taxation

As announced in the 2015 Budget, there is a bill before parliament to introduce a general statutory discretion for the Commissioner of Taxation to be known as the Remedial Power. The Remedial Power is proposed to be introduced in a new Division 370 of the Income Tax Assessment Act (ITAA) 1997.

It gives the Commissioner a power to make substance over form decisions to address technical shortcomings in tax legislation inconsistent with the policy behind the legislation. This power is not unlike the scope the High Court afforded to courts in Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation [1981] HCA 26; 147 CLR 297. However, as with that scope, it can be expected that the power will only be exercised exceptionally and with particular caution.

That said there are many circumstances, including those impacted by Division 35 of the ITAA 1997 concerning non-commercial losses, which could potentially attract remedy by the Remedial Power. That should not be overlooked in the preparation of advice, applications for rulings and in objections.

Exercise of discretion not available for some reason rather than not there at all

The Commissioner will no longer be able to justify decisions that give rise to unjust tax outcomes on grounds that he has no relevant discretionary power under the ITAA beyond the limits of the general power of administration of the tax laws under the Taxation Administration Act 1953. Once the Remedial Power is in place it is expected the Commissioner will rather explain why an unjust decision counter to policy is not worthy of the Remedial Power if the power is not to be used to remedy that outcome.

When is the Remedial Power going to be used?

Broadly the Commissioner may exercise the Remedial Power:

where the outcome under the tax law is inconsistent with the purpose or object of the law by re-aligning the regime in the law applied by him with its purpose or object; and
where the outcome under the law is consistent with the purpose or object of the law, but in achieving that outcome the application of the law imposes compliance costs that are disproportionate to achieving the purpose or object of the law by aligning the regime to reduce those compliance costs in a manner consistent with the purpose or object of the law.

Perhaps the unlegislated regime in Practice Statement Law Administration 2010/4, concerning unpaid present entitlements under Division 7A of Part III of the ITAA 1936, is an example of the kind of modification by the Commissioner which could have legal force under Division 370 in future.

Progressing minor corrections

It is anticipated that this power will reduce the time it takes to give effect to minor legislative corrections.

It may also allow for some minor technical corrections to occur where this may otherwise not occur.

Limits on the Remedial Power

The Commissioner will not be able to use the power to:

alter or extend the purpose or object of the law;
directly amend the text of the law; or
make modifications to the operation of the law which will result in more than a negligible impact on the revenue.

In addition, a taxpayer can ignore a modification made under the Remedial Power if it would produce a less favourable result for the taxpayer i.e. modifications under the power will only apply in the taxpayer’s favour.

As the power is discretionary, the Commissioner cannot be compelled to exercise the power. A bureacracy will be established with the Australian Taxation Office to assist the Commissioner to manage the exercise of the power including a tax expert panel (similar to the General Anti-Avoidance Rules Panel) to advise the Commissioner particularly about costs and impracticalities to the revenue if a modification is to be made under the Remedial Power.

How might complex issue resolution by the ATO help?

A useful service for tax professionals

A new and useful service from the Australian Taxation Office (“ATO”) is Complex Issue Resolution (“CIR”). An escalation is offered for complex or multiple related tax technical issues and abnormal administrative issues which officers contacted through regular channels into the ATO, or who are acting in a regular ATO compliance role, would not usually be able to address.

The limitations of Complex Issue Resolution

CIR is accessible only by tax professionals including tax agents and legal practitioners.

Guidance from CIR is not binding on the Commissioner of Taxation. It is not a substitute for objecting against an assessment, seeking a private binding ruling or making a complaint about how the ATO is dealing with the taxpayer.

Value proposition

The inherent benefit of restricting CIR to tax professionals is twofold:

the restriction is a filter to ensure that issues put by taxpayers to CIR are actually complex better targeting the CIR resource; and
it is more likely that a tax professional can pinpoint and explain a complex issue/s. Careful and thorough explanation can be vital to the ATO correctly appreciating the complex issue and to how the ATO may ultimately deal with it. The Tax Objection is a tax professional and we understand how complex issues should be presented to the ATO.

Thus a taxpayer, through his or her tax professional, can drive recognition of complex tax technical issues and abnormal administrative issues including where an officer of the ATO may not grasp the issue and may not be willing to escalate the issue within the ATO to a more senior or experienced officer who is better equipped to deal with the issue. Equally CIR may be limited to where other escalation has not occurred within the ATO such as allocation of the issue to Interpretative Assistance (IA) or comparable ATO officers who decide objections and private ruling applications.

CIR in a tax dispute/objection strategy

In our post “I’m objecting – do I need freedom of information (FOI)?” we looked at the kinds of tax disputes where seeking freedom of information before, or concurrently while, objecting to a tax assessment is advantageous. It is all about understanding what the ATO position is, or is likely to be, before committing time, effort and resources to a tax objection and dispute.

Applying for CIR may have a number of advantages over applying for FOI in the process of readying to object against a tax assessment:

it looks like obtaining CIR guidance will generally be quicker than obtaining FOI although this is not yet certain as CIR is so new. Where time is running out against the time limit to object to an assessment it may be invaluable to receive guidance from CIR before finalising a notice of objection; and
applying for CIR may resolve the matter entirely. The escalation of a complex issue to a senior and experienced officer may lead to CIR guidance which puts a view either:
- which the taxpayer is inclined to accept for one reason or another; or
- which shows that the ATO has sufficiently adopted the view contended for by the tax professional in the application for CIR.

Either way the problem can be resolved before an objection or application for private ruling is completed saving costs and effort.

Although non-binding, CIR guidance is likely to firm either as the position, or as one of the positions, of the Commissioner on the complex issues on which the dispute turns. This gives a taxpayer objecting to an assessment who has CIR guidance the opportunity to make nimble inclusions in the notice of objection and to revise or abandon arguments to raise prospects of success in the dispute.