Play it safe with the ATO: Swim Between the Flags

We’ve seen a variety of significant changes in the ATO’s approach to and timing of engagement with taxpayers.

Part of the ATO’s revolution today is to create safety nets so that you can ‘swim between the flags.’

Underpinning this part of the revolution is the development of Law Companion Guidelines (LCGs) and Practical Compliance Guidelines (PCGs).

As noted in our recent article on the new small business rollover provisions, the ATO has used LCG 2016/D3 to outline its view on what is a ‘genuine restructure’, a central element of the rollover relief.

On 3 June, the ATO formalised its umbrella guides; LCG 2015/1 – Law Companion Guidelines: purpose, nature and role in ATO’s public advice and guidance, and PCG 2016/1 – Practical Compliance Guidelines: purpose, nature and role in ATO’s public advice and guidance.

Paragraphs 4, 8, and 9 of LCG 2015/1 state:

‘What is a Guideline?

4. A Guideline is a public ruling, in whole or in part. The principles that apply to public rulings also apply to Guidelines. A Guideline expresses the Commissioner’s view on how recently enacted law applies to a class of taxpayers, or to taxpayers generally. Often, Guidelines will apply only to a particular class of persons, being taxpayers who rely on them in good faith (see Reliance from paragraph 28 of this Guideline).


 8. The purpose of a Guideline is to provide an insight into the practical implications or detail of recently enacted law in ways that may go beyond mere questions of interpretation. Its content may be wide-ranging.

 9. A public ruling may deal with any matter involved in the application of a relevant provision, including the Commissioner’s approach to discretions, risk management and safe harbours. We expect that such material will routinely form part of a Guideline.’

Further, paragraphs 4, 5 and 6 of PCG 2016/1 state:

‘What are practical compliance guidelines?

4. The ATO is committed to providing clear and practical public advice and guidance on which taxpayers can rely to manage their tax affairs. Public rulings[1] are a key form of public advice, enabling the ATO to express views on how tax laws apply to entities, or classes of entity, in relation to classes of scheme or particular schemes.

5. In addition to public rulings, taxpayers may also benefit from broader law administration guidance that conveys the ATO’s assessment of relative levels of tax compliance risk across a spectrum of behaviours or arrangements. Such guidance may, for example, enable taxpayers to position themselves within a range of behaviours, activities or transaction structures that the ATO describes as low risk and unlikely to require scrutiny – to safely ‘swim between the flags’.

6. Broader guidance can also enable the ATO to communicate how it will sensibly apply its audit resources or provide practical compliance solutions where tax laws are uncertain in their application or are found to be creating unsustainable administrative or compliance burdens in light of, for example, evolving commercial practices.’

Obviously, it is preferable that the tax law and its application is clear, but we don’t always have that privilege in practice. The attraction of the LCGs and PCGs is that the ATO is being more up front with its views rather than everyone finding out months or years later the way a new law applies.

Some practitioners find it offensive that the ATO is perhaps adopting ‘lore’ rather than law, so there is still potential uncertainty. It’s not unreasonable to remain uncertain: a rip can always develop between the flags! But, for many taxpayers and their advisors; it’s all about managing risk and feeling as safe as possible. The ATO’s general approach which underpins the guidelines is about managing risk given available resources and time.


Andrew O’Bryan

Andrew specialises in taxation law. He is a CPA Australia Fellow and Chairman of its Taxation Centre of Excellence.

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